UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: 6/30/2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File number 000-29793
Opus360 Corporation
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 134023714
-------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
39 West 13th Street, 3rd Fl. New York, NY 10011
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(Address of Principal Executive Offices) (Zip Code)
212-687-6787
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Registrant's Telephone Number, Including Area Code
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 |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 14, 2000.
Common Stock 50,199,718
-------------------------- --------------------------
Class Outstanding Shares
<PAGE>
Opus360 Corporation
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at December 31,
1999 and June 30, 2000 1
Consolidated Statements of Operations for the three and six months
ended June 30, 1999 and June 30, 2000 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and June 30, 2000 3
Notes to the Consolidated Financial Statements 4-16
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Change in Securities and Use of Proceeds 23
Item 4. Submission of Matters to a Vote of Securities Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
a. Exhibits 24
10.1 Employment Agreement dated May 2, 2000 between the
Registrant and Mary Anne Walk
10.2 Employment Agreement dated May 15, 2000
between the Registrant and Wendy Reveri
10.3 Employment Agreement dated June 12, 2000
between the Registrant and Jeanne Murphy
27 Financial Data Schedule
</TABLE>
<PAGE>
Opus360 Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
(Unaudited)
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 1,326,000 69,167,000
Accounts receivable 2,314,000 5,018,000
Short-term investments 27,137,000 225,000
Prepaid expenses and other current assets 3,850,000 5,722,000
------------ ------------
Total current assets 34,627,000 80,132,000
Property and equipment, net 2,990,000 9,093,000
Goodwill, net 1,702,000 33,264,000
Deferred loan costs 16,000 16,000
Officer loans -- 1,591,000
Due from Peoplemover 575,000 --
Other assets 806,000 705,000
------------ ------------
Total assets $ 40,716,000 124,801,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,489,000 8,245,000
Current portion of capital lease -- 97,000
Accrued expenses 4,818,000 4,639,000
Accrued Wages 2,682,000 4,270,000
Deferred Revenues -- 5,935,000
Other current liabilities -- 730,000
Line of Credit -- 1,641,000
------------ ------------
Total current liabilities 12,989,000 25,557,000
Capital lease obligations -- 328,000
------------ ------------
Total Liabilities 12,989,000 25,885,000
Stockholders' equity:
Common stock, $0.001 par value, 150,000,000 shares authorized,
10,880,000 and 50,200,000 issued and outstanding, respectively 11,000 50,000
Series A convertible preferred stock, $0.001 par value, 8,400,000
shares authorized, 8,284,000 and 0 shares issued and
outstanding, respectively 8,000 --
Series B convertible preferred stock, $0.001 par value, 8,700,000
shares authorized, 8,677,000 and 0 shares issued and
outstanding, respectively 9,000 --
Paid-in capital 63,835,000 192,523,000
Deferred offering costs -- (930,000)
Stock subscription receivable (239,000) (224,000)
Treasury Stock -- (3,000)
Deferred comp (5,469,000) (17,038,000)
Accumulated deficit (30,425,000) (75,459,000)
Accumulated other comprehensive loss (3,000) (3,000)
------------ ------------
Total stockholders' equity 27,727,000 98,916,000
------------ ------------
Commitments and Contingencies
Total liabilities and stockholders' equity $ 40,716,000 124,801,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
Opus360 Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30, June 30, June 30,
1999 2000 1999 2000
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenue 64,000 2,301,000 64,000 3,278,000
Cost of revenue 9,000 438,000 9,000 1,089,000
------------ ------------ ------------ ------------
Gross profit 55,000 1,863,000 55,000 2,189,000
Operating Expenses:
Sales & Marketing, exclusive of $0 and $94,000 for the three 1,018,000 6,508,000 1,644,000 14,794,000
months ended and $0 and $188,000 for the six months
ended, respectively, reported below as amortization
of equity-based compenstation
Product Development, exclusive of $25,000 and $146,000 1,585,000 6,303,000 2,275,000 12,891,000
for the three months ended and $50,000 and $748,000 for
the six months ended, respectively, reported
below as amortization of equity-based compenstation
General and Administrative, exclusive of $0 and $1,294,000 1,130,000 4,572,000 1,751,000 8,913,000
for the three months ended and $0 and $4,262,000 for the
six months ended, respectively, reported below as
amortization of equity-based compenstation
Depreciation and amortization of goodwill 100,000 3,979,000 139,000 6,646,000
Amortization of equity-based compenstation 25,000 1,534,000 50,000 5,198,000
------------ ------------ ------------ ------------
Total operating expenses 3,858,000 22,896,000 5,859,000 48,442,000
------------ ------------ ------------ ------------
Loss from operations (3,803,000) (21,033,000) (5,804,000) (46,253,000)
Other Income
Net Interest Income 112,000 1,017,000 112,000 1,219,000
------------ ------------ ------------ ------------
Loss before income taxes (3,691,000) (20,016,000) (5,692,000) (45,034,000)
Income tax expense -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (3,691,000) $(20,016,000) $ (5,692,000) $(45,034,000)
============ ============ ============ ============
Historical basic and diluted net loss per share $ (0.37) $ (0.42) $ (0.59) $ (1.48)
============ ============ ============ ============
Shares used in the calculation of historical basic
and diluted net loss per share 9,862,758 47,164,648 9,681,749 30,331,712
============ ============ ============ ============
Pro forma basic and diluted net loss per share (note 6) $ (0.17) $ (0.41) $ (0.27) $ (1.02)
============ ============ ============ ============
Shares used in the calculation of pro forma basic
and diluted net loss per share (note 6 ) 22,288,758 48,819,258 21,170,556 44,225,443
============================ ============================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Opus360 Corporation
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1999 2000
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(5,692,000) $(45,034,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 139,000 6,646,000
Non cash compensation expense 50,000 5,198,000
Non cash product development expense -- 372,000
Non cash advertising expense -- 208,000
Non cash advisory expense -- 385,000
Loss on disposal of equipment (18,000) --
Changes in operating assets and liabilities:
Account receivables (21,000) (2,518,000)
Prepaid expenses and other current assets (16,000) (564,000)
Deferred costs -- 796,000
Other assets (153,000) 706,000
Account payable 633,000 2,184,000
Accrued expenses 1,061,000 (1,182,000)
Short term lease obligation -- (74,000)
Other liabilities 24,000 (591,000)
Deferred revenues -- 4,248,000
Net cash used in operating activities $(3,993,000) $(29,220,000)
----------- ------------
Cash flows from investing activities:
Purchase of property and equipment (167,000) (6,023,000)
Decrease in short term investments -- 26,912,000
Cash used in connection with acquistion of subsidiaries (1,572,000) (975,000)
Cash used in acquisition of other assets -- (1,577,000)
----------- ------------
Net cash (used in) provided by investing activities $(1,739,000) $ 18,337,000
----------- ------------
Cash flows from financing activities:
Net proceeds from loans 82,000 1,750,000
Repayment of loans -- (109,000)
Net proceeds from issuance of common stock 6,210,000 1,981,000
Net proceeds from initial public offering and concurrent placement -- 75,105,000
Repurchase of treasury stock -- (3,000)
----------- ------------
Net cash provided by financing activities $ 6,292,000 $ 78,724,000
----------- ------------
Net increase in cash $ 560,000 $ 67,841,000
Cash:
Beginning of period $ 5,818,000 $ 1,326,000
----------- ------------
End of period $ 6,378,000 $ 69,167,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Opus360 Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Summary of Accounting Policies
(a) Organization and Description of Business
Opus360 Corporation ("Opus360" or the "Company") was incorporated on
August 17, 1998, under the laws of Delaware.
Opus360 provides an integrated, web-based business-to-business service for
putting people and projects together across the service supply chain. The
Company's services are designed to streamline the procurement and management of
professional services and are comprised of two segments.
o FREEAGENT.COM SERVICE which includes FREEAGENT.COM, a website that
enables independent professionals to manage their careers by
offering them access to project opportunities and corporate products
and services; and FREEAGENT E.OFFICE services, a back-office and
employment service for independent professionals. Independent
professionals who elect to receive FREEAGENT E.OFFICE services are
the Company's contractual employees for federal income tax purposes
for whom the Company prepares IRS Form W-2's. The Company enters
into contracts with organizations for projects to be performed by
FREEAGENT E.OFFICE members, processes invoices for such services
and, upon receipt of amounts due from the contracting organization
for the services rendered by FREEAGENT E.OFFICE members, remits the
amount due to the FREEAGENT E.OFFICE member after deducting payroll
taxes, the fees charged by the Company and contributions for the
member's health insurance and 401(k) retirement plan, as directed by
the member.
o APPLICATION AND PROCUREMENT SERVICES WHICH INCLUDES:
o OPUSXCHANGE.COM: an Internet service which is designed to enable
corporations, professional services firms, staffing companies and
other buyers requiring individuals with specific professional skills
to easily and rapidly procure professionals from FREEAGENT.COM and
manage their interaction with these independent professionals over
time, and
o OPUSRM: a resource procurement and management application that
provides extensive resource management capabilities to track the
skills and competencies of an entire workforce. Using the
comprehensive E.PORTFOLIO, organizations can capture all relevant
information about their resources such as skills, skill levels,
achievements, work history and preferences. OpusRM provides a global
view of current and upcoming projects and optimizes the process of
assigning available resources to project assignments. We expect to
add a Procurement Module to OpusRM in the third quarter which will
enable organizations to dramatically reduce the cost of procuring IT
contractors by automating the requisition, approval and engagement
processes between multiple participants in the supply chain. The
OpusRM Procurement Module is part of an Internet service which is
designed to enable corporations, professional services firms,
staffing companies and other buyers requiring individuals with
specific professional skills to electronically procure professionals
from preferred, general and specialist suppliers. The open exchange
created through this service will allow access to FREEAGENT.COM and
other internet-based communities of highly skilled professionals. We
intend to capture metrics on each transaction through our
centralized repository to accurately measure the time, cost, quality
and quantity of the engagements between buyers and suppliers. These
metrics represent highly valued data to both buyers and suppliers in
their pursuit of reduced procurement and supply costs as well as
improved service offerings.
(b) Basis of Presentation
The unaudited consolidated financial statements have been prepared by the
Company in accordance with generally accepted accounting principles and reflect
all adjustments (all of which are normal and recurring in nature) that, in the
opinion of management, are necessary for a fair presentation of the interim
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for any subsequent
quarters or for the entire year ending December 31, 2000. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
4
<PAGE>
been condensed or omitted under the Securities and Exchange Commission's ("SEC")
rules and regulations. These unaudited consolidated financial statements and
notes included herein should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the year ended December
31, 1999, included in the Company's S-1 registration statement declared
effective by the SEC on April 6, 2000.
On March 27, 2000 the Board of Directors authorized a three-for-two stock
split of the Company's common stock. The financial information included in the
accompanying financial statements gives effect to the stock split.
On April 12, 2000, the Company completed the sale of 7,000,000 shares of
its common stock, in connection with an initial public offering ("IPO") at a
price of $10 per share. Concurrent with its IPO, the Company sold $14,000,000 of
its common stock to Dell USA L.P. at a price of $9.30 per share (the "Concurrent
Placement").
(c) Principals of Consolidation
The Company's unaudited consolidated financial statements as of and for
the three and six month periods ending June 30, 2000, include the accounts of
INDUSTRYINSITE.COM, Ithority Corporation, and PeopleMover, Inc. The unaudited
consolidated financial statements for the prior periods only include the
accounts of the Company. All significant intercompany balances and transactions
have been eliminated in consolidation.
(d) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(e) Revenue Recognition
OPUSRM integration revenues consist of fees paid for integration,
installation and customization of the OPUSRM application and are recognized as
revenue only to the extent the Company has incurred third party costs in
connection with the installation of projects, as the services are performed.
The Company recognizes revenue from the sale of licenses for PEOPLEMOVER
STAFFING, the principal application of the Company's PeopleMover subsidiary,
upon receipt of an executed sales agreement and delivery of the software to the
customer provided there are no vendor obligations to be fulfilled and
collectibility is probable. The Company also recognizes revenue from PeopleMover
software contracts that require significant modification or customization of the
software on a percentage of completion basis based on costs incurred. The
Company's PeopleMover subsidiary also provides software support and product
upgrades to its customers through separately priced agreements. These support
revenues are deferred and recognized on a straight line basis over the term of
the contract. Revenue from technical training and consulting services are
recognized as these services are provided to customers.
(f) Cost of Revenue
Cost of revenue includes salaries paid to staff that help administer the
Company's FREEAGENT.COM E.OFFICE services, costs associated with operating
FREEAGENT.COM including certain technical personnel and telecommunications
charges and costs of providing integration services to OPUSRM customers.
(g) Intangible Assets
Intangible assets consists of goodwill and is amortized on a straight line
basis over the expected periods to be benefited, generally 3 years. Accumulated
amortization as of June 30, 2000 was $ 5,927,000.
(h) Stock Based Compensation
The Company accounts for stock-based compensation arrangements in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25 and provide pro forma net earnings (loss) disclosures for
employee stock option grants as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to apply the provisions of APB
Opinion No. 25.
5
<PAGE>
(i) Basic and Diluted Net Loss per Share
The Company calculates earnings per share in accordance with SFAS No. 128,
"Computation of Earnings Per Share" and SEC Staff Accounting Bulletin ("SAB")
No. 98. Accordingly, basic earnings per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Pursuant to SAB No. 98, all options, warrants or other
potentially dilutive instruments issued for nominal consideration, prior to the
anticipated effective date of an initial public offering (including the IPO),
are required to be included in the calculation of basic and diluted net loss per
share, as if they were outstanding for all periods presented. As of June 30,
2000, the Company has recorded the fair market value of all equity instruments
issued for all periods presented and, accordingly, does not have any nominal
issuances. Common equivalent shares consist of the incremental common shares
issuable upon the conversion of the Company's preferred stock (using the
if-converted method) and shares issuable upon the exercise of stock options and
warrants (using the treasury stock method); common equivalent shares are
excluded from the calculation if their effect is anti-dilutive.
(j) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not have any derivatives and SFAS 133 will not have any effect on the
Company's financial statements.
On March 31, 2000 the Financial Accounting Standards Board issued FASB
interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25 (FIN 44). FIN 44
generally 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 provision related to
repricings and the definition of an employee which apply to awards issued after
December 15, 1998. To the extent that events covered by FIN 44 occur after the
applicable date but prior to July 1, 2000, the effects of applying FIN 44 shall
be recognized on a prospective basis. Accordingly, no adjustments shall be made
upon initial application of FIN 44 to financial statements for periods prior to
July 1, 2000. The Company is currently evaluating the impact, if any, of FIN 44.
Note 2. Acquisitions
1999
On May 27, 1999, Opus360 acquired 100% of the outstanding common stock of
The Churchill Benefit Corporation ("Churchill") in exchange for 946,474 shares
(the "Initial Shares") of the Company's common stock valued at approximately
$1.849 per share, or $1.75 million.
Under the terms of the agreement an additional 405,631 shares of the
Company's common stock were placed in escrow at the time of the closing, and
those shares and up to an additional $850,000 of the Company's common stock
would have been issued to the former owners of Churchill 18 months after the
date of closing had certain conditions been met. The milestone stipulated under
the agreement was not achieved as of May 27, 2000 as required, and the former
owner will not receive the escrow shares or the additional shares of the
Company's common stock. The Company will therefore not record any additional
expense relating to these shares.
The acquisition has been accounted for using the purchase method and,
accordingly, the results of operations of Churchill are included in the
Company's consolidated financial statements from the date of acquisition. The
purchase price has been allocated to the Company's historical assets and
liabilities based on the carrying values of the acquired assets and liabilities,
as these carrying values are estimated to approximate fair market value of the
assets acquired and liabilities assumed. Goodwill of $2,113,000 created as a
result of the Churchill transaction is being amortized over three years and was
calculated as follows:
Value of Initial Shares $1,750,000
Acquisition costs 297,000
Negative net assets acquired 66,000
----------
Excess purchase price over net assets acquired $2,113,000
==========
6
<PAGE>
2000
IndustryInsite.com
On January 10, 2000, the Company acquired from Brainstorm Interactive,
Inc. ("Brainstorm") all of the related assets and liabilities of
INDUSTRYINSITE.COM, a website operated by Brainstorm, for an aggregate purchase
price of $1,000,000. The purchase price was paid as follows: $650,000 on closing
and $350,000 on April 12, 2000. The Company allocated the purchase price to
intangible assets which are being amortized over three years.
Ithority Corporation
On January 20, 2000, the Company acquired 100% of the outstanding equity
of Ithority Corporation ("Ithority") in exchange for approximately 243,474
shares of the Company's common stock valued at $2 million, or $8.21 per share,
plus $250,000 paid on closing and $250,000 paid in the second quarter of 2000.
The former shareholders of Ithority are also entitled to approximately
182,599 shares, which have been placed in escrow (the "Ithority Escrow Shares")
plus $4 million of the Company's common stock payable one year from the date of
closing based upon the then fair market value of the Company's common stock (the
"Ithority Additional Shares"). The Ithority Escrow Shares will be released one
year from the date of closing, subject to satisfaction of certain conditions to
such release, including no breach of certain representations and warranties
provided by the selling shareholders.
Approximately 178,240 of the Ithority Escrow Shares and 97% of Ithority
Additional Shares payable to certain selling shareholders are subject to three
year vesting agreements whereby the Company has the right but not the obligation
to repurchase these shares for $0.01 per share in the event the shareholder is
no longer employed by the Company. The Company has recorded deferred
compensation expense of $5,343,000 for the fair market value of the Ithority
Escrow shares, which are subject to these continued employment arrangements, and
is amortizing such amount over the vesting period. The Company will only include
the vested portion of the restricted shares for purposes of calculating basic
earnings per share. The Company will also include the unvested portion of the
restricted shares for purposes of calculating diluted earnings per share, if
such amounts are dilutive.
The Company accounted for the acquisition of Ithority using the purchase
method and, accordingly, the results of operations of Ithority are included in
the Company's consolidated financial statements from the date of acquisition.
The purchase price has been allocated to Ithority's historical assets and
liabilities based on the fair values of the assets acquired and liabilities
assumed.
The following financial information represents the allocation of the
purchase price over historical net book values of the acquired assets and
assumed liabilities of Ithority. The resulting goodwill that was created, as a
result of the Ithority acquisition, is being amortized over three years. Actual
fair values were based on financial information as of the acquisition date. On
the acquisition date the allocated values were as follows:
Value of shares not subject to restricted stock vesting agreement $2,155,000
Cash payment 500,000
Negative net assets acquired 107,000
----------
Excess purchase price over net assets acquired $2,762,000
==========
PeopleMover, Inc.:
On February 24, 2000, the Company acquired all of the outstanding equity
of PeopleMover, Inc. ("PeopleMover") for approximately 2,634,000 shares of
common stock. Additionally, the Company exchanged options to purchase
approximately 1,189,000 shares of its common stock for outstanding stock options
to purchase PeopleMover common stock.
The purchase price of PeopleMover consisted of the following:
o 2,634,000 shares of Opus360 common shares valued at approximately
$23,990,000, or $9.11 per share;
o the assumption by Opus360 of options to purchase shares of
PeopleMover common stock, exchanged for options to purchase
approximately 1,189,000 shares of Opus360 common stock. The options
have been valued at approximately $7,875,000 using the Black-Scholes
pricing model. Such shares have an aggregate exercise price of
approximately $5,175,000; and
7
<PAGE>
o the Company also incurred acquisition costs of approximately
$600,000 related to the merger.
Approximately 342,000 shares issued to the PeopleMover shareholders are
subject to a three-year restricted stock vesting agreement, whereby the Company
has the right but not the obligation to repurchase these shares for $0.01 per
share in the event the shareholder is no longer employed by the Company. The
Company will only include the vested portion of the restricted shares for
purposes of calculating basic earnings per share. The Company will also include
the unvested portion of the restricted shares for purposes of calculating
diluted earnings per share, if such amounts are dilutive.
The value of the approximately 342,000 shares, which are subject to the
three-year vesting agreement, is approximately $3,130,000, which was recorded to
deferred compensation expense and is being amortized over the term of the
vesting agreement.
In connection with its negotiations to acquire PeopleMover, the Company
entered into an interim funding agreement with PeopleMover pursuant to which the
Company agreed to provide loans to PeopleMover through the earlier of March 3,
2000 or the date that the acquisition agreement was signed. The $790,000
aggregate amount of the loans reduced the purchase price of the acquisition on a
dollar-for-dollar basis.
The Company accounted for the acquisition of PeopleMover using the
purchase method and, accordingly, the results of operations of PeopleMover are
included in the Company's consolidated financial statements from the date of
acquisition. The purchase price was allocated to PeopleMover's historical assets
and liabilities based on the fair values of the assets acquired and liabilities
assumed.
The following financial information represents the allocation of the
purchase price over historical net book values of the acquired assets and
assumed liabilities of PeopleMover. The resulting goodwill is being amortized
over three years.
<TABLE>
<S> <C>
Value of shares not subject to restricted stock vesting agreement $20,860,000
Value of stock options issued, measured using Black-Scholes pricing model 7,875,000
Costs associated with acquisition 600,000
Negative net assets acquired 3,829,000
-----------
Excess purchase price over net assets acquired $33,164,000
===========
</TABLE>
Pro Forma Financial Information:
The following table presents the Company's summary pro-forma consolidated
financial information for the six months ended June 30, 2000 and June 30, 1999
as if the Year 2000 acquisitions had occurred on January 1, 1999.
<TABLE>
<CAPTION>
June 30, 2000
<S> <C>
Total revenue 3,325,000
Net Loss (45,596,000)
Pro-forma basic and diluted net loss per share $ (1.03)
<CAPTION>
June 30, 1999
<S> <C>
Total revenue $1,100,000
Net loss (8,678,000)
Pro-forma basic and diluted net loss per share $ (0.41)
</TABLE>
Note 3. Related Party Transactions
On March 23, 2000 Richard S. Miller, the Company's President and Chief
Operating Officer exercised stock options to purchase 300,000 shares of the
Company's common stock at an exercise price of $2.67 per share. In connection
with Mr. Miller's exercise of the options, the Company provided Mr. Miller with
a full recourse loan of $1,538,000 at an annual interest rate of 7% per annum,
compounded annually. The term of the loan is three years subject to acceleration
upon the occurrence of an event of default, including the termination of Mr.
Miller's employment with the Company for any reason whatsoever.
In February 2000, the Company entered into an agreement with Lucent
Technologies Inc. ("Lucent"), a company whose Executive Vice President is a
member of the Company's board of directors. The agreement provides for Lucent to
use the Company's OPUSRM application and also assist in the development and
marketing of these services by serving as a member of the OPUSRM Customer
Advisory Board.
8
<PAGE>
Note 4. Lines of Credit
In February 2000 and June 2000, the Company borrowed $1,044,000 and
$706,000, respectively, as part of a $1,750,000 equipment line of credit (the
"Facility") with a bank. The annual interest rate on the Facility is equal to
the three-year Treasury bill rate as of the date of funding plus 3%. The
Company's current outstanding balance under this line at June 30, 2000 is
$1,641,000 with an interest rate of 9.3% per annum.
Note 5. Commitments and contingencies
Commitments
Registration Rights:
Beginning 180 days after the effective date of the Company's IPO, certain
holders of the Company's common stock and warrants will be entitled to have
their shares registered under the Securities Act of 1933 upon written demand in
certain circumstances. The Company will be responsible for all expenses in
connection with the registration rights.
Employment Agreements:
In connection with the Ithority and PeopleMover transactions, the Company
entered into various three-year employment contracts with certain employees
which obligate the Company to pay annual salaries totaling approximately
$630,000 and to provide these employees the opportunity to participate in the
Company's bonus and benefit plans.
On January 21, 2000, the Company entered into a three-year employment
agreement with Mr. Richard S. Miller, who assumed the role of President and
Chief Operating Officer, which obligates the Company to pay an annual salary of
$250,000. The Agreement further provides that Mr. Miller will be eligible for
annual bonuses of not less than $100,000 per year if certain performance
criteria are met.
In connection with the January 21, 2000 employment agreement, Mr. Miller
was granted incentive stock options to purchase 32,918 shares of the Company's
common stock at a strike price of $9.11 per share and non-qualified stock
options to purchase 1,474,582 shares of common stock of which 300,000 have a
strike price of $2.67 and are immediately vested, 600,000 have a strike price of
$2.67 and vest over 3 years and the remaining 574,582 have a strike price of
$8.00 and vest over 3 years. The Company recorded deferred compensation of
$6,425,000 in connection with Mr. Miller's option grants of which $1,932,000 was
expensed on the date of grant and the remaining $4,493,000 will be amortized
over the three-year vesting term of Mr. Miller's options. The non-qualified
options issued to Mr. Miller have been issued outside of the Company's existing
Stock Option Plans.
On March 24, 2000, the Company entered into a three-year agreement with
Dr. Ram Chillarege, who assumed the role of Executive Vice President Software &
Technology. In connection with the March 24, 2000 agreement, Dr. Chillarege was
granted incentive stock options to purchase 30,000 of the Company's common stock
at a strike price of $10.00 and non-qualified stock options to purchase 470,000
shares of common stock of which 100,000 have a strike price of $5.00 and are
immediately vested, 150,000 have a strike price of $5.00 and vest over three
years and 220,000 have a strike price of $10.00 and vest over three years. The
Company recorded deferred compensation of $1,250,000 in connection with Dr.
Chillarege's option grants of which $500,000 was expensed on the date of grant
and the remaining $750,000 will be amortized over the three-year vesting term of
Dr. Chillarege's options. The non-qualified options issued to Dr. Chillarege
have been issued outside of the Company's existing Stock Option Plans.
In February 2000, the Company entered into three-year agreements with
several of its employees, who are also stockholders, which obligate the Company
to annual salaries totaling approximately $3.2 million. Pursuant to the terms of
some of these agreements, the Company has the right to purchase 3,787,500 shares
for approximately $140,000 from these individuals at the employees' original
cost if these employees are either terminated for cause or resign during the
year ended December 31, 2000.
In May and June 2000, the Company entered into various three-year
employment contracts with certain employees which obligate the Company to annual
salaries totaling approximately $665,000 plus the opportunity to participate in
the Company's bonus and benefit plans.
Contingencies
The Company accounts for its FREEAGENT E.OFFICE employees as employees for
federal income tax and benefit plan purposes. The Company recognizes that the
Internal Revenue Service ("IRS") definition of an employee is subject to
interpretation. To date, the IRS has not challenged the Company's reporting.
9
<PAGE>
Should the IRS determine that the FREEAGENT E.OFFICE employees do not
qualify as employees under applicable federal statutes and regulations, the
employees could lose the favorable tax status of certain of the Company's
benefit and 401(k) retirement plans. The Company is unable to predict the
potential impact which any such determination might have and whether any
resulting liability or benefit will relate to past or future operations.
Accordingly, the Company is unable to make a meaningful estimate of the amount,
if any, of such liability or benefit.
Rescission Offer
As of June 30, 2000, the Company has granted options to purchase
approximately 178,500 shares of its common stock to its FREEAGENT E.OFFICE
employees, which may not have complied with certain federal and state securities
laws.
Beginning approximately 180 days after April 7, 2000, the date the Company
completed its IPO, the Company intends to make a rescission offer to all these
FREEAGENT E.OFFICE employees using a registration statement filed under
applicable federal and state securities laws. In the rescission offer, the
Company will offer to repurchase from the FREEAGENT E.OFFICE employees all of
the shares issued upon exercise of options by these employees before the
expiration of the rescission offer registration statement, at the exercise price
paid for these shares, plus interest at the rate of 10% per year from the date
of issuance until the rescission offer expires. The Company will also offer to
repurchase all of the unexercised options issued to these FREEAGENT E.OFFICE
employees at 20% of the option exercise price multiplied by the number of shares
subject to such options, plus interest at the rate of 10% per year from the date
of issuance until the rescission offer expires. The rescission offer will expire
approximately 30 days after the effectiveness of the rescission offer
registration statement.
Based on the number of options outstanding as of June 30, 2000, the
Company could be required to pay to these FREEAGENT E.OFFICE employees up to
approximately $900,000, plus interest, in connection with the rescission offer.
The applicable securities laws do not expressly provide that a rescission offer
will terminate a purchaser's right to rescind a sale of stock which was not
registered as required. Accordingly, if any FREEAGENT E.OFFICE employees reject
the rescission offer, the Company may continue to be contingently liable for the
purchase price of these shares and options, which were not issued in compliance
with applicable securities laws.
Amounts related to this contingent liability are not reflected in the
accompanying financial statements.
Legal Proceedings
On July 6, 2000, Knowledge Transfer International ("KTI") filed a
complaint against the Company in the Supreme Court of the State of New York in
the County of New York. KTI's claims arise generally out of a letter signed by
KTI and by the Company on June 16, 1999. KTI claims that this letter constituted
a joint venture agreement under which KTI was to develop and operate a "free
agent" certification program for use on the Company's FreeAgent.com website and
the parties agreed to share equally all of the revenues to be generated
therefrom. KTI asserts a claim that the Company breached that alleged agreement
and also asserts additional claims for an accounting, breach of fiduciary duty,
quantum merit and unjust enrichment relating to this alleged joint venture.
KTI seeks damages in an amount to be determined at the time of the trial,
but claims that its damages are believed to be in excess of $20 million. KTI
also seeks the imposition of a constructive trust on KTI's presumed share of the
revenues KTI alleges the Company has derived from certification and training
programs made available on or through its website.
While the Company has not yet filed an answer to this complaint, and the
outcome of litigation is inherently uncertain, it believes that it has valid
defenses to KTI's claims and it intends to defend this lawsuit vigorously.
Amounts related to these contingent liabilities are not reflected in the
accompanying financial statements.
Note 6. Basic and Diluted Net Loss Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
10
<PAGE>
<TABLE>
<CAPTION>
Three months ended
June 30
1999 2000
------------ ------------
<S> <C> <C>
Numerator:
Net loss $ (3,691,000) $(20,016,000)
------------ ------------
Denominator:
Basic and diluted loss per share weighted average shares 9,862,758 47,164,648
------------ ------------
Basic and diluted net loss per share $ (0.37) $ (.42)
------------ ------------
<CAPTION>
Six months ended
June 30
1999 2000
----------- ------------
<S> <C> <C>
Numerator:
Net loss $(5,692,000) $(45,034,000)
----------- ------------
Denominator:
Basic and diluted loss per share weighted average shares 9,681,749 30,331,712
----------- ------------
Basic and diluted net loss per share $ (0.59) $ (1.48)
----------- ------------
</TABLE>
Diluted net loss per share for the three and six month periods ended June
30, 1999 and June 30, 2000 does not include the effect of options and warrants
to purchase 5,549,925 and 11,559,589 shares of common stock, respectively, or
542,000 unvested escrowed shares of common stock issued to former shareholders
of Ithority and PeopleMover. In addition diluted net loss per share for the
three and six month periods ended June 30, 1999 does not include 12,426,000 and
25,441,000 shares of common stock issuable upon the conversion for Series A and
B preferred stock on an "as-if converted" basis, respectively, as the effect of
their inclusion is anti-dilutive for each period.
Note 7. Stockholders' Equity
Strategic and Advisory Agreements
Greenhill & Co.:
On September 3, 1999, the Company entered into an agreement with Greenhill
& Co. ("Greenhill") whereby Greenhill is to act as the Company's mergers and
acquisitions advisor for a period of six months or until the Company has either
acquired two identified targets or completed acquisitions aggregating $30
million (the "Initial Term"). Unless otherwise terminated, the agreement shall
be automatically renewed (a) following the Initial Term and shall continue until
the Company has completed either $250 million of cumulative acquisitions or a
total of four previously identified targets that have an aggregate value of at
least $100 million (the "First Renewal Term") and (b) following the First
Renewal Term, until the Company has completed at least $750 million of
cumulative acquisitions or a total of ten previously identified targets (the
"Second Renewal Term").
As consideration for the above services, Greenhill receives 1) warrants to
immediately purchase 450,000 shares of the Company's common stock at an exercise
price of $3.07 per share upon the commencement of the Initial Term, and is
entitled to receive 2) warrants to immediately purchase 450,000 shares of the
Company's common stock at the then fair market value upon the earlier of the
commencement of the First Renewal Term or the pricing of a qualified IPO, and 3)
warrants to immediately purchase 450,000 shares of the Company's common stock at
the then fair market value upon commencement of the Second Renewal Term.
In connection with the issuance of the Greenhill Initial Term warrants,
the Company recorded a pre-paid expense of approximately $554,000 representing
the fair market value of the warrants calculated using the Black-Scholes pricing
model and is amortizing this amount over the Initial Term of the agreement.
11
<PAGE>
Greenhill exercised the initial term warrants for a combination of cash
and the surrender of a portion of the warrants during the quarter ended June 30,
2000.
In January 2000, the Company completed the acquisitions of
INDUSTRYINSITE.COM and Ithority Corporation (see Note 2) and, accordingly, the
Company expensed any previously unamortized amounts associated with the Initial
Term warrants. Additionally, the Company issued to Greenhill the First Renewal
Term warrants to purchase 450,000 shares of the Company's common stock at an
exercise price of $8.21 per share. In connection with the First Renewal Term
warrants the Company recorded a pre-paid expense of approximately $839,000
calculated using the Black-Scholes pricing model. The Company is amortizing this
amount over one year, which is the Company's best estimate of the length of the
First Renewal Term.
Kirshenbaum Bond & Partners:
In June 1999, the Company entered into an agreement with Kirshenbaum Bond
& Partners ("KBP") whereby KBP was to develop and build an advertising and
branding campaign for the Company in exchange for monthly fees to be paid in
cash and warrants to purchase shares of the Company's common stock. All warrants
issued under this agreement have a strike price of $0.01, became exercisable
upon the Company's IPO and expire five years from the dates of issuance. The
agreement also provides that, after the Company has completed its IPO, all fees
are to be paid only in cash.
In connection with the KBP agreement, the Company issued 9,120 warrants to
KBP during the quarter ended March 31, 2000, and the Company recorded sales and
marketing expenses of approximately $83,000, representing the fair market value
of the warrants calculated using the Black-Scholes pricing model. No further
warrants are to be issued under the KBP agreement.
Lucent:
On February 7, 2000, the Company entered into a strategic relationship
with Lucent, whereby Lucent will assist the Company in developing its OPUSRM
product for two years in exchange for two warrants to immediately purchase
shares of the Company's common stock. The first warrant entitles Lucent to
purchase up to 225,000 shares of the Company's common stock at the exercise
price of $3.33 per share for one year from the date of grant. In connection with
the granting of the first warrant to Lucent on February 7, 2000, the Company
recorded a prepaid expense of approximately $1,345,000, representing the fair
market value of the warrant calculated using the Black-Scholes pricing model
which will be amortized over the term of the agreement. The second warrant is
exercisable for a three-year period commencing on the 240th day after the
effective date of the Company's IPO. The exercise price of the second warrant
will be equal to the average market price of the Company's common stock during
the 10 trading days immediately preceding the date the warrant first becomes
exercisable. The number of shares issuable upon the exercise of the second
warrant is determined by dividing $2,655,000 by the present value of a warrant
to purchase one share of the Company's common stock, as determined by the
Black-Scholes option pricing model, with the strike price assumed to be the
actual exercise price and the volatility rate assumed to be 100%. The Company
will record prepaid expense for the second warrant at the time it becomes
exercisable which will represent the then fair market value of the warrant
calculated using the Black-Scholes pricing model and will be amortized over the
remaining life of the original 2-year agreement.
Dell:
On March 1, 2000 the Company entered into a stock purchase agreement with
Dell USA L.P. ("Dell"), an affiliate of Dell Computer Corporation, whereby Dell
agreed to purchase up to $14 million of the Company's common stock at a price
equal to the initial public offering price per share less an amount equal to the
per share underwriting discount and commissions received by the underwriters
(the "Concurrent Placement"). The closing of the Concurrent Placement occurred
on April 7, 2000. The shares sold in the Concurrent Placement were not
registered for immediate sale under the Securities Act.
In connection with Dell's purchase of the Company's common stock, Dell
Marketing LP, the marketing affiliate of Dell Computer Corporation entered into
a marketing agreement pursuant to which Dell Marketing will provide a prominent
link to the Company's web site on its web site. The marketing arrangement became
effective with the closing of the Concurrent Placement and is for a period of
one year.
ZDNet
12
<PAGE>
On May 25, 2000, the Company entered into an agreement with ZDNet
("ZDNet"), a division of ZDNet Inc. which operates a web-site providing
information relating to computers and technology. The agreement provides for the
Company and ZDNet to jointly develop a co-branded website that will feature the
content and services of ZDNet and FreeAgent.com. ZDNet and the Company agreed to
equally share up to $200,000 of the costs associated with building the site and
will promote the site to each other's member base. Any costs above $200,000 will
be the responsibility of the Company. Costs incurred in developing the
co-branded site were negligible as of June 30, 2000. The co-branded site is
expected to launch during the fourth quarter of 2000.
The Company and ZDNet agreed to a revenue sharing arrangement for
transactions conducted through the co-branded site, including subscriptions for
products and services and advertising revenue.
As part of the two-year agreement, ZDNet agreed to pay the Company
$500,000 on the launch date of the co-branded site to sponsor the technology
vertical within the FreeAgent.com website. The Company agreed to pay ZDNet a
$2,000,000 integration fee payable in equal installments of $1,000,000 due on
the launch date and the one-year anniversary of the launch date of the
co-branded site. The integration fees will be expensed over the term of the
agreement. ZDNet committed to spend $1,500,000 per year on advertising the
co-branded site. The Company also committed to spend $3,000,000 per year of
advertising on the ZDNet website, marketing the co-branded site. The Company
will expense the advertising as incurred.
ThirdAge
On March 17, 2000, the Company entered into an agreement with ThirdAge
Media ("ThirdAge"), a company which operates a web-site providing content and
services for adults 45 years and older. The agreement provides for the Company
and ThirdAge to jointly develop a co-branded website that will feature the
content and services of ThirdAge and FreeAgent.com.
The Company and ThirdAge agreed to a bounty and revenue sharing
arrangement for usage and transactions conducted through the co-branded site,
including subscriptions for products and services and advertising revenue. As
part of the three-year agreement, the Company agreed to spend a minimum of
$1,400,000 per year on advertising on ThirdAge, in exchange for a minimum of 12
million impressions per year. The Company will expense the advertising fees
ratably over the term of the contract. The Company could incur additional fees
under the contract if certain milestones are achieved.
Stock Options:
In March 2000, the Company adopted the (1) 2000 Stock Option Plan (the
"2000 Plan"), which provides for the granting of non-qualified and incentive
stock options to employees, board members and advisors (2) the 2000 Non-Employee
Directors' Plan (the "Non-Employee Director Plan"), which will provide for
automatic, nondiscretionary grants, after the closing of the IPO, of
non-qualified stock options to non-employee board members, as defined, and (3)
the 2000 Employee Stock Purchase Plan (the "ESPP"), which will permit eligible
employees to acquire, through payroll deductions, shares of the Company's common
stock after the closing of the IPO. The 2000 Plan and the Non-Employee Director
Plan authorize the granting of 7.5 million and 1.13 million options,
respectively, and provide for option terms not to exceed ten years. The ESPP
authorizes the issuance of 2.25 million shares to participating employees.
During the first quarter of 2000, the Company recorded additional deferred
compensation of $8,293,000, primarily related to options granted to its new
President, Executive Vice President Software & Technology, and in connection
with granting options to employees and board members. During the quarter ended
June 30, 2000 the Company did not record any additional deferred compensation.
The Company expects to amortize unamortized deferred compensation expense
of $9,742,000, at June 30, 2000, as follows:
For the six months ending December 31, 2000 $1,733,000
For the year ending December 31, 2001 $3,557,000
For the year ending December 31, 2002 $3,462,000
For the year ending December 31, 2003 $ 990,000
In connection with the granting of approximately 32,250 stock options in
the first quarter of 2000 to non-employees, the Company recorded deferred
compensation expense of approximately $29,000 for the quarter ended March 31,
2000. These options have been issued under the 1998 Stock Option Plan and
generally vest over three to four years. The Company will amortize deferred
compensation for those options issued to non-employees in accordance with EITF
96-18 and will record expense for the fair market value of the options at each
interim reporting date over which the options vest. Fair market value at each
date of grant and interim reporting period is calculated using the Black-Scholes
pricing model.
13
<PAGE>
Note 8. Segment Information
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company's reportable segments are
business units that offer different products and services throughout the United
States.
The Company's reportable segments are as follows:
o FREEAGENT.COM SERVICE which includes FREEAGENT.COM, a website that
enables independent professionals to manage their careers by
offering them access to project opportunities and corporate products
and services; and FREEAGENT E.OFFICE services, a back-office and
employment service for independent professionals. Independent
professionals who elect to receive FREEAGENT E.OFFICE services are
the Company's contractual employees for federal income tax purposes
for whom the Company prepares IRS Form W-2's. The Company enters
into contracts with organizations for projects to be performed by
FREEAGENT E.OFFICE members, processes invoices for such services
and, upon receipt of amounts due from the contracting organization
for the services rendered by FREEAGENT E.OFFICE members, remits the
amount due to the FREEAGENTE.OFFICE MEMBER after deducting payroll
taxes, the fees charged by the Company and contributions for the
member's health insurance and 401(k) retirement plan, as directed by
the member.
o APPLICATION AND PROCUREMENT SERVICES WHICH INCLUDES:
o OPUSXCHANGE.COM: an Internet service which is designed to enable
corporations, professional services firms, staffing companies and
other buyers requiring individuals with specific professional skills
to easily and rapidly procure professionals from FREEAGENT.COM and
manage their interaction with these independent professionals over
time, and
o OPUSRM: a resource procurement and management application that
provides extensive resource management capabilities to track the
skills and competencies of an entire workforce. Using the
comprehensive E.PORTFOLIO, organizations can capture all relevant
information about their resources such as skills, skill levels,
achievements, work history and preferences. OpusRM provides a global
view of current and upcoming projects and optimizes the process of
assigning available resources to project assignments. We expect to
add a Procurement Module to OpusRM in the third quarter which will
enable organizations to dramatically reduce the cost of procuring IT
contractors by automating the requisition, approval and engagement
processes between multiple participants in the supply chain. The
OpusRM Procurement Module is part of an Internet service which is
designed to enable corporations, professional services firms,
staffing companies and other buyers requiring individuals with
specific professional skills to electronically procure professionals
from preferred, general and specialist suppliers. The open exchange
created through this service will allow access to FREEAGENT.COM and
other internet-based communities of highly skilled professionals. We
intend to capture metrics on each transaction through our
centralized repository to accurately measure the time, cost, quality
and quantity of the engagements between buyers and suppliers. These
metrics represent highly valued data to both buyers and suppliers in
their pursuit of reduced procurement and supply costs as well as
improved service offerings.
The Company's accounting policies for these segments are the same as those
described in Note 1 - Organization and Summary of Accounting Policies, above.
The table below presents information about segments used by the chief
operating decision-maker of Opus360 for the periods ending June 30, 1999 and
June 30, 2000.
<TABLE>
<CAPTION>
Three Months Ended
Application and
Procurement FreeAgent
Services Services Total
-------- -------- -----
<S> <C> <C> <C>
June 30, 2000:
Revenues $ 1,749,000 $ 552,000 $ 2,301,000
Gross profit $ 1,372,000 $ 491,000 $ 1,863,000
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C>
Net loss before equity-based compensation charges $ (7,759,000) $(10,723,000) $ (18,482,000)
Total assets $ 120,132,000 $ 4,669,000 $ 124,801,000
June 30, 1999:
Revenues $ -- $ 64,000 $ 64,000
Gross profit $ -- $ 55,000 $ 55,000
Net loss $ (3,454,000) $ (212,000) $ (3,666,000)
Total assets $ 8,385,000 $ 1,536,000 $ 9,921,000
Six Months Ended
June 30, 2000:
Revenues $ 2,428,000 $ 850,000 $ 3,278,000
Gross profit $ 1,497,000 $ 692,000 $ 2,189,000
Net loss before equity-based compensation charges $ (16,919,000) $(22,917,000) $ (39,836,000)
Total assets $ 120,132,000 $ 4,669,000 $ 124,801,000
June 30, 1999:
Revenues $ -- $ 64,000 $ 64,000
Gross profit $ -- $ 55,000 $ 55,000
Net loss $ (5,430,000) $ (212,000) $ (5,642,000)
Total assets $ 8,385,000 $ 1,536,000 $ 9,921,000
</TABLE>
For the periods June 30, 2000 and June 30, 1999, the reconcilation between
segment net loss and net loss from operations is as follows:
Three Months Ended
June 30, 2000
Segment net operating loss $ (18,482,000)
Equity-based compensation $ 1,534,000
Enterprise net operating loss $ (20,016,000)
June 30, 1999
Segment net operating loss $ (3,666,000)
Equity-based compensation $ 25,000
Enterprise net operating loss $ (3,691,000)
Six Months Ended
June 30, 2000
Segment net operating loss $ (39,836,000)
Equity-based compensation $ 5,198,000
Enterprise net operating loss $ (45,034,000)
June 30, 1999
Segment net operating loss $ (5,642,000)
15
<PAGE>
Equity-based compensation $ 50,000
Enterprise net operating loss $ (5,692,000)
16
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Act of 1934, as amended. Such statements are based
upon current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical facts may be deemed to be
forward-looking statements. For example, words such as "may", "will", "should",
"estimates", "predicts", "potential", continue", "strategy", "believes",
"anticipates", "plans", "intends", and similar expressions are intended to
identify forward-looking statements. Our actual results and the timing of
certain events may differ significantly from the results discussed in the
forward-looking statements. Among the important factors that could cause actual
results to differ significantly from those expressed or implied by such
forward-looking statements are our limited operating history and expectation of
future losses; the failure of the Internet to become a proven recruitment and
project search medium; our need to successfully develop awareness of our brand
names; the failure of our products and services to be accepted in the
marketplace; the intense competition in our industry; technological change;
damage to our reputation which could result from unexpected network
interruption;, undetected errors or defects in our services; breaches of our
network security or computer viruses; the imposition of new burdensome
government regulations and legal uncertainties regarding the Internet which
could increase our costs or limit our operations; the potential need for
additional financing; the risk that our proprietary rights may not be fully
protected; uncertainties regarding the application of federal tax and employee
benefit laws to our business which could limit our ability to provide benefits
that will attract free agents; the risk that we may be subject to
employment-related claims relating to free agents, or the organizations that use
their services; legal uncertainties regarding the application of various federal
and state laws into our business; as well as the other risk factors affecting
the Company detailed from time to time in documents filed by the Company with
the Securities Exchange Commission ("SEC"), including but not limited to those
discussed under the caption "Risk Factors" in our Form S-1 registration
statement declared effective by the SEC on April 6, 2000.
Overview
We provide Internet-based services for putting skilled professionals and
strategic corporate initiatives together across the services supply chain. Our
e-commerce services streamline the management and procurement of professional
resources by using advanced technologies specifically designed and developed for
use through standard internet browsers. Our services enable companies to more
effectively allocate, manage and retain their internal professionals while
creating electronic networks to suppliers worldwide. Buyers requiring
individuals with specific professional skills can easily search their internal
database and then submit requisitions across the network. All supply sources are
linked electronically for rapid receipt and response to requisitions. Our three
services, each of which can be used as a stand-alone application or as part of a
complete solution consist of:
o FREEAGENT.COM SERVICE which includes FREEAGENT.COM, a website that
enables independent professionals to manage their careers by
offering them access to project opportunities and corporate products
and services; and FREEAGENT E.OFFICE services, a back-office and
employment service for independent professionals. Independent
professionals who elect to receive FREEAGENT E.OFFICE services are
the Company's contractual employees for federal income tax purposes
for whom the Company prepares IRS Form W-2's. The Company enters
into contracts with organizations for projects to be performed by
FREEAGENT E.OFFICE members, processes invoices for such services
and, upon receipt of amounts due from the contracting organization
for the services rendered by FREEAGENT E.OFFICE members, remits the
amount due to the FREEAGENT E.OFFICE MEMBER after deducting payroll
taxes, the fees charged by the Company and contributions for the
member's health insurance and 401(k) retirement plan, as directed by
the member. FREEAGENT.COM serves to constantly market and support
the individual through highly specialized matching of skills,
availability, geographic location and preferences to a dynamic
supply of professional placements. This growing community of
progressive free agents provides a well-defined, active supply
source for buyers, while reducing procurement costs by leveraging
the scale and efficiency of the internet.
o APPLICATION AND PROCUREMENT SERVICES WHICH INCLUDES:
o OPUSXCHANGE.COM: an Internet service which is designed to enable
corporations, professional services firms, staffing companies and
other buyers requiring individuals with specific professional skills
to
17
<PAGE>
easily and rapidly procure professionals from FREEAGENT.COM and
manage their interaction with these independent professionals over
time, and
o OPUSRM: a resource procurement and management application that
provides extensive resource management capabilities to track the
skills and competencies of an entire workforce. Using the
comprehensive E.PORTFOLIO, organizations can capture all relevant
information about their resources such as skills, skill levels,
achievements, work history and preferences. OpusRM provides a global
view of current and upcoming projects and optimizes the process of
assigning available resources to project assignments. We expect to
add a Procurement Module to OpusRM in the third quarter which will
enable organizations to dramatically reduce the cost of procuring IT
contractors by automating the requisition, approval and engagement
processes between multiple participants in the supply chain. The
OpusRM Procurement Module is part of an Internet service which is
designed to enable corporations, professional services firms,
staffing companies and other buyers requiring individuals with
specific professional skills to electronically procure professionals
from preferred, general and specialist suppliers. The open exchange
created through this service will allow access to FREEAGENT.COM and
other internet-based communities of highly skilled professionals. We
intend to capture metrics on each transaction through our
centralized repository to accurately measure the time, cost, quality
and quantity of the engagements between buyers and suppliers. These
metrics represent highly valued data to both buyers and suppliers in
their pursuit of reduced procurement and supply costs as well as
improved service offerings.
We launched our FREEAGENT.COM website in July 1999. The general release of
OPUSRM occurred in the second quarter of 2000. We launched the OPUSRM
Procurement Module in September 1999. We expect to release the enhanced version
of the OPUSRM Procurement Module, which has been designed for use by large
corporate customers, by the end of the third quarter of 2000. We are currently
in the final stages of internal testing of the enhanced version of the OPUSRM
Procurement Module prior to our releasing it to a limited number of customers
for implementation and further testing.
Recent Acquisitions
PeopleMover, Inc.
On February 24, 2000, we acquired 100% of the outstanding capital stock of
PeopleMover, Inc. for an aggregate purchase price of $31.9 million payable in
common stock. PeopleMover, which is headquartered in Manhattan Beach,
California, is a developer of Internet-based resource management application
services similar to our OPUSRM application, principally focused on the needs of
staffing firms. Its principal application, PEOPLEMOVER/STAFFING, enables
professional staffing firms to recruit and assign people to jobs based on skills
and availability. PEOPLEMOVER/STAFFING manages information regarding a staffing
firm's resources and applicants, customer accounts, including job and project
openings, and sales activity. PEOPLEMOVER/STAFFING supports many of the needs of
large staffing firms, including resume scanning and matching against openings;
tracking of skills and availability of contractors and applicants; time and
expense processing; and integration with back office systems for billing,
payroll and human resources.
Our acquisition of PeopleMover expands our product line by providing a
service for the staffing industry. We believe that staffing firms are key
intermediaries in the labor market and, therefore, important participants for
our ability to put people and projects together. PEOPLEMOVER/STAFFING will also
be able to be integrated with our OPUS XCHANGE.COM service. PeopleMover
currently provides its PEOPLEMOVER/STAFFING applications to 11 staffing
companies.
Ithority Corporation
On January 20, 2000, the Company acquired 100% of the outstanding equity
of Ithority Corporation ("Ithority") in exchange for approximately 243,474
shares of the Company's common stock valued at $2 million, or $8.21 per share,
plus $250,000 on closing and $250,000 to be paid in the second quarter of 2000.
The former shareholders of Ithority are also entitled to approximately
182,599 shares, which have been placed in escrow (the "Ithority Escrow Shares")
plus $4 million of the Company's common stock payable one year from the date of
closing based upon the then fair market of the Company's common stock (the
"Ithority Additional Shares"). The Ithority Escrow Shares will be released one
year from the date of closing and are subject to satisfaction of certain
conditions to such release, including no breach of certain representations and
warranties provided by the selling shareholders.
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Approximately 178,240 of the Ithority Escrow Shares and 97% of Ithority
Additional Shares payable to certain selling shareholders are subject to three
year vesting agreements whereby the Company has the right but not the obligation
to repurchase these shares for $0.01 per share in the event the shareholder is
no longer employed by the Company. The Company has recorded deferred
compensation expense of $5,343,000 for the fair market value of the Ithority
Escrow shares, which are subject to employment, and will amortize such amounts
over the vesting period. The Company will only include the vested portion of the
restricted shares for purposes of calculating basic earnings per share. The
Company will also include the unvested portion of the restricted shares for
purposes of calculating diluted earnings per share, if such amounts are
dilutive.
IndustryInsite.com
On January 12, 2000, we acquired from Brainstorm Interactive, Inc. all of
the assets and liabilities of INDUSTRYINSITE.COM, a website operated by
Brainstorm, for an aggregate purchase price of $1.0 million, of which $650,000
was paid in cash on the closing date and $350,000 was paid on April 12, 2000.
INDUSTRYINSITE.COM has a network of approximately 63,000 professional users that
work either full-time or as free agents in various professional industries such
as management consulting, information technology, computer software and
marketing. By accessing the INDUSTRYINSITE.COM website, these professionals can
create a profile of their skills, academic background, work experience and
interests to market themselves to potential employers, communicate online with
professionals in similar industries, receive content, news and information on
industry events, create a personal e-mail, and search for job opportunities.
Results of Operations
We have a short operating history and have incurred substantial losses
since our inception. From the date of our inception in August 1998 through
December 31, 1998, we incurred net losses of approximately $1.0 million. For the
year ended December 31, 1999, we incurred net losses of approximately $29.4
million. For the six months ending June 30, 2000 we incurred net losses of
approximately $45.0 million and as of June 30, 2000, we had an accumulated
deficit of $75.5 million. Our net losses and resulting accumulated deficit are
primarily due to the cost we incurred to develop our products and services and
to expand our sales and marketing programs.
We intend to continue to devote resources to advertising and
brand-marketing programs designed to attract free agents to FREEAGENT.COM and
promote our OPUS XCHANGE.COM and OPUSRM services. However, we anticipate
decreasing advertising spending in the future as we become more efficient and
effective in our advertising campaigns. In addition, we expect to shift our
advertising focus to the Application & Procurement segment from the FreeAgent
segment. This is expected to result in sales and marketing expenses decreasing
as a percentage of total revenues.
As a result of our focus on achieving profitability, in addition to
revenue growth, we expect our operating expenses to decrease over the next
several quarters, particularly in the areas of sales and marketing and general
and administrative expenses. We expect to incur losses from operations for the
foreseeable future but these losses are expected to decrease significantly as a
percentage of revenue. To the extent these decreases in our operating expenses
are not followed by commensurate increases in our revenues, or if we are unable
to adjust operating expense levels as anticipated, our operating losses may
exceed our expectations for those periods. We cannot be sure that we will ever
achieve or sustain profitability.
Three Months Ended June 30, 2000 and 1999
Revenues
For the quarter ended June 30, 2000 our revenues were approximately $2.3
million of which approximately $0.6 million were related to our FREEAGENT.COM
services consisting of initial sign-up fees and monthly fees paid by our
FREEAGENT E.OFFICE employees as well as sales of advertising sponsorships on
FREEAGENT.COM; and $1.7 million related to the Application and Procurement
Services which consisted of the sale of software licenses and integration
revenues. For the quarter ended June 30, 1999 we had revenues of $0.1 million
all of which related to the FREEAGENT.COM services.
Cost of Revenues
Cost of revenues for the quarter ended June 30, 2000 were $0.4 million.
Cost of revenues for the quarter ended June 30, 2000 included salaries paid to
staff that help administer our FREEAGENT E.OFFICE services, costs
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associated with operating FREEAGENT.COM including certain technical personnel
and telecommunications charges and costs of providing integration services to
OPUSRM customers. Cost of revenues for the quarter ended June 30, 1999 were
negligible.
Operating Expenses
Sales and Marketing. Sales and marketing expenses for the quarter ended
June 30, 2000 were $6.5 million, excluding $0.1 million reflected as equity
based compensation below, an increase of 550% over sales and marketing expenses
of $1.0 million for the quarter ended June 30, 1999. This increase was primarily
attributable to marketing and advertising expenses for FREEAGENT.COM, salaries
and benefits paid to our sales and marketing staff, and expanded marketing
efforts for our OPUSRM products. We believe these expenses will decrease in
absolute dollar amounts in future periods as we become more efficient and
effective with our marketing and advertising expenditures.
Product Development. Product development expenses for the quarter ended
June 30, 2000 were $6.3 million, excluding $0.1 million reflected as equity
based compensation below, an increase of 294% over product development expenses
of $1.6 million for the quarter ended June 30, 1999. The increase was primarily
attributable to the development of our OPUSRM, OPUSXCHANGE.COM and
FREEAGENT.COM Services, and included salaries and benefits and consulting fees
paid to our engineers. To date, all product development expenses relating to the
development of our OPUSRM and OPUSXCHANGE.COM services have been expensed in
the period incurred. We believe that continued investment in product development
is critical to attaining our strategic objective. However, we expect product
development expenses will decrease in future periods as our products achieve
technical feasibility.
General and Administrative. General and administrative expenses for the
quarter ended June 30, 2000 were $4.6 million, excluding $1.3 reflected as
equity based compensation below, an increase of 318% over general and
administrative expenses of $1.1 million for the quarter ended June 30, 1999. The
increase was primarily attributable to increases in salaries and benefits,
general office expenses, rent and utilities, recruiting fees and professional
fees. Our salaries and benefits increased as we added staff to our executive
management team. Our rent and utilities also increased as a result of new
leasehold facilities and the addition of additional office locations as a result
of our acquisitions. We expect that our general and administrative expenses will
decrease in future periods as we consolidate our office facilities and become
more efficient in managing these expenditures.
Depreciation and Amortization. Depreciation and amortization expenses for
the quarter ended June 30, 2000 were $4.0 million and consisted primarily of
amortization of goodwill of $3.3 million associated with our acquisitions.
Depreciation and amortization expense was $0.1 million in the quarter ended
June 30, 1999. Depreciation and amortization may increase in future periods as a
result of acquisitions.
Amortization of Equity-based Compensation. The amortization of
equity-based compensation for the quarter ended June 30, 2000 was $1.5 million
and consisted of deferred compensation expense for options to purchase common
stock granted to employees, directors and non-employees having exercise prices
below the fair market value of our common stock at the date of grant and
deferred compensation expense for the Ithority and PeopleMover Escrow shares.
Amortization of equity-based compensation was negligible in the quarter ended
June 30, 1999. We will amortize these amounts over the vesting period, which is
generally three to four years.
Other Income. Interest income for the quarter ended June 30, 2000 was
$1.0 million and consisted primarily of interest income from short-term
investments. Interest income was $0.1 million in the quarter ended June 30,
1999.
Income Tax Expense. We have not recorded a provision for income tax
expense as we have incurred substantial losses in every fiscal period since our
inception.
Six Months Ended June 30, 2000 and 1999
Revenues
For the six months ended June 30, 2000 our revenues were approximately
$3.3 million of which approximately $0.9 million were related to our
FREEAGENT.COM services consisting of initial sign-up fees and monthly fees paid
by our FREEAGENT E.OFFICE employees as well as sales of advertising sponsorships
on FREEAGENT.COM; and $2.4 million related to the Application and Procurement
Services which consisted of the sale of software licenses and integration
revenues. For the six months ended June 30, 1999 we had revenues of $0.1 million
all of which related to the FREEAGENT.COM services.
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Cost of Revenues
Cost of revenues for the six months ended June 30, 2000 were $1.1 million.
Cost of revenues for the six months ended June 30, 2000 included salaries paid
to staff that help administer our FREEAGENT E.OFFICE services, costs associated
with operating FREEAGENT.COM including certain technical personnel and
telecommunications charges and costs of providing integration services to OPUSRM
customers. Cost of revenues for the six months ended June 30, 1999 were
neglible.
Operating Expenses
Sales and Marketing. Sales and marketing expenses for the six months ended
June 30, 2000 were $14.8 million, excluding $0.2 million reflected as equity
based compensation below, an increase of 825% over sales and marketing expenses
of $1.6 million for the six months ended June 30, 1999. This increase was
primarily attributable to marketing and advertising expenses for FREEAGENT.COM,
salaries and benefits paid to our sales and marketing staff, and expanded
marketing efforts for our OPUSRM products.
Product Development. Product development expenses for the six months ended
June 30, 2000 were $12.9 million, excluding $0.7 million reflected as equity
based compensation below, an increase of 461% over product development expenses
of $2.3 million for the six months ended June 30, 1999. The increase was
primarily attributable to the development of our OPUSRM and FREEAGENT.COM
Services, and included salaries and benefits and consulting fees paid to our
engineers. To date, all product development expenses relating to the development
of our OPUSRM services have been expensed in the period incurred.
General and Administrative. General and administrative expenses for the
six months ended June 30, 2000 were $8.9 million, excluding $4.3 reflected as
equity based compensation below, an increase of 394% over general and
administrative expenses of $1.8 million for the six months ended June 30, 1999.
The increase was primarily attributable to increases in salaries and benefits,
general office expenses, rent and utilities, recruiting fees and professional
fees. Our salaries and benefits increased as we added staff to our executive
management team. Our rent and utilities also increased as a result of new
leasehold facilities and the addition of additional office locations as a result
of our acquisitions.
Depreciation and Amortization. Depreciation and amortization expenses for
the six months ended June 30, 2000 were $6.6 million and consisted primarily of
amortization of goodwill of $5.5 million associated with our acquisitions.
Depreciation and amortization expense was $0.1 million in the six months ended
June 30, 1999.
Amortization of Equity-based Compensation. The amortization of
equity-based compensation for the six months ended June 30, 2000 was $5.2
million and consisted of deferred compensation expense for options to purchase
common stock granted to employees, directors and non-employees having exercise
prices below the fair market value of our common stock at the date of grant and
deferred compensation expense for the Ithority and PeopleMover Escrow shares.
Amortization of equity-based compensation was negligible in the six months ended
June 30, 1999. We will amortize these amounts over the vesting period, which is
generally three to four years.
Other Income. Interest income for the six months ended June 30, 2000 was
$1.2 million and consisted primarily of interest income from short-term
investments. Interest income was $0.1 million the six months ended June 30,
1999.
Income Tax Expense. We have not recorded a provision for income tax
expense as we have incurred substantial losses in every fiscal period since our
inception.
Liquidity and Capital Resources
We have funded our operations primarily by the sale of our equity
securities, through which we raised net proceeds of approximately $53.4 million
through the end of December 31, 1999. During the six months ended June 30, 2000
we completed our initial public offering and concurrent private placement to
Dell USA L.P. and raised approximately $76.0 million net of offering costs.
Cash used in operating activities for the six months ended June 30, 2000
was $29.2 million, primarily due to our net loss of $45.0 million, adjusted for
various non-cash charges including non-cash compensation and depreciation and
amortization, and changes in operating assets and liabilities, including changes
in our accounts receivable, accounts payable and accrued expenses. Cash used in
operating activities for the six months ended June 30, 1999
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totaled $4.0 million. We expect to decrease our working capital needs quarter to
quarter through more targeted marketing and advertising, better workforce
management and a reduction in general and administrative expenses.
Cash from investment activities for the six months ended June 30, 2000
totaled $18.3 million. We used $6.0 million during the six months ended June 30,
2000 to acquire property and equipment. Cash used in connection with acquisition
of subsidiaries' assets and other assets were $2.6 million. Cash from the
liquidation of short-term investments was $26.9 million. Cash used in investing
activities for the six months ended June 30, 1999 was $1.7 million. We used $1.6
million in connection with the acquisition of subsidiaries and $0.1 million to
acquire property and equipment.
Net cash provided by financing activities for the six months ended June
30, 2000 was $78.7 million. The cash from financing activities for the six
months resulted primarily from the net proceeds of $75.1 million resulting from
the April 7, 2000 initial public offering and concurrent placement. The
remaining $3.7 million resulted from exercises of issued and outstanding options
and warrants and net proceeds from loans. Cash flow provided by financing
activities for the six months June 30, 1999 was $6.3 million and resulted from
the exercises of issued and outstanding options and warrants for common stock.
We anticipate that our current cash and marketable securities and
available borrowings under our bank facilities, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at least
the next twelve months. In the future, we may need to raise additional funds
through public or private financings, or other arrangements to fund our
operations and potential acquisitions, if any. We currently have no plans to
effect any other offerings. We cannot assure you that any financings or other
arrangements will be available in amounts or on terms acceptable to us or at all
and any new financings or other arrangements could place operating or other
restrictions on us. Our inability to raise capital when needed could seriously
harm the growth of our business and results of operations. If additional funds
are raised through the issuance of equity securities, the percentage ownership
of our stockholders would be reduced. Furthermore, these equity securities could
have rights, preferences or privileges senior to our common stock.
As a result of our issuing options to FREEAGENT E.OFFICE employees under
circumstances that may have violated the registration requirements of the
Securites Act, we intend to make a rescission offer to these employees, and we
may have a contingent liability of up to $0.9 million plus interest.
Year 2000 Compliance
To date, we have not experienced any material Year 2000 problems and we
have not incurred any costs to evaluate, test and remediate, if necessary, our
internal computer software and operating systems(collectively, our "Internal
Programs and Systems") for Year 2000 compliance problems. These costs if
incurred in the future will be funded with cash from our financing activities
and operations and will be expensed or capitalized, depending on the nature of
the expenditure. We are not aware of any Year 2000 related problems associated
with our Internal Programs and Systems or software services provided to
customers, and are not aware of any Year 2000 related problems associated with
the system or software of our business partners. Although the Company has not
experienced any material Year 2000 compliance problems, there can be no
assurance, however, that the Year 2000 problem will not adversely affect the
Company's business, financial condition, results of operation or cash flow.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning June 15, 2000. We
did not engage in any derivative instruments or hedging activities during the
quarter and the statement did not affect us.
On March 31, 2000 the Financial Accounting Standards Board issued FASB
interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25 (FIN 44). FIN 44
generally 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 provision related to
repricings and the definition of an employee which apply to awards issued after
December 15, 1998. To the extent that events covered by FIN 44 occur after the
applicable date but prior to July 1, 2000, the effects of applying FIN 44 shall
be recognized on a prospective basis. Accordingly, no adjustments shall be made
upon initial application of
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FIN 44 to financial statements for periods prior to July 1, 2000. The Company is
currently evaluating the impact, if any of FIN 44.
Qualitative and Quantitive Disclosure About Market Risk
On June 30, 2000, we had $0.2 million in short term investments, which
were held primarily in the form of short term, investment grade corporate
securities. As a result, our interest income may be sensitive to changes in the
general level of U.S. interest rates. However, due to the short term nature of
our investments and the fact that we generally hold these investments until
their maturity dates, we believe that we are not subject to any material risks
as a result of this exposure.
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ADDITIONAL INFORMATION
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, except as provided below,
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.
Please see Note 5 - Commitments and Contingencies - Contingencies - Legal
Proceedings for a description of certain pending litigation.
Item 2. Change in Securities and Use of Proceeds.
Use of Proceeds
Pursuant to a Form S-1 Registration Statement (SEC File No. 333-93185)
declared effective by the SEC on April 7, 2000 the Company on April 12, 2000
completed the sale of 7,000,000 shares of its common stock in an initial public
offering at a price of $10 per share. The managing underwriters in the offering
were FleetBoston Robertson Stephens Inc., J.P. Morgan & Co. and Bear Stearns &
Co. Inc..
The following table details the underwriting discounts and commissions and
expenses incurred by the Company in connection with the completion of the IPO:
(in thousands)
------------
Gross Proceeds $ 70,000
Underwriting discounts and commissions (4,585)
Estimated Expenses:
Nasdaq listing fee (95)
Blue Sky Fees (10)
SEC Filing Fees (35)
Miscellaneous other filing fees (10)
Accounting fees (585)
Legal fees (2,300)
Printing fees (1,100)
Miscellaneous (175)
--------
Total underwriting discounts and
Commissions and estimated expenses (8,895)
--------
Net Proceeds $ 61,105
Changes in Securities
Concurrent with the closing of the IPO, the Company sold $14,000,000 of
its common stock to Dell USA L.P. in a private placement at a price of $9.30 per
share. Concurrently with the closing of the IPO all outstanding shares of the
Company's Series A and Series B Preferred Stock automatically converted into
25,441,091 shares of common stock.
On January 10, 2000 the Company issued 243,474 shares of common stock
valued at $2.0 million, or $8.21 per share, to the stockholders of Ithority
Corporation pursuant to the acquisition of Ithority Corporation. In addition, an
additional 182,599 shares were placed in escrow and will be released one year
from the date of closing and are subject to certain representations and
warranties provided by the selling shareholders.
On February 24, 2000 the Company issued 2,634,000 shares of common stock
valued at $24.0 million, or $9.11 per share, to the stockholders of PeopleMover,
Inc. pursuant to the acquisition of PeopleMover, Inc. In addition the Company
exchanged options to purchase approximately 1,189,000 shares of its common stock
for outstanding stock options to purchase PeopleMover common stock
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In January 2000, the Company issued to Greenhill & Co. ("Greenhill") ,
warrants to purchase 450,000 shares of the Company's common stock at an exercise
price of $8.21 per share in exchange for merger and acquisitions advisory
services. On April 10, 2000 the Company issued 372,636 shares of common stock to
Greenhill in connection with their combined cash and cashless exercise of other
warrants held by Greenhill to purchase 450,000 shares of common stock.
In February 2000, the Company issued to Kirshenbaum Bond & Partners
("KBP") warrants to purchase 9,120 shares of the Company's common stock at an
exercise price of $0.01 per share in exchange for advertsing and marketing
services.
On February 7, 2000, the Company issued to Lucent warrants to purchase
225,000 shares of the Company's common stock at the exercise price of $3.33 per
share for one year from the date of grant. The Company also issued a second
warrant to Lucent which is exercisable for a three-year period commencing on the
240th day after the effective date of the Company's IPO. The exercise price of
the second warrant will be equal to the average market price of the Company's
common stock during the 10 trading days immediately preceding the date the
warrant first becomes exercisable. The number of shares issuable upon the
exercise of the second warrant is determined by dividing $2,655,000 by the
present value of a warrant to purchase one share of the Company's common stock,
as determined by the Black-Scholes option pricing model, with the strike price
assumed to be the actual exercise price and the volatility rate assumed to be
100%.
During the quarter ended June 30, 2000, the Company granted options to
purchase 1,379,817 shares of its common stock to employees, officers and
directors of the Company. These options were granted pursuant to the Company's
2000 Stock Option Plan and the 2000 Non-Employee Directors Option Plan.
During the quarter ended June 30, 2000, the Company issued 783,742 shares
of its common stock upon the exercise of options and warrants.
In January 2000, the Company issued to certain shareholders of its Series
A Preferred Stock, 840,000 shares of its common stock upon the exercise of
warrants.
The issuance of options and the sale of the common stock upon exercise of
employee stock options was deemed to be exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933 ("the Act") or Rule 701 promulgated under Section 3 (b) of the Act. The
issuance of common stock upon automatic conversion of the Company's previously
outstanding Series A and Series B Preferred stock upon consummation of the
initial public offering was exempt from registration under the Act by virtue of
Section 3 (a)(9) of the Act. The issuance of common stock in the PeopleMover and
Ithority acquisitions, the issuance of warrants to Greenhill, KBP and Lucent and
the issuance of common stock upon the exercise of warrants was exempt from
registration under the Act in reliance upon Section 4(2) or Regulation D
promulgated thereunder.
Item 3 Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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Item 5 Other Information.
None.
Item 6 Exhibits and Reports on Form 8-K.
a. Exhibits
10.1 Employment Agreement dated May 2, 2000 between the Registrant and
Mary Anne Walk
10.2 Employment Agreement dated May 15, 2000 between the Registrant and
Wendy Reveri
10.3 Employment Agreement dated June 12, 2000 between the Registrant and
Jeanne Murphy
27 Financial Data Schedule
b. Reports on Form 8-K
None.
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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.
Date August 14, 2000 Opus 360 Corporation
------------------------ -------------------------------
(Registrant)
/s/ Richard McCann
-------------------------------
(Signature)
