<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended: MARCH 31, 2000
or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from_____to_____
Commission File Number: 0-20735
WEBHIRE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------
DELAWARE 04-2935271
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
91 HARTWELL AVENUE
LEXINGTON, MA 02421
(Address of principal executive offices) (zip code)
(781) 869-5000
(REGISTRANT'S TELEPHONE NUMBER)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer' s classes
of common stock as of the latest practicable date:
TITLE OF EACH CLASS
Common stock, $.01 par value, shares outstanding at April 30, 2000:
14,603,561 shares.
<PAGE>
<TABLE>
<CAPTION>
WEBHIRE, INC.
INDEX
PART I - FINANCIAL INFORMATION
PAGE
-----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2000
and September 30, 1999 3
Consolidated Statements of Operations for the three and
six months ended March 31, 2000 and March 31, 1999 4
Consolidated Statements of Cash Flows for the six
months ended March 31, 2000 and March 31, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 25
PART II -OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
PART III - SIGNATURES 27
Exhibit #27.1 28
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WEBHIRE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
------------- -------------
2000 1999
------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................... $ 2,936 $ 20,126
Short-term investments ...................................................... 3,059 --
Accounts and installments receivable, less allowance for doubtful accounts
of $447 and $700 at March 31, 2000 and September 30, 1999, respectively .. 6,975 4,693
Other current assets ........................................................ 3,329 2,321
Refundable income taxes ..................................................... 521 700
-------- --------
Total current assets ................................................ 16,820 27,840
Long-term installments receivable, net ........................................ 196 444
Property and equipment, net ................................................... 5,006 4,593
Long-term investments ......................................................... 1,000 --
Acquired technologies, net of accumulated amortization of $11,731 and $6,642 at
March 31, 2000 and September 30, 1999, respectively ........................ 10,661 10,770
Deferred income taxes ......................................................... 1,068 1,068
Other assets, net ............................................................. 529 643
-------- --------
TOTAL ASSETS ........................................................ $ 35,280 $ 45,358
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligations ................................ $ 406 $ 578
Accounts payable ............................................................ 2,031 1,922
Notes payable ............................................................... 2,500 --
Accrued expenses ............................................................ 3,205 3,150
Deferred revenue ............................................................ 7,130 5,342
-------- --------
Total current liabilities ........................................... 15,272 10,992
-------- --------
Long-term notes payable ....................................................... 925 --
-------- --------
Deferred rent ................................................................. 184 228
-------- --------
Capital lease obligations ..................................................... -- 122
-------- --------
Stockholders' Equity:
Preferred stock, $.01 par value -- Authorized -- 5,000,000 shares,
Issued and outstanding-- none ............................................ -- --
Common stock, $.01 par value -- Authorized -- 30,000,000 shares, Issued --
15,277,787 shares at March 31, 2000,
15,089,067 shares at September 30, 1999 .................................. 153 151
Additional paid-in capital .................................................... 51,856 49,353
Treasury stock, at cost ....................................................... (831) (831)
Accumulated deficit ........................................................... (32,279) (14,657)
-------- --------
Total stockholders' equity .......................................... 18,899 34,016
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 35,280 $ 45,358
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
3
<PAGE>
WEBHIRE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
2000 1999 2000 1999
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue ......................................... $ 1,384 $ 2,036 $ 2,785 $ 4,536
Services revenue - Enterprise ........................... 2,659 3,204 5,874 6,282
Services revenue - Internet ............................. 2,240 1,183 4,117 2,007
------------ ------------ ------------ ------------
Total revenue ................................... 6,283 6,423 12,776 12,825
------------ ------------ ------------ ------------
Cost of Revenue:
Product revenue ......................................... 337 169 515 396
Services revenue - Enterprise ........................... 1,045 1,440 2,196 2,944
Services revenue - Internet ............................. 2,455 930 4,560 1,572
------------ ------------ ------------ ------------
Total cost of revenue ........................... 3,837 2,539 7,271 4,912
------------ ------------ ------------ ------------
Gross margin .............................................. 2,446 3,884 5,505 7,913
------------ ------------ ------------ ------------
Operating Expenses:
Research and development ................................ 3,396 1,976 6,343 3,401
Sales and marketing (excluding stock-based consideration) 3,356 2,935 6,986 5,962
General and administrative .............................. 1,593 1,450 3,412 2,583
Amortization of acquired technologies ................... 2,810 1,914 5,089 2,552
Amortization of stock-based consideration ............... 749 -- 1,733 --
------------ ------------ ------------ ------------
Total operating expenses ........................ 11,904 8,275 23,563 14,498
------------ ------------ ------------ ------------
Loss from operations ...................................... (9,458) (4,391) (18,058) (6,585)
Other income, net ......................................... 162 116 436 277
------------ ------------ ------------ ------------
Loss before benefit for income taxes ...................... (9,296) (4,275) (17,622) (6,308)
Benefit for income taxes .................................. -- (385) -- (568)
------------ ------------ ------------ ------------
Net loss .................................................. $ (9,296) $ (3,890) $ (17,622) $ (5,740)
============ ============ ============ ============
Basic and diluted net loss per common share ............... $ (.64) $ (.39) $ (1.21) $ (.60)
============ ============ ============ ============
Basic and diluted weighted average number of common shares
outstanding ............................................. 14,565,390 10,029,280 14,504,350 9,577,972
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
WEBHIRE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss .............................................. $(17,622) $ (5,740)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization ........................ 6,424 3,544
Amortization of stock-based consideration ............ 1,733 --
Provision for doubtful accounts ...................... 131 --
Deferred income taxes, net ........................... -- (568)
Deferred rent ........................................ (43) 12
Changes in assets and liabilities --
Accounts and installments receivable, net ........ (2,412) 2,446
Other current assets ............................. (1,008) (601)
Refundable income taxes .......................... 179 (175)
Long-term installments receivable ................ 247 67
Accounts payable ................................. 109 (84)
Accrued expenses ................................. 54 (372)
Deferred revenue ................................. 1,787 418
Accrued income taxes ............................. -- (171)
-------- --------
Net cash used in operating activities ......... (10,421) (1,224)
-------- --------
Cash Flows from Investing Activities:
Purchases of acquired technologies .................... (1,554) (6,782)
Purchases of property and equipment ................... (1,746) (1,314)
Maturities and purchases of short-term investments, net (3,060) (424)
Maturities and purchases of long-term investments, net (1,000) 131
Change in other assets ................................ 114 239
-------- --------
Net cash used in investing activities ......... (7,246) (8,150)
-------- --------
Cash Flows from Financing Activities:
Payments of capital lease obligations ................. (294) (77)
Proceeds from exercise of common stock options ........ 760 19
Proceeds from employee stock purchase plan stock
issuance ............................................. 68 59
Issuance costs in connection with private placement of
common stock ......................................... (57) --
-------- --------
Net cash provided by financing activities ..... 477 1
-------- --------
Net decrease in Cash and Cash Equivalents ............... (17,190) (9,373)
Cash and Cash Equivalents, beginning of period .......... 20,126 9,772
-------- --------
Cash and Cash Equivalents, end of period ................ $ 2,936 $ 399
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest ........................................... $ 12 $ 5
-------- --------
Income taxes ....................................... $ 15 $ 330
-------- --------
Supplemental Schedule of Noncash Investing and Financing
Activities
Issuance of common stock in connection with Junglee
investment ........................................ $ -- $ 8,529
-------- --------
Issuance of Notes Payable .......................... $ 3,425 $ --
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE>
WEBHIRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Webhire, Inc. and its wholly-owned subsidiaries, collectively referred to in
these Notes to Consolidated Financial Statements as "the Company". All
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements of the Company presented herein,
without audit except for balance sheet information at September 30, 1999, have
been prepared pursuant to the rules of the Securities and Exchange Commission
for quarterly reports on Form 10-Q and do not include all of the information and
footnote disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended September 30, 1999 ("Fiscal
1999") included in the Company's Form 10-K, which was filed with the Securities
and Exchange Commission on December 29, 1999.
The consolidated balance sheet as of March 31, 2000, the consolidated
statements of operations for the three and six-month periods ended March 31,
2000 and 1999, and the consolidated statements of cash flows for the six-month
periods ended March 31, 2000 and 1999, are unaudited but, in the opinion of
management, include all adjustments (consisting solely of normal, recurring
adjustments) necessary for a fair presentation of results for these interim
periods.
The consolidated results of operations for the three and six-month periods
ended March 31, 2000 are not necessarily indicative of the results to be
expected for the fiscal year ending September 30, 2000 ("Fiscal 2000").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies described below and elsewhere in the
notes to the Fiscal 1999 consolidated financial statements referenced above.
(a) REVENUE RECOGNITION
Product revenue includes software license fees. Services revenue -
Enterprise includes customer maintenance fees and fees for training,
installation and consulting. Services revenue - Internet includes fees for
scanning, job posting services, recruiter training, WEBHIRE JUMPSTART, YAHOO!
RECRUITER (formerly named WEBHIRE RECRUITER), WEBHIRE JOB POST and WEBHIRE JOB
CANOPY (both introduced in November 1998), WEBHIRE AGENT (introduced in November
1999) and YAHOO! RESUMES (introduced in December 1999). The Company recognizes
product and services revenue in accordance with the provisions of Statement of
Position No. 97-2, SOFTWARE REVENUE RECOGNITION.
Product revenue from software license fees is recognized upon delivery,
provided there are no significant Company obligations remaining and
collectibility of the revenue is probable. If an acceptance period is allowed,
revenue is recognized upon the earlier of the acceptance or the expiration of
the acceptance period, as defined in the applicable software license agreement.
6
<PAGE>
WEBHIRE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Installments receivable represent the present value of future payments
related to the financing of noncancelable term license agreements that provide
for payment in installments over a five-year period. A portion of each
installment is recognized as interest income in the accompanying consolidated
statements of operations.
Services revenue from customer maintenance fees for post contract support
is recognized ratably over the maintenance term, which is typically 12 months.
When customer maintenance fees are included in an initial software license fee,
the Company allocates approximately 15-17% of the software license fee to the
first year's maintenance. The amount allocated to customer maintenance fees for
the first year is comparable to customer maintenance fees charged separately by
the Company. Services revenue from training, installation, consulting, resume
scanning, recruiter training and WEBHIRE JUMPSTART is recognized as the related
services are performed. Services revenue from YAHOO! RECRUITER, WEBHIRE JOBPOST,
WEBHIRE JOB CANOPY, WEBHIRE AGENT and YAHOO! RESUMES is recognized ratably over
the service term.
Deferred revenue represents payments received by the Company in advance of
product delivery or service performance.
(b) NET LOSS PER SHARE
SFAS No. 128, EARNINGS PER SHARE, establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. In accordance with SFAS No. 128, basic net loss
per share for the three and six month periods ended March 31, 2000 and March 31,
1999 is calculated by dividing net loss by the weighted average number of common
shares outstanding for those periods.
Diluted earnings per share includes the effect of dilutive securities. As a
net loss is presented for the three and six month periods ended March 31, 2000
and March 31, 1999, the loss per share was based only on the weighted average
number of common shares outstanding. Common equivalent shares, such as stock
options, outstanding during all periods were not used, as their inclusion would
have been anti-dilutive.
For both the three and six month periods ended March 31, 2000 and March 31,
1999, all 2,442,272 and 1,377,747, respectively, potential common shares were
excluded from the above calculation, as their effect would have been
anti-dilutive due to the Company's net loss in those periods.
(c) CASH AND CASH EQUIVALENTS
Cash equivalents are recorded at amortized cost and consist of highly
liquid investments with original maturities of three months or less.
7
<PAGE>
WEBHIRE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(d) SHORT- AND LONG- TERM INVESTMENTS
Short-term investments consist of investments with original maturities
greater than three months and less than twelve months from the balance sheet
date. Long-term investments consist of investments that will mature greater than
twelve months from the balance sheet date. The Company classifies these short-
and long-term investments as held-to-maturity, and accordingly, they are carried
at amortized cost, which approximates market. These investments consist of
municipal debt securities.
The Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments in instruments that meet high
quality standards, as specified in the Company's investment policy guidelines;
the guidelines also limit the amount of credit exposure to any one issue, issuer
and type of investment.
(3) SOFTBANK INVESTMENT
On July 19, 1999, the Company entered into a stock purchase agreement with
SOFTBANK Capital Partners LP and its affiliates (collectively, "SOFTBANK"),
pursuant to which SOFTBANK agreed to purchase in a private placement (the
"Private Placement") 3,960,396 shares of the Company's common stock ("Common
Stock"), at a price per share of $5.05, for an aggregate purchase price of $20
million. The purchase price of $5.05 per share represented the average closing
price of the common stock for the twenty trading days immediately preceding the
date the parties entered into the stock purchase agreement. The Private
Placement was consummated on September 24, 1999 upon the approval of the
stockholders of the Company.
Also on July 19, 1999, SOFTBANK entered into a separate stock purchase
agreement with Amazon.com, Inc. ("Amazon") to purchase 1,670,273 shares of
Common Stock held by Amazon. After consummation of the Private Placement and the
acquisition of Common Stock from Amazon, SOFTBANK and its affiliates own
5,630,669 shares of Common Stock, representing approximately 38.6% and 39.1% of
the total outstanding shares as of March 31, 2000 and September 30, 1999,
respectively.
(4) YAHOO! INVESTMENT AND SERVICE AGREEMENT
Yahoo! Inc., a SOFTBANK affiliate ("Yahoo!"), agreed to participate in the
Private Placement by purchasing 274,726 shares of Common Stock.
Webhire and Yahoo! have entered into a service agreement whereby, among
other things, Webhire provides resume management technology and services to
Yahoo! to create an online resume database.
In connection with this service agreement, the Company granted to Yahoo!
warrants to purchase 199,218 shares of Common Stock at $4.95 per share. The
warrants vest on June 3, 2000 provided the agreement is in effect on the vesting
date. At March 31, 2000 and September 30, 1999, the aggregate fair value of the
warrants was estimated at approximately $2.5 million and $1.4 million,
respectively, using the Black-Scholes option-pricing model in accordance with
SFAS No. 123. The Company is recognizing the expense related to the warrants
over the vesting period. For the three and six-month periods ended March 31,
2000, $749,000 and $1,733,000, respectively, was charged to operating expense in
the
8
<PAGE>
WEBHIRE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1999
accompanying consolidated statements of operations.
(5) ACQUIRED TECHNOLOGIES
On November 18, 1998, the Company acquired certain assets and assumed
certain obligations of the Junglee Employment Services business of Amazon.com,
Inc. In exchange for $6 million in cash and 1,670,273 shares of Common Stock
valued at $8.5 million, Webhire received exclusive rights to Junglee's online
recruitment technologies. Webhire also acquired Junglee's Internet production
sites and assumed management and development of the employer and career site
business relationships established by Junglee Corp. ("Junglee"). Webhire did not
retain any Junglee personnel in connection with the transaction. The investment
is being amortized over two years.
On July 9, 1999, the Company acquired 100% of the outstanding capital stock
of HireWorks, Inc. in exchange for $385,000 in cash and 312,072 shares of Common
Stock valued at approximately $1.8 million. HireWorks, Inc. is the developer of
an Internet-based candidate search agent now called WEBHIRE AGENT. The
acquisition was accounted for as a purchase and, accordingly, the results of
operations from the date of acquisition are included in the Company's
consolidated statements of operations. The purchase price was allocated to the
technology acquired and is being amortized over two years. HireWorks Inc.'s
assets, liabilities and operations were not significant to the Company.
On December 13, 1999, the Company acquired certain assets, consisting
principally of technology, and assumed certain liabilities of Human Resources
Sites International, Inc. ("HR Sites") in exchange for $1.5 million in cash plus
junior subordinated convertible promissory notes totaling $3.4 million. HR Sites
was the developer of a leading Internet job-posting platform that provided
online job posting connections to more than 2,000 career sites and Internet news
groups. The Internet-recruiting services provided by HR Sites are continuing to
be developed and supported in the former HR Sites offices in Chicago, Illinois.
Substantially all assets acquired were technology, the investment in which is
being amortized over two years.
(6) BUSINESS SEGMENT INFORMATION
Effective for the year ended September 30, 1998, the Company adopted SFAS
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which
requires disclosure of financial and descriptive information about the Company's
reportable operating segments. The operating segments reported below are the
segments for which separate financial information is available and for which
operating profit/loss amounts are evaluated regularly by senior management in
deciding how to allocate resources and in assessing performance.
The Company has two reportable segments, Enterprise software solutions and
Internet and transaction-based solutions, the latter of which started to emerge
in Fiscal 1997 with the offering of outsourced services (e.g., resume scanning,
acknowledgement letters) and the research and development activities undertaken
for this segment. The Internet and transaction-based solutions segment provides
outsourced management of private candidate pools via YAHOO! RECRUITER,
subscription services to public pools and job-posting sites, the job-posting
services initiated with the Junglee transaction, resume scanning, reference
checking and other fee-based staffing functions. The Enterprise software
solutions segment provides perpetual licenses to the Company's software products
and the related maintenance, training, implementation and consulting services in
support of such licenses.
9
<PAGE>
WEBHIRE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1999
(6) BUSINESS SEGMENT INFORMATION (CONTINUED)
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Expenses related to general
corporate functions such as Information Technology, Finance and Human Resources,
and general and administrative costs such as depreciation, rent and utilities
are allocated to the reportable segments based on relative headcount as a basis
of relative usage. Income tax provision (benefit) is allocated to the reportable
segments in deriving segment profit (loss) based on each segment's pro rata
income or loss before income tax provision (benefit). The Company has no
intersegment sales and transfers, and does not allocate assets to the operating
segments.
The Company's reportable segments are strategic business units that offer
different solutions tailored to a customer's needs. They are managed separately
because each business requires different technology and sales and marketing
strategies.
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000:
(in thousands)
- --------------------------------------------------------------------------------------------------------------------
Internet and Enterprise
Transactions Software Other Consolidated
------------ -------- ----- ------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue ......................... $ -- $ 1,384 $ -- $ 1,384
Services revenue ........................ 2,240 2,659 -- 4,899
-------- -------- -------- --------
Total revenue ........................ 2,240 4,043 -- 6,283
-------- -------- -------- --------
Cost of revenue:
Product revenue ......................... -- 337 -- 337
Services revenue ........................ 2,455 1,045 -- 3,500
-------- -------- -------- --------
Total cost of revenue ................ 2,455 1,382 -- 3,837
-------- -------- -------- --------
Gross margin ............................... (215) 2,661 -- 2,446
-------- -------- -------- --------
Operating expenses:
Research and development ................ 2,870 526 -- 3,396
Sales and marketing ..................... 2,405 951 -- 3,356
General and administrative .............. 1,035 558 -- 1,593
Amortization of acquired technologies ... 2,810 -- -- 2,810
Amortization of stock-based consideration 749 -- -- 749
-------- -------- -------- --------
Total operating expenses ............. 9,869 2,035 -- 11,904
-------- -------- -------- --------
(Loss) income from operations .............. (10,084) 626 -- (9,458)
Other income, net .......................... -- -- 162 162
-------- -------- -------- --------
(Loss) income from operations before
(benefit) provision for income taxes .... (10,084) 626 162 (9,296)
(Benefit) provision for income taxes ....... -- -- -- --
-------- -------- -------- --------
Net (loss) income .......................... $(10,084) $ 626 $ 162 $ (9,296)
======== ======== ======== ========
Depreciation and amortization .............. $ 3,332 $ 144 $ -- $ 3,476
======== ======== ======== ========
</TABLE>
10
<PAGE>
WEBHIRE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1999
(6) BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999:
(in thousands)
- --------------------------------------------------------------------------------------------------------------
Internet and Enterprise
Transactions Software Other Consolidated
------------ -------- ----- ------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue ..................... $ -- $ 2,036 $ -- $ 2,036
Services revenue .................... 1,183 3,204 -- 4,387
------- ------- ------- -------
Total revenue .................... 1,183 5,240 -- 6,423
------- ------- ------- -------
Cost of revenue:
Product revenue ..................... -- 169 -- 169
Services revenue .................... 930 1,440 -- 2,370
------- ------- ------- -------
Total cost of revenue ............ 930 1,609 -- 2,539
------- ------- ------- -------
Gross margin ........................... 253 3,631 -- 3,884
------- ------- ------- -------
Operating expenses:
Research and development ............ 926 1,050 -- 1,976
Sales and marketing ................. 1,153 1,782 -- 2,935
General and administrative .......... 318 1,132 -- 1,450
Amortization of acquired technologies 1,914 -- -- 1,914
------- ------- ------- -------
Total operating expenses ......... 4,311 3,964 -- 8,275
------- ------- ------- -------
(Loss) income from operations .......... (4,058) (333) -- (4,391)
Other income, net ...................... -- -- 116 116
------- ------- ------- -------
(Loss) income from operations before
(benefit) provision for income taxes (4,058) (333) 116 (4,275)
(Benefit) provision for income taxes ... (366) (30) 11 (385)
------- ------- ------- -------
Net (loss) income ...................... $(3,692) $ (303) $ 105 $(3,890)
======= ======= ======= =======
Depreciation and amortization .......... $ 2,051 $ 393 $ -- $ 2,444
======= ======= ======= =======
</TABLE>
11
<PAGE>
WEBHIRE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1999
(6) BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended March 31, 2000:
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------
Internet and Enterprise
Transactions Software Other Consolidated
------------ -------- ----- ------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue ......................... $ -- $ 2,785 $ -- $ 2,785
Services revenue ........................ 4,117 5,874 -- 9,991
-------- -------- -------- --------
Total revenue ........................ 4,117 8,659 -- 12,776
-------- -------- -------- --------
Cost of revenue:
Product revenue ......................... -- 515 -- 515
Services revenue ........................ 4,560 2,196 -- 6,756
-------- -------- -------- --------
Total cost of revenue ................ 4,560 2,711 -- 7,271
-------- -------- -------- --------
Gross margin ............................... (443) 5,948 -- 5,505
-------- -------- -------- --------
Operating expenses:
Research and development ................ 5,240 1,103 -- 6,343
Sales and marketing ..................... 4,901 2,085 -- 6,986
General and administrative .............. 2,217 1,195 -- 3,412
Amortization of acquired technologies ... 5,089 -- -- 5,089
Amortization of stock-based consideration 1,733 -- -- 1,733
-------- -------- -------- --------
Total operating expenses ............. 19,180 4,383 -- 23,563
-------- -------- -------- --------
(Loss) income from operations .............. (19,623) 1,565 -- (18,058)
Other income, net .......................... -- -- 436 436
-------- -------- -------- --------
(Loss) income from operations before
(benefit) provision for income taxes .... (19,623) 1,565 436 (17,622)
(Benefit) provision for income taxes ....... -- -- -- --
-------- -------- -------- --------
Net (loss) income .......................... $(19,623) $ 1,565 $ 436 $(17,622)
======== ======== ======== ========
Depreciation and amortization .............. $ 6,124 $ 300 $ -- $ 6,424
======== ======== ======== ========
</TABLE>
12
<PAGE>
WEBHIRE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1999
(6) BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended March 31, 1999:
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------
Internet and Enterprise
Transactions Software Other Consolidated
------------ -------- ----- ------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue ..................... $ -- $ 4,536 $ -- $ 4,536
Services revenue .................... 2,007 6,282 -- 8,289
-------- -------- -------- --------
Total revenue .................... 2,007 10,818 -- 12,825
-------- -------- -------- --------
Cost of revenue:
Product revenue ..................... -- 396 -- 396
Services revenue .................... 1,572 2,944 -- 4,516
-------- -------- -------- --------
Total cost of revenue ............ 1,572 3,340 -- 4,912
-------- -------- -------- --------
Gross margin ........................... 435 7,478 -- 7,913
-------- -------- -------- --------
Operating expenses:
Research and development ............ 1,406 1,995 -- 3,401
Sales and marketing ................. 2,084 3,878 -- 5,962
General and administrative .......... 511 2,072 -- 2,583
Amortization of acquired technologies 2,552 -- -- 2,552
-------- -------- -------- --------
Total operating expenses ......... 6,553 7,945 -- 14,498
-------- -------- -------- --------
(Loss) income from operations .......... (6,118) (467) -- (6,585)
Other income, net ...................... -- -- 277 277
-------- -------- -------- --------
(Loss) income from operations before
(benefit) provision for income taxes (6,118) (467) 277 (6,308)
(Benefit) provision for income taxes ... (552) (42) 26 (568)
-------- -------- -------- --------
Net (loss) income ...................... $ (5,566) $ (425) $ 251 $ (5,740)
======== ======== ======== ========
Depreciation and amortization .......... $ 2,767 $ 777 $ -- $ 3,544
======== ======== ======== ========
</TABLE>
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
WEBHIRE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2000
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES AND
EXCHANGE ACT OF 1934, AS AMENDED. FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS "ANTICIPATES", "BELIEVES",
"EXPECTS", "INTENDS", "FUTURE", AND WORDS OF SIMILAR MEANING WHICH EXPRESS
MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENTIONS REGARDING THE COMPANY'S FUTURE
PERFORMANCE. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY HAS NO
OBLIGATION TO UPDATE ANY SUCH FORWARD- LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM ITS HISTORICAL OPERATING RESULTS AND FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH BELOW, UNDER "FACTORS
AFFECTING FUTURE OPERATING RESULTS".
CONSOLIDATED RESULTS OF OPERATIONS
(IN THOUSANDS)
REVENUE
Total revenue for the three and six-month periods ended March 31, 2000 was
$6,283 and $12,776 compared to $6,423 and $12,825 for the three and six month
periods ended March 31, 1999.
PRODUCT REVENUE. Product revenue, which relates to the enterprise software
solutions segment, was $1,384 for the three months ended March 31, 2000 compared
to $2,036 for the three months ended March 31, 1999. For the six months ended
March 31, 2000, product revenue was $2,785 compared to $4,536 for the comparable
1999 period. Protracted sales cycles resulting from the transition to an
Internet/intranet product line, the introduction in the market of competitive
Internet-based and outsourced solutions, a general stagnation in sales of
client-server software solutions, and Year 2000 and other information technology
constraints were the primary contributors to the decrease. Because the Company's
product revenue consists of a small number of large dollar transactions, wide
fluctuations can be experienced from period to period. Such fluctuations are not
necessarily indicative of future results.
SERVICES REVENUE. Services revenue - Enterprise was $2,659 for the three
months ended March 31, 2000 as compared to $3,204 for the three months ended
March 31, 1999. For the six months ended March 31, 2000, services revenue -
Enterprise decreased to $5,874 from $6,282 for the comparable 1999 period.
Services revenue - Internet increased 89% to $2,240 for the three months ended
March 31, 2000 from $1,183 for the three months ended March 31, 1999. For the
six months ended March 31, 2000, services revenue - Internet increased 105% to
$4,117 from $2,007 for the comparable 1999 period. The increase for both periods
was attributable to the continued growth of the YAHOO! RECRUITER customer base
and the addition of the candidate sourcing services, WEBHIRE AGENT and YAHOO!
RESUMES, introduced during the first fiscal quarter of 2000.
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<PAGE>
COST OF REVENUE
COST OF PRODUCT REVENUE. Cost of product revenue represented 24% and 18% of
total product revenue for the three and six months ended March 31, 2000,
respectively, as compared to 8% and 9% for the three and six months ended March
31,1999, respectively. The increase as a percentage of product revenue is due
primarily to increased costs in royalties due under third-party licensing
arrangements for the WEBHIRE ENTERPRISE product.
COST OF SERVICES REVENUE.
Cost of services revenue - Enterprise decreased 27% to $1,045 for the three
months ended March 31, 2000 from $1,440 for the three months ended March 31,
1999. For the six months ended March 31, 2000, cost of services revenue -
Enterprise of $2,196 decreased 25% from $2,944 for the comparable 1999 period.
The decrease is due to management's continued cost containment efforts.
Cost of services revenue - Internet increased 164% to $2,455 for the three
months ended March 31, 2000 from $930 for the three months ended March 31, 1999.
For the six months ended March 31, 2000, cost of services revenue - Internet of
$4,560 increased 190% from $1,572 for the comparable 1999 period. The increase
in absolute dollars is principally attributable to costs associated with
building the infrastructure and operations to support the expanding YAHOO!
RECRUITER customer base.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses were $3,396 or
54% of total revenue for the three months ended March 31, 2000 as compared to
$1,976 or 31% of total revenue for the comparable Fiscal 1999 period. For the
six month period ended March 31, 2000, research and development expenses were
$6,343 or 50% of total revenue as compared to $3,401 or 27% of total revenue for
the comparable Fiscal 1999 period. This increase is primarily due to increases
in both personnel and consulting expenses in support of the Company's new and
existing product development initiatives and its quality assurance programs. The
Internet and transaction-based solutions segment accounted for 85% and 83% of
total research and development expenses for the three and six month periods
ended March 31, 2000, as compared to 47% and 41% for the comparable Fiscal 1999
periods. All of the Company's research and development costs have been expensed
as incurred.
SALES AND MARKETING. Sales and marketing expenses were $3,356 or 53% of
total revenue and $6,986 or 55% of total revenue for the three and six month
periods ended March 31, 2000, respectively, as compared to $2,935 or 46% of
total revenue and $5,962 or 46% of total revenue for the comparable Fiscal 1999
periods. The increase in absolute dollars is due primarily to expansion of the
Internet sales organization. The Internet and transaction-based solutions
segment accounted for 72% and 70% of total sales and marketing expenses for the
three and six month periods ended March 31, 2000, respectively, as compared to
39% and 35% of total sales and marketing expenses for the comparable Fiscal 1999
periods. The Company expects that sales and marketing expenses may vary from
quarter to quarter as a percentage of total revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1,593
or 25% of total revenue and $3,412 or 27% of total revenue for the three and six
month periods ended March 31, 2000, respectively, as compared to $1,450 or 23%
of total revenue and $2,583 or 20% of total revenue for the
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<PAGE>
comparable Fiscal 1999 periods. The absolute dollar increase for both periods of
Fiscal 2000 as compared to Fiscal 1999 is the result of personnel increases in
support of the Company's infrastructure.
AMORTIZATION OF STOCK-BASED CONSIDERATION.
Amortization of stock-based consideration was $749 and $1,733 for the three
and six-month periods ended March 31, 2000, respectively, as compared to $0 for
both the comparable periods of Fiscal 1999. The increase is due to warrants
granted to Yahoo! in connection with a service agreement between Yahoo! and the
Company. The Company is recognizing the expense related to the warrants over the
vesting period. The amount recognizable may fluctuate from period to period
based on fluctuations in the Company's stock price.
OTHER INCOME, NET
Other income increased to $162 and $436 for the three and six-month periods
ended March 31, 2000 from $116 and $277 for the comparable Fiscal 1999 periods.
The increase is primarily attributable to greater returns on investments due to
higher average combined cash and cash equivalents and short- and long-
investment balances. The Company expects to continue to yield investment income
on its average balance of combined cash and cash equivalents and short- and
long-term investments at an average rate consistent with that experienced for
the first half of Fiscal 2000.
BENEFIT FOR INCOME TAXES
The Company did not record a tax benefit for the three and six months ended
March 31, 2000 as compared to a 9% benefit for the three and six months ended
March 31, 1999.
At March 31, 2000, the Company had available net operating loss ("NOL")
carryforwards, which may be used to offset future taxable income if any, and
expire through 2020. The Company has recorded a deferred tax asset for that
portion of that asset for which it is "more likely than not" to receive benefit
in the future. The Company has placed a significant valuation allowance against
the remaining deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
(IN THOUSANDS)
At March 31, 2000, the Company had cash and cash equivalents and short- and
long-term investments of $6,995, a decrease of $13,131 from $20,126 at September
30, 1999. Working capital was $1,548 at March 31, 2000 as compared to $16,848 at
September 30, 1999, a decrease of $15,300.
Cash used in operating activities was $10,421 during the six month period
ended March 31, 2000. Use of cash in operating activities consisted mainly of
the net loss for the six-month period of $17,622, the offsetting effects of
depreciation and amortization of $6,424 and amortization of stock-based
consideration of $1,733 and of fluctuations in certain assets and liabilities.
The Company used $7,246 in investing activities during the first half of
Fiscal 2000, principally for the purchases of short and long-term investments of
$4,060, for the purchase of property and equipment of $1,746 (primarily computer
equipment) and the purchase of acquired technologies of $1,554. Net cash
provided by financing activities for the six-month period ended March 31, 2000
was $477.
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<PAGE>
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. Cash has
been, and the Company contemplates that it will continue to be, invested in
interest bearing, investment grade securities.
From time to time, the Company may evaluate potential acquisitions of
products, businesses and technologies that may complement or expand the
Company's business. Any such transactions consummated may use a portion of the
Company's working capital and/or require the issuance of equity or debt.
The Company believes that its current cash and cash equivalent balance
will support its operations into the fourth quarter of this fiscal year. The
Company is actively pursuing additional sources of financing to support its
operations into the foreseeable future. If the Company raises additional
funds through further issuance of equity or convertible debt securities, the
percentage of ownership of the Company's current stockholders will be reduced
and such securities may have rights, preferences, and privileges senior to
those of its current stockholders. In addition, the Company may not be able
to obtain additional financing on terms favorable to the Company, if at all.
If adequate funds are not available or are not available on terms favorable
to the Company, its business, results of operations and financial condition
could be materially and adversely affected.
IMPACT OF YEAR 2000 ISSUE
The following paragraphs in this section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act.
The Company has attempted to make an assessment with regard to whether its
own internal information systems are Year 2000 compliant. In particular, the
Company has upgraded its accounting and customer management systems with systems
that are warranted by the vendors to be Year 2000 compliant. Any failure of
third-party equipment or software comprising any part of the Company's systems
to operate properly with regard to Year 2000 and thereafter could require the
Company to incur unanticipated expenses to address associated problems. The
Company has received assurances that all material embedded systems included in
the Company's products are Year 2000 compliant.
The Company believes, based on an internal assessment, that the current
versions of its software products that are licensed to customers are Year 2000
compliant. The Company limits its contractual warranties on Year 2000 compliance
to objective performance standards that the Company has tested, and the Company
makes no warranties for nonconformance if the Company's software products are
combined with other software or data that are not conducive to accurately
calculating, comparing or sequencing date and time data between the twentieth
and twenty-first centuries. The Company has no plan to ascertain whether the
internal systems and products of its customers are Year 2000 compliant. Although
the Company has not been involved in any litigation or proceeding to date
involving its products or services related to Year 2000 issues, there can be no
assurance that the Company will not in the future be required to defend its
products or services or to negotiate resolutions of claims based on Year 2000
issues.
The Company does not have any specific contingency plans if any Year 2000
problems develop with respect to the Company's embedded systems, systems
acquired from vendors or systems used by third parties with whom the Company has
a mutual relationship. Contingency plans will be developed if it appears the
Company or its key vendors will not be Year 2000 compliant and such
non-compliance is expected to have a material adverse impact on the Company's
operations.
Year 2000 issues have affected the purchasing patterns of customers and
potential customers in a variety of ways. Many companies expended significant
resources to replace or remedy their current hardware and software systems for
Year 2000 compliance. These expenditures have resulted in reduced funds
available to purchase software products such as those offered by the Company.
The Company does
17
<PAGE>
not believe that there is any practical way to ascertain the extent of such a
reduction in purchasing resources of its customers. Any such reduction could,
however, result in a material adverse effect on the Company's business,
operating results and financial condition. The Year 2000 issue is pervasive and
complex, as virtually every computer operation has been affected in some way.
Consequently, no assurance can be given that Year 2000 compliance can be
achieved without significant additional costs.
FACTORS AFFECTING FUTURE OPERATING RESULTS
An investment in Webhire's equity securities involves various risks. Current
and prospective investors in Webhire's securities should carefully consider the
following risk factors. These risk factors are not exhaustive and should be read
together with the other reports and documents that we file with the Securities
and Exchange Commission, which may include additional or more current
information that should be considered in making an investment in Webhire.
TO COMPETE EFFECTIVELY, WE MUST ADAPT QUICKLY TO ADVANCES IN TECHNOLOGY AND
CHANGES IN CUSTOMER REQUIREMENTS.
The market for automated recruiting products and services is undergoing
rapid changes including continuing advances in technology and changes in
customer requirements and preferences. These market dynamics have been amplified
by the emergence of the Internet as a tool for recruiting solutions. Our future
success will depend in significant part on our ability to continually improve
the performance, features and reliability of our software and services in
response to the evolving demands of the marketplace and competitive product
offerings. Any failure on our part to quickly develop products and services that
address changes in technology or customer demands will likely result in loss of
market share to a competitor.
OUR BUSINESS IS DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF THE INTERNET
INFRASTRUCTURE.
Our success will depend, in large part, upon the development and maintenance
of the Internet infrastructure as a reliable network backbone with the necessary
speed, data capacity and security, and timely development of enabling products,
such as high-speed modems, for providing reliable Internet access and services.
We cannot assure you that the Internet infrastructure will continue to
effectively support the demands placed on it as the Internet continues to
experience increased numbers of users, greater frequency of use or increased
bandwidth requirements of users. Even if the necessary infrastructure or
technologies are developed, we may have to spend considerable resources to adapt
our offerings accordingly. Furthermore, in the past, the Internet has
experienced a variety of outages and other delays. Any future outages or delays
could affect the Internet sites on which our customers' job advertisements are
posted and the willingness of employers and job seekers to use our online
recruitment offerings. If any of these events occur, our business, results of
operations and financial condition could be materially and adversely affected.
WEBHIRE HAS RECENTLY EXPANDED ITS TECHNOLOGY INTO SEVERAL NEW BUSINESS AREAS AND
CANNOT BE CERTAIN THAT ITS EXPANSION WILL BE SUCCESSFUL.
Webhire has recently expanded its technology into products and services that
can be offered over the Internet to foster long-term growth. These areas are
relatively new to Webhire's product development, sales and marketing personnel
and Webhire cannot be assured that the markets for these products and services
will develop or that it will be able to compete effectively or will generate
significant revenues in these new areas making Webhire's success in this area
difficult to predict.
18
<PAGE>
The success of Internet computing and, in particular, the Company's current
Internet computing software products and services is difficult to predict
because Internet computing represents a method of computing that is new. The
success of Internet computing will depend in large measure on (i) the lower cost
of ownership of Internet computing relative to client/server architecture, (ii)
the ease of use and administration relative to client/server architecture, and
(iii) how hardware and software vendors choose to compete in this market. There
can be no assurances that sufficient numbers of vendors will undertake this
commitment, that the market will accept Internet computing or that Internet
computing will generate significant revenues for the company.
OUR BUSINESS MODEL IS UNPROVEN.
We began offering online subscriptions for Yahoo! Recruiter (formerly
Webhire Recruiter) in Fiscal 1998. Product revenue from software sales are
expected over a relatively short period of time to become a much smaller
component of our revenue. Maintenance revenue associated with product sales will
also decrease over time. Our long-term business model and profit potential are
unproven. To be successful, we must develop and market online recruitment
offerings that achieve broad market acceptance by employers, job seekers and
interactive media companies.
It is possible that we will be required to further adapt our business model
in response to additional changes in the online recruitment market or if our
current business model is not successful. If we are not able to anticipate
changes in the online recruitment market or if our business model is not
successful, our business, financial condition and results of operations will be
materially and adversely affected.
WE MAY BE UNABLE TO CONTINUE TO BUILD CUSTOMER AWARENESS.
We believe that continuing to build brand recognition is critical to
achieving widespread acceptance of our online recruitment offerings. Brand
recognition is a key-differentiating factor among providers of online
recruitment offerings and we believe it could become more important as
competition in the online recruitment market increases. We may find it necessary
to accelerate expenditures on our sales and marketing efforts or otherwise
increase our financial commitment to creating and maintaining brand awareness
among potential customers. If we fail to successfully promote and maintain our
brand or incur significant expenses in promoting our brand, our business,
results of operations and financial condition could be materially and adversely
affected.
THE GROWTH IN DEMAND FOR AUTOMATED RECRUITING SOFTWARE AND SERVICES AND THE USE
OF THE INTERNET AS A RECRUITING MEDIUM ARE UNCERTAIN.
Our future success is substantially dependent on broader recognition of the
potential benefits of automated recruiting software and services and the growth
in demand for these products and services. It is difficult to assess the size of
the market that will develop and the rate at which it will develop. If the
market does not develop as we anticipate, or if it develops more slowly than we
expect, our business, operating results and financial condition will be
materially and adversely affected.
Our future is highly dependent on a significant increase in the use of the
Internet as a recruiting medium. The online recruitment market is new and
rapidly evolving, and we cannot yet gauge its effectiveness as compared to
traditional recruiting methods. As a result, demand and market acceptance of
online recruitment offerings are uncertain. The adoption of online recruiting,
particularly by those entities that have historically relied upon traditional
methods of recruiting, requires the acceptance of a new way of conducting
business, exchanging information and advertising for jobs. We cannot assure you
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<PAGE>
that the online recruitment market will continue to emerge or become
sustainable. If the online recruitment market fails to develop or develops more
slowly than we expect, our business, results of operations and financial
condition will be materially and adversely affected.
OUR COMPUTER SYSTEMS COULD FAIL OR OVERLOAD.
The success of our online recruitment offerings is highly dependent on the
efficient and uninterrupted operation of our computer and communications
systems. Power loss, telecommunications failures, computer viruses, electronic
break-ins or other similar disruptive problems could damage or cause
interruptions in these systems. If our systems are affected by any of these
occurrences, our business, results of operations and financial condition could
be materially and adversely affected. Our insurance policies may not cover, or
if covered, may not adequately compensate us for, any losses that may occur due
to any failures or interruptions in our systems. We do not presently have any
secondary "off-site" systems or a formal disaster recovery plan.
In addition, Webhire must accommodate a high volume of traffic and deliver
frequently updated information. Our websites have in the past and may in the
future experience slower response times or decreased traffic for a variety of
reasons. In addition, our users depend on Internet service providers and other
internet site operators for access to our websites. Many of the Internet service
providers have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems.
If we experience any of these problems, our business, results of operations
and financial condition could be materially and adversely affected.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL AS NEEDED IN THE FUTURE, OUR
BUSINESS MAY BE ADVERSELY AFFECTED.
We believe that our current cash and cash equivalent balance will support
our operations into the fourth quarter of this fiscal year. We are actively
pursuing additional sources of financing to support our operations into the
foreseeable future. Additional capital may be required to fund more rapid
expansion, to develop new and to enhance existing services to respond to
competitive pressures, and to acquire complementary services, businesses or
technologies. If we raise additional funds through further issuances of
equity or convertible debt securities, the percentage of ownership of our
current stockholders will be reduced and such securities may have rights,
preferences and privileges senior to those of our current stockholders. In
addition, we may not be able to obtain additional financing on terms
favorable to us, if at all. If adequate funds are not available or are not
available on terms favorable to us, our business, results of operations and
financial condition could be materially and adversely affected.
OUR NEW PRODUCT INTRODUCTIONS MAY HAVE DEFECTS WHICH COULD RESULT IN ADVERSE
PUBLICITY OR HAVE OTHER NEGATIVE EFFECTS.
As the marketplace for recruiting solutions continues to evolve, we plan to
develop and introduce new products and services to enable us to effectively meet
the changing needs of the market. Products as complex as those we offer may
contain undetected errors when first introduced or when new versions are
released. In the past, despite prior testing, we have discovered software errors
in some of our products after their introduction. Product defects may result in
adverse publicity, loss of or delay in market acceptance, injury to our
reputation and brand awareness, or claims against us, any one of which could
have a material adverse effect on our business, financial condition and results
of operations.
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<PAGE>
WE HAVE SIGNIFICANT COMPETITION FROM A VARIETY OF SOURCES.
The market for recruitment solutions is intensely competitive and highly
fragmented. Although few companies directly compete with us, there are a large
number of job boards, search firms, and portal sites that are vying for their
share of the overall corporate recruiting budget. Although we do not compete
with companies that offer a single database "job board" solution, such as
Monster.com and Career Mosaic, these companies compete with Yahoo!, our major
partner. We expect to face additional competition as other established and
emerging companies, including print media companies and employee recruiting
agencies with established brands, enter the online recruitment market.
Many of our current and potential competitors have significantly greater
financial, technical, marketing and other resources than we do. In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships to expand their offerings and to offer more
comprehensive solutions.
We believe that there will be rapid business consolidation in the online
recruitment industry. Accordingly, new competitors may emerge and rapidly
acquire significant market share. In addition, new technologies will likely
increase the competitive pressures that we face. The development of competing
technologies by market participants or the emergence of new industry standards
may adversely affect our competitive position. An increase in competition could
result in price reductions, limitations of access to key content on the web,
render our existing software and services obsolete or unmarketable and/or result
in loss of market share.
WE MUST MANAGE OUR GROWTH IN ORDER TO ACHIEVE DESIRED RESULTS.
The evolution of our business and the expansion of our customer base has
resulted in substantial growth in the number of our employees and the scope of
our operations of the last few years. Our future results of operations will
depend in part on the ability of our officers and other key employees to
continue to implement our operational, customer support, and financial control
systems and to expand, train, and manage our employee base.
THE SUCCESSFUL OPERATION OF OUR BUSINESS DEPENDS IN LARGE PART ON OUR
RELATIONSHIPS WITH THIRD PARTIES.
A key element of our business strategy is to develop relationships with
leading industry organizations in order to increase our market presence, expand
distribution channels and broaden our product line. We believe that our
continued success depends in large part on our ability to maintain such
relationships and cultivate additional relationships. There can be no assurance
that our existing strategic partners will not discontinue their relationships
with us, or that we will be able to successfully develop additional strategic
relationships.
In addition, certain technology incorporated in our software is licensed
from third parties on a nonexclusive basis. The termination of any of these
licenses, or the failure of the third-party licensors to adequately maintain or
update their products, could result in delay in our ability to ship certain of
our products while we seek to implement technology offered by alternative
sources. In addition, any required replacement licenses could prove more costly
than our current license relationships and might not provide technology as
powerful and functional as the third-party technology we currently license.
Also, any such delay, to the extent it becomes extended or occurs at or near the
end of a fiscal quarter, could have a material adverse effect on our results of
operations for that quarter. While it may be necessary or
21
<PAGE>
desirable in the future to obtain other licenses relating to one or more of our
products or relating to current or future technologies, we may not be able to do
so on commercially reasonable terms or at all.
OUR OPERATING RESULTS MAY BE SUBJECT TO SIGNIFICANT QUARTERLY FLUCTUATIONS.
Our results of operations have been, and may in the future be, subject to
significant quarterly fluctuations. Such fluctuations could be due to a variety
of factors, including the following:
- the fact that our product revenue consists of a relatively small
number of large dollar transactions and, as a result, may fluctuate
significantly from one quarter to another if the number of
transactions completed varies slightly;
- the introduction of new products by us or our competitors;
- the capital spending patterns of our customers;
- our sales incentive strategy which is based in part on annual sales
targets;
- the fact that a substantial portion of our product revenue often
occurs during the last few weeks of each quarter and, as a result, any
delays in orders or shipments are more likely to result in revenue not
being recognized until the following quarter; and
- our current expense levels are based in part on our expectations of
future revenue and, as a result, net income for a given period could
be disproportionately affected by any reduction in revenue.
To the extent our level of revenue in the future decreases from past levels
or in some future quarter our revenue or operating results are below the
expectations of stock market securities analysts and investors, our
profitability and the price of our common stock is likely to be materially and
adversely affected.
ONE LARGE STOCKHOLDER BENEFICIALLY OWNS APPROXIMATELY 37% OF OUR OUTSTANDING
STOCK, IS REPRESENTED ON OUR BOARD OF DIRECTORS AND HAS RIGHTS TO PARTICIPATE IN
CERTAIN WEBHIRE TRANSACTIONS. SUCH STOCKHOLDER'S INTERESTS COULD CONFLICT WITH
YOURS AND SIGNIFICANT SALES OF STOCK HELD BY IT COULD HAVE A NEGATIVE EFFECT ON
OUR STOCK PRICE.
SOFTBANK beneficially owns approximately 37% of our outstanding common
stock. In addition, SOFTBANK's affiliate Yahoo! Inc., of which SOFTBANK owns
approximately 27.8%, owns approximately 2.0% of our outstanding common stock. As
a result of their stock ownership, SOFTBANK and its affiliate have significant
control over all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions, and their
interests could conflict with those of other stockholders. Such concentration of
ownership may also have the effect of delaying or preventing a change in control
of Webhire. In addition, sales of significant amounts of shares held by these
entities, or the prospect of these sales, could adversely affect the market
price of our common stock.
SOFTBANK has the right to nominate two members of our Board of Directors,
which currently consists of 5 members (one of whom is a SOFTBANK
representative), and so long as it continues to hold at least 10% of our
outstanding Common Stock, it is entitled to nominate one director each time a
class of directors in which one of its representatives serves is subject to
election. Furthermore, one of
22
<PAGE>
SOFTBANK's directors is entitled to serve as a member of the Board's audit and
compensation committees. As a result of SOFTBANK's board representation, it has
significant influence on all Webhire matters requiring Board approval.
In addition, in the event we propose to enter into a joint venture for
operations in the United Kingdom, continental Europe or Japan, or a business
transaction with any competitor of SOFTBANK's affiliate ZDNet, we are required
by the terms of the stock purchase agreement pursuant to which SOFTBANK acquired
our common stock to offer SOFTBANK or one of its affiliates the opportunity to
participate in the transaction on mutually acceptable terms and conditions. As a
result of these requirements, potential third parties may be reluctant to
negotiate joint ventures or business transactions with us because they know
SOFTBANK and its affiliates will be given the opportunity to participate in such
transactions.
WE DEPEND ON KEY PERSONNEL WHO MAY NOT CONTINUE TO WORK FOR US.
Our future success depends to a significant extent on our senior management
and other key employees, many of whom have acquired specialized knowledge and
skills with respect to our operations. As a result, if any of these individuals
were to leave Webhire, we could face substantial difficulty in hiring qualified
successors and could experience a loss of productivity while any such successor
obtains the necessary training and experience. We also believe that our future
success will depend in large part on our ability to attract and retain
additional key employees. Competition for qualified personnel in the high tech
industry is intense. If we do not succeed in attracting new personnel, or
retaining and motivating existing personnel, our business will be adversely
affected.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS AND OUR
STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THEIR PURCHASE
PRICE.
We cannot predict the extent to which investors' interest in us will lead to
a stable trading market or how liquid the market might become. The stock market
in general and the market prices of shares in technology companies, particularly
those such as ours that offer Internet-based products and services, have been
extremely volatile and have experienced fluctuations that have often been
unrelated or disproportionate to the operating performance of such companies.
The market price of our common stock could be highly volatile and subject to
wide fluctuations in response to many factors, including the following:
- quarterly variations in our results of operations;
- adverse business developments impacting Webhire;
- changes in financial estimates by securities analysts;
- investor perception of Webhire and online recruitment services in
general;
- announcements by our competitors of new products and services; and
- fluctuations in our common stock price, which may affect our visibility
and credibility in the online recruitment market.
In the event of broad fluctuations in the market price of our common stock, you
may be unable to resell your shares at or above your purchase price.
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<PAGE>
IT IS DIFFICULT TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We regard our intellectual property rights as critical to our success and
rely on a combination of copyright and trade secret laws, employee and
third-party non-disclosure agreements and other methods to protect these rights.
We cannot be assured that the measures we have taken to protect our proprietary
rights will be adequate to prevent misappropriation of our technology or
independent development by others of similar technology. Our inability to
protect our proprietary rights would have a material adverse effect on our
business, financial condition and results of operations.
WE MAY BE SUBJECT TO COSTLY INTELLECTUAL INFRINGEMENT CLAIMS.
As the number of products and services in our industry increases and these
solutions further overlap, the likelihood that our current or future products
may become subject to infringement claims increases. Although we are not
currently the subject of any intellectual property litigation, there has been
substantial litigation regarding copyright, patent and other intellectual
property rights involving computer software companies. Any claims or litigation,
with or without merit, could be costly and could result in a diversion of
management's attention, which could have a material adverse effect on our
business, financial condition and results of operations. Adverse determinations
in such claims or litigation may require us to obtain a license and/or pay
damages, which could also have a material adverse effect on our business,
financial condition and results of operations.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
Although we have not experienced any product liability claims to date, the
sale and support of our products and the incorporation of products from other
companies may entail the risk of product liability claims. Our license
agreements with our customers typically contain provisions intended to limit our
exposure to such claims. For example, we limit our contractual warranties on
"Year 2000" compliance to objective performance standards that we have tested,
and we do not make any warranties for nonconformance if our software products
are combined with other software or data that is not conducive to accurately
calculating, comparing or sequencing date and time data between the twentieth
and twenty-first centuries. There can be no guarantee, however, that such
provisions will be effective in limiting our exposure. A successful product
liability action brought against us could adversely affect our business,
financial condition and results of operations.
ANTI-TAKEOVER PROVISIONS COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO
ACQUIRE US.
Our Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock may be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change of
control of Webhire without further action by the stockholders and may adversely
affect the voting and other rights of the holders of common stock. We have no
present plans to issue shares of preferred stock. Further, certain provisions of
our charter documents, including provisions eliminating the ability of
stockholders to take action by written consent, providing for a staggered board
of directors and limiting the ability of stockholders to raise matters at a
meeting of stockholders without giving advance notice, may have the effect of
delaying or preventing changes in control or management of Webhire, which could
have an adverse effect on the market price of our stock.
24
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information relating to quantitative and qualitative disclosure about
market risk is set forth under the caption "Short- and Long- Term Investments"
in Note 2(d) of the Notes to Consolidated Financial Statements. The Company does
not have any material foreign currency risks.
25
<PAGE>
WEBHIRE, INC.
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than
those arising in the ordinary course of the Company's business. Management
believes that the resolution of these matters will not materially affect the
Company's business or the financial condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Annual Stockholders' Meeting on March 15, 2000: At the annual meeting of
the Company's stockholders, 14,021,939 shares, representing 96% of the Company's
outstanding common stock as of the record date of January 17, 2000, voted on the
following matters;
1 The election of Russell J. Campanello and Charles R. Lax as Class I
Directors to serve until the Annual Meeting of Stockholders following the
close of the Company's 2002 Fiscal Year and until their successors are duly
elected and qualified. Shares were voted as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Russell J. Campanello 13,830,784 191,155
Charles R. Lax 13,831,184 190,755
</TABLE>
The following Directors' respective terms of office continued after the
annual meeting: Lars D. Perkins, Martin J. Fahey and J. Paul Costello.
2 The approval of an amendment to the Company's 1996 Stock Option and
Grant Plan to increase the number of shares issuable thereunder. Shares
were voted as follows: for 8,782,389; against 1,578,356; abstain 14,930;
broker non-vote 3,646,264.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits furnished as Exhibits hereto:
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27.1 Financial Data Schedule Pursuant to Regulation S-X
</TABLE>
(b) No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 2000.
WEBHIRE, INC.
PART III - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WEBHIRE , INC.
/s/ MARTIN J. FAHEY
-------------------
Martin J. Fahey
CHIEF EXECUTIVE OFFICER
/s/ STEPHEN D. ALLISON
-----------------------
Stephen D. Allison
CHIEF FINANCIAL OFFICER
Date: May 15, 2000
27
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<PAGE>
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<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,936
<SECURITIES> 4,059
<RECEIVABLES> 7,618
<ALLOWANCES> 447
<INVENTORY> 0
<CURRENT-ASSETS> 16,820
<PP&E> 13,083
<DEPRECIATION> 8,077
<TOTAL-ASSETS> 35,280
<CURRENT-LIABILITIES> 15,272
<BONDS> 3,425
153
0
<COMMON> 0
<OTHER-SE> 18,746
<TOTAL-LIABILITY-AND-EQUITY> 35,280
<SALES> 6,283
<TOTAL-REVENUES> 6,283
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<TOTAL-COSTS> 3,837
<OTHER-EXPENSES> 11,904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (9,296)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,296)
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<EPS-BASIC> (0.64)
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