<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ______________
COMMISSION FILE NUMBER: 000-27577
HARRIS INTERACTIVE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 16-1538028
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
135 CORPORATE WOODS, ROCHESTER, NY 14623
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (716) 272-8400
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 [ ] No [X]
On December 31, 1999, 32,117,369 shares of the Registrant's Common Stock, $.001
par value, were outstanding.
<PAGE>
HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets at December 31, 1999 and June 30, 1999 1
Consolidated Statements of Operations for the three months and six months
ended December 31, 1999 and December 31, 1998 2
Consolidated Statements of Cash Flows for the six months ended December 31,
1999 and December 31, 1998 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Part II: Other Information
Item 1: Legal proceedings 11
Item 2: Changes in Securities and Use of Proceeds 11
Item 3: Defaults Upon Senior Securities 11
Item 4: Submission of Matters to a Vote of Security Holders 11
Item 5: Other Information 11
Item 6: Exhibits and Reports on Form 8-K 11
Signatures 13
</TABLE>
<PAGE>
HARRIS INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,034 $ 108
Marketable securities 42,344 --
Accounts receivable 8,510 5,989
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,651 1,706
Other current assets 1,532 154
--------- ---------
Total current assets 103,071 7,957
Property, plant and equipment, net 9,376 5,029
Goodwill, less accumulated amortization of $405 at
December 31, 1999 and $353 at June 30, 1999 1,145 1,197
Other assets 613 602
--------- ---------
Total assets $ 114,205 $ 14,785
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,249 $ 1,843
Accrued expenses 2,155 1,800
Short-term borrowings -- 291
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,423 3,470
--------- ---------
Total current liabilities 8,827 7,404
Mandatory redeemable preferred stock -- 15,876
Stockholders' equity (deficit):
Common stock, $.001 par value at December 31, 1999
(unaudited) and $0.01 par value at June 30, 1999
Authorized -- 100,000,000 shares at December 31, 1999
(unaudited) and 28,000,000 shares at June 30, 1999
Issued and outstanding -- 32,117,369 shares at December 31,
1999 (unaudited) and 10,870,692 shares at June 30, 1999 32 109
Additional paid-in capital 128,279 4,813
Unamortized deferred compensation (2,410) (650)
Accumulated other comprehensive loss (62) --
Accumulated deficit (20,461) (12,767)
--------- ---------
Total stockholders' equity (deficit) 105,378 (8,495)
--------- ---------
Total liabilities and stockholders' equity $ 114,205 $ 14,785
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-1-
<PAGE>
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues from services $ 12,473 $ 6,935 $ 21,837 $ 13,465
Cost of services 6,950 4,637 13,257 8,770
------------ ------------ ------------ ------------
Gross profit 5,523 2,298 8,580 4,695
Operating expenses:
Database development expenses 1,615 1,751 2,520 2,312
Sales and marketing 2,067 311 2,853 471
General and administrative expenses 7,224 2,852 12,352 5,524
------------ ------------ ------------ ------------
Operating loss (5,383) (2,616) (9,145) (3,612)
Interest income, net 401 96 330 119
------------ ------------ ------------ ------------
Net loss (4,982) (2,520) (8,815) (3,493)
Accrued dividends on preferred stock (444) (294) (738) (588)
------------ ------------ ------------ ------------
Net loss available to holders of common stock $ (5,426) $ (2,814) $ (9,553) $ (4,081)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.33) $ (0.29) $ (0.70) $ (0.42)
============ ============ ============ ============
Weighted average shares outstanding - basic
and diluted 16,542,931 9,680,664 13,682,390 9,789,420
============ ============ ============ ============
Pro forma basic and diluted net loss per share $ (0.19) $ (0.12) $ (0.36) $ (0.16)
============ ============ ============ ============
Pro forma basic and diluted weighted average
shares outstanding 26,605,301 21,470,942 24,653,714 21,579,698
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-2-
<PAGE>
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net loss $ (8,815) $ (3,493)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 1,307 573
Amortization of deferred compensaton 609 --
Increase in -
Accounts receivable (2,521) (249)
Costs and estimated earnings in excess of
billings on uncompleted contracts (945) (460)
Other current assets (1,378) (55)
Other assets (11) --
Increase (decrease) in -
Accounts payable 1,406 235
Accrued expenses 355 (1,488)
Billings in excess of costs and estimated
earnings on uncompleted contracts (47) 1,028
--------- ---------
Net cash used in operating activities (10,040) (3,909)
--------- ---------
Cash flows from investing activities:
Purchase of marketable securities (42,406) --
Repayment of loan to officer -- 43
Capital expenditures (5,602) (1,407)
--------- ---------
Net cash used in investing activities (48,008) (1,364)
--------- ---------
Cash flows from financing activities:
Principal payments under long-term debt -- (700)
Decrease in short-term borrowings (291) (2,218)
Net proceeds from initial public offering of common stock 85,443 --
Net proceeds from issuance of preferred stock 19,945 14,105
Net proceeds from issuance of common stock 877 --
Repurchase of common stock -- (3,000)
--------- ---------
Net cash provided by financing activities 105,974 8,187
--------- ---------
Net increase in cash and cash equivalents 47,926 2,914
Cash and cash equivalents at beginning of year 108 4
--------- ---------
Cash and cash equivalents at end of year $ 48,034 $ 2,918
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 91 $ 35
========= =========
Income taxes $ 7 $ 31
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE>
HARRIS INTERACTIVE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Harris Interactive Inc. and subsidiaries (the Company) is a leading
market research and consulting firm, using Internet-based and
traditional methodologies to provide our clients with information about
the views, experiences and attitudes of people worldwide. Known for our
HARRIS POLL, we have over 40 years experience in providing our clients
with market research and polling services using traditional
methodologies, including direct mail, telephone surveys, mall
intercepts, focus groups and in-person interviews.
The accompanying consolidated financial statements include the accounts
of Gordon S. Black Corporation (GSBC), GSBC Ohio Corporation, and Louis
Harris & Associates, Inc. (LHA), and in the opinion of management,
reflect all adjustments (consisting only of normal recurring
adjustments) necessary to fairly state the Company's consolidated
financial position, results of operations, and cash flows as of and for
the dates and periods presented. The consolidated balance sheet as of
June 30, 1999 has been prepared from the audited consolidated financial
statements of the Company.
These unaudited consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
included in the Registration Statement on Form S-1 declared effective by
the Securities and Exchange Commission on December 6, 1999. The results of
operations for the three and six-month periods ended December 31, 1999 are
not necessarily indicative of results for the entire fiscal year ending
June 30, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARKETABLE SECURITIES
Harris Interactive Inc. accounts for its investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." All investments have
been classified as available-for-sale securities as of December 31, 1999.
Available-for-sale securities are stated at fair value, with the
unrealized gains and losses reported in other comprehensive income (loss).
Realized gains and losses on available-for-sale securities are included in
interest and other income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities
classified as available-for-sale are included in interest income.
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share are calculated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
and SEC Staff Accounting Bulletin ("SAB") No. 98. The denominator used in
the computation of basic and diluted net loss per share is the weighted
average number of common shares outstanding for the respective period. All
potentially dilutive securities were excluded from the calculation of
diluted net loss per share, as the effect would be anti-dilutive.
Pro forma net loss per share has been computed by dividing net loss by the
pro forma weighted average number of shares outstanding. Pro forma
weighted average shares assume the conversion of all preferred stock
(which was ultimately converted to common stock in conjunction with the
initial public offering, as if the conversion occurred at the beginning of
the period or at date of issuance, if later).
-4-
<PAGE>
INITIAL PUBLIC OFFERING
On December 6, 1999, the Securities and Exchange Commission declared
effective the Company's Registration Statement on Form S-1. Pursuant to
this Registration Statement, the Company completed an initial public
offering of 6,670,000 shares of its common stock (including 870,000 shares
sold pursuant to the exercise of the Underwriters' over-allotment option)
at an initial public offering price of $14.00 per share ("Offering"). The
Offering was managed by Lehman Brothers, U.S. Bancorp Piper Jaffray, Volpe
Brown Whelan & Company, E*Offering Corp. and Fidelity Capital Markets.
Proceeds to the Company, after deduction of the Underwriters' discount and
commission, totaled approximately $85.4 million, net of offering costs of
approximately $1.4 million.
Upon completion of the Offering, the Company's preferred stock was
converted into 14,381,445 shares of common stock, and all outstanding
shares of preferred stock were cancelled and retired. Upon conversion of
the preferred stock, all rights to accrued and unpaid dividends were
terminated.
COMPREHENSIVE LOSS
The components of the Company's total comprehensive loss ($000s) were:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- ---------------------------
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $(4,982) $(2,520) $(8,815) $(3,493)
Unrealized loss on marketable securities (62) -- (62) --
------------ ------------ ------------ ------------
Total Comprehensive loss $(5,044) $(2,520) $(8,877) $ 3,493)
------------ ------------ ------------ ------------
</TABLE>
-5-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Form 10-Q concerning our future prospects are "forward-
looking statements" under the federal securities laws. Forward-looking
statements involve risks and uncertainties, and future events and circumstances
could differ significantly from those anticipated in the forward-looking
statements. We cannot assure you that future results will be achieved, and
actual results could differ materially from forecasts and estimates. Important
factors that could cause actual results to differ materially are discussed in
the section "Risk Factors" included in our prospectus dated December 6, 1999.
You are encouraged to review such risk factors carefully.
OVERVIEW
We provide market research and polling products and services to a broad range of
companies, non-profit organizations and governmental agencies. Since 1959, we
have provided these services utilizing traditional market research and polling
methodologies, such as direct mail, telephone-based surveys, mall intercepts,
focus groups and in-person interviews. In September 1997, we began developing
our Internet panel and building the technology infrastructure to provide online
market research and polling services. In November 1997, we introduced our first
Internet-based market research and polling products and services.
We generally perform traditional and Internet-based custom research services on
a fixed fee basis in response to client-generated requests. We sell our
multi-client research products on a periodic subscription basis, typically
quarterly or annually. Harris Interactive Service Bureau performs research for
other market research firms on a project-by-project basis in response to
requests from those firms. We provide customer relationship services on an
outsourced basis to our clients on a project-by-project basis.
Through fiscal 1998, all of our revenues were derived from custom research
projects using traditional market research and polling methodologies. In
fiscal 1999, revenues from those sources represented 90% of our total
revenues, while revenues from Internet-based products represented 10% of
total revenues. In the first half of fiscal 2000, revenues from traditional
market research and polling methodologies represented 67% of total revenues,
while revenues from Internet-based products represented 33% of total
revenues. We consider all of the revenues from a project to be Internet-based
whenever 50% or more of the surveys used in the completed project were
completed by online panelists over the Internet. We anticipate that, as our
online business grows, revenues derived from Internet-based custom research,
multi-client products and Harris Interactive Service Bureau research will
represent the dominant portion of our total revenues.
Since June 30, 1999 the number of our Internet clients has grown from 47 to
186, 88 of which were added in the second quarter. Additionally, our Internet
database of online panelists has expanded significantly during fiscal 2000,
with approximately 3.5 million online panelists at June 30, 1999 and 5.4
million at December 31, 1999.
Revenues under fixed fee arrangements are recognized on a percentage of
completion method based on the ratio of costs incurred to total estimated costs.
These revenues include amounts billed to our clients to cover subcontractor
costs and other direct expenses. Provision for estimated contract losses, if
any, is made in the period such losses are determined. Subscription revenues are
recognized upon delivery of the research product.
-6-
<PAGE>
Gross margin represents revenues less variable project costs and associated
direct labor. Variable project costs related to market research and polling
services utilizing traditional methodologies include interviewer payroll,
subcontractor charges, panelist incentives, telecommunication charges and
mailing costs. In contrast, variable costs related to Internet-based market
research and polling methodologies are nominal. Direct labor costs consist
primarily of survey design, analysis, and reporting costs and are comparable for
both traditional and Internet-based methodologies. We anticipate that our gross
margins will increase as the percentage of revenues we generate from
Internet-based products and services increases.
Operating expenses consist primarily of database development costs, sales and
marketing, and general and administrative expenses. Database development
expenses are the expenses we incur in connection with the ongoing development of
our Internet panel, primarily through our strategic alliance with Excite@Home.
Those costs are expensed as incurred. Sales and marketing expenses consist
primarily of personnel and marketing program expenses, public relations
advertising and promotion costs, commissions and telemarketing costs and other
related expenses. General and administrative expenses consist of salaries,
payroll taxes, benefits and related costs for both technology infrastructure
development and general corporate functions, occupancy costs and depreciation.
Interest income consists of income from investments net of interest expense in
each period.
We are required to and have in the past recognized compensation expense when we
grant options or sell shares to employees or certain other persons at a price
less than the fair market value of the shares at the date of grant or sale. In
the case of option grants, the difference between the fair market value of the
common stock and the exercise price on the grant date of the option is amortized
as compensation expense over the vesting period for the option. In the case of a
sale of common stock, the compensation expense is recognized on the date of
sale. In the first six months of fiscal 2000, we recognized compensation expense
of approximately $.6 million in connection with such transactions. There was no
compensation expense recorded during the first six months of fiscal 1999.
Our net loss was $8.8 million in the first six months of fiscal 2000, or 40.4%
of revenue. Net loss for the first six months of fiscal 1999 was $3.5 million or
25.9% of revenues. The net losses were higher in the first half of fiscal 2000
due to the continued expansion of our business resulting in the addition of new
personnel, increased marketing expenses, and higher costs associated with our
ongoing development of new products, services, and the technology infrastructure
and Internet database necessary for our transition from traditional to Internet-
based market research.
-7-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated our results of
operations expressed as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues from services 100.0% 100.0% 100.0% 100.0%
Cost of services 55.7 66.9 60.7 65.1
----- ----- ----- -----
Gross profit 44.3 33.1 39.3 34.9
Operating expenses:
Database development expenses 12.9 25.2 11.5 17.2
Sales and marketing 16.6 4.5 13.1 3.5
General and administrative 57.9 41.1 56.6 41.0
----- ----- ----- -----
Operating loss (43.1) (37.7) (41.9) (26.8)
Interest income, net 3.2 1.4 1.5 0.9
----- ----- ----- -----
Net loss (39.9) (36.3) (40.4) (25.9)
----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
REVENUES FROM SERVICES. Total revenues increased 80% from $6.9 million in the
second quarter of fiscal 1999 to $12.5 million in the second quarter of fiscal
2000. This increase was primarily due to increased usage of our Internet-based
market research products and services, which contributed $4.5 million to total
revenues in the second quarter of fiscal 2000, a 966% increase over the same
period last year. Internet revenues constituted 35.8% of total revenues in the
second quarter of fiscal 2000 as compared to 6.0% of total revenues in the
second quarter of fiscal 1999.
GROSS MARGIN. Gross margin increased to 44.3% in the second quarter of fiscal
2000 from 33.1% in the second quarter of fiscal 1999, primarily due to the
significant expansion of Internet-related business relative to overall revenue
growth.
DATABASE DEVELOPMENT EXPENSES. Database development expenses decreased 7.8% to
$1.6 million in the second quarter of fiscal 2000 from $1.8 million in the
second quarter of fiscal 1999. The decrease in the second quarter of fiscal 2000
is primarily a function of the timing of expenditures, as the Company continues
to expand its online panel at a rate consistent with strategic objectives.
SALES AND MARKETING. Sales and marketing expenses increased 565% to $2.1 million
in the second quarter of fiscal 2000 compared to $0.3 million in the comparable
period in the prior year. The increase is primarily attributable to additional
sales and marketing personnel as well as marketing efforts in support of our
multi-client research products and Harris Interactive Service Bureau expansion.
-8-
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 153.3%
to $7.2 million in the second quarter of fiscal 2000 from $2.9 million in the
second quarter of fiscal 1999. This increase was primarily attributable to
increased staffing expenses associated with new hires, higher costs associated
with our continuing development of new products, services and technologies for
the Internet, and compensation expense related to stock option grants.
INTEREST INCOME, NET. Net interest income totaled $401,000 in the second quarter
of fiscal 2000 as compared to $96,000 in the second quarter of fiscal 1999. The
increase in net interest income was primarily due to increased cash and
marketable security balances during fiscal 2000 resulting from a private
placement of Class B preferred stock in October 1999 and completion of our
initial public offering in December 1999.
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
REVENUES FROM SERVICES. Total revenues increased 62% from $13.5 million in
fiscal 1999 to $21.8 million in fiscal 2000. This increase was primarily due to
increased usage of our Internet-based market research products and services,
which contributed $7.2 million to total revenues in fiscal 2000, an 887%
increase over the same period last year. Internet revenues constituted 33.0% of
total revenues in the first half of fiscal 2000 as compared to 5.4% of total
revenues in the same period last year.
GROSS MARGIN. Gross margin increased to 39.3% for fiscal 2000 from 34.9% in the
same period last year, primarily due to the significant expansion of
Internet-related business relative to overall revenue growth.
DATABASE DEVELOPMENT EXPENSES. Database development expenses increased 9.0% to
$2.5 million in the first half of fiscal 2000 compared to $2.3 million in the
comparable period of fiscal 1999. The increase reflects the expenses associated
with the payments to Excite@Home for the acquisition of additional names for our
Internet panel.
SALES AND MARKETING. Sales and marketing costs were $2.9 million for fiscal 2000
compared to $0.5 million for the same period in the prior year. The increase is
primarily attributable to additional sales and marketing personnel as well as
marketing efforts in support of our multi-client research products and Harris
Interactive Service Bureau expansion.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
123.6% from $5.5 million in fiscal 1999 to $12.4 million in the first half of
fiscal 2000. The increase was primarily due to increased staffing expenses
associated with new hires, higher costs associated with our continuing
development of new products, services and technologies for the Internet, and
compensation expense related to stock option grants.
INTEREST INCOME, NET. Net interest income was $330,000 for the first six months
of fiscal 2000 as compared to $119,000 for the first six months of fiscal 1999.
The increase was primarily attributable to increased cash and marketable
security balances during fiscal 2000 resulting from a private placement of Class
B preferred stock and completion of our initial public offering in December
1999.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through bank financings and, more
recently, issuances of our common and preferred stock. In December 1999 we
completed the initial public offering of 6,670,000 shares of our common stock
(including 870,000 shares sold pursuant to the exercise of the Underwriters'
over-allotment option), which generated net proceeds of $85.4 million.
-9-
<PAGE>
Net cash used in operating activities was $10.0 million for the first six months
of fiscal 2000, and $3.9 million for the same period during fiscal 1999. Net
cash used in operating activities in each of these periods was primarily the
result of net operating losses.
Net cash used in investing activities was $48.0 million for the first six months
of fiscal 2000 and $1.4 million for the same period in the prior year. The
increase was primarily attributable to the purchase of investment securities
with the proceeds from our initial public offering of common stock, pending the
use of these proceeds for working capital, expansion of our Internet panel, and
development of new technologies, products, and services.
Net cash provided by financing activities was $106.0 million for the first six
months of fiscal 2000 and $8.2 million for the same period during fiscal 1999.
In fiscal 2000, our financing activities primarily consisted of the issuance of
common stock in connection with the initial public offering completed in
December 1999, with net proceeds of $85.4 million, as well as a private
placement of our Class B preferred stock with net proceeds of $19.9 million.
In fiscal 1999, our financing activities consisted primarily of a private
placement of our Class A preferred stock with net proceeds of $14.1 million.
These net proceeds were partially offset by the repurchase of $3.0 million of
common stock from two of our executive officers and several other stockholders,
the repayment of $2.2 million of short-term borrowings and principal repayments
of $0.7 million on our long-term debt.
Although we have no material commitments for capital expenditures, management
anticipates continuing increases in our capital expenditures and working capital
requirements consistent with our anticipated growth in operations, Internet
infrastructure and personnel. Our capital requirements depend on numerous
factors, including market acceptance of our products and services, the resources
we allocate to the continuing development of our Internet infrastructure and
Internet panel, marketing and selling of our services, our promotional
activities and other factors. We currently anticipate that we will continue to
experience growth in our operating expenses for the foreseeable future and that
operating expenses will be a material use of our cash resources.
YEAR 2000
On and after January 1, 2000, the Company has experienced no material
disruptions of its computer and microprocessor-based devices or operating
difficulties of mission critical applications. In addition, Harris Interactive
is not aware of any difficulties with its products or services nor has the
Company experienced any material problems related to applications or devices
provided by critical external parties for use by the Company. We have no reason
to believe that Year 2000 failures will seriously affect us in the future.
However, given the proximity to January 1, 2000 and the possibility of latent
Year 2000 defects, we cannot yet be sure that we will not experience Year 2000
failures or be affected by third-party Year 2000 failures. The Company will
continue to monitor the operations of its computers and micro-processor-based
devices for any Year 2000 related problems.
-10-
<PAGE>
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the normal course of business, the Company is at times subject to pending and
threatened legal actions and proceedings. After reviewing pending and threatened
actions and proceedings with counsel, management believes that the outcome of
such actions or proceedings is not expected to have a material adverse effect on
the financial position or results of operations of the Company.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 6, 1999, the Securities and Exchange Commission declared effective
the Company's Registration Statement on Form S-1 (No. 333-87311). Pursuant to
this Registration Statement, the Company completed an initial public offering of
6,670,000 shares of its common stock (including 870,000 shares sold pursuant to
the exercise of the Underwriters' over-allotment option) at an initial public
offering price of $14.00 per share or an aggregate offering of $93.4 million
("Offering"). The offering was managed by Lehman Brothers, U.S. Bancorp Piper
Jaffray, Volpe Brown Whelan & Company, E*Offering Corp. and Fidelity Capital
Markets. Proceeds to the Company from the offering, after deduction of the
Underwriters' discount and commission, totaled approximately $85.4 million, net
of offering costs of approximately $1.4 million.
In September and October of 1999, the Company sold 200,000 shares of Class B
Preferred Stock for an aggregate purchase price of $20,000,000 to Young &
Rubicam Inc., Excite, Inc. Sequel Limited Partnership II, Sequel Entrepreneur's
Fund II L.P. and Riedman Corporation. Upon the closing of our public offering in
December of 1999, the shares of Class B Preferred Stock automatically converted
into 2,591,167 shares of common stock. The shares of Class B Preferred Stock
were issued in reliance upon Section 4(2) of the Securities Act of 1933.
Through December 31, 1999, the Company used a portion of the proceeds from its
public offerings as follows: (i) approximately $3.0 million of net cash used for
working capital and general corporate purposes, including capital expenditures
(ii) approximately $.5 million of net cash used for the expansion of our
Internet panel and (iii) $.5 million of net cash used in connection with the
repayment of short-term borrowings.
Upon completion of the offering, the Company's preferred stock was converted
into 14,381,445 shares of common stock. Upon conversion of the preferred stock,
all rights to accrued and unpaid dividends were terminated.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By written consent dated October 15, 1999 the holders of 84% of the issued
and outstanding shares entitled to vote approved an amendment to the
Certificate of Incorporation of the Company setting out the terms,
preferences and privileges of the Company's shares of preferred stock.
ITEM 5 - OTHER INFORMATION None
-11-
<PAGE>
PART II: OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) - Exhibits:
- 11 Statement regarding computation of per share earnings
- 27 Financial Data Schedule
(b) - Reports on Form 8-K None
-12-
<PAGE>
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, thereunto duly authorized,
February 14, 2000 Harrris Interactive Inc.
By /s/ BRUCE A. NEWMAN
------------------------------
Bruce A. Newman
Chief Financial Officer
-13-
<PAGE>
HARRIS INTERACTIVE INC.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net loss (a) $ (4,982) $ (2,520) $ (8,815) $ (3,493)
Accrued dividends on preferred stock (444) (294) (738) (588)
------------ ------------ ------------ ------------
Net loss available to holders of common stock (b) (5,426) (2,814) (9,553) (4,081)
------------ ------------ ------------ ------------
Basic and diluted net loss per share (b/c) $ (0.33) $ (0.29) $ (0.70) $ (0.42)
------------ ------------ ------------ ------------
Weighted average shares outstanding - basic
and diluted (c) 16,542,931 9,680,664 13,682,390 9,789,420
------------ ------------ ------------ ------------
Pro forma basic and diluted net loss per share (a/d) $ (0.19) $ (0.12) $ (0.36) $ (0.16)
------------ ------------ ------------ ------------
Pro forma basic and diluted weighted average
shares outstanding (d) 26,605,301 21,470,942 24,653,714 21,579,698
------------ ------------ ------------ ------------
</TABLE>
Pro forma basic and diluted net loss per share (as presented in the Consolidated
Statement of Operations) has been computed by dividing net loss by the pro forma
weighted average number of shares outstanding. Pro forma weighted average shares
assume the conversion of all preferred stock (which were ultimately converted to
common stock in conjunction with the initial public offering, as if the
conversion occurred at the beginning of the period or at date of issuance, if
later).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 48,034
<SECURITIES> 42,344
<RECEIVABLES> 8,510
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 103,071
<PP&E> 15,019
<DEPRECIATION> (5,643)
<TOTAL-ASSETS> 114,205
<CURRENT-LIABILITIES> 8,827
<BONDS> 0
0
0
<COMMON> 32
<OTHER-SE> 105,346
<TOTAL-LIABILITY-AND-EQUITY> 114,205
<SALES> 21,837
<TOTAL-REVENUES> 21,837
<CGS> 13,257
<TOTAL-COSTS> 13,257
<OTHER-EXPENSES> 17,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 330
<INCOME-PRETAX> (8,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,815)
<EPS-BASIC> (0.70)
<EPS-DILUTED> (0.70)
</TABLE>
