<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 March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File number: 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 [X] No [ ]
On March 31, 2000, 32,296,570 shares of the Registrant's Common Stock, $.001
par value, were outstanding.
<PAGE>
HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2000 and June 30, 1999 1
Consolidated Statements of Operations for the three months and nine months
ended March 31, 2000 and March 31, 1999 2
Consolidated Statements of Cash Flows for the nine months ended March 31, 2000
and March 31, 1999 3
Notes to 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 12
Signatures 13
</TABLE>
<PAGE>
Harris Interactive Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,192 $ 108
Marketable securities 54,018 -
Accounts receivable 8,779 5,989
Costs and estimated earnings in excess
of billings on uncompleted contracts 4,612 1,706
Other current assets 1,898 154
------------- -------------
Total current assets 96,499 7,957
Property, plant and equipment, net 11,254 5,029
Goodwill, less accumulated amortization of $431 at March 31, 2000
and $353 at June 30, 1999 1,119 1,197
Other assets 915 602
------------- -------------
Total assets $109,787 $ 14,785
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,043 $ 1,843
Accrued expenses 3,343 1,800
Short-term borrowings 1,050 291
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,198 3,470
------------- -------------
Total current liabilities 9,634 7,404
Mandatory redeemable preferred stock - 15,876
Stockholders' equity (deficit):
Common stock, $.001 par value at March 31, 2000
(unaudited) and $.01 par value at June 30, 1999
Authorized - 100,000,000 shares at March 31, 2000
(unaudited) and 28,000,000 shares at June 30, 1999
Issued and outstanding - 32,296,570 shares at March 31,
2000 (unaudited) and 10,870,692 shares at June 30, 1999 32 109
Additional paid-in capital 128,487 4,813
Unamortized deferred compensation (2,275) (650)
Accumulated other comprehensive loss (114) -
Accumulated deficit (25,977) (12,767)
------------- -------------
Total stockholders' equity (deficit) 100,153 (8,495)
------------- -------------
Total liabilities and stockholders' equity $109,787 $ 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues from services $ 14,156 $ 6,462 $ 35,993 $ 19,927
Cost of services 7,503 4,291 20,760 13,061
-------------- --------------- --------------- ----------------
Gross profit 6,653 2,171 15,233 6,866
Operating expenses:
Database development expenses 1,600 1,233 4,120 3,545
Sales and marketing 2,863 388 5,716 859
General and administrative expenses 9,046 3,133 21,398 8,657
-------------- --------------- --------------- ----------------
Operating loss (6,856) (2,583) (16,001) (6,195)
Interest and other income, net 1,340 32 1,670 151
-------------- --------------- --------------- ----------------
Net loss (5,516) (2,551) (14,331) (6,044)
Accrued dividends on preferred stock - (294) (738) (882)
-------------- --------------- --------------- ----------------
Net loss available to holders of common stock $ (5,516) $ (2,845) $ (15,069) $ (6,926)
-------------- --------------- --------------- ----------------
-------------- --------------- --------------- ----------------
Basic and diluted net loss per share $ (0.17) $ (0.29) $ (0.76) $ (0.71)
-------------- --------------- --------------- ----------------
-------------- --------------- --------------- ----------------
Weighted average shares outstanding - basic
and diluted 32,157,898 9,680,664 19,796,104 9,753,697
-------------- --------------- --------------- ----------------
-------------- --------------- --------------- ----------------
Pro forma basic and diluted net loss per share $ (0.17) $ (0.12) $ (0.54) $ (0.28)
-------------- --------------- --------------- ----------------
-------------- --------------- --------------- ----------------
Pro forma basic and diluted weighted average
shares outstanding 32,157,898 21,470,942 26,655,902 21,543,975
-------------- --------------- --------------- ----------------
</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 NINE MONTHS ENDED
MARCH 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (14,331) $ (6,044)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 2,309 859
Amortization of deferred compensation 805 -
Increase (decrease) in -
Accounts receivable (2,790) (614)
Costs and estimated earnings in excess of
billings on uncompleted contracts (2,906) (388)
Other current assets (1,744) (336)
Other assets (313) 714
Increase (decrease) in -
Accounts payable 1,200 295
Accrued expenses 1,543 (1,157)
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,272) 1,306
------------- ----------------
Net cash used in operating activities (17,499) (5,365)
------------- ----------------
Cash flows from investing activities:
Purchase of marketable securities (61,940) -
Sales of marketable securities 7,800
Repayment of loan to officer - 43
Capital expenditures (8,456) (2,234)
------------- ----------------
Net cash used in investing activities (62,596) (2,191)
------------- ----------------
Cash flows from financing activities:
Principal payments under long-term debt - (700)
Increase (decrease) in short-term borrowings 759 (2,218)
Net proceeds from initial public offering of common stock 85,467 -
Net proceeds from issuance of preferred stock 19,945 14,105
Net proceeds from issuance of common stock 1,000 -
Repurchase of common stock - (3,000)
------------- ----------------
Net cash provided by financing activities 107,171 8,187
------------- ----------------
Effect of exchange rate changes on cash and cash equivalents 8 -
------------- ----------------
Net increase in cash and cash equivalents 27,084 631
Cash and cash equivalents at beginning of year 108 4
------------- ----------------
Cash and cash equivalents at end of year $ 27,192 $ 635
------------- ----------------
------------- ----------------
</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 global
market research firm, using Internet-based and traditional methodologies
to provide clients with information about the views, behaviors and
attitudes of people worldwide. Known for the HARRIS POLL, the Company has
over 40 years experience in providing clients with market research and
polling services including custom, multi-client and service bureau
research, in addition to customer relationship management services.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the intructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. 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 nine-month periods ended March 31, 2000 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 March 31, 2000.
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 $85.5 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 Nine Months Ended
--------------------------------------- --------------------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net loss $ (5,516) $ (2,551) $ (14,331) $ (6,044)
Foreign currency translation
adjustments 8 8
Unrealized loss on marketable
securities (60) - (122) -
------------------ ------------------ ------------------ ------------------
Total Comprehensive loss $ (5,568) $ (2,551) $ (14,445) $ (6,044)
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
</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. 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 nine months of fiscal 2000, revenues from traditional market research and
polling methodologies represented 62% of total revenues, while revenues from
Internet-based products represented 38% 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 261,
75 of which were added in the third 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 6.2 million at
March 31, 2000.
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 profit represents revenues less variable project costs and associated
direct labor. Variable project costs related to market research utilizing
traditional methodologies include interviewer payroll, subcontractor charges,
respondent incentives, telecommunication charges and mailing costs. In contrast,
variable costs related to Internet-based market research 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 profits will increase as the percentage of revenues we
generate from Internet-based products and services increase.
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 and other income primarily consist of income from investments 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 nine months of fiscal 2000, we recognized compensation
expense of approximately $0.8 million in connection with such transactions.
There was no compensation expense recorded during the first nine months of
fiscal 1999.
Our net losses were $14.3 million and $6.0 million in the first nine months of
fiscal 2000 and fiscal 1999, respectively. The net losses were higher in the
first nine months 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 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues from services 100% 100% 100% 100%
Cost of services 53 66 58 66
-------------- --------------- -------------- --------------
Gross profit 47 34 42 34
Operating expenses:
Database development expenses 11 19 11 18
Sales and marketing 20 6 16 4
General and administrative 64 49 59 43
-------------- --------------- -------------- --------------
Operating loss (48) (40) (44) (31)
Interest income, net 9 1 4 1
-------------- --------------- -------------- --------------
Net loss (39) (39) (40) (30)
-------------- --------------- -------------- --------------
-------------- --------------- -------------- --------------
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES FROM SERVICES. Total revenues increased 118% from $6.5 million in the
third quarter of fiscal 1999 to $14.2 million in the third quarter of fiscal
2000. This increase was primarily due to increased customer demand for
Internet-based market research products and services.
GROSS PROFIT. Gross profit increased to 47% in the third quarter of fiscal 2000
from 34% in the third 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 increased 33% to
$1.6 million in the third quarter of fiscal 2000 from $1.2 million in the third
quarter of fiscal 1999. The increase in the third quarter of fiscal 2000 is due
to the continued expansion of the Company's online panel at a rate consistent
with strategic objectives.
SALES AND MARKETING. Sales and marketing expenses increased 625% to $2.9 million
in the third quarter of fiscal 2000 compared to $0.4 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 190%
to $9.0 million in the third quarter of fiscal 2000 from $3.1 million in the
third 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 AND OTHER INCOME, NET. Net interest and other income totaled $1.3
million in the third quarter of fiscal 2000 as compared to $0.03 million in the
third quarter of fiscal 1999. The increase 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.
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES FROM SERVICES. Total revenues increased 81% from $19.9 million in the
first nine months of fiscal 1999 to $36.0 million in the first nine months of
fiscal 2000. This increase was primarily due to increased customer demand for
Internet-based market research products and services.
GROSS PROFIT. Gross profit increased to 42% for the first nine months of fiscal
2000 from 34% 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 17% to
$4.1 million in the first nine months of fiscal 2000 compared to $3.5 million in
the comparable period of fiscal 1999. The increase is primarily attributable to
expenses associated with payments to Excite@Home for the acquisition of
additional names for our Internet panel.
SALES AND MARKETING. Sales and marketing costs were $5.7 million for the first
nine months of fiscal 2000 compared to $0.9 million for the same period in the
prior year. The increase is primarily related 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 146%
from $8.7 million in the first nine months of fiscal 1999 to $21.4 million in
the first nine months 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 AND OTHER INCOME, NET. Net interest and other income was $1.7 million
for the first nine months of fiscal 2000 as compared to $0.2 million for the
first nine 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 $85.5 million.
-9-
<PAGE>
Net cash used in operating activities was $17.5 million for the first nine
months of fiscal 2000, and $5.4 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 $62.6 million for the first nine
months of fiscal 2000 and $2.2 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 $107.1 million for the first nine
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 $85.5 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.
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, the Company 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 registered and 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
$85.5 million, net of offering costs of approximately $1.4 million.
The Company issued and sold an aggregate of 179,200 shares of its common stock
to employees during March, 2000, upon the exercise of options granted by the
Company's board of directors pursuant to the Company's 1997 stock option plan,
at prices ranging from $.35 to $1.26 per share, for an aggregate cash
consideration of $123,214. As to each employee of the Company who was issued the
common stock described in this paragraph, the Company relied on Rule 701 of the
Securities Act of 1933. Each person was granted an option to purchase shares of
the Company's common stock pursuant to a written contract between such person
and the Company, and the Company was eligible to use Rule 701 at the time the
options herein reported as exercised were originally granted in accordance with
Rule 701(b).
Through March 31, 2000, the Company used a portion of the proceeds from its
public offerings as follows:
(i) approximately $13.4 million of net cash used for working capital and general
corporate purposes, including capital expenditures (ii) approximately $2.1
million of net cash used for the expansion of our Internet panel and (iii) $0.5
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 None
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,
May 15, 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net loss (a) $ (5,516) $ (2,551) $ (14,331) $ (6,044)
Accrued dividends on preferred stock - (294) (738) (882)
------------------- --------------- --------------- ---------------
Net loss available to holders of common stock (b) (5,516) (2,845) (15,069) (6,926)
------------------- --------------- --------------- ---------------
------------------- --------------- --------------- ---------------
Basic and diluted net loss per share (b/c) $ (0.17) $ (0.29) $ (0.76) $ (0.71)
------------------- --------------- --------------- ---------------
------------------- --------------- --------------- ---------------
Weighted average shares outstanding - basic
and diluted (c) 32,157,898 9,680,664 19,796,104 9,753,697
------------------- --------------- --------------- ---------------
------------------- --------------- --------------- ---------------
Pro forma basic and diluted net loss per share (a/d) $ (0.17) $ (0.12) $ (0.54) $ (0.28)
------------------- --------------- --------------- ---------------
------------------- --------------- --------------- ---------------
Pro forma basic and diluted weighted average
shares outstanding (d) 32,157,898 21,470,942 26,655,902 21,543,975
------------------- --------------- --------------- ---------------
------------------- --------------- --------------- ---------------
</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> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 27,192
<SECURITIES> 54,018
<RECEIVABLES> 8,779
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 96,499
<PP&E> 17,873
<DEPRECIATION> (6,619)
<TOTAL-ASSETS> 109,787
<CURRENT-LIABILITIES> 9,634
<BONDS> 0
0
0
<COMMON> 32
<OTHER-SE> 100,121
<TOTAL-LIABILITY-AND-EQUITY> 109,787
<SALES> 35,993
<TOTAL-REVENUES> 35,993
<CGS> 27,760
<TOTAL-COSTS> 27,760
<OTHER-EXPENSES> 31,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,670
<INCOME-PRETAX> (14,331)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,331)
<EPS-BASIC> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
