<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------
Date of report (Date of earliest event reported): July 19, 2000
HEADHUNTER.NET, INC.
(Exact Name of Registrant as Specified in Charter)
Georgia 000-27003 58-2403177
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
HeadHunter.NET, Inc.
333 Research Court, Suite 200
Norcross, Georgia 30092
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (770) 349-2400
N/A
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Merger
On July 19, 2000, HeadHunter.NET, Inc. (the "Corporation") acquired all
of the assets of Career Mosaic Inc., an online recruiting service ("Career
Mosaic"), by merging (the "Merger") Career Mosaic into a wholly owned subsidiary
of the Corporation, Resume Acquisition Corporation, pursuant to an Agreement and
Plan of Merger dated as of April 15, 2000 (as amended, the "Merger Agreement").
In the Merger, each share of common stock of Career Mosaic was converted into
750 shares of the Corporation's common stock. The Corporation issued an
aggregate of 7,500,000 shares of its common stock in the Merger, which
represented approximately 40.6% of the Corporation's outstanding shares
immediately after the Merger. The exchange ratio was determined in arm's length
negotiations between the parties to the Merger Agreement. Immediately after the
Merger, Bernard Hodes Group Inc., a majority stockholder of Career Mosaic prior
to the Merger ("BHG"), owned 5,827,400 shares of the Corporation's common stock,
or approximately 31.6% of the Corporation's outstanding shares immediately
after the Merger. In accordance with the Merger Agreement, BHG designated
Bernard S. Hodes as a nominee to the Corporation's board of directors.
Rights Agreement
On April 15, 2000, in connection with the Merger, the Corporation and
American Stock Transfer & Trust Company entered into a Shareholder Protection
Rights Agreement (as the same may be amended, the "Rights Agreement"), and the
board of directors of the Corporation declared a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of common stock of the
Corporation. The dividend was paid on April 27, 2000 (the "Record Date") to the
shareholders of record on that date. Each Right entitles the registered holder
to purchase from the Corporation one one-thousandth of a share of Junior
Participating Preferred Stock, par value $0.01 per share, of the Corporation, at
a price of $200 per one one-thousandth of a share, subject to adjustment.
Generally, each Right only becomes exercisable if an "acquiring person"
acquires 15% or more of the Corporation's outstanding common stock (other than
the Rights held by the acquiring person which terminate). Each exercisable Right
will automatically become a Right to buy at the exercise price of $200 that
number of shares of the Corporation's common stock having a market value of
twice the exercise price. The Corporation may substitute cash, property, a
reduction in the exercise price, Junior Participating Preferred Stock or other
securities having a value equal to the Corporation's common stock which would
otherwise be issuable. The Corporation may not consolidate or merge with, or
sell 50% or more of its assets or earning power to, any person, if the
Corporation's board of directors is controlled by the acquiring person, unless
proper provision is made so that each exercisable Right would thereafter become
a Right to buy, for the exercise price, that number of shares of common stock of
such other person having a market value of twice the exercise price. The
description and terms of the Rights are set forth more fully in the Rights
Agreement.
Registration Rights Agreement
On July 19, 2000, in connection with the Merger, BHG, ITC Holding
Company, Inc. ("ITC") and the Corporation entered into a Registration Rights
Agreement. Under this agreement, BHG has registration rights
-2-
<PAGE> 3
regarding shares of the Corporation's common stock received by BHG in the Merger
which are not sold under the Corporation's proxy statement/prospectus dated
June 19, 2000, and ITC has registration rights regarding shares of the
Corporation's common stock held by, or issuable upon exercise of options or
warrants beneficially owned by, ITC on July 19, 2000.
BHG or ITC at any time commencing after July 19, 2001, may demand, with
customary exceptions, that the Corporation register the resale of all such
holder's registrable securities or at least a number of such shares which would
result in an aggregate offering price of at least $5,000,000. The Corporation is
obligated to effect up to five demand registrations for each of ITC and BHG and
up to two demand registrations for any other holder of registrable securities
who is entitled to demand registration rights under the Registration Rights
Agreement.
In addition, subject to specified exceptions, if the Corporation
proposes to register any of its equity securities, it must provide notice of
such proposed registration to any shareholder entitled to registration rights
under the Registration Rights Agreement. Such shareholders will be permitted to
include their registrable securities in such proposed registration, subject to
customary underwriter cut-backs.
The Corporation will pay all costs and expenses of any registration
under the Registration Rights Agreement, except for underwriters' discounts and
commissions.
Shareholders' Agreement
On July 19, 2000, in connection with the Merger, the Corporation,
Omnicom Group Inc., BHG and ITC entered into a Shareholders' Agreement. The
Shareholders' Agreement provides that:
- until such time as ITC or Omnicom Group Inc. and BHG
beneficially own less than the lower of (1) 10% of the voting
power of all the Corporation's outstanding voting securities
and (2) 50% of the voting power beneficially owned by such
holder(s) on July 19, 2000, ITC and Omnicom Group Inc./BHG
will vote all outstanding voting securities as follows:
- with respect to the election of the Corporation's
directors, in favor of the persons named by ITC and
BHG in accordance with the Shareholders' Agreement;
- on all proposals of any other shareholders of the
Corporation, as recommended by the Corporation's
board of directors; and
- on all other matters which come before the
Corporation's shareholders, in such party's
discretion up to 30% of the total voting power of the
Corporation and with respect to any voting securities
held in excess of such 30%, in proportion to how all
other voting securities of the Corporation which are
not held by such holder are voted.
- until July 19, 2005, each of ITC and Omnicom Group Inc./BHG
will not:
- effect, participate or propose to effect or
participate in any acquisition of any securities or
assets of the Corporation;
-3-
<PAGE> 4
- effect, participate or propose to effect or
participate in any tender or exchange offer or any
merger or other business combination involving the
Corporation;
- effect, participate or propose to effect or
participate in any recapitalization, restructuring,
liquidation, dissolution or other similar transaction
with respect to the Corporation;
- effect, participate or propose to effect or
participate in any solicitation of proxies or
consents to vote any voting securities of the
Corporation;
- form, join or participate in a group, as defined
under the Securities Exchange Act of 1934;
- except by reason of an affiliate serving on the
Corporation's board of directors, act, alone or in
concert with others, to seek to control or influence
the management, board of directors or policies of the
Corporation; or
- take any action which might force the Corporation to
make a public announcement regarding, or enter into
any discussions with any third party with respect to,
any of the above matters.
Despite this restriction, each of ITC and Omnicom Group Inc./BHG may
make a confidential proposal to the Corporation's board of directors with
respect to any of the foregoing as long as the terms of the proposal are
conditioned on the Corporation maintaining the confidentiality of the proposal.
On July 31, 2000, BHG irrevocably waived its rights under the Merger
Agreement and the Shareholders' Agreement to designate one of the two nominees
to the Corporation's board of directors to which BHG originally was entitled.
After such waiver, BHG is entitled to designate only one nominee to the
Corporation's board of directors.
A copy of the Shareholders' Agreement is filed as Exhibit 99.4 hereto
and a copy of the Waiver is filed as Exhibit 99.5 hereto.
Credit Agreement
On July 19, 2000, in connection with the Merger, the Corporation and
Omnicom Finance, Inc. entered into a Credit Agreement under which Omnicom
Finance, Inc. provides a revolving line of credit of up to $10,000,000 to the
Corporation. The revolving line of credit will terminate and the outstanding
principal and accrued but unpaid interest will become due and payable upon the
earlier of (1) July 19, 2001 or (2) any public offering by the Corporation which
results in gross cash proceeds to the Corporation of at least $30,000,000,
except for public offerings to the Corporation's employees, directors and
consultants, or any business combination. Interest will accrue on outstanding
principal borrowed by the Corporation under the Credit Agreement at a rate equal
to the internal cost of capital for Omnicom Group Inc. as in effect from time to
time and such interest is due and payable quarterly. The revolving line of
credit is unsecured.
During the term of the credit agreement, the Corporation must comply
with specified covenants, including that the Corporation may not make capital
expenditures in excess of $5,000,000 and must have consolidated revenues of at
least:
- $7,150,000 for the quarter ending September 30, 2000;
- $7,500,000 for the quarter ending December 31, 2000;
- $7,900,000 for the quarter ending March 31, 2001; and
- $8,300,000 for the quarter ending on June 30, 2001.
-4-
<PAGE> 5
A copy of the Credit Agreement is filed as Exhibit 99.6 hereto.
Non-Competition Agreement
On July 19, 2000, in connection with the Merger, the Corporation and
BHG entered into a Non-Competition Agreement. Under the Non-Competition
Agreement BHG agrees that until July 19, 2001,
- BHG will not engage in, or own, manage, operate, control or
participate in, as a 10% or greater shareholder, partner,
member or joint venturer, any company which engages in the
business of creating and operating online multi-company
commercial job posting boards via the Internet. BHG is
permitted to provide advisory or consulting services to its
clients related to the development of such clients' online job
boards for their own job opportunities and continue the
activities of Recruitsoft.com Inc.;
- BHG will not solicit for employment any current employee of
the Corporation who formerly worked for CareerMosaic; and
- BHG will not solicit or call on as a client or customer for
the purpose of engaging in the business of creating and
operating online multi-company commercial job posting boards
via the Internet, any person or entity that had been a
customer or CareerMosaic from July 19, 1999 to July 19, 2000.
A copy of the Non-Competition Agreement is filed as Exhibit 99.7
hereto.
Indemnification Agreements
On July 19, 2000, in connection with the Merger, the Corporation
entered into indemnification agreements with each of ITC and BHG under which the
Corporation agreed to indemnify ITC and BHG for any indemnifiable losses
incurred by either of them which is based on any action or inaction of the
Corporation, except for losses for which ITC or BHG, respectively, have
expressly agreed to be liable pursuant to any written contract between the
Corporation and ITC or BHG, respectively, or the portion of any losses based on
a final non-appealable determination by a court that such losses were related
solely to the gross negligence, recklessness or willful misconduct of ITC or
BHG, respectively.
A copy of the form of the indemnification agreements is filed as
Exhibit 99.8 hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The financial statements of Career Mosaic required by this item are
contained in the financial statements and accompanying notes listed in the Index
on page F-1.
(b) Pro Forma Financial Information
The pro forma financial information required by this item is contained
in the financial statements and accompanying notes listed in the Index on page
F-1.
-5-
<PAGE> 6
(c) The following exhibits are filed as part of this Current Report on
Form 8-K:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
23.1 Consent of Arthur Andersen LLP
99.1 Agreement and Plan of Merger dated April 15, 2000 among the
Corporation, Resume Acquisition Corporation, ITC Holding
Company, Inc., Omnicom Group Inc., Bernard Hodes Group Inc.
and Career Mosaic Inc., as amended by Amendment No. 1 to
Agreement and Plan of Merger dated June 19, 2000 (incorporated
by reference from Exhibit 2.2 of the Corporation's
registration statement on Form S-4 (File No. 333-37430))
99.2 Shareholder Protection Rights Agreement dated as of April 15,
2000, between the Corporation and American Stock Transfer &
Trust Company, as Rights Agent (incorporated by reference from
Exhibit 99.3 to the Corporation's Current Report on Form 8-K
filed on April 19, 2000)
99.3 Registration Rights Agreement dated July 19, 2000 among the
Corporation, Bernard Hodes Group Inc. and ITC Holding Company,
Inc.
99.4 Shareholders' Agreement dated July 19, 2000 among the
Corporation, Omnicom Group Inc., Bernard Hodes Group Inc. and
ITC Holding Company, Inc.
99.5 Waiver dated July 31, 2000.
99.6 Credit Agreement between the Corporation and ITC Holding
Company, Inc. and Omnicom Finance, Inc.
99.7 Non-Competition Agreement dated July 19, 2000 between the
Corporation and Bernard Hodes Group Inc.
99.8 Form of Indemnification Agreement between the Corporation and
ITC Holding Company, Inc. and Bernard Hodes Group Inc.
99.9 Press Release dated July 19, 2000.
</TABLE>
-6-
<PAGE> 7
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CAREER MOSAIC INC. F-2
Balance Sheets as of December 31, 1998 and 1999 and March
31, 2000 (Unaudited).................................................... F-3
Statements of Operations for the Years Ended December 31,
1997 (Unaudited), 1998 and 1999 and the Three Months Ended
March 31, 1999 and 2000 (Unaudited)..................................... F-4
Statements of Stockholder's Equity (Deficit) for the Years
Ended December 31, 1997 (Unaudited), 1998 and 1999 and the
Three Months Ended March 31, 2000 (Unaudited)........................... F-5
Statements of Cash Flows for the Years Ended December 31,
1997 (Unaudited), 1998 and 1999 and the Three Months Ended
March 31, 1999 and 2000 (Unaudited)..................................... F-6
Notes to Financial Statements............................................. F-7
HEADHUNTER.NET, INC.
Unaudited Pro Forma Financial Data....................................... F-14
Unaudited Pro Forma Balance Sheet as of March 31, 2000................... F-15
Unaudited Pro Forma Statements of Operations for the
Three Months Ended March 31, 2000....................................... F-16
Unaudited Pro Forma Statements of Operations for the
Twelve Months Ended December 31, 1999................................... F-17
</TABLE>
F-1
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Career Mosaic Inc.:
We have audited the accompanying balance sheets of CAREER MOSAIC INC. (a
subsidiary of Bernard Hodes Group Inc., a wholly owned subsidiary of Omnicom
Group Inc., as of October 28, 1999, an unincorporated division of Bernard Hodes
Group Inc. prior to October 28, 1999) as of December 31, 1998 and 1999 and the
related statements of operations, stockholder's equity (deficit), and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Career Mosaic Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
New York, New York
May 15, 2000
F-2
<PAGE> 9
CAREER MOSAIC INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
AND MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1998 1999 2000
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $40,000 as of December 31, 1998 and 1999
and March 31, 2000, respectively..................... $1,077,010 $1,422,238 $ 1,385,121
Prepaid expenses........................................ 382,951 463,696 318,011
---------- ---------- -----------
Total current assets............................ 1,459,961 1,885,934 1,703,132
OTHER ASSETS.............................................. -- 265,573 265,573
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$63,359, $232,434 and $315,993 as of December 31, 1998
and 1999 and March 31, 2000, respectively............... 124,922 667,368 913,320
INTANGIBLES, net of accumulated amortization of $77,667,
$188,667 and $265,167 as of December 31, 1998 and 1999
and March 31, 2000, respectively........................ 152,333 1,341,333 1,264,833
---------- ---------- -----------
Total assets.................................... $1,737,216 $4,160,208 $ 4,146,858
========== ========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable........................................ $ 109,185 $ 268,292 $ 87,255
Accrued expenses........................................ 179,247 357,181 1,920,510
Due to parent company................................... -- 2,032,255 6,095,557
Deferred revenue........................................ 1,408,265 1,721,172 1,617,332
---------- ---------- -----------
Total current liabilities....................... 1,696,697 4,378,900 9,720,654
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Parent's net investment in division..................... 40,519 -- --
Common stock, $1.00 par value; 0, 10,000 and 10,000
shares authorized at December 31, 1998 and 1999, and
March 31, 2000, respectively; 0, 100 and 100 shares
issued and outstanding at December 31, 1998 and 1999
and March 31, 2000, respectively..................... -- 100 100
Additional paid-in capital.............................. -- 664,346 664,346
Accumulated deficit..................................... -- (883,138) (6,238,242)
---------- ---------- -----------
Total stockholder's equity (deficit)............ 40,519 (218,692) (5,573,796)
---------- ---------- -----------
Total liabilities and stockholder's equity
(deficit)..................................... $1,737,216 $4,160,208 $ 4,146,858
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 10
CAREER MOSAIC INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 (UNAUDITED), 1998 AND 1999
AND THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.......................... $4,191,811 $ 8,005,300 $13,636,170 $3,037,902 $ 3,630,922
---------- ----------- ----------- ---------- -----------
OPERATING EXPENSES:
Marketing and selling........... 1,233,000 3,917,307 6,402,685 1,377,451 4,997,251
General and administrative...... 1,883,900 3,860,667 7,083,566 1,090,917 3,246,177
Depreciation and amortization... 49,712 91,314 280,075 25,548 160,059
Allocated parent company
expenses..................... 624,000 1,330,289 2,049,778 472,140 541,449
---------- ----------- ----------- ---------- -----------
Total operating
expenses.............. 3,790,612 9,199,577 15,816,104 2,966,056 8,944,936
---------- ----------- ----------- ---------- -----------
OPERATING INCOME (LOSS)........... 401,199 (1,194,277) (2,179,934) 71,846 (5,314,014)
INTEREST INCOME (EXPENSE)-
AFFILIATE....................... 3,537 -- (31,083) -- (41,090)
---------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES........................... 404,736 (1,194,277) (2,211,017) 71,846 (5,355,104)
INCOME TAX (PROVISION) BENEFIT.... (189,350) 189,350 -- -- --
---------- ----------- ----------- ---------- -----------
NET INCOME (LOSS)................. $ 215,386 $(1,004,927) $(2,211,017) $ 71,846 $(5,355,104)
========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 11
CAREER MOSAIC INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 (UNAUDITED), 1998 AND 1999
AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PARENT'S TOTAL
NET COMMON STOCK ADDITIONAL STOCKHOLDER'S
INVESTMENT IN --------------- PAID-IN ACCUMULATED EQUITY
DIVISION SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------------- ------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996
(unaudited)................... $ 0 0 $ 0 $ 0 $ 0 $ 0
Net advances to division
(unaudited)................... 433,919 0 10 0 0 433,919
Net income (unaudited).......... 215,386 0 0 0 0 215,386
----------- --- ---- -------- ----------- -----------
BALANCE, December 31, 1997...... 649,305 -- -- -- -- 649,305
Net advances to division........ 396,141 -- -- -- -- 396,141
Net loss........................ (1,004,927) -- -- -- -- (1,004,927)
----------- --- ---- -------- ----------- -----------
BALANCE, December 31, 1998...... 40,519 -- -- -- -- 40,519
Net advances to division........ 1,951,806 -- -- -- -- 1,951,806
Incorporation of Career
Mosaic........................ (664,446) 100 100 664,346 -- --
Net loss........................ (1,327,879) -- -- -- (883,138) (2,211,017)
----------- --- ---- -------- ----------- -----------
BALANCE, December 31, 1999...... -- 100 100 664,346 (883,138) (218,692)
Net loss (unaudited)............ -- -- -- -- (5,355,104) (5,355,104)
----------- --- ---- -------- ----------- -----------
BALANCE, March 31, 2000
(unaudited)................... $ -- 100 $100 $664,346 $(6,238,242) $(5,573,796)
=========== === ==== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 12
CAREER MOSAIC INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 (UNAUDITED), 1998 AND 1999
AND THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............. $ 215,386 $(1,004,927) $(2,211,017) $ 71,846 $(5,355,104)
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Depreciation and
amortization............. 49,712 91,314 280,075 25,548 160,059
Changes in operating assets
and liabilities:
Accounts receivable...... (670,737) (406,273) (345,228) (211,047) 37,117
Prepaid expenses......... (365,168) (17,783) (80,745) (11,849) 145,685
Other assets............. -- -- (265,573) -- --
Accounts payable and
accrued expenses...... 276,832 11,600 337,041 177,342 1,382,292
Deferred revenue......... 410,128 998,137 312,907 149,427 (103,840)
----------- ----------- ----------- ----------- -----------
Total adjustments..... (299,233) 676,995 238,477 129,421 1,621,313
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by
operating
activities.......... (83,847) (327,932) (1,972,540) 201,267 (3,733,791)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures.......... (120,072) (68,209) (711,521) (15,039) (329,511)
Purchase of intangibles....... (230,000) -- (1,300,000) -- --
----------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities.......... (350,072) (68,209) (2,011,521) (15,039) (329,511)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net advances to division...... 433,919 396,141 1,951,806 (186,228) --
Change in due to parent....... -- -- 2,032,255 -- 4,063,302
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities.......... 433,919 396,141 3,984,061 (186,228) 4,063,302
----------- ----------- ----------- ----------- -----------
NET INCREASE IN CASH............ -- -- -- -- --
CASH, BEGINNING OF YEAR......... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
CASH, END OF YEAR............... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 13
CAREER MOSAIC INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
ORGANIZATION
Career Mosaic Inc. ("CareerMosaic" or the "Company") was incorporated in
the state of Delaware on October 28, 1999 and is a wholly owned subsidiary of
Bernard Hodes Group Inc. ("BHG" or the "Parent Company"), which is a wholly
owned subsidiary of Omnicom Group Inc. ("Omnicom"). Prior to October 28, 1999,
the Company operated as an unincorporated division of BHG.
On April 15, 2000, HeadHunter.NET, Inc. ("HeadHunter") entered into an
agreement to acquire the outstanding common stock of the Company.
NATURE OF BUSINESS
CareerMosaic provides online recruiting services via its web site at
www.careermosaic.com. Employers and recruiters use the web site to advertise job
opportunities and review resumes. Job seekers use the web site to identify,
research and evaluate a broad range of job opportunities.
The Company has incurred annual losses and negative annual cash flows from
operations as a result of efforts to build out its network infrastructure,
increase internal staffing and develop its systems. The Company expects to
continue to focus on increasing its customer base and expanding its operations.
Accordingly, the Company expects that its marketing and selling, general and
administrative expenses, and capital expenditures will continue to increase
significantly, all of which will have a negative impact on near term financial
and operating results. There can be no assurance that growth in the Company's
revenue or customer base will continue or that the Company will be able to
achieve or sustain profitability and/or positive cash flow. The Company has been
funded to date by Omnicom and will be funded by HeadHunter subsequent to the
acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
The financial statements of the Company have been derived from the
consolidated financial statements of BHG and have been prepared to present the
financial position, results of operations, and cash flows of the Company on a
stand-alone basis. Accordingly, the accompanying financial statements include
certain administrative costs and expenses, which have been allocated to the
Company by BHG. These costs have been allocated on a pro rata basis based
primarily on employee headcount and revenues, and represent management's best
estimates of what such expenses would have been had the Company been operated as
a separate entity. In the opinion of management, the accompanying interim
financial statements contain all material adjustments necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods presented.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues consist of job posting revenues, resume subscription revenues and
advertising revenues. Job posting revenues and resume subscription revenues are
recognized after substantial completion of services.
F-7
<PAGE> 14
CAREER MOSAIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Advertising revenues are recognized in the month that the advertising
impressions are delivered. In 1998 and 1999, revenues from the Parent Company
accounted for approximately 53% and 42% of revenues, respectively (Note 6).
Agency commissions represent discounts given to agencies who work on behalf
of the Company to secure job postings. The Company records the discount as a
deduction from revenues in the accompanying financial statements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets
for financial reporting purposes. Major additions and improvements are charged
to the property accounts while maintenance and repairs, which do not improve or
extend the lives of the respective assets, are expensed in the current period.
Estimated useful lives for the Company's assets are as follows:
<TABLE>
<S> <C>
Telecommunications and computer equipment................... Three years
Furniture and fixtures...................................... Ten years
</TABLE>
Gains or losses on disposal of property and equipment are recognized in
operations in the year of disposition.
INTERNAL USE SOFTWARE
Effective for fiscal year 1999, the Company adopted the American Institute
of Certified Public Accountants' Statement of Position ("SOP") 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." The
statement requires capitalization of certain costs incurred in the development
of internal use software, including external direct material and service costs.
Prior to adoption of SOP 98-1, the Company expensed these costs as incurred.
Capitalized costs are amortized over a period of three years. The adoption of
SOP 98-1 did not have a material effect on the financial statements.
WEB SITE DEVELOPMENT COSTS
The Company accounts for web site development costs based on the nature of
such costs. The Company's primary web site development costs relate to site
content. Costs for internally developed content are expensed as incurred.
Purchased content is expensed over the period the Company receives the content.
INTANGIBLE ASSETS
Intangible assets and the related useful lives and accumulated amortization
at December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Domain names................................................ $200,000 $1,500,000
Other intangibles........................................... 30,000 30,000
-------- ----------
230,000 1,530,000
Less accumulated amortization............................... (77,667) (188,667)
-------- ----------
Intangible assets, net...................................... $152,333 $1,341,333
======== ==========
</TABLE>
In May 1997, the Company acquired the rights to various Internet domain
names and trademarks for $200,000. The Company is amortizing the intangibles on
a straight-line basis over a period of five years.
F-8
<PAGE> 15
CAREER MOSAIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In September 1999, the Company acquired the rights to the Internet domain
name, www.careers.com, for $1,300,000. The Company is amortizing the intangible
asset on a straight-line basis over a period of five years.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed of," the Company reviews its recorded long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including accounts receivables,
accounts payable and Due to parent, approximate fair value due to their
short-term nature.
DEFERRED REVENUE
Deferred revenue represents a liability for advance billings to customers.
Such amounts are recognized as revenues when the related services are provided.
INCOME TAXES
The Company is not a separate taxable entity and the consolidated income
tax returns of Omnicom include the Company. For purposes of these financial
statements, income taxes allocated to the Company have been computed and
recorded on a separate return basis based on the statutory rates in effect (Note
7).
Income taxes are accounted for under SFAS No. 109, "Accounting for Income
Taxes." Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred. Advertising
expenses included in marketing and selling expenses in the accompanying
statements of operations were $3,577,307 and $5,615,917 for the years ended
December 31, 1998 and 1999, respectively.
SOURCES OF SUPPLIES
The Company relies on third-party networks, local and long-distance
telephone companies, and other companies to provide data and telecommunications
capacity. Although management feels alternative telecommunications facilities
could be found in a timely manner, disruption of these services for more than a
brief period could have an adverse effect on operating results.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to advance billings to customers for services and the ability to terminate
service on delinquent accounts. In addition, the number of customers comprising
the customer base mitigates the concentration of credit risk.
F-9
<PAGE> 16
CAREER MOSAIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for all fiscal years beginning after June 15, 2000.
Management believes this statement will not have a material impact on the
Company's financial statements.
In 1998, the Company was subject to the provisions of SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." Neither statement had any impact on
the Company's financial statements as the Company does not have any
"comprehensive income" type earnings (losses) and the Company has only one
operating business segment. The Company will continue to review these statements
over time, in particular SFAS No. 131, to determine if any additional
disclosures are necessary based on evolving circumstances.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998 and
1999, respectively:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Telecommunications and computer equipment................... $152,967 $ 864,488
Furniture and fixtures...................................... 35,314 35,314
-------- ---------
188,281 899,802
Less accumulated depreciation and amortization.............. (63,359) (232,434)
-------- ---------
Property and equipment, net................................. $124,922 $ 667,368
======== =========
</TABLE>
Depreciation expense was $45,314 and $169,075 for the years ended December 31,
1998 and 1999, respectively.
4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has operating lease agreements, which relate to the lease of
office space. Rental expense attributable to these operating leases was $253,329
and $294,251 for the years ended December 31, 1998 and 1999, respectively.
At December 31, 1999, the Company's minimum rental commitments under
noncancelable operating leases with initial or remaining terms of more than one
year were as follows:
<TABLE>
<S> <C>
2000........................................................ $278,292
2001........................................................ 212,466
2002........................................................ 55,716
2003........................................................ 41,787
2004 and thereafter......................................... --
--------
Total minimum lease payments...................... $588,261
========
</TABLE>
PURCHASE COMMITMENTS
The Company has entered into an agreement with an Internet company to
purchase a minimum of approximately $3.6 million in banner advertisements in
2000. Purchase commitments under the agreement are being expensed as the
advertisements are incurred.
F-10
<PAGE> 17
CAREER MOSAIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings. The Company,
from time to time, may be subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property of third parties by the Company.
5. EMPLOYEE SAVINGS PLAN
The Company participates in an employee savings plan (the "Savings Plan")
of the Parent Company. The Savings Plan qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings
Plan, participating employees may defer a portion of their pretax earnings up to
the Internal Revenue Service annual contribution limit. The Company has not made
any material contributions to the Savings Plan for the years ended December 31,
1998 and 1999.
6. RELATED-PARTY TRANSACTIONS
Services provided to the Company by the Parent Company include support in
major functional areas, such as accounting, human resources, legal, risk
management, payroll, sales and marketing and taxes. Such expenses, included in
the accompanying statements of operations, have been allocated to the Company
based on the relative level of time incurred for the respective service. Rent
expense has been allocated based on the Company's proportionate amount of space
occupied. Senior management salaries have been allocated to the Company based on
the percentage of time devoted by said management personnel to the Company.
Management believes the basis for these allocations is reasonable.
In 1998 and 1999, the Company utilized its Parent Company as one of its
agents. In addition to the 20% commission discount granted to its non-affiliated
agents (Note 2), the Company provided an additional discount of 30% to the
Parent Company. The additional discount is also recorded as a deduction from
revenue in the accompanying statements of operations. Revenues, net of the
agency discount, from the Parent Company were approximately $4.2 million and
$5.6 million for the years ended December 31, 1998 and 1999, respectively.
The Due to Parent Company account in the accompanying balance sheets
represents funds advanced to CareerMosaic by the Parent Company. Interest
charged to the Company varies on a monthly basis. Interest expense of $31,083
and $41,090 is included in the accompanying statements of operations for the
period from incorporation to December 31, 1999 and the three months ended March
31, 2000, respectively. The amounts are based on an average interest rate of
5.37% and 5.79% for the period from incorporation to December 31, 1999 and the
three months ended March 31, 2000, respectively.
7. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and income tax purposes. As discussed in Note 2, the Company is
included in the consolidated return of Omnicom. No tax-sharing arrangement
exists between Omnicom and the Company.
The benefit for income taxes is attributable to the following:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Current..................................................... $(189,349) $ --
Deferred.................................................... (354,059) (1,011,666)
Increase in valuation allowance............................. 354,059 1,011,666
--------- -----------
Income tax benefit........................................ $(189,349) $ --
========= ===========
</TABLE>
F-11
<PAGE> 18
CAREER MOSAIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The income tax benefit reflected for 1998 represents a carryback of the
loss generated in 1998 to offset income recognized by the company in 1997. No
receivable for this benefit has been reflected since no tax sharing agreement
exists between the company and Omnicom.
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of December 31, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 342,913 $ 1,319,983
Allowance for doubtful accounts........................... 18,396 18,396
Accumulated amortization.................................. 22,280 62,036
--------- -----------
Total deferred tax assets......................... 383,589 1,400,415
--------- -----------
Deferred tax liabilities:
Accelerated depreciation.................................. 4,342 9,502
--------- -----------
Net deferred asset.......................................... 379,247 1,390,913
Valuation allowance......................................... (379,247) (1,390,913)
--------- -----------
Net deferred taxes................................ $ -- $ --
========= ===========
</TABLE>
The Company's federal, state and local net operating loss carryforwards
("NOLs") of $2,870,152 as of December 31, 1999 would expire beginning in the
year 2018 for federal NOLs and 2013 for state and local NOLs. Since the
Company's losses have been included in the consolidated income tax returns of
Omnicom, no loss carryforwards are available to the Company. As a result the
Company has provided a 100% valuation allowance against the NOL portion of the
deferred tax asset. As the Company is unable to conclude that it is more likely
than not that the remaining deferred tax assets will be recognized, the Company
also has provided a 100% valuation allowance against these deferred tax assets.
A reconciliation of the income tax benefit computed at statutory tax rates
to the income tax benefit recorded for the years ended December 31, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
----- -----
<S> <C> <C>
Income tax benefit at statutory rate........................ (34.0)% (34.0)%
State and local income taxes, net of federal benefit........ (12.0) (12.0)
Other....................................................... 0.5 0.4
Change in valuation allowance............................... 29.6 45.6
----- -----
Income tax provision...................................... (15.9)% 0.0%
===== =====
</TABLE>
8. SUBSEQUENT EVENTS
On April 15, 2000 HeadHunter and the Company entered into an Agreement and
Plan of Merger pursuant to which the Company shall merge with and into a wholly
owned subsidiary of HeadHunter. In the merger, each share of common stock of the
Company will be converted into 750 shares of HeadHunter's common stock. An
aggregate of 7.5 million shares of HeadHunter common stock will be issued to the
stockholders of the Company in the merger. This transaction is subject to
certain closing conditions, including regulatory approvals and approval by
HeadHunter's shareholders.
Additional agreements will be entered into in connection with the merger,
and a summary of the key terms follows:
Credit Agreement between HeadHunter and Omnicom Finance, Inc. wherein
Omnicom Finance, Inc. will provide a revolving line of credit of up to
$10,000,000 to HeadHunter. The revolving line of credit will
F-12
<PAGE> 19
CAREER MOSAIC INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
terminate and the outstanding principal and unpaid interest will become payable
upon the earlier of (1) the first anniversary of the effective time of the
merger or (2) any public offering by HeadHunter which results in gross cash
proceeds to HeadHunter of at least $30,000,000.
Administrative Services Agreement between HeadHunter and the Parent Company
to facilitate the combination of HeadHunter and the Company. The Parent Company
will provide specific transitional and administrative services to HeadHunter for
a period of one year after the effective time of the merger. For such services,
HeadHunter will pay a monthly or hourly fee based on the services provided and
will reimburse the Parent Company for all reasonable out of pocket expenses
incurred in connection with the services provided.
Agency Agreement between HeadHunter and the Parent Company under which the
Parent Company may sell HeadHunter's recruiting services at rates prescribed by
HeadHunter. The Parent Company will pay to HeadHunter a percentage of all gross
billings attributable to HeadHunter services that it sells, which percentage
will be adjusted quarterly based on the immediately preceding quarter's
annualized gross billings. The Parent Company is not obligated to sell
HeadHunter services. The agreement has an initial term of two years and will
automatically renew for an additional two years unless either party gives
written notice at least 60 days prior to the end of the term. Either party may
terminate this agreement upon 30 days written notice.
Prior to the merger, the Company will issue an additional 9,900 shares of
CareerMosaic stock.
F-13
<PAGE> 20
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet as of March 31,
2000, reflects the assumed consummation of the merger accounted for under the
purchase method of accounting. The following unaudited pro forma combined
statements of operations for the three months ended March 31, 2000, and for the
year ended December 31, 1999, reflect the assumed consummation of merger
accounted for under the purchase method as of the beginning of each such period.
No adjustment has been included in the pro forma amounts for any anticipated
cost savings or other synergies. See "The Merger -- Accounting Treatment of the
Merger."
The unaudited pro forma financial information has been prepared by the
management of HeadHunter.NET based on the historical financial statements of
HeadHunter.NET and CareerMosaic. The unaudited pro forma combined financial
information is prepared for informational purposes only and is not necessarily
indicative of future results or of actual results that would have been achieved
had the merger been consummated at the beginning of the periods presented nor is
it indicative of future financial position or results of operations. The
unaudited pro forma combined financial information is based on the historical
financial statements of HeadHunter.NET and CareerMosaic and should be read in
conjunction with the respective historical financial statements. CareerMosaic
previously operated as a division of Bernard Hodes Group, a subsidiary of
Omnicom Group. Accordingly, CareerMosaic's historical financial information may
not be indicative of what its financial position and results of operations would
have been had it operated as a separate stand-alone entity.
F-14
<PAGE> 21
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
HEADHUNTER.NET CAREERMOSAIC ADJUSTMENTS HEADHUNTER.NET
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 13,576,977 $ -- $ (2,000,000)(a) $ 16,576,977
5,000,000(b)
Short-term investments............... 5,503,901 -- -- 5,503,901
Accounts receivable, net............. 3,667,844 1,385,121 -- 5,052,965
Prepaid expenses and other assets.... 1,069,670 318,011 -- 1,387,681
------------ ----------- ------------ ------------
Total current assets.......... 23,818,392 1,703,132 3,000,000 28,521,524
------------ ----------- ------------ ------------
PROPERTY AND EQUIPMENT, net............ 3,390,193 913,320 -- 4,303,513
INTANGIBLES, NET....................... 1,164,658 1,264,833 66,653,239 69,082,730
OTHER ASSETS........................... 575,581 265,573 -- 841,154
------------ ----------- ------------ ------------
Total assets.................. $ 28,948,824 $ 4,146,858 $ 69,653,239 $102,748,921
============ =========== ============ ============
CURRENT LIABILITIES:
Accounts payable..................... $ 1,724,984 $ 87,255 $ -- $ 1,812,239
Accrued expenses..................... 3,510,641 1,920,510 -- 5,431,151
Due to parent........................ -- 6,095,557 (6,095,557)(a) --
Customer deposits.................... 203,840 -- -- 203,840
Deferred revenue..................... 3,492,516 1,617,332 -- 5,109,848
------------ ----------- ------------ ------------
Total current liabilities..... 8,931,981 9,720,654 (6,095,557) 12,557,078
------------ ----------- ------------ ------------
Common stock......................... 109,097 100 (100)(a) 184,097
75,000(d)
Additional paid-in capital........... 64,899,582 664,346 69,435,654(a)(b) 134,999,582
Stock warrants....................... 341,834 -- -- 341,834
Accumulated deficit.................. (41,576,517) (6,238,242) 2,481,089(a)(c) (45,333,670)
Deferred compensation................ (3,757,153) -- 3,757,153(c) --
------------ ----------- ------------ ------------
Total equity.................. 20,016,843 (5,573,796) 75,748,796 90,191,843
------------ ----------- ------------ ------------
Total liabilities and
equity...................... $ 28,948,824 $ 4,146,858 $ 69,653,239 $102,748,921
============ =========== ============ ============
</TABLE>
---------------
(a) Reflects our estimate of the purchase price allocation arising from the
merger of CareerMosaic into our wholly owned subsidiary as if it had
occurred on January 1, 1999. A summary of the computation is as follows:
<TABLE>
<S> <C>
Purchase Price.............................................. $ 65,175,000
Less: Net tangible assets acquired.......................... (521,761)
Less: Identifiable intangible assets........................ (63,181,410)
------------
1,471,829
Plus: Transaction costs of purchase acquisition............. 2,000,000
------------
Excess purchase price over the fair value of CareerMosaic's
net assets acquired (i.e. goodwill)....................... $ 3,471,829
============
</TABLE>
(a) The estimated allocation of the purchase price should be considered
preliminary. Subsequent to the consummation of the transaction, we will
undertake a full investigation of the allocation of the purchase price among
the assets acquired. The result of such an investigation may materially
impact our results of operations as allocation of value among assets
acquired and liabilities assumed with differing useful lives may differ from
our management's current estimate.
(b) Reflects $5 million to be contributed by Bernard Hodes Group to
CareerMosaic.
(c) Reflects the vesting of outstanding options of HeadHunter.NET which vest
upon change in control.
(d) Reflects 7.5 million shares of HeadHunter.NET common stock issued to
stockholders of CareerMosaic in the merger (representing approximately $65.2
million, at $8.69 per share) as if such shares were outstanding since
January 1, 1999.
F-15
<PAGE> 22
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
HEADHUNTER.NET CAREERMOSAIC ADJUSTMENTS(A) HEADHUNTER.NET
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
REVENUES........................... $ 6,379,553 $ 3,630,922 $ -- $ 10,010,475
OPERATING EXPENSES:
Cost of revenues................. 86,876 -- -- (a) 86,876
Marketing and selling............ 9,250,433 4,997,251 -- (a) 14,247,684
General and administrative....... 1,865,842 3,246,177 -- (a) 5,112,019
Stock compensation expense....... 255,062 -- (121,120)(b) 133,942
Depreciation and amortization.... 297,137 160,059 3,332,662 (c) 3,789,858
Allocated corporate costs........ -- 541,449 -- 541,449
----------- ----------- ------------- ------------
TOTAL OPERATING
EXPENSES............... 11,755,350 8,944,936 3,211,542 23,911,828
OTHER INCOME (EXPENSE):
Interest income (expense)........ -- (41,090) -- (41,090)
Other income (expense)........... 277,572 -- -- 277,572
----------- ----------- ------------- ------------
INCOME (LOSS) BEFORE INCOME
TAXES............................ (5,098,225) (5,355,104) (3,211,542) (13,664,871)
----------- ----------- ------------- ------------
INCOME TAX BENEFIT................. -- -- -- --
----------- ----------- ------------- ------------
NET INCOME (LOSS).................. $(5,098,225) $(5,355,104) $ (3,211,542) $(13,664,871)
=========== =========== ============= ============
Basic and diluted loss per
share:........................... (0.47) (0.74)
=========== ============
Weighted average number of common
shares -- basic and diluted...... 10,851,196 7,500,000(d) 18,351,196
=========== ============= ============
</TABLE>
---------------
(a) Adjustments have not been made to cost of revenue or to selling, general and
administrative costs. However, cost of revenue and selling, general and
administrative costs incurred by CareerMosaic may not be indicative of the
cost of revenue and selling, general and administrative costs that would
have been incurred by HeadHunter.NET in relation to the same assets.
(b) Reflects the reduction of stock compensation expense related to the
amortization of deferred compensation in connection with stock options
issued prior to January 1, 1999.
(c) Represents additional amortization based on preliminary purchase price
allocation as noted in footnote (a) to the pro forma balance sheet for the
acquisition of CareerMosaic using a five-year amortization period. Purchase
price will be allocated to certain identifiable intangible assets including
customer list, trademark, technology, workforce and non-compete agreement
with the remaining purchase price being allocated to goodwill.
(d) Reflects 7.5 million shares of HeadHunter.NET common stock issued to
stockholders of CareerMosaic in the merger (representing approximately $65.2
million, at $8.69 per share) as if such shares were outstanding since
January 1, 1999. Also, excludes the effect of stock options for purposes of
the diluted earnings per share calculation, since the effect for pro forma
purposes is antidilutive.
F-16
<PAGE> 23
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
HEADHUNTER.NET CAREERMOSAIC ADJUSTMENTS(A) HEADHUNTER.NET
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
REVENUES............................ $ 9,253,954 $13,636,170 $ -- $ 22,890,124
OPERATING EXPENSES:
Cost of revenues.................. 147,275 -- --(a) 147,275
Marketing and selling............. 9,898,815 6,402,685 --(a) 16,301,500
General and administrative........ 3,786,728 7,083,566 --(a) 10,870,294
Stock compensation expense........ 5,528,114 -- (484,480)(b) 5,043,634
Depreciation and amortization..... 528,256 280,075 13,330,648(c) 14,138,979
Allocated corporate costs......... -- 2,049,778 -- 2,049,778
------------ ----------- ------------- ------------
Total Operating
Expenses................ 19,889,188 15,816,104 12,846,168 48,551,460
OTHER INCOME (EXPENSE):
Interest income (expense)......... -- (31,083) -- (31,083)
Other income (expense)............ 379,198 -- -- 379,198
------------ ----------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES... (10,256,036) (2,211,017) (12,846,168) (25,313,221)
------------ ----------- ------------- ------------
INCOME TAX BENEFIT.................. -- -- -- --
------------ ----------- ------------- ------------
NET INCOME (LOSS)................... $(10,256,036) $(2,211,017) $ (12,846,168) $(25,313,221)
============ =========== ============= ============
Basic and diluted loss per share:
(d)............................... (5.90) (3.18)
============ ============
Weighted average number of common
shares -- basic and diluted....... 5,412,135 9,390,411(e) 14,802,546
============ ============= ============
</TABLE>
---------------
(a) Adjustments have not been made to cost of revenue or to selling, general
and administrative costs. However, cost of revenue and selling, general and
administrative costs incurred by CareerMosaic may not be indicative of the
cost of revenue and selling, general and administrative costs that would
have been incurred by HeadHunter.NET in relation to the same assets.
(b) Reflects the reduction of stock compensation expense related to the
amortization of deferred compensation in connection with stock options
prior to January 1, 1999.
(c) Represents additional amortization based on preliminary purchase price
allocation as noted in footnote (a) to the pro forma balance sheet for the
acquisition of CareerMosaic using a five-year amortization period. Purchase
price will be allocated to certain identifiable intangible assets including
customer list, trademark, technology, workforce and non-compete agreement
with the remaining purchase price being allocated to goodwill.
(d) In January 1999, a one-time non-cash charge to accumulated deficit of $21.7
million was recorded in conjunction with the conversion of the loan and
security agreement from debt to equity. This conversion was accounted for
as a distribution to the Class A preferred shareholders and therefore, an
increase in net loss attributable to common shareholders.
(e) Reflects (i) 3 million shares of HeadHunter.NET common stock issued in a
public offering completed August 19, 1999 and (ii) 7.5 million shares of
HeadHunter.NET common stock issued to stockholders of CareerMosaic in the
merger (representing approximately $65.2 million, at $8.69 per share) as if
such shares were outstanding since January 1, 1999. Also, excludes the
effect of stock options for purposes of the diluted earnings per share
calculation, since the effect for pro forma purposes is antidilutive.
F-17
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEADHUNTER.NET, INC.
By: /s/ Mark W. Partin
--------------------------------------
Name: Mark W. Partin
------------------------------------
Title: Chief Financial Officer
------------------------------------
Dated: August 1, 2000
-8-
