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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 JUNE 30, 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 NO. 000-27003
HEADHUNTER.NET, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2403177
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
333 Research Court, Suite 200, Norcross, GA 30092
(Address of principal executive offices)
770/349-2400
(Registrant's telephone number, including area code)
Indicate by check X whether the registrant: (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 [ ]
The number of outstanding shares of the registrant's common stock on August 8,
2000 was 18,592,933.
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<TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets as of June 30, 2000 And December 31, 1999
Condensed Consolidated Statements of Operations for the Three Month and Six Month Periods ended June 30, 2000
and 1999
Condensed Consolidated Statements of Cash Flows for the Six Month Periods ended June 30, 2000 and 1999
Condensed Notes to Financial Statements
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
ITEM 2 Changes in Securities and Use of Proceeds
ITEM 3 Defaults upon Senior Securities
ITEM 4 Submission of Matters to a Vote of Security Holders
ITEM 5 Other Information
ITEM 6 Exhibits and Reports on Form 8-K
SIGNATURES
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
HEADHUNTER.NET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 8,553,256 $ 16,938,708
Short-term investments ....................................... 4,581,533 4,125,084
Accounts receivable:
Trade, net of allowances for doubtful accounts of $559,586
and $209,475 for June 30, 2000 and December 31, 1999,
respectively ............................................ 4,683,424 1,846,813
Prepaid expenses and other ................................... 1,256,402 561,418
------------ ------------
Total current assets .................................... 19,074,615 23,472,023
PROPERTY AND EQUIPMENT, NET ...................................... 4,189,136 1,749,711
INTANGIBLE ASSETS, NET ........................................... 1,813,912 1,197,071
OTHER NONCURRENT ASSETS .......................................... 2,286,834 560,939
------------ ------------
Total assets ............................................ $ 27,364,497 $ 26,979,744
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. 3,488,490 614,058
Accrued expenses ............................................. 3,423,241 1,409,923
Customer deposits ............................................ 370,428 131,356
Deferred revenue ............................................. 3,619,714 80,483
Short-Term Borrowings ........................................ 287,500 0
------------ ------------
Total current liabilities ................................. 11,189,373 2,235,820
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 45,500,000 shares authorized and
10,802,833 shares issued and outstanding at December 31, 1999,
45,500,000 shares authorized and 10,952,533 issued and
outstanding at June 30, 2000 ................................. 109,525 108,028
Additional Paid-in Capital ..................................... 64,973,620 64,784,569
Stock Warrants ................................................. 341,834 341,834
Accumulated Deficit ............................................ (45,747,763) (36,478,292)
Deferred Compensation .......................................... (3,502,092) (4,012,215)
------------ ------------
Total shareholders' equity ................................ 16,175,124 24,743,924
------------ ------------
Total liabilities and shareholders' equity ................ $ 27,364,497 $ 26,979,744
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
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HEADHUNTER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------------------------------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Service Revenue $ 9,079,959 $ 1,336,697 $ 14,758,086 $ 2,030,774
Advertising Revenue 682,702 248,231 1,384,128 382,181
------------ ----------- ------------ -----------
Total Revenues 9,762,661 1,584,928 16,142,214 2,412,955
------------ ----------- ------------ -----------
COST OF REVENUES 103,368 34,821 190,244 60,255
------------ ----------- ------------ -----------
Gross profit 9,659,293 1,550,107 15,951,970 2,352,700
OPERATING EXPENSES
Marketing and Selling Expenses 11,112,107 1,647,578 20,362,539 2,879,929
General and Administrative Expenses 2,171,913 714,236 4,037,757 1,206,506
Stock Compensation Expense 255,062 1,688,912 510,123 4,550,588
Depreciation and Amortization 535,405 109,347 832,542 198,242
------------ ----------- ------------ -----------
Operating loss (4,415,194) (2,609,966) (9,790,991) (6,482,565)
OTHER INCOME (EXPENSE): 243,947 (31,492) 521,520 (40,915)
------------ ----------- ------------ -----------
NET LOSS $ (4,171,247) $(2,641,458) $ (9,269,471) $(6,523,480)
============ =========== ============ ===========
NET LOSS PER SHARE:
Basic and diluted net loss per share $ (0.38) $ (1.17) $ (0.85) $ (12.55)
============ =========== ============ ===========
Weighted average common shares outstanding 10,937,964 2,252,889 10,894,580 2,248,729
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements
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HEADHUNTER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------------
2000 1999
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $ (9,269,471) $(6,523,480)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and Amortization ................................... 832,542 198,242
Compensation Expense ............................................ 510,123 4,550,588
Changes in working capital:
Increase in current assets ...................................... (5,257,490) (513,090)
Increase in current liabilities ................................. 8,666,055 312,076
------------ -----------
Net cash used in operating activities ........................ (4,518,241) (1,975,664)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments ................................ (456,449) --
Purchase of property and equipment ................................ (3,038,808) (393,149)
Acquisitions ...................................................... (550,000) --
------------ -----------
Net cash used in investing activities ........................ (4,045,257) (393,149)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Class A preferred stock ......................................... -- 406,750
Proceeds from issuance of common stock to
Officers and key employees ...................................... 190,546 280,000
(Repayments of) Proceeds of Debt .................................. (12,500) 1,630,000
------------ -----------
Net cash provided by financing activities .................... 178,046 2,316,750
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................... (8,385,452) (52,063)
CASH AND CASH EQUIVALENTS, beginning of period ...................... 16,938,708 254,937
------------ -----------
CASH AND CASH EQUIVALENTS, end of period ............................ $ 8,553,256 $ 202,874
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Short-term debt issued related to acquisition of internet domain name $ 300,000 $ --
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements
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HEADHUNTER.NET, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(UNAUDITED)
1. The accompanying unaudited interim condensed consolidated financial
statements have been prepared by management of HeadHunter.NET, Inc.
("the Company") in accordance with rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Article 10 of
Regulation S-X of the SEC. The accompanying unaudited consolidated
condensed financial statements reflect, in the opinion of management,
all adjustments necessary to achieve a fair statement of the Company's
financial position and results for the interim periods presented. All
such adjustments are of a normal and recurring nature. These condensed
financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1999, as
amended.
2. Basic loss per common share ("EPS") was computed by dividing net loss
attributable to common shareholders by the weighted average number of
shares of common stock outstanding for the period then ended. The
effect of the Company's stock options (using the treasury stock
method) was excluded in the computation of diluted EPS for the three
months and six months ended June 30, 2000 and June 30, 1999,
respectively, as it is anti-dilutive.
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. The following table represents a reconciliation of the
net loss per the statement of operations to the net loss attributable
to common shareholders:
<TABLE>
<S> <C>
Net Loss ............................................................. $ (6,523,480)
Distribution to preferred shareholders ............................... (21,699,996)
------------
Net loss available to common shareholders ............................ $(28,223,476)
============
Weighted average shares outstanding .................................. 2,248,729
============
Net loss per share ................................................... $ (12.55)
------------
</TABLE>
3. On August 24, 1999, the Company completed its initial public offering
of 3,000,000 shares of common stock at an offering price of $10.00 per
share. Net proceeds from the offering were approximately $27.0 million
after deducting underwriters' discounts and commissions and expenses of
the offering. The Company used a portion of the proceeds to pay off all
of its long-term debt, a $250,000 payment in December 1999 for the
acquisition of All In One Submit and for general corporate purposes
including sales and marketing initiatives. On September 7, 1999, the
underwriters exercised their over-allotment option to purchase an
additional 450,000 shares which were sold in the offering at $10.00 per
share. All of these shares were sold by two selling shareholders and
the Company did not receive any proceeds as a result of the sale.
SUBSEQUENT EVENT
4. On July 19, 2000, HeadHunter.NET, Inc. closed its acquisition of Career
Mosaic Inc., a unit of the marketing communications firm Bernard Hodes
Group, Inc., a wholly owned subsidiary of Omnicom Group Inc. and issued
7.5 million shares to the Career Mosaic stockholders.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. All statements regarding our
expected financial position and operating results, our business
strategy and our financing plans are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking
words such as "may," "will," "anticipate," "estimate," "expect," or
"intend." Known and unknown risks, uncertainties and other factors
could cause our actual results to differ materially from those
contemplated by these statements. Such risks and uncertainties include
our ability to retain and grow our subscriber base, our ability to
successfully integrate new subscribers and/or assets obtained through
acquisitions, the highly competitive markets in which we operate and
our ability to respond to technological developments affecting the
Internet. The Company's Annual Report on Form 10-K, as amended, filed
with the Securities and Exchange Commission discusses some additional
important factors that could cause the Company's actual results to
differ materially from those in such forward-looking statements.
OVERVIEW
We provide online recruiting services to employers, recruiters and job seekers
via our web site. HNET, Inc., our predecessor, was founded in October 1995 and
was wholly owned by Warren L. Bare. From its inception until late 1996, HNET,
Inc. derived all of its revenues from web site development consulting services.
As a result of the experience that it gained during this period, HNET, Inc.
identified online recruiting as an emerging industry. It launched the
www.headhunter.net web site in October 1996, and began to focus on growing its
online recruiting service business.
In October 1997, HNET, Inc. entered into an investment agreement with ITC
Holding Company, Inc. under which:
- HeadHunters, L.L.C. was formed;
- HNET, Inc. contributed all of its assets related to the
operation of the web site in exchange for a 45% interest in
HeadHunters, L.L.C.; and
- ITC contributed $1.1 million in cash in exchange for a 55%
interest in HeadHunters, L.L.C.
This transaction was accounted for as a purchase.
In July 1998, HeadHunters, L.L.C., ITC and Warren L. Bare entered into a
contribution agreement under which:
- HeadHunter.NET, Inc. was incorporated;
- Mr. Bare contributed all of the outstanding stock of HNET,
Inc. to us in exchange for 2,200,000 shares of our common
stock and 50,000 shares of our Class A preferred stock; and
- ITC contributed its 55% interest in HeadHunters, L.L.C. to us
in exchange for 2,750,000 shares of our Class A preferred
stock.
This transaction was accounted for in a manner similar to a pooling of interest.
As a result of this transaction, HeadHunters, L.L.C. and HNET, Inc. became our
wholly-owned subsidiaries.
We derive revenue primarily from fees paid by employers and recruiters to post a
job opportunity on our web site using performance postings which allow premium
positioning within a search result. We also earn revenue from fees paid by
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employers and recruiters for additional services and from the sale of banner
advertisements. Initially, we charged one flat fee for a combination of our
services, although we did not charge employers and recruiters to post job
opportunities on our web site. As a result, revenue was earned principally from
a combination of upgrade fees and the sale of banner advertisements on our web
site, with sales of banner advertising comprising a more significant percentage
of our revenues. We modified our pricing structure effective as of August 1,
1998 and began offering upgrade services on a per job basis and on April 3, 2000
we changed our pricing and packaging structure by replacing the upgrade service
with performance postings that offer enhanced visibility based upon the product
pricing. As a result of the growth of our sales force and the pricing changes
related to job postings, revenue associated with job postings has continued to
grow as a percentage of our revenues. We also continue to generate additional
sources of revenue from banner advertising and the sale of complementary
services to our job posting products.
From June 1, 1999 until April 3, 2000, we charged employers and recruiters a fee
for a basic posting of job opportunities and employers and recruiters who wanted
to improve the placement of their jobs in a search result could pay an
additional fee. Beginning on April 3, 2000 we changed the pricing and packaging
of our job posting service to a performance posting service where employers and
recruiters purchase a single product at a price point that gives them the
desired priority in the job search results. The new minimum cost is $50 for an
economy listing while the standard listing is priced at $100. Increases in
search result priority are available in $25 increments. We generally provide
favorable pricing terms to employers and recruiters that post a significant
number of job opportunities.
We implemented our "VIP Resume Reserve" service in April 1999. Until February
2000, we held all resumes in our VIP Resume Reserve for seven days before we
posted them for general review on our web site. The reserve also contained
resumes that job seekers specifically requested to remain in the reserve instead
of being posted for general review. In February 2000, we implemented a new
pricing structure whereby employers and recruiters must pay a quarterly or
annual subscription fee to access any complete resume.
We believe that job posting fees and fees paid to access resumes will account
for a substantial majority of our revenues for the foreseeable future.
We record advance billings prior to the delivery of services or the display of
an advertisement as deferred revenues and recognize them as revenue ratably when
the services are provided or the advertisements are displayed. At June 30, 2000
and December 31, 1999, we had approximately $3.6 million and $80,000 of deferred
revenues, respectively.
Our costs and expenses include:
- costs of revenues, consisting of bandwidth access fees,
co-location costs and Internet connection charges;
- marketing and selling expenses, consisting primarily of
salaries and commissions for sales, marketing and customer
service personnel, advertising costs and other
marketing-related expenses (including strategic relationship
and product design costs);
- general and administrative expenses, consisting primarily of
salaries and related costs for general corporate functions,
including finance and accounting personnel, software
development and technical personnel, office facilities and fees
for professional services; and
- depreciation and amortization, including depreciation of
computer and other equipment and amortization of goodwill.
We have recently made significant changes to our pricing policy. Accordingly, we
have an extremely limited operating history on which you can base an evaluation
of our company. Thus, period-to-period comparisons of our operating results are
not particularly meaningful, and you should not rely on the results for any
period as an indication of our future performance. We have experienced, and
expect to continue to experience, seasonality in our user traffic, with lower
traffic during the summer
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vacation and year-end holiday periods. Because our business model is new, we do
not know if our results of operations are subject to any additional seasonal
fluctuations. We believe that revenue from classified advertising and other
traditional recruiting services is generally lower in the months of July,
November and December because of vacation periods and holiday seasons. As the
online recruiting market develops, we believe that we may experience similar
seasonal patterns or discover other seasonal patterns.
We have a history of losses and at June 30, 2000 and December 31, 1999, we had
an accumulated deficit of $45.7 and $36.5 million, respectively, which includes
a one-time non-cash charge of $21.7 million for the difference between the fair
value and the conversion price of the loan and security agreement related to
conversion of this instrument from debt to equity in January 1999. This was
accounted for as a distribution to ITC Service Company, a Class A preferred
shareholder, and therefore, an increase in net loss attributable to common
shareholders. See Note 2 to our financial statements for further discussion. We
expect to continue to incur losses and negative cash flow for the foreseeable
future. In addition, to foster our planned growth, we expect to continue to
significantly increase our operating expenses in the areas of marketing, sales
and technology.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by certain
line items in the Company's condensed consolidated statements of operations for
the periods indicated
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------- ------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
REVENUES:
Service Revenue 93% 84% 91% 84%
Advertising Revenue 7 16 9 16
---- ---- ---- ----
Total Revenues 100 100 100 100
---- ---- ---- ----
COST OF REVENUES 1 2 1 2
---- ---- ---- ----
Gross profit 99 98 99 98
OPERATING EXPENSES
Marketing and Selling Expenses 114 104 126 119
General and Administrative Expenses 22 45 25 50
Stock Compensation Expense 3 106 3 189
Depreciation and Amortization 5 7 5 8
---- ---- ---- ----
Operating loss (45) (164) (60) (268)
OTHER INCOME (EXPENSE): 2 (2) 3 (2)
---- ---- ---- ----
NET LOSS (43)% (166)% (57)% (270)%
==== ==== ==== ====
</TABLE>
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Three Months Ended June 30, 2000, As Compared to the Three Months Ended June 30,
1999
Revenues. Our revenues increased $8.2 million, or 513%, from $1.6
million for the three months ended June 30, 1999 to $9.8 million for the three
months ended June 30, 2000. Revenues from job posting and upgrade fees grew from
$1.3 million to $9.1 million. This increase primarily resulted from the pricing
changes that were implemented on June 1, 1999 and April 3, 2000, the growth of
our direct sales force, and a more aggressive marketing campaign. During the
same time frame, our advertising revenue grew from $248,000 to $683,000. This
growth resulted from an increase in traffic to our web site, which enabled us to
sell more banner advertisements on our web site.
Costs of revenues. Our costs of revenues increased $68,000, or 194%,
from $35,000 for the three months ended June 30, 1999 to $103,000 for the three
months ended June 30, 2000. Costs of revenues increased primarily due to
increased bandwidth access fees, co-location costs and Internet connection
charges to accommodate the growth in user traffic and content on our web site.
However, as a percentage of revenue, our costs of revenues decreased from 2% for
the three months ended June 30, 1999 to 1% for the comparable period in 2000.
The decrease in costs as a percentage of revenues was primarily due to economies
of scale.
Marketing and selling expenses. Marketing and selling expenses
increased $9.5 million, or 594%, from $1.6 million for the three months ended
June 30, 1999 to $11.1 million for the three months ended June 30, 2000.
Marketing expenses increased $5.6 million, or 613%, from $911,000 for the three
months ended June 30, 1999 to $6.5 million for the three months ended June 30,
2000. This increase is primarily the result of aggressive advertising and
marketing campaigns designed to attract more employers, recruiters and job
seekers to our web site and personnel to support increased marketing activities.
Selling expenses increased $3.8 million, or 516%, from $736,000 for the three
months ended June 30, 1999 to $4.6 million for the three months ended June 30,
2000. This increase is primarily due to the addition of direct sales personnel
to our sales force from June 30, 1999 through June 30, 2000, and sales
management and administrative personnel hired to support our sales effort.
General and administrative expenses. General and administrative
expenses increased $1.5 million, or 208%, from $714,000 for the three months
ended June 30, 1999 to $2.2 million for the three months ended June 30, 2000.
The increase in these expenses was primarily due to an increase of $758,000 for
salaries, benefits and other employee-related costs due to the hiring of
additional personnel, an increase of $345,000 in bad debt expenses related to
the increase in revenues, and an increase of $109,000 related to increased
facilities and equipment requirements to support additional personnel. We expect
general and administrative expenses to continue to grow as we hire additional
personnel and incur additional expenses to support the growth of our operations.
Stock compensation expense. Stock compensation expense was $255,000 for
the three months ended June 30, 2000 related to the amortization of compensation
expense for option grants issued below fair value. During the three months ended
March 31, 1999, we sold 271,167 shares of Class A preferred stock to executive
officers, key employees and directors at $1.50 per share. During the three
months ended June 30, 1999 we sold 140,000 shares of common stock to a group of
executive officers, key employees and directors at $2.00 per share. In
accordance with Accounting Principles Board Opinion No. 25, in the three months
ended June 30, 1999 we recognized $1.2 million in compensation expense related
to the difference between the purchase price and the estimated fair value of the
shares of Class A preferred stock and common stock. Further, we recognized
$460,00 of compensation expense in the three months ended June 30, 1999 related
to the amortization of compensation expense for option grants issued below fair
value.
Depreciation and amortization. Depreciation and amortization increased
$426,000, or 391%, from $109,000 for the three months ended June 30, 1999 to
$535,000 for the three months ended June 30, 2000. The increase in depreciation
was
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primarily the result of the purchase of additional capital equipment. The
amortization expense remained relatively level and relates to goodwill of
approximately $1.0 million created upon the formation of HeadHunters, L.L.C.
Six Months Ended June 30, 2000, As Compared to the Six Months Ended June 30,
1999
Revenues. Our revenues increased $13.8 million, or 575%, from $2.4
million for the six months ended June 30, 1999 to $16.2 million for the six
months ended June 30, 2000. Service revenues grew from $2.0 million to $14.8
million. This increase primarily resulted from the pricing changes that were
implemented, the growth of our direct sales force, and a more aggressive
marketing campaign. During the same time frame, our advertising revenue grew
from $382,000 to $1.4 million. This growth resulted from an increase in traffic
to our web site over the same period last year, which enabled us to sell more
advertising impressions.
Costs of revenues. Our costs of revenues increased $130,000, or 217%,
from $60,000 for the six months ended June 30, 1999 to $190,000 for the six
months ended June 30, 2000. Cost of revenues increased primarily due to
increased bandwidth access fees, co-location costs and Internet connection
charges to accommodate the growth in user traffic and content on our web site.
However, as a percentage of our revenue, our costs of revenues decreased from 2%
for the six months ended June 30, 1999 to 1% for the comparable period in 2000.
The decrease in costs as a percentage of revenues was primarily due to economies
of scale.
Marketing and selling expenses. Marketing and selling expenses
increased $17.5 million, or 603%, from $2.9 million for the six months ended
June 30, 1999 to $20.4 million for the six months ended June 30, 2000. Marketing
expenses increased $11.4 million, or 713%, from $1.6 million for the six months
ended June 30, 1999 to $13.0 million for the six months ended June 30, 2000.
This increase is primarily the result of aggressive advertising and marketing
campaigns designed to attract more employers, recruiters and job seekers to our
web site. Selling expenses increased $6.2 million, or 517%, from $1.2 million
for the six months ended June 30, 1999 to $7.4 million for the six months ended
June 30, 2000. This increase is primarily due to the addition of direct sales
personnel to our sales force from June 30, 1999 through June 30, 2000, and sales
management and administrative personnel hired to support our sales effort.
General and administrative expenses. General and administrative
expenses increased $2.8 million, or 233%, from $1.2 million for the six months
ended June 30, 1999 to $4.0 million for the six months ended June 30, 2000. The
increase in these expenses was primarily due to the hiring of additional
personnel, product development, and other infrastructure costs. We expect
general and administrative expenses to continue to grow as we hire additional
personnel and incur additional expenses to support the growth of our operations.
Stock Compensation Expense. Stock compensation expense was $510,000 for
the six months ended June 30, 2000 related to the amortization of compensation
expense for option grants issued below fair value. During the six months ended
June 30, 1999, we sold 271,167 shares of Class A preferred stock and 140,000
shares of common stock to a group of executive officers, key employees and
directors at $1.50 per share and $2.00 per share respectively. In accordance
with Accounting Principles Board Opinion No. 25, in the six months ended June
30, 1999 we recognized $3.8 million in compensation expense related to the
difference between the purchase price and the estimated fair value of the shares
of Class A preferred stock and common stock. Further, we recognized $796,000 of
compensation expense in the six months ended June 30, 1999 related to the
amortization of compensation expense for option grants issued below fair value.
Depreciation and amortization. Depreciation and amortization increased
$635,000, or 321%, from $198,000 for the six months ended June 30, 1999 to
$833,000 for the six months ended June 30, 2000. The increase in depreciation
was
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primarily the result of the purchase of additional capital equipment. The
amortization expense remained relatively level and relates to the acquisition of
software rights of approximately $1.0 million from a predecessor company.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had approximately $8.6 million in cash and cash
equivalents and $4.6 million in investments in high-grade short-term investments
having maturities less than ninety days. Net cash used in operating activities
was $4.5 million and $2.0 million for the six months ended June 30, 2000 and the
six months ended June 30, 1999, respectively. Net cash used in operating
activities primarily consisted of the net loss for the periods.
Net cash used in investing activities were for capital expenditures in the six
months ended June 30, 1999 totaled $393,000. For the six months ended June 30,
2000, net cash invested in capital expenditures and the acquisition of the
internet domain name, www.jobsearch.com, totaled $4.0 million. Investing
activities included the purchase of high-grade short-term investments having
maturities of less than one year of $456,000 for the six months ended June 30,
2000 and $0 for the period ending June 30, 1999, respectively. The majority of
the capital purchases relate to telecommunications and computer equipment to
build our network infrastructure and office furniture to accommodate our
increased personnel. We currently have no material commitments for capital
expenditures other than in the ordinary course of business.
Net cash provided by financing activities was $178,000 and $2.3 million for the
six months ended June 30, 2000 and for the six months ended June 30, 1999,
respectively. In 1999 the amount relates to net proceeds received from the
issuance of Class A preferred stock which was converted to common stock at the
time of the August 19, 1999 initial public offering, the issuance of common
stock to officers, employees and directors and $1,630,000 in debt funding
provided by ITC Service Company. In 2000 the amount relates to purchases of
common stock by officers and employees and financing of $288,000 provided by the
seller of the domain name www.jobsearch.com and the issuance of common stock to
officers, employees and directors. We have incurred losses and negative cash
flows from operations since inception as a result of efforts to build out our
network infrastructure, increase staffing, and develop our systems. On July 19,
2000 we completed our merger with Career Mosaic, a unit of the marketing
communications firm Omnicom Group Inc. In consideration of the merger, Omnicom
on July 19, 2000 provided $5 million in cash and has established a $10
million revolving note to be used by us for general corporate purposes. We
currently estimate that our working capital generated from operations and the
net proceeds of the initial public offering and the loan and cash contribution
made by Omnicom, Inc. pursuant to our merger with Career Mosaic will be
sufficient to meet our anticipated operating and capital expenditure needs for
at least the next 12 months. Depending on market opportunities, circumstances
may arise that would cause us to seek to raise additional funds through
borrowings or the issuance of equity or debt securities. The method and rate of
our pursuit of these market opportunities could be impacted by our ability to
raise such funding.
Our ability to grow will depend in part on our ability to expand and improve our
Internet operations, the effectiveness of our sales and marketing efforts, and
our customer support capabilities. We may need to raise funds in excess of our
current expectations in order to take advantage of new opportunities, to react
to unforeseen difficulties or to otherwise respond to competitive pressures. If
we raise additional funds by issuing equity or convertible debt securities, the
percentage ownership of our existing shareholders will be reduced, shareholders
may experience additional dilution, and such securities may have rights,
preferences or privileges senior to those of our common stock.
Recent Accounting Pronouncements
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The Company is required to adopt this accounting guidance, as
amended by
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SAB No. 101B, no later than January 1, 2001. SAB 101 provides additional
guidance on revenue recognition as well as criteria for when revenue is
generally realized and earned. The Company is currently reviewing the impact
of applying the provisions of SAB No. 101, and believes the adoption of SAB
No. 101 will not have a material impact on its future operating results.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risks
We believe our exposure to market rate fluctuations on our investments
is nominal due to the short-term nature of those investments. At
present, we do not employ any derivative financial instruments, other
financial instruments or derivative commodity instruments to hedge any
market risks and we do not currently plan to employ them in the future.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not a party to, nor is any of its property subject to,
any material legal proceedings.
ITEM 2. Changes in Securities and Use of Proceeds
a) Not Applicable
b) Not Applicable
c) Not Applicable
d) Our registration statement on Form S-1 (File No. 333-80915) was
declared effective on August 19, 1999. We sold 3,000,000 shares of our
common stock at an initial price of $10.00 per share. The offering was
a firm commitment underwriting which was managed by First Union Capital
Markets Corp., J.C. Bradford & Co., Wachovia Securities, Inc. and
DLJDirect Inc. We received net proceeds of approximately $27.0 million
after deducting underwriting discounts, commissions and offering
expenses. On September 7, 1999, the underwriters exercised their
over-allotment option to purchase an additional 450,000 shares of
common stock which were sold in the offering at $10.00 per share. All
of these shares were sold by two selling shareholders and the Company
did not receive any proceeds as a result of the sale.
We used $2.2 million of the net proceeds of the offering to pay all
outstanding indebtedness under our credit facility with ITC Service
Company, a wholly owned subsidiary of ITC Holding Company, Inc.
Additionally, we have used approximately $300,000 for the December 1999
acquisition of All In One Submit. Additional proceeds have been used
for working capital and general corporate purposes. Other than the
repayment of long-term debt to ITC, no proceeds were paid to our
affiliates, other than payments to our officers in accordance with our
compensation structure. The balance of the proceeds will be used for
working capital and general corporate purposes, including possible
acquisitions and sales and marketing initiatives.
ITEM 3. Defaults Upon Senior Securities
Not Applicable
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ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote by our security holders during the
second quarter ended June 30, 2000.
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
a). Exhibits
27.1 Financial Data Schedule
b). Reports on Form 8-K
On April 19, 2000, the Company filed a Current Report on Form 8-K. The
Form 8-K reported that, on April 15, 2000, HeadHunter.NET, Inc. entered
into an Agreement and Plan of Merger with Career Mosaic Inc., a
Delaware corporation.
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SIGNATURES
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 thereunto duly authorized.
HEADHUNTER.NET, INC.
Date: August 11, 2000 By: /s/ ROBERT M. MONTGOMERY
--------------- ------------------------------------
Robert M. Montgomery
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 2000 By: /s/ MARK W. PARTIN
--------------- -------------------------------------
Mark W. Partin
Chief Financial Officer
(Principal Financial Officer)
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