<PAGE>
Exhibit 99(b)
RESUMIX, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Comprehensive Income (Loss) 3
Consolidated Statements of Shareholders'(Deficit) Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Resumix, Inc.:
We have audited the accompanying consolidated balance sheets of Resumix, Inc.
and subsidiaries (the Company) as of December 31, 1998 and 1999, and the
related consolidated statements of operations and comprehensive income
(loss), shareholders' (deficit) equity, and cash flows for each of the years
in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Resumix,
Inc. and subsidiaries as of December 31, 1998 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Mountain View, California
May 26, 2000
<PAGE>
RESUMIX, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1998 1999 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,455 1,661 2,560
Accounts receivable, net of allowance for doubtful accounts
and returns of $401 and $100 as of December 31, 1998
and 1999, respectively, and $132 as of March 31, 2000 10,062 5,142 4,880
Prepaid royalties 370 569 580
Deferred tax assets 49 -- --
Other assets 552 372 396
------------ ------------ ------------
Total current assets 18,488 7,744 8,416
Property and equipment, net 2,429 2,019 1,801
Other noncurrent assets 23 73 66
Deferred tax assets 1,049 -- --
------------ ------------ ------------
$ 21,989 9,836 10,283
============ ============ ============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 462 344 327
Accrued expenses 4,432 2,702 1,746
Deferred revenue 8,212 7,327 7,119
Taxes payable 1,383 108 108
------------ ------------ ------------
Total current liabilities 14,489 10,481 9,300
Note payable to affiliate 22,755 22,755 --
------------ ------------ ------------
37,244 33,236 9,300
------------ ------------ ------------
Commitments:
Series A redeemable convertible preferred stock; $0.01 par value;
1,499,900 shares authorized, issued, and outstanding as of
December 31, 1998 and 1999 1,894 1,894 --
------------ ------------ ------------
Shareholders' (deficit) equity:
Convertible preferred stock:
Series B; $0.01 par value; 6,399,900 shares authorized;
4,900,000 shares issued and outstanding as of
December 31, 1998 and 1999, respectively 10,004 10,004 --
Series D; $0.01 par value; 850,000 shares issued and
outstanding as of March 31, 2000 -- -- 760
Series E; $0.01 par value; 12,580,000 shares issued and
outstanding as of March 31, 2000 -- -- 35,893
Common stock; no par value; 30,000,000 shares authorized;
1,700,000 and 1,700,054 shares issued and outstanding as
of December 31, 1998 and 1999, respectively; and 1,785,000
shares issued and outstanding as of March 31, 2000 561 580 979
Deferred compensation -- -- (367)
Shareholder notes receivable (83) (83) --
Accumulated other comprehensive income (loss) 28 (20) (19)
Recapitalization basis adjustment (20,637) (20,637) (20,637)
Accumulated deficit (7,022) (15,138) (15,626)
------------ ------------ ------------
Total shareholders' (deficit) equity (17,149) (25,294) 983
------------ ------------ ------------
$ 21,989 9,836 10,283
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
RESUMIX, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------ ----------------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses $ 19,186 18,784 9,562 2,323 1,755
Services and other 16,019 19,002 18,995 4,903 4,295
---------- ---------- ---------- ---------- ----------
Total revenue 35,205 37,786 28,557 7,226 6,050
---------- ---------- ---------- ---------- ----------
Cost of revenue:
Software licenses 942 1,017 470 84 66
Services and other 7,974 8,194 9,510 2,411 2,088
---------- ---------- ---------- ---------- ----------
Total cost of revenue 8,916 9,211 9,980 2,495 2,154
---------- ---------- ---------- ---------- ----------
Gross profit 26,289 28,575 18,577 4,731 3,896
---------- ---------- ---------- ---------- ----------
Operating expenses:
Research and development 7,082 7,303 8,827 2,058 1,528
Sales and marketing 13,804 15,264 13,380 3,049 1,865
General and administrative 3,947 4,248 3,452 851 915
Recapitalization - related expenses -- 2,141 -- -- --
---------- ---------- ---------- ---------- ----------
Total operating expenses 24,833 28,956 25,659 5,958 4,308
---------- ---------- ---------- ---------- ----------
Income (loss) from operations 1,456 (381) (7,082) (1,227) (412)
---------- ---------- ---------- ---------- ----------
Interest and other income (expense):
Interest income 63 59 53 33 7
Interest expense -- (608) (1,370) (342) --
Other (expense) income (20) 45 106 10 (83)
---------- ---------- ---------- ---------- ----------
Total interest and other income (expense) 43 (504) (1,211) (299) (76)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 1,499 (885) (8,293) (1,526) (488)
Income tax expense (benefit) 217 285 (177) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) 1,282 (1,170) (8,116) (1,526) (488)
Other comprehensive income (loss) - foreign
currency translation adjustments (44) 10 (48) -- 1
---------- ---------- ---------- ---------- ----------
Total comprehensive income (loss) $ 1,238 (1,160) (8,164) (1,526) (487)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
RESUMIX, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' (Deficit) Equity
Years ended December 31, 1997, 1998, and 1999, and March 31, 2000 (unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
----------------------------------------------------------------------------
SERIES B SERIES D SERIES E
------------------------ ----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1996 -- $ -- -- $ -- -- $ --
Foreign currency translation adjustment -- -- -- -- -- --
Net income -- -- -- -- -- --
----------- ----------- ----------- ---------- ------------ -----------
Balances as of December 31, 1997 -- -- -- -- -- --
Repurchase of common stock -- -- -- -- -- --
Recapitalization -- -- -- -- -- --
Issuance of Series B preferred stock 4,900,000 10,004 -- -- -- --
Issuance of common stock for services -- -- -- -- -- --
Issuance of common stock -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ---------- ------------ -----------
Balances as of December 31, 1998 4,900,000 10,004 -- -- -- --
Issuance of common stock -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ---------- ------------ -----------
Balances as of December 31, 1999 4,900,000 10,004 -- -- -- --
Issuance of employee stock options (unaudited) -- -- -- -- -- --
Amortization of deferred compensation (unaudited) -- -- -- -- -- --
Exercise of employee stock options (unaudited) -- -- -- -- -- --
Issuance of Series D and E convertible preferred
stock in exchange for Series B convertible
preferred stock, related party debt, and
$2,000,000 (unaudited) (4,900,000) (10,004) 850,000 760 12,580,000 35,893
Foreign currency translation adjustment (unaudited) -- -- -- -- -- --
Forgiveness of shareholder note receivable
(unaudited) -- -- -- -- -- --
Net loss (unaudited) -- -- -- -- -- --
----------- ----------- ----------- ---------- ------------ -----------
Balances as of March 31, 2000 (unaudited) -- $ -- 850,000 $ 760 12,580,000 $ 35,893
=========== =========== =========== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK SHAREHOLDERS'
------------------------------ DEFERRED NOTES
SHARES AMOUNT OMPENSATION RECEIVABLE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances as of December 31, 1996 8,580,000 $ 10,388 -- (418)
Foreign currency translation adjustment -- -- -- --
Net income -- -- -- --
------------- ------------- ------------- -------------
Balances as of December 31, 1997 8,580,000 10,388 -- (418)
Repurchase of common stock (80,000) (418) -- 418
Recapitalization (8,500,000) (9,970) -- --
Issuance of Series B preferred stock -- -- -- --
Issuance of common stock for services 1,450,000 478 -- --
Issuance of common stock 250,000 83 -- (83)
Foreign currency translation adjustment -- -- -- --
Net loss -- -- -- --
------------- ------------- ------------- -------------
Balances as of December 31, 1998 1,700,000 561 -- (83)
Issuance of common stock 54 19 -- --
Foreign currency translation adjustment -- -- -- --
Net loss -- -- -- --
------------- ------------- ------------- -------------
Balances as of December 31, 1999 1,700,054 580 -- (83)
Issuance of employee stock options (unaudited) -- 377 (377) --
Amortization of deferred compensation (unaudited) -- -- 10 --
Exercise of employee stock options (unaudited) 84,946 22 -- --
Issuance of Series D and E convertible preferred
stock in exchange for Series B convertible
preferred stock, related party debt, and
$2,000,000 (unaudited) -- -- -- --
Foreign currency translation adjustment (unaudited) -- -- -- --
Forgiveness of shareholder note receivable (unaudited) -- -- -- 83
Net loss (unaudited) -- -- -- --
------------- ------------- ------------- -------------
Balances as of March 31, 2000 (unaudited) 1,785,000 $ 979 (367) --
============= ============= ============= =============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE RECAPITALIZATION SHAREHOLDERS'
INCOME BASIS ACCUMULATED (DEFICIT)
(LOSS) ADJUSTMENT DEFICIT EQUITY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances as of December 31, 1996 62 -- (7,134) 2,898
Foreign currency translation adjustment (44) -- -- (44)
Net income -- -- 1,282 1,282
----------- ----------- ----------- -----------
Balances as of December 31, 1997 18 -- (5,852) 4,136
Repurchase of common stock -- -- -- --
Recapitalization -- (20,637) -- (30,607)
Issuance of Series B preferred stock -- -- -- 10,004
Issuance of common stock for services -- -- -- 478
Issuance of common stock -- -- -- --
Foreign currency translation adjustment 10 -- -- 10
Net loss -- -- (1,170) (1,170)
----------- ----------- ----------- -----------
Balances as of December 31, 1998 28 (20,637) (7,022) (17,149)
Issuance of common stock -- -- -- 19
Foreign currency translation adjustment (48) -- -- (48)
Net loss -- -- (8,116) (8,116)
----------- ----------- ----------- -----------
Balances as of December 31, 1999 (20) (20,637) (15,138) (25,294)
Issuance of employee stock options (unaudited) -- -- -- --
Amortization of deferred compensation (unaudited) -- -- -- 10
Exercise of employee stock options (unaudited) -- -- -- 22
Issuance of Series D and E convertible preferred
stock in exchange for Series B convertible
preferred stock, related party debt, and
$2,000,000 (unaudited) -- -- -- 26,649
Foreign currency translation adjustment (unaudited) 1 -- -- 1
Forgiveness of shareholder note receivable (unaudited) -- -- -- 83
Net loss (unaudited) -- -- (488) (488)
----------- ----------- ----------- -----------
Balances as of March 31, 2000 (unaudited) (19) (20,637) (15,626) 983
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RESUMIX, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------- ----------------------------
1997 1998 1999 1999 2000
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,282 (1,170) (8,116) (1,526) (488)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,017 2,087 1,713 382 349
Forgiveness of shareholder loan -- 100 -- -- 83
Issuance of common stock for services -- 478 -- -- --
Loss on disposal of property and equipment -- 8 -- -- --
Deferred taxes (463) (1,098) 1,049 -- --
Provision for accounts receivable 27 59 280 30 30
Changes in operating assets and liabilities:
Accounts receivable (99) (1,301) 4,640 3,971 232
Other assets 207 (265) (69) (237) (35)
Accounts payable (215) (128) (118) 200 (18)
Accrued expenses 306 716 (1,730) (1,926) (956)
Deferred revenue 1,873 920 (885) (834) (208)
Taxes payable -- 1,383 (1,226) 231 --
Other noncurrent liabilities (46) -- -- -- --
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 4,889 1,789 (4,462) 291 (1,011)
------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Acquisition of property and equipment (1,745) (1,283) (1,303) (420) (122)
Other noncurrent assets 199 -- -- -- --
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (1,546) (1,283) (1,303) (420) (122)
------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 19 -- 22
Issuance of preferred stock -- 10,004 -- -- 2,000
Cash paid in recapitalization -- (5,183) -- -- --
Net advances from (to) parent company (2,978) 1,166 -- -- --
------------- ------------- ------------- ------------- -------------
Net cash (used in) provided by
financing activities (2,978) 5,987 19 -- 2,022
------------- ------------- ------------- ------------- -------------
Effect of exchange rate changes on cash
and cash equivalents (44) 10 (48) -- --
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 321 6,503 (5,794) (129) 889
Cash and cash equivalents at beginning of year/period 631 952 7,455 7,455 1,661
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of year/period $ 952 7,455 1,661 7,326 2,550
============= ============= ============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during year/period:
Interest $ 29 222 1,369 393 394
============= ============= ============= ============= =============
Income taxes $ 1,091 -- -- -- --
============= ============= ============= ============= =============
Noncash financing and investing activities:
Sale (redemption) of common stock in
exchange for shareholder receivable $ -- 83 -- -- (83)
============= ============= ============= ============= =============
Repurchase of common stock in settlement
of notes receivable $ -- 418 -- -- --
============= ============= ============= ============= =============
Deferred compensation expense on
employee stock options $ -- -- -- -- 377
============= ============= ============= ============= =============
Summary of recapitalization transactions:
Cash paid to Ceridian $ -- (5,183) -- -- --
Note payable issued to Ceridian -- (22,755) -- -- --
Current taxes due from Ceridian not realized -- (312) -- -- --
Net deferred tax assets not realized -- (463) -- -- --
------------- ------------- ------------- ------------- -------------
Consideration paid/issued in
recapitalization -- (28,713) -- -- --
Common stock repurchased from Ceridian
at historical basis -- 9,970 -- -- --
Series A preferred stock issued to Ceridian at
historical basis of retained interest -- (1,894) -- -- --
------------- ------------- ------------- ------------- -------------
Consideration in excess of
historical basis (recapitalization
basis adjustment) $ -- (20,637) -- -- --
============= ============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
RESUMIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1999
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
Resumix, Inc. (Resumix or the Company) was originally incorporated
in New Jersey in 1981 and reincorporated in Delaware in 1999. The
Company designs, develops, and markets a human skills management
software product and provides related installation, training,
consulting, and support services.
As discussed in Note 4(a), on August 13, 1998, the Company and its
predecessor (Old Resumix) consummated a series of transactions
accounted for as a recapitalization. Prior to August 13, 1998, the
Company and Old Resumix were wholly owned subsidiaries of Ceridian
Corporation (Ceridian).
(b) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant intercompany transactions have been eliminated in
consolidation.
(c) UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated interim balance sheet of the Company as of March
31, 2000, and the consolidated statements of operations and
comprehensive income (loss), shareholders' (deficit) equity, and
cash flows for the three months ended March 31, 1999 and 2000, are
unaudited. Certain information and note disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for the fair
preparation of the consolidated financial position and results of
operations and cash flows, have been included in such unaudited
consolidated financial statements. The consolidated results of
operations for the three months ended March 31, 2000, are not
necessarily indicative of the results to be expected for the
entire year.
(d) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles 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 consolidated financial statements
and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(e) REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountants' (AICPA) Statement of
Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION. Product revenue
from software license fees and hardware is recognized upon
delivery provided that persuasive evidence of an arrangement
exists, that the license fee and other revenue is fixed or
determinable, and that collectibility of the arrangement fee is
probable. If an acceptance period is required, revenues are
recognized upon the earlier of customer acceptance or the
expiration of the acceptance period, as defined in the applicable
software license agreement.
6
<PAGE>
Service and other revenue includes fees derived from maintenance
contracts and delivery of training, installation, and consulting
services. Maintenance fees for postcontract customer support are
recognized ratably over the maintenance term, which is typically
12 months. Revenue from training, installation, and consulting
services is recognized as the related services are performed.
Revenue on software arrangements involving multiple elements is
allocated to each element based on the relative fair value of the
elements. If evidence of the fair value does not exist for all
elements in a multiple-element arrangement, all revenue from the
arrangement is deferred until such evidence exists or all elements
are delivered.
In January 1999, the Company adopted SOP 98-9, SOFTWARE REVENUE
RECOGNITION, WITH RESPECT TO CERTAIN ARRANGEMENTS, which requires
recognition of revenue using the "residual method" in a
multiple-element arrangement when fair value does not exist for
one or more of the delivered elements in the arrangement. Under
the residual method, the total fair value of the undelivered
elements is deferred and subsequently recognized in accordance
with SOP 97-2. The adoption of SOP 98-9 did not have a material
effect on the Company's consolidated financial statements or
results of operations.
(f) CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash
equivalents. Cash equivalents of approximately $5,837,000 and
$621,000 as of December 31, 1998 and 1999, respectively, consist
primarily of money market deposits.
(g) SOFTWARE DEVELOPMENT COSTS
Research and development costs associated with new products and
enhancements to existing products are charged to operations as
incurred. To date, the Company's software development has been
completed concurrent with the establishment of technological
feasibility, and accordingly, no costs have been capitalized.
(h) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated using
the straight-line method over the estimated useful lives of the
assets, generally three to four years. Leasehold improvements are
amortized using the straight-line basis over the shorter of the
lease term or estimated useful lives of the assets.
7
<PAGE>
(i) INCOME TAXES
Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation
allowance is established to reduce all or a portion of deferred
tax assets when it is more likely than not that the deferred tax
assets will not be realized.
(j) FOREIGN CURRENCY TRANSLATION
The Company's wholly owned subsidiaries, located in the United
Kingdon and Australia, were established in 1994 and 1995,
respectively. The local currency is the functional currency for
each foreign subsidiary. Foreign currency balance sheets and
income statements are translated from the functional currency to
the U.S. dollar using the end-of-period and average-exchange
rates, respectively. The resulting translation gains or losses are
reported as accumulated other comprehensive income (loss) in
shareholders' (deficit) equity in the Company's consolidated
balance sheets.
(k) IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the
carrying amount of long-lived assets may be impaired, an
evaluation of recoverability is performed. If an evaluation is
required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to
determine if a write-down to fair value is required. Fair value
may be determined by reference to discounted future cash flows
over the remaining useful life of the related assets. To date, the
Company has made no adjustments to the carrying value of its
long-lived assets.
(l) STOCK-BASED COMPENSATION
The Company accounts for its employee stock-based compensation
plans using the intrinsic-value method.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's cash and cash equivalents,
accounts receivable, and accounts payable approximate their
carrying values due to their short maturity. The fair value of the
note payable to affiliate was made with a related party, and
therefore, fair value cannot be established.
(n) CREDIT CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents,
and trade receivables. Cash and cash equivalents are managed by
recognized financial institutions. The Company closely monitors
extensions of customer credit and has not experienced significant
credit loss in the past.
8
<PAGE>
(o) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS
No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. For a derivative not designated as a
hedging instrument, changes in the fair value of the derivative
are recognized in earnings in the period of change. The Company
will be required to adopt SFAS No. 133, as amended by SFAS No.
137, in fiscal 2001. Management does not believe the adoption of
SFAS No. 133, as amended by SFAS No. 137, will have a material
effect on the Company's consolidated financial position or results
of operations.
In March 2000, Emerging Issues Task Force (EITF) No. 00-2,
ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS, was issued. EITF No.
00-2 provides guidance on costs incurred during the development of
Web site applications and infrastructure that involves acquiring
or developing hardware and software to operate the Web site,
including graphics that affect the look and feel of the Web page.
All costs relating to software used to operate a Web site should
be accounted for under SOP 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. However,
if a plan exists or is being developed to market the software
externally, the costs relating to the software should be accounted
for pursuant to SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED. Application of
EITF No. 00-2 is effective for Web site development costs incurred
for fiscal quarters beginning after June 30, 2000. Management does
not believe the adoption of EITF No. 00-2 will have a material
effect on the Company's consolidated financial position or results
of operations.
On March 31, 2000, EITF No. 00-3, APPLICATION OF AICPA STATEMENT
OF POSITION 97-2, SOFTWARE REVENUE RECOGNITION, TO ARRANGEMENTS
THAT INCLUDE THE RIGHT TO USE SOFTWARE ON ANOTHER ENTITY'S
HARDWARE, was issued. EITF No. 00-3 requires that an entity assign
fair value to elements of a software package that includes
Web-hosting services to provide the software application. If the
software element is within the scope of SOP 97-2, all of SOP 97-2
requirements for recognizing revenue, including vendor-specific
objective evidence of fair value, must be met in order to
recognize revenue upon delivery for the portion of the fee
allocated to the software element; otherwise, the revenue is
deferred and amortized over the related service period. The
portion of the fee allocated to the Web-hosting element should be
recognized as the service is provided. The adoption of EITF No.
00-3 did not have a material effect on the Company's consolidated
financial position or results of operations.
9
<PAGE>
On March 31, 2000, the FASB issued Interpretation (FIN) No. 44,
ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION -
AN INTERPRETATION OF ACCOUNTING PRINCIPLES BOARD OPINION NO. 25.
FIN No. 44 applies prospectively to new awards, exchanges of
awards in a business combination, modifications to outstanding
awards, and changes in grantee status that occur on or after July
1, 2000, except for the provisions related to repricings and the
definition of an employee which apply to awards issued after
December 15, 1998. The provisions related to modifications to
fixed stock option awards to add a reload feature are effective
for awards modified after January 12, 2000. Resumix believes that
adoption of FIN No. 44 will not have a material effect on the
Company's financial position or results of operations.
(p) ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising
expense was approximately $1,283,000, $1,621,000, and $1,040,000
for the years ended December 31, 1997, 1998, and 1999,
respectively.
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1998
and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
Computers and equipment $10,569 10,708
Office furniture and equipment 634 1,112
Demonstration equipment 68 62
Leasehold improvements 531 843
Equipment on loan to customers 333 333
------- ------
12,135 13,058
Less accumulated depreciation 9,706 11,039
------- ------
$ 2,429 2,019
======= ======
</TABLE>
(3) LEASE COMMITMENTS
The Company leases its facilities under noncancelable operating leases
that expire in 1999 through 2004. Future minimum rental payments as of
December 31, 1999, under these operating leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------
<S> <C>
2000 $ 667
2001 577
2002 505
2003 505
2004 84
------
$2,338
======
</TABLE>
10
<PAGE>
Aggregate rental expense included in the accompanying consolidated
statements of operations for the years ended December 31, 1997, 1998, and
1999, amounted to approximately $816,000, $515,000, and $796,000,
respectively. Leases with escalating rents or free rent periods are
expensed on a straight-line basis over the term of the lease.
(4) SHAREHOLDERS' (DEFICIT) EQUITY
(a) RECAPITALIZATION
Prior to August 13, 1998, Old Resumix was a wholly owned
subsidiary of Ceridian. Effective August 13, 1998, Old Resumix
entered into a series of transactions (the Recapitalization) as
follows:
- Ceridian, pursuant to an asset purchase agreement,
transferred the assets and liabilities of Old Resumix to an
existing wholly owned subsidiary of Ceridian. As
consideration for the transfer, the Company paid to Ceridian
approximately $5,183,000 in cash, a note payable of
$22,755,000 (see Note 6(a)), and 1,499,900 shares of the
Company's Series A convertible preferred stock.
- The Company, pursuant to a stock purchase agreement, issued
4,900,000 shares of Series B convertible preferred stock to
General Atlantic Partners 48, L.P. and GAP Coinvestment
Partners, L.P. (collectively General Atlantic) for
approximately $10,004,000 in cash, and issued 1,450,000
shares of common stock to Double Diamond Associates, LLC,
which is wholly owned by the president of the Company, for
services performed in conjunction with the transactions.
The transactions have been accounted for as a recapitalization in
the accompanying consolidated financial statements, and therefore,
the assets and liabilities of Old Resumix transferred to the
Company have been reported by the Company at the historical basis
of the assets and liabilities. At the date of the
Recapitalization, Old Resumix had current taxes due from Ceridian
of $312,000 and net deferred tax assets of $463,000. As discussed
in Note 5, these amounts were determined as if Old Resumix were a
stand-alone entity for income tax reporting purposes; however, in
reality, Old Resumix was a member of the Ceridian consolidated
group. In conjunction with the Recapitalization, these amounts
were reversed to shareholders' deficit as a component of the
recapitalization adjustments.
The Company incurred certain expenses as a result of the
Recapitalization and has classified such expenses as
recapitalization-related expenses in the accompanying consolidated
statements of operations. The recapitalization expenses consisted
of $478,000 of common stock issued to Double Diamond Associates,
LLC and forgiveness of a $100,000 note receivable from the
Company's president for services performed in promoting the
Recapitalization, $849,000 relating to the cash buyout of stock
options held by employees of Old Resumix prior to the
Recapitalization, and $714,000 in transaction-related costs. All
amounts have been paid as of December 31, 1998.
11
<PAGE>
(b) CONVERTIBLE PREFERRED STOCK
In August 1998, in conjunction with the Recapitalization, the
Company's Board of Directors authorized the issuance of 1,499,900
and 6,399,900 shares of Series A redeemable convertible preferred
stock and Series B convertible preferred stock, respectively, of
which 1,499,900 and 4,900,000 shares are issued and outstanding as
of December 31, 1998. The rights, preferences, and privileges of
the holders of Series A and B preferred stock as of December 31,
1999, are as follows:
<TABLE>
<CAPTION>
LIQUIDATION DIVIDEND
PREFERENCE RIGHTS
(PER SHARE) (PER SHARE)
------------------ ------------------
<S> <C> <C>
Series A $ 4.17 0.33
Series B 2.04 0.16
</TABLE>
- Each share of the Series A and B preferred stock is
convertible into common stock at the option of the holder on
a one-for-one basis at any time. All shares of series A and
B preferred stock automatically convert into common stock
upon an initial public offering of the Company's common
stock or sale of the Company.
- Holders of Series A and B preferred stock are entitled to
receive dividends in the amounts listed above in preference
to any dividend on common stock when and if declared by the
Board of Directors. Dividends are cumulative and accrue
quarterly. All accrued and unpaid dividends are to be paid
to Series A and B shareholders immediately prior to the
earlier of the liquidation or sale of the Company, an
initial public offering of the Company's common stock, or
redemption of the shares (in the case of Series A) to the
extent that funds are available. No dividends have been
declared as of December 31, 1999.
- Series A and B preferred stock have a per share liquidation
preference in the amounts listed above, plus accrued but
unpaid dividends, in preference to any distribution of
assets to holders of common stock. If upon liquidation, the
assets and funds of the Company are insufficient to permit
full payment of the liquidation amount, then the assets and
funds shall be distributed ratably among the holders of all
classes of preferred stock.
- Each holder of preferred stock has voting rights equal to
the number of shares of common stock into which such shares
could be converted.
- Beginning in August 2005, the holders of Series A preferred
stock, upon written request with the approval of at least a
majority of the outstanding preferred stock, are entitled to
require the Company to redeem all shares of preferred stock
at the redemption price of $4.10 plus any accrued and unpaid
dividends.
(c) EMPLOYEE STOCK OPTION PLANS
The Company uses the intrinsic-value method to account for its
stock-based compensation plans (Plans). Therefore, no compensation
expense has been recorded with respect to options granted to
employees under the Plans because the exercise price of options
granted is equal to the fair value of the underlying common stock
on the date of grant.
12
<PAGE>
Upon the acquisition of Old Resumix by Ceridian in August 1995,
Old Resumix employees were allowed to participate in the Ceridian
1993 Long-Term Incentive Plan and 1994 Stock Option Plan (Ceridian
Plans). Stock options to purchase Ceridian common stock awarded
under the Ceridian Plans vested annually over a 3-year period, had
10-year terms and an exercise price that was not less than the
fair market value of the underlying stock at the date of grant.
Resumix employee participation in the Ceridian Plans ceased upon
consummation of the Recapitalization on August 13, 1998.
A summary of the activity for Old Resumix employees under the
Ceridian Plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS PRICE
OUTSTANDING PER SHARE
------------------- ------------------
<S> <C> <C>
Balance as of December 31, 1997 67,971 $ 37.13
Options exercised (45,225) 35.55
Options canceled (22,746) 40.20
-------------------
Balance as of December 31, 1998 --
===================
</TABLE>
On August 29, 1996, the Old Resumix Board of Directors approved
the adoption of a stock option plan (1996 Plan) to grant incentive
and nonstatutory stock options to key employees to purchase up to
2,100,000 shares of Old Resumix common stock. Stock options were
granted at the then fair market value as determined by the Old
Resumix Board of Directors, vested over a four-year period and
expired 10 years after the date of grant. Upon termination of
employment, the grantee had three months to exercise the option on
all exercisable options. This plan was terminated upon
consummation of the Recapitalization on August 13, 1998. Old
Resumix employees were paid by the Company a total of $849,000 for
their vested options using a payout formula prescribed in the 1996
Plan. Such amount paid has been reported as
recapitalization-related expenses in the accompanying consolidated
statement of operations for the year ended December 31, 1998.
13
<PAGE>
Stock option activity under the 1996 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
AVAILABLE OPTIONS PRICE
FOR GRANT OUTSTANDING PER SHARE
-------------- ------------ ----------
<S> <C> <C> <C>
Balances as of
December 31, 1997 417,052 1,682,948 $ 5.23
Options granted (140,250) 140,250 5.23
Options repurchased in
connection with
Recapitalization (276,802) (1,823,198) 5.23
-------------- ------------
Balances as of
December 31, 1998 -- --
============== ============
</TABLE>
The fair value of each stock option granted during 1997 under the
1996 Plan has been estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions
used: expected lives of five years; expected volatility of 26.0%;
no dividends; and risk-free interest rate of 5.3%. The fair value
of the shares granted in 1997 was $1.40.
On August 13, 1998, the Company's shareholders approved the
adoption of a new stock option plan (1998 Plan) to grant incentive
and nonstatutory stock options, stock bonuses, and rights to
acquire restricted stock to key employees including up to
2,050,000 shares of Resumix common stock. Stock options are
granted at the then fair market value as determined by the
Company's Board of Directors, vest over a maximum five-year
period, and expire 10 years after the date of grant. Upon
termination of employment, the grantee has three months to
exercise vested options.
14
<PAGE>
Stock option activity under the 1998 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
AVAILABLE OPTIONS PRICE
FOR GRANT OUTSTANDING PER SHARE
---------- ----------- ----------
<S> <C> <C> <C>
Options authorized 2,050,000 --
Options granted (1,627,600) 1,627,600 $ 0.33
Options canceled 71,516 (71,516) 0.33
---------- ----------
Balances as of
December 31, 1998 493,916 1,556,084 0.33
Options authorized -- -- --
Options granted (986,000) 986,000 0.33
Options canceled 824,977 (824,977) 0.33
Options exercised -- (83,681) 0.33
---------- ----------
Balances as of
December 31, 1999 332,893 1,633,426 0.33
========== ==========
</TABLE>
As of December 31, 1999, there were 350,835 shares exercisable
under the 1998 Plan, all with an exercise price of $0.33 per
share, with a weighted-average remaining contractual life of
approximately 8.5 years.
The fair value of each stock option granted during 1998 and 1999
under the 1998 Plan has been estimated using the Black-Scholes
option pricing model with the following weighted-average
assumptions used: expected lives of four years; expected
volatility of 0%; no dividends; and risk-free interest rate of
5.0% in 1998 and 1999. The fair value of the shares granted in
1998 and 1999 was $.06.
Pursuant to SFAS No. 123, the Company is required to disclose the
pro forma effect on net income (loss) for 1997, 1998, and 1999, as
if the Company has elected to use the fair-value method to account
for the Plans. Had compensation costs been determined using the
fair-value method, net income (loss) would have been as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
As reported $1,282 (1,170) (8,293)
Pro forma 337 (1,630) (8,308)
</TABLE>
15
<PAGE>
(5) INCOME TAXES
Prior to the Recapitalization on August 13, 1998, the Company was a
member of the Ceridian consolidated group for income tax reporting
purposes. The components of income tax expense for the year ended
December 31, 1997, and the related balance sheet amounts have been
presented in the accompanying consolidated financial statements as if the
Company was a separate reporting entity for income tax reporting
purposes. For the period from January 1, 1998, to August 13, 1998, the
Company incurred operating losses for which no benefit was recognized. As
the Company and Ceridian had no formal tax sharing agreement, the amount
paid to Ceridian in excess of the current tax expense reported by the
Company in the amount of $312,000 has been reflected as net advances to
parent company as of December 31, 1997. As discussed in Note 4(a), during
1998, the amount due from parent in the amount of $312,000 was reversed
and included as a component of the recapitalization adjustment in
shareholders' deficit. Subsequent to the recapitalization, which
qualified as a taxable transaction for tax purposes, the Company is a
separate reporting entity for income tax reporting purposes. The Company
recorded taxable income for the period from August 14, 1998 to December
31, 1998.
The components of income tax expense (benefit) for the years ended
December 31, 1997, 1998, and 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------ -------
<S> <C> <C> <C>
Current:
Federal $ 463 1,098 (1,018)
State 142 285 (208)
Foreign 75 -- --
------- ------ ------
680 1,383 (1,226)
------- ------ ------
Deferred:
Federal (463) (823) 833
State -- (275) 216
------- ------ ------
(463) (1,098) 1,049
------- ------ ------
Total income tax
expense (benefit) $ 217 285 (177)
======= ====== ======
</TABLE>
16
<PAGE>
The Company's reported income tax expense (benefit) differs from the
amount obtained by applying the statutory federal income tax rate to
income (loss) before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- -------
<S> <C> <C> <C>
Expected income tax expense
(benefit) $ 510 (301) (2,771)
State income taxes, net of
federal benefit 94 188 8
Foreign losses not benefited 275 -- --
Nondeductible expenses - meals
and entertainment and other 40 45 (317)
Nondeductible acquisition costs -- 727 --
Change in valuation allowance for
federal deferred tax assets 449 -- --
Utilization of foreign net
operating loss carryforwards -- (590) --
Utilization of federal net operating
loss carryforwards (566) -- --
Utilization of federal tax credit
carryforwards (585) -- --
Losses not benefited -- 216 2,903
----- ---- ------
Income tax expense
(benefit) $ 217 285 (177)
===== ==== ======
</TABLE>
The tax effects of deductible temporary differences that give rise to the
deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
Deferred revenue $ -- 106
Net operating loss carryforwards and credits 651 3,844
Accrued liabilities, reserves, and other 365 162
Intangibles 7,797 5,302
------ -----
Total gross deferred tax assets 8,813 9,414
Less valuation allowance 7,715 9,414
------ -----
Net deferred tax assets $ 1,098 --
====== =====
</TABLE>
17
<PAGE>
For the years ended December 31, 1998 and 1999, the deferred tax assets
are offset by a valuation allowance as the Company believed it was more
likely than not that all or a portion of the deferred tax assets would
not be realized by the Company due to a history of losses incurred. As of
December 31, 1998, net deferred assets of $1,098,000 have been recognized
as the Company believes that such amount may be realized by carrying back
future deductions to offset taxable income generated in 1998 and 1997. As
discussed in Note 4(a), during 1998, the net deferred tax assets as of
December 31, 1997, were reversed and included as a component of the
recapitalization adjustment in shareholders' deficit.
The net change in the total valuation allowance for the years ended
December 31, 1998 and 1999, was an increase of $5,832,000 and $1,699,000,
respectively. As of December 31, 1999, the Company has reported net
operating loss carryforwards of approximately $9,050,000 and $4,443,000
for federal and California income tax purposes, respectively. The federal
net operating loss carryforwards expire in the year 2019.
The California net operating loss carryforwards expire in the year 2004.
The Company has research and experimental tax credits aggregating
approximately $330,000 and $269,000 for federal and California purposes,
respectively. The federal credit can be carried forward 20 years and will
expire in the year 2019. The California credit can be carried forward
indefinitely.
As of December 31, 1999, the Company has foreign net operating loss
carryforwards of approximately $2,396,000 and $221,000 for United Kingdom
and Australia tax purposes, respectively, which generally are available
for an indefinite carryforward period.
Federal and state tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a change
in ownership of the Company which constitutes an "ownership change," as
defined by Internal Revenue Code Section 382. The Company has not
determined whether an ownership change has occurred which would limit the
availability of the net operating losses.
(6) RELATED PARTY TRANSACTIONS
(a) NOTE PAYABLE TO AFFILIATE
As discussed in Note 4(a), in connection with the
Recapitalization, the Company issued a promissory note to Ceridian
in the principal amount of $22,755,000. The note accrued interest
at a base rate equal to the lower of Ceridian's borrowing rate or
the bank prime rate (Base Rate) plus 1% (Rate Increment). On
January 5, 2000, the Company converted the outstanding principal
amount into shares of the Company's Series E preferred stock (see
Note 8).
(b) CERIDIAN ALLOCATION
Prior to the Recapitalization, Ceridian allocated certain general
and administrative expenses to the Company. The total expenses
allocated to the Company amounted to $520,000 and $683,000 for the
years ended December 31, 1997 and 1998, respectively. These
expenses are included in general and administrative expenses in
the accompanying consolidated statements of operations.
18
<PAGE>
(c) NOTES RECEIVABLE FROM SHAREHOLDER
On August 31, 1996, the Company entered into an employment
agreement with its President. In connection with this agreement,
the Company entered into a stock purchase agreement whereby its
President purchased 80,000 shares of common stock at $5.23 per
share in exchange for a promissory note issued to the Company in
the principal amount of $418,000. The note was secured by the
80,000 shares of the Company's common stock and bore interest at
4.5%. Accrued interest was payable annually. In connection with
the Recapitalization, this obligation was canceled in exchange for
the return of the pledged shares.
(d) RESTRICTED STOCK PURCHASE AGREEMENT
On August 13, 1998, the Company entered into a restricted stock
purchase agreement with its President. Under the terms of the
agreement, the President was issued 250,000 shares of the
Company's common stock with a stated purchase price of $.33 per
share. The reissued stock vests quarterly over a four-year vesting
period. The Company made an unsecured advance in the amount of
$83,000 to the President to purchase the restricted stock, which
was forgiven as of January 5, 2000 (see Note 8).
(7) ACCRUED EXPENSES
Accrued expenses as of December 31, 1998 and 1999, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -----
<S> <C> <C>
Commissions payable $ 969 121
Bonuses payable 783 207
Other salary related 572 530
Accounts payable accrued 1,082 276
Accrued sales taxes 223 101
Other accrued expenses 803 1,467
------ -----
$4,432 2,702
====== =====
</TABLE>
19
<PAGE>
(8) SUBSEQUENT EVENTS
(a) RECAPITALIZATION
On January 5, 2000, the preferred shareholders of the Company
entered into a series of transactions as follows:
- Ceridian exchanged 1,499,900 shares of Series A preferred
stock and forgave its $22,750,000 note payable from the
Company in exchange for 6,715,000 shares of Series E preferred
stock.
- General Atlantic exchanged 4,900,000 shares of Series B
preferred stock and gave the Company $2,000,000 for 850,000
shares of Series D preferred stock and 5,865,000 shares of
Series E preferred stock.
The Series D and E preferred stock is nonredeemable. All other
items and conditions of the Series D and E preferred stock are
substantially the same as those of Series A and B preferred stock,
as described in Note 4(b).
In addition to the above transactions, the Company forgave a
$83,000 note receivable due from its President.
(b) MERGER AGREEMENT
On April 25, 2000, the Company signed a definitive agreement to
merge with HotJobs.com, Ltd. (the Acquirer), a Delaware
corporation. Under the terms of the merger agreement, the Acquirer
issued approximately 3,600,000 shares of its common stock to the
Company's preferred and common shareholders, who are accredited
investors. This amount includes approximately 400,000 shares of
common stock which are being held in escrow until one year
following the May 11, 2000 closing date of the merger. Common
stockholders of the Company who are not accredited investors
received $2.47 per share for their common stock of the Company.
In addition, all outstanding options to purchase common stock of
the Company were converted into options to purchase common stock
of HotJobs.com, Ltd. at a conversion rate of 4.25 of the Company's
shares for 1 Acquirer share.
20
