1
===============================================================================
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 JUNE 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 000-25949
CAREERBUILDER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1779164
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11495 SUNSET HILLS ROAD 20190
SUITE 210 (ZIP CODE)
RESTON, VIRGINIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 703-709-1001
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 the latest practicable date.
COMMON STOCK, $0.001 PAR VALUE 23,543,200 SHARES
(Class) (Outstanding at July 31, 1999)
1
2
FORM 10 - Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Statements of Operations - Six and Three Months
Ended June 30, 1999 and 1998 3
Unaudited Condensed Balance Sheets - June 30,1999
and December 31, 1998 4
Unaudited Condensed Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998 5
Notes to Unaudited Condensed Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 5. Other Information
Item 6. Exhibits and reports on Form 8-K 26
Signatures............................................ 27
Index of Exhibits..................................... 28
2
3
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL INFORMATION
CAREERBUILDER, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- ------- -------- -------
(UNAUDITED) (UNAUDITED)
Revenue:
Service fees $ 3,255 $ 1,412 $ 6,030 $ 2,315
Software license fees 8 91 39 242
-------- ------- -------- -------
Total revenue 3,263 1,503 6,069 2,557
-------- ------- -------- -------
Cost of revenue:
Service fees 1,461 273 2,570 446
Software license fees 1 26 8 43
-------- ------- -------- -------
Total cost of revenue 1,462 299 2,578 489
-------- ------- -------- -------
Gross profit 1,801 1,204 3,491 2,068
-------- ------- -------- -------
Operating expenses:
Product development 455 508 1,084 1,100
General and administrative 1,036 454 1,745 962
Sales and marketing 5,094 3,261 9,715 6,119
Equity-based expense 715 - 791 -
-------- ------- -------- -------
Total operating expenses 7,300 4,223 13,335 8,181
-------- ------- -------- -------
Loss from operations (5,499) (3,019) (9,844) (6,113)
-------- ------- -------- -------
Net interest income (expense) 344 2 240 10
-------- ------- -------- -------
Loss before income taxes (5,155) (3,017) (9,604) (6,103)
Income taxes - - - -
-------- ------- -------- -------
Net Loss (5,155) (3,017) (9,604) (6,103)
-------- ------- -------- -------
Preferred stock dividend requirements (271) (245) (737) (473)
-------- ------- -------- -------
Net Loss to common stockholders $(5,426) $(3,262) $(10,341) $(6,576)
======== ======= ======== =======
Basic and diluted net loss per share $ (0.38) $ (0.74) $ (1.07) $ (1.50)
Weighted average shares outstanding 14,396 4,412 9,688 4,391
Unaudited pro forma basic and diluted net loss per $ (0.25) $ (0.22) $ (0.52) $ (0.46)
share
Weighted average shares used to compute unaudited 20,390 13,617 18,318 13,357
pro forma net loss per share
See accompanying notes to condensed interim financial statements.
3
4
CAREERBUILDER, INC.
CONDENSED BALANCE SHEET
(IN THOUSANDS)
JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED)
-----------
Current Assets:
Cash and cash equivalents $ 78,358 $ 2,709
A/R, net of allowance of $376 and $135, respectively 1,635 1,581
Other 1,840 442
------------ --------------
Total current assets 81,833 4,732
Property and equipment, net of accumulated 1,537 1,213
depreciation and amortization of $1,801 and $1,254
respectively
Other 55 97
------------ --------------
Total assets $ 83,425 $ 6,042
============ ==============
Current liabilities
Accounts payable $ 1,109 $ 1,514
Accrued expenses 3,638 1,474
Lines of credit - 3,450
Deferred revenue 1,220 2,193
------------ --------------
Total current liabilities 5,967 8,631
------------ --------------
Total liabilities 5,967 8,631
------------ --------------
Convertible redeemable preferred stock - 18,931
Commitments and contingencies
Stockholders' equity (deficit):
Common Stock, $.001 par value 24 5
Additional paid in capital 108,807 244
Accumulated deficit (31,373) (21,769)
------------ --------------
Total stockholders' equity (Deficit) 77,458 (21,520)
------------ --------------
$ 83,425 $ 6,042
============ ==============
See accompanying notes to condensed interim financial statements.
4
5
CAREERBUILDER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
1999 1998
---- ----
(UNAUDITED)
Cash flows used by operating activities:
Net income (loss) $ (9,604) (6,103)
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Noncash items included in net income (loss):
Depreciation and amortization 547 402
Allowance for doubtful accounts 241 232
Equity-based expense 791 -
(Increase) decrease in assets:
Accounts receivable (295) (743)
Other operating assets (1,398) (22)
Increase (decrease) in liabilities:
Accounts payable (405) (428)
Accrued expenses 2,164 813
Deferred revenue (973) 2,104
------- -------
Net cash used by operating activities (8,932) (3,745)
------- -------
Cash flows used by investing activities:
Purchases of property and equipment (871) (553)
Decrease in other assets 42 25
------- -------
Net cash used in investing activities (829) (528)
------- -------
Cash flows from financing activities:
Issuance of Class F convertible redeemable preferred stock 10,986 3,280
Initial public offering, net of expenses 59,975 -
Investment from Microsoft 17,846 -
Exercise of stock options 53 6
Advances on line of credit, net 390 352
Payoff of line of credit, net (3,840) -
------- -------
Net cash provided by financing activities 85,410 3,638
------- -------
Net change in cash and cash equivalents $ 75,649 $ (635)
Cash and cash equivalents, beginning of period $ 2,709 $1,909
---------- ---------
Cash and cash equivalents, end of period $ 78,358 $ 1,274
========== =========
Supplemental Cash Flow Information:
Interest and Income Taxes Paid:
Interest Paid 388 46
Taxes Paid - -
See accompanying notes to condensed interim financial statements.
5
6
CAREERBUILDER, INC.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
The condensed financial statements include the accounts of CareerBuilder, Inc.
("CareerBuilder" or the "Company"). The condensed balance sheet as of June 30,
1999, the condensed statements of operations for the three and six months ended
June 30, 1999 and 1998, and the condensed statements of cash flows for the six
months ended June 30, 1999 and 1998 have been prepared by the Company, without
audit. In the opinion of management, all adjustments have been made, which
include normal recurring adjustments necessary to present fairly the interim
financial statements. Certain amounts in the 1998 condensed statements have been
reclassified to conform to the 1999 presentation. Operating results for the
three and six months ended June 30, 1999, are not necessarily indicative of the
operating results for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The Company believes that the disclosures provided are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the audited financial statements and the related notes
included in the Company's Form S-1 filed with the Securities and Exchange
Commission on May 11, 1999.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
Service revenue consists of the sale of classified employment advertising
on Company-owned and affiliate websites and is recognized ratably over the
subscription period. Revenue from the sale of software is recorded upon shipment
of the product to the buyer, net of estimated returns.
Deferred revenue represents amounts billed or payments received in advance
of the subscription period and is recognized as revenue ratably over the
subscription period.
(b) COST OF REVENUE
Cost of revenue includes both cost of service and cost of software license
fees. Cost of service fees includes costs associated with hosting the network,
including depreciation expense and commissions and fees paid to ADP, Inc.
("ADP") and affiliates. Amounts incurred for affiliates and ADP commissions were
approximately $1.0 million and $1.7 million for the three and six months ended
June 30, 1999, respectively. Total affiliate and ADP commission expense for
three and six months ended June 30, 1998 were $38,000 and $40,000, respectively.
Cost of software license fees consist of royalties paid to third parties for an
embedded database included in the software license.
(c) CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The carrying amounts
reported in the balance sheets for cash and cash equivalents approximate their
fair value.
(d) EQUITY-BASED EXPENSE
Equity-based expense represents the amortization of the fair market value
of warrants issued to ADP, NBC and Microsoft. The warrants are amortized
straight-line over the life of the respective agreements.
(e) NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share in accordance
with SFAS No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin No.
98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic net
income (loss) per share is computed by dividing the net income (loss) available
to common stockholders (after deducting preferred dividend requirements) for
the period by the weighted average number of common shares outstanding during
the period. Diluted net income (loss) available per share is computed by
dividing the net
6
7
income (loss) available to common stockholders for the period by the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. The Company has presented historical basic and diluted net
income (loss) per share in accordance with SFAS No. 128. As the Company had a
net loss in each of the periods presented, basic and diluted net income (loss)
per share is the same. Pro forma basic and diluted net income (loss) per share
has been calculated assuming the conversion of all shares of preferred stock
outstanding during 1998 and 1999, respectively, into common stock, as if the
shares had converted immediately upon their issuance.
(f) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
NOTE 3 -- LINES OF CREDIT
As of June 30, 1999, all debt and lines of credit have been paid in full.
The Company retains a line of credit for up to $2,000,000, with the amount
actually available for borrowing adjusted based upon the Company's accounts
receivable and property and equipment balances, and it matures on December 28,
1999. The Company is in the process of renegotiating the terms of this line of
credit.
NOTE 4 -- INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS
The Company completed its initial public offering of 5,075,000 shares of
Common Stock, inclusive of 675,000 shares from the exercise of the underwriters
over-allotment option, at a price of $13.00 per share on May 17, 1999, and
received net proceeds (after expenses of the offering) of $60.0 million. Upon
the closing of the initial public offering, all 11,856,295 outstanding shares of
preferred stock were converted into 11,856,295 shares of common stock.
In addition, on May 4, 1999, CareerBuilder entered into a service and
distribution agreement with Microsoft. CareerBuilder will provide career sites
for the Microsoft Network. These career sites will become members of the
CareerBuilder Network. Microsoft purchased 1,372,817 shares of CareerBuilder's
common stock for an aggregate purchase price of approximately $17.8 million, or
$13.00 per share. In addition, for no additional cash consideration
CareerBuilder issued a warrant to Microsoft representing the right to purchase
873,534 shares of common stock with an exercise price of $13.00 per share. The
warrant is immediately exercisable in full. CareerBuilder expects to recognize
approximately $5.8 million of expense related to the Microsoft warrant ratably
between 1999 and 2001, reflecting the term of the strategic agreement. Also,
under a service and distribution agreement with Microsoft, CareerBuilder may
be required to pay Microsoft up to $786,000 in 1999, up to $3.0 million in 2000
and up to $1.8 million in 2001 if Microsoft achieves agreed upon website
traffic goals. The Microsoft career site is expected to be implemented in the
fall and to date no amounts have been incurred and no payments have been made.
The net proceeds of approximately $77.8 million from both the initial
public offering and the Microsoft investment were added to the working capital
of the Company. The Company has invested such funds in short-term, interest
bearing investment grade obligations.
CareerBuilder implemented an employee stock purchase plan (ESPP) effective
May 7, 1999. The plan allows employees to voluntarily purchase shares of common
stock from the Company in a series of one or more offerings during the year
through payroll deductions. Employees may purchase the stock at a 15% discount
from the lower of the closing price of Common Stock on the offering
commencement date or the last business day on which the offering terminated.
Each offering commencement date will begin a six month period except for the
initial offering period which is from May 7, 1999 to December 31, 1999. The
total number of shares under the ESPP plan is limited to 3,300,000 shares of
Common Stock less the sum of the number of shares awarded or issued under the
Company's 1999 Stock Incentive Plan and the Company's 1999 Director Stock
Option Plan. The plan is administered by the Board of Directors.
7
8
NOTE 5 -- STOCK COMPENSATION
In connection with the joint marketing and sales representative agreement
with ADP and its amendment dated March 5, 1999 and the sale of shares of capital
stock to ADP, CareerBuilder issued a warrant to ADP, which vests in three
installments. The first installment of 380,000 shares of common stock vested at
the signing of the amendment at an exercise price of $12.00 per share. As a
result, the company began to record equity-based expense for the 380,000 shares
in March 31, 1999. The expense is measured based upon the fair value of the
warrants. Warrants for the second and third installments of up to 380,000 shares
of common stock each will vest on March 31, 2001 and March 31, 2002,
respectively, based on ADP achieving specified revenue-based milestones. The
revenue-based milestones are measured for a specific time period, by subtracting
from total revenue received from customers for which ADP has acted as a sales
agent, sales commissions paid to ADP. In order for the March 2001 installment of
the warrant to vest, revenue minus sales commission for the period from March 1,
1999 through March 30, 2001 must exceed $10.2 million. In order for the minimum
number of shares under the March 2002 installment to vest, the milestone of
revenue minus sales commission for the period from April 1, 2001 through March
30, 2002 must exceed $23.0 million, with $30.0 million required for the maximum
number of shares issuable under the installment to vest. The exercise price for
the second and third installments is $5.00 per share. The ADP warrant contains
antidilution provisions that increase the number of shares for which the warrant
is exercisable if CareerBuilder issues additional equity securities primarily
for financing purposes. Each remaining installment of the warrant may be
issuable upon exercise for a maximum of 516,824 shares based on current
antidilution calculations. The number of shares of common stock issuable upon
exercise of the warrant may increase up to a maximum of 568,506 shares for each
of the second and third installments as a result of these provisions. The first,
second and third installments are each exercisable, to the extent vested, during
the five-year period following March 4, 1999, March 31, 2001 and March 31, 2002,
respectively.
CareerBuilder also issued two warrants representing the right to purchase
up an aggregate of 147,321 shares of common stock in connection with an
agreement with NBCMultimedia, Inc., an affiliate member of the CareerBuilder
Network. CareerBuilder began to record equity-based expense for the 147,321
shares in March 31, 1999.
8
9
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other sections herein,
including statements regarding the development of the Company's business, the
markets for the Company's services, the Company's anticipated capital
expenditures, and other similar statements are forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995)
which can be identified as any statement that does not relate strictly to
historical or current facts. Forward-looking statements use such words as
"plans", "expects", "will", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", "believes", "anticipates",
"intends", "may", "should", "continue", "seek", "could" and other similar
expressions. Although the Company believes that its expectations are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved. The important factors that could cause actual results to differ
materially from those in the forward-looking statements herein (the "Cautionary
Statements") include, without limitation, those factors set forth below under
"Certain Factors That May Affect Future Results," as well as the other risks
referenced from time to time in the Company's filings with the SEC, including
the Company's Form S-1 filed May 11,1999. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
The Company does not undertake any obligation to release publicly any revisions
to such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
The following discussion and analysis should be read in conjunction with the
Company's Condensed Financial Statements and Notes thereto included herewith,
and with the Company's Management's Discussion and Analysis of Financial
Condition and Results of Operations and audited financial statements and notes
thereto for the years ended December 31, 1996, 1997 and 1998, included in the
Company's Form S-1 filed May 11, 1999.
OVERVIEW
CareerBuilder, Inc. ("CareerBuilder" or "the Company") provides
comprehensive online recruitment offerings for employers, major media companies
and job seekers. CareerBuilder was founded in November 1995 and has grown from 7
employees at June 30, 1996 to 142 employees at June 30, 1999. During the period
from inception in November 1995 to September 1996, CareerBuilder had
insignificant revenue and was primarily engaged in developing online recruiting
technology, specifically TeamBuilder Software and the CareerBuilder.com career
site. During July and August of 1996, CareerBuilder expanded its operations by
adding direct sales and marketing personnel. CareerBuilder's sales commenced in
September 1996. CareerBuilder began generating more significant revenue in the
fourth quarter of 1996 through the sale of perpetual licenses for TeamBuilder
Software and through customer service fees for monthly subscriptions. In
November 1997, CareerBuilder introduced TeamBuilder Online, to provide
Internet-based access to its online recruitment offerings. In May 1998,
CareerBuilder launched the CareerBuilder Network by hosting the career sites
located on the Internet sites of interactive media companies.
The Company completed its initial public offering of 5,075,000 shares of
Common Stock, including 675,000 shares from the exercise of the underwriters'
over-allotment option, at a price of $13.00 per share on May 17, 1999, and
received net proceeds (after expenses of the offering) of $60.0 million. In
addition, on May 4, 1999 CareerBuilder entered into a service and distribution
agreement with Microsoft. As part of this transaction CareerBuilder will provide
career sites for the Microsoft Network. These career sites will become members
of the CareerBuilder Network. Microsoft purchased 1,372,817 shares of
CareerBuilder's common stock for an aggregate purchase price of approximately
$17.8 million, or $13.00 per share. In addition, for no additional cash
consideration CareerBuilder issued a warrant to Microsoft representing the right
to purchase 873,534 shares of common stock with an exercise price of $13.00 per
share. The warrant is immediately exercisable in full. CareerBuilder expects to
recognize approximately $5.8 million of expense related to the Microsoft warrant
ratably between 1999 and 2001, reflecting the term of the strategic agreement.
The net proceeds of approximately $77.8 million from both the initial public
offering and the Microsoft investment were added to the working capital of the
Company. The Company has invested such funds in short-term, interest bearing
investment grade obligations.
CareerBuilder's revenue is derived principally from service fees. From its
inception in November 1995 through December 31, 1998, CareerBuilder generated
approximately 88% of its total revenue from service fees and 12% from software
license fees. For the quarter ended June 30, 1999, service fees accounted for
approximately 100% of total revenue and year to date service fees accounted for
99% of total revenue. Through June 30, 1999, quarterly and year to date Software
License fees were one percent or less. CareerBuilder expects that service fee
revenue will continue to account for a substantial portion of its revenue for
the foreseeable
9
10
future.
- SERVICE FEES. Service fees include:
- subscription fees received from customers that post up to a
specific number of job advertisements per month on the career
sites that constitute the CareerBuilder Network;
- banner and other employment advertising fees; and
- fees for recruiting services provided by CareerBuilder.
Customers typically subscribe for three-, six- or twelve-month
subscriptions. Customers may also subscribe on an individual posting
basis. TeamBuilder Online is provided to customers as part of their
monthly service or individual advertising fee. CareerBuilder does not
charge an initial fee. Customers have the option of electing to
receive additional set-up assistance for a modest fee. The
subscription fees are recognized ratably over the subscription period.
If additional set-up assistance is elected, the set-up fees are
generally recognized at the time the service is performed. Revenue
from specific numbers of individual monthly postings are recognized
during the month following the month such postings are made. Revenue
from banner and other employment advertising on CareerBuilder.com is
recognized when the advertising impressions are delivered. Fees for
recruiting services are recognized as the services are performed.
- SOFTWARE LICENSE FEES. Software license fees are generated from sales
of TeamBuilder Software. Customers generally purchase a perpetual
license for TeamBuilder Software and associated features. Revenue from
the sale of perpetual software licenses is composed of gross revenue
less estimated returns, and is recognized upon delivery to customers.
Careerbuilder expects that future software license revenues will be
insignificant.
Customers can post job advertisements on CareerBuilder.com as well as
career sites of the members of the CareerBuilder Network. The members of the
CareerBuilder Network receive a portion of the subscription fee from customers
that choose to post job advertisements on their respective career sites. The
portion of the subscription fee paid to members of the CareerBuilder Network is
included in cost of revenue. In addition, CareerBuilder pays fees, including
advertising and marketing fees, to four current CareerBuilder Network members,
and, in one case, may offset a portion of these advertising fees through job
advertising fees paid to this member. Under its service and distribution
agreement with Microsoft, CareerBuilder may be required to pay Microsoft up to
$786,000 in 1999, up to $3.0 million in 2000 and up to $1.8 million in 2001 if
Microsoft achieves agreed upon website traffic goals. The Microsoft career site
is expected to be implemented in the fall of 1999 and to date no payments have
been made.
CareerBuilder is party to a joint marketing and sales representative
agreement with Automatic Data Processing ("ADP"). Pursuant to the joint
marketing and sales representative agreement, ADP receives a percentage of the
total monthly revenue received by CareerBuilder from orders procured by ADP.
This sales commission fee is included in CareerBuilder's cost of revenue. The
sales commission fee as a percentage of service fee revenue varies based on the
relative job posting activity of these customers between CareerBuilder.com and
the other sites on the CareerBuilder Network. CareerBuilder recognizes all of
the revenue derived from the ADP sales channel. ADP is generally responsible
for billing and collecting from these customers. Revenue from orders procured
by ADP accounted for approximately 39% of its total revenue for the quarter
ended June 30, 1999 and 37% of its total revenue for the six months ended June
30, 1999.
CareerBuilder cost of revenue as a percentage of revenue has increased over
the last several quarters. This increase primarily resulted from two factors:
- an increase in sales commissions paid to ADP due to increased ADP
revenue; and
- an increase in fees paid to members of the CareerBuilder Network due
to network revenue growth.
In connection with the execution of the joint marketing and sales
representative agreement and its amendment and the sale of shares of capital
stock to ADP, CareerBuilder issued a warrant to ADP, which vests in three
installments. The first installment of 380,000 shares vested at the signing of
the amendment. CareerBuilder also issued two warrants representing the right to
purchase up to an aggregate of 147,321 shares of common stock in connection with
an agreement with NBC Multimedia, Inc., an affiliate member of the CareerBuilder
Network. In connection with the Microsoft service and distribution agreement,
CareerBuilder issued a warrant to Microsoft to purchase 873,534 shares of common
stock that are immediately exercisable in full. CareerBuilder expects to
recognize approximately $8.2 million of expense related to the ADP, NBC, and
Microsoft warrants between 1999 and 2002, ratably, based on the duration of
these agreements. In addition, if and when ADP achieves specified revenue
milestones, CareerBuilder could incur additional expenses that could be
substantial. For more information regarding the ADP warrant and these potential
expenses, see
10
11
"Certain Factors That May Affect Future Results". -- We could be required to
record significant expenses if ADP achieves revenue goals."
CareerBuilder has incurred substantial net losses in every fiscal period
since its inception in November 1995, and as of June 30, 1999 had an accumulated
deficit of $31.4 million. Such net losses and the accumulated deficit resulted
from CareerBuilder's significant costs incurred in developing its online
recruitment offerings, including establishing the CareerBuilder Network.
RESULTS OF OPERATIONS
REVENUE
CareerBuilder total revenue increased 117% from $1.5 million for the
quarter ended June 30, 1998 to $3.3 million for the quarter ended June 30, 1999.
Total revenue increased 137%, from $2.6 million for the six months ended June
30, 1998 to $6.1 million for the six months ended June 30, 1999. The increases
in total revenue were primarily due to an increase in the number of customers
subscribing to the CareerBuilder Network as a result of increased direct and
telesales efforts and increased marketing and promotional activities, as well as
increased sales activities by ADP. For the quarter ended June 30, 1998, ADP had
only recently begun offering CareerBuilder's online recruitment services.
Revenue derived from ADP's efforts comprised less than 3% of total revenue for
the quarter ended June 30, 1998 and 39% for the quarter ended June 30, 1999;
revenues derived from ADP's efforts comprised less than 2% of total revenue for
the six months ended June 30, 1998 and 37% for the six months ended June 30,
1999.
CareerBuilder's revenue is composed of service fees and software license
fees. Services fees consist of subscription fees from customers to post job
advertisements on the CareerBuilder Network; banner and other employment
advertising fees and fees for recruiting services provided by CareerBuilder.
Service fees totaled $1.4 million or 94% of total revenue for the quarter ended
June 30, 1998 and $3.3 million or 100% for the quarter ended June 30, 1999. Year
to date service fees represented $2.3 million or 91% of total revenue through
June 30, 1998 compared to $6.0 million or 99% of total revenue through June 30,
1999. CareerBuilder expects that service fees will continue to account for a
significant portion of its revenue.
Subscription fees accounted for 85% of total service fees for the three
months ended June 30, 1998 compared to 83% for the three months ended June 30,
1999. Year to date subscription fees were 86% of total service fees through June
30, 1998 and 86% through June 30, 1999. Subscription fees are expected to grow
as the number of customers grow in the CareerBuilder Network.
Software license fees consist of license fees generated from the sales of
TeamBuilder software. Software license fees totalled $91,000 representing 6% of
total revenues for the quarter ended June 30, 1998 compared to $8,000 or less
than 1% of total revenues for the quarter ended June 30, 1999. Year to date
software fees were $242,000 or 9% of total revenues through June 30, 1998
compared to $39,000 or less than 1% through June 30, 1999. Careerbuilder expects
that future software license fees will be insignificant to total revenues.
COST OF REVENUE
Cost of revenue consists of commissions paid to ADP for its sales of
CareerBuilder's online recruitment offerings, fees paid to CareerBuilder Network
affiliates, and expense associated with the cost of hosting the career sites on
the CareerBuilder Network, including depreciation. Cost of revenue also includes
expenses associated with customer support and the delivery of professional
services. Cost of revenue increased 389% from $.3 million for the quarter ended
June 30, 1998 to $1.5 million for the quarter ended June 30, 1999 and as a
percentage of revenue increased from 20% for the quarter ended June 30, 1998 to
45% for the quarter ended June 30, 1999. Cost of revenue increased 428% from $.5
million for the six months ended June 30, 1998 to $2.6 million for the six
months ended June 30, 1999 and as a percentage of revenue increased from 19% for
the six months ended June 30, 1998 to 42% for the six months ended June 30,
1999. These increases were primarily due to commissions paid to ADP, fees paid
to the members of the CareerBuilderNetwork (see Notes to the Financial
Statements, Note 2, (b)), expenses associated with customer support which
includes the increased costs in 1999 associated with the expansion of customer
service and recruiting services provided by CareerBuilder for its customers,
and expenses, including depreciation, associated with hosting the career sites
on the CareerBuilder Network. For the quarter ended, and the six months ended
June 30, 1998, CareerBuilder did not pay any significant sales commission fees
to ADP or service fees to the CareerBuilder Network affiliates.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related benefits for sales and marketing personnel, advertising and
promotional expenses, trade show expenses, advertising and marketing fees paid
to members of the CareerBuilder Network and depreciation expense. Sales and
marketing expenses increased 56% from $3.3 million for the quarter
11
12
ended June 30, 1998 to $5.1 million for the quarter ended June 30, 1999. Sales
and marketing expenses increased 59% from $6.1 million for the six months ended
June 30, 1998 to $9.7 million for the six months ended June 30, 1999. The
increase in sales and marketing expenses was due primarily to an increase in
sales personnel, including the establishment of a channel sales force that
supports ADP's sales effort, costs related to the continued development of
CareerBuilder's marketing and branding campaigns, and, to a lesser extent, sales
commissions associated with the increase in revenue.
Product Development. Product development expenses include expenses for
research, design and development of CareerBuilder's proprietary technology
incorporated in the TeamBuilder offerings and the CareerBuilder Network, and
expenses associated with operating TeamBuilder Online and the operation of the
CareerBuilder Network. CareerBuilder, to date, has expensed all development
costs as they have been incurred. Product development expenses declined 10% from
$508,000 for the quarter ended June 30, 1998 to $455,000 for the quarter ended
June 30, 1999. Product development expenses remained consistent at $1.1 million
for the six months ended June 30, 1998 and June 30, 1999. The decrease in
product development expenses was due primarily to the expansion and
reorganization of the customer service organization in 1999 which resulted in
the reclassification of these expenses to cost of sales. In 1998 the customer
support organization was composed of a small group that had dual
responsibilities between development and support. In early 1999, as the Company
grew, this area was expanded and reorganized into a more defined customer
service area requiring the expense to be reported as cost of sales. There was a
modest increase in expenses associated with operating TeamBuilder Online and the
operation of the CareerBuilder Network, as the number of TeamBuilder Online
customers and the number of CareerBuilder Network affiliates grew.
General and Administrative. General and administrative expenses consist
primarily of compensation for administrative and executive staff, fees for
professional services, bad debt expense, depreciation expense for property and
equipment not associated with hosting career sites and general office expenses.
General and administrative expenses increased 128% from $.5 million for the
quarter ended June 30, 1998 to $1.0 million for the quarter ended June 30, 1999.
General and administrative expenses increased 81% from $1.0 million for the six
months ended June 30, 1998 to $1.7 million for the six months ended June 30,
1999. The increase in general and administrative expenses was due primarily to
the costs associated with developing the infrastructure necessary for going
public by incurring new expenditures, primarily directors and officers insurance
and increased legal fees, as well as an increase in administrative and executive
personnel.
EQUITY-BASED EXPENSE
Equity-based expense of $715,000 for the quarter ended June 30, 1999, and
$791,000 for the six months ended June 30, 1999 consists of expenses related to
the issuance of warrants to Microsoft in May 1999 and ADP and NBC in March 1999.
There was no equity based expense for the quarter ended, or the six months
ended, June 30, 1998.
NET INTEREST INCOME
Net interest income was approximately $2,000 for the quarter ended June 30,
1998 and $344,000 for the quarter ended June 30, 1999. Net interest income was
approximately $10,000 for the six months ended June 30, 1998 and $240,000 for
the six months ended June 30, 1999. Interest income was attributable to cash,
cash equivalents and short-term investments primarily attributable to the net
proceeds received by CareerBuilder from its initial public offering of common
stock and from the Microsoft investment in May 1999, net of interest expenses
primarily from CareerBuilder's lines of credit that were paid off in May and
June of 1999.
TAXES
CareerBuilder has incurred significant operating losses for all periods
from its inception in November 1995 through June 30, 1999. CareerBuilder has
recorded a valuation allowance for 100% of its net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured. Accordingly,
no income tax benefits have been recognized in any periods. Due to the Company's
recent initial public offering, a change in control under section 382 of the
Internal Revenue Code may have occurred. If a change in control has occurred, it
will limit the amount of net operating loss that the Company will be able to
carry forward and potentially utilize.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, CareerBuilder has financed its activities primarily
through proceeds from private placements of equity securities, and its initial
public offering, totaling approximately $107.7 million through May 17, 1999.
Net cash used in operating activities was $3.7 million and $8.9 million
for the six months ended June 30, 1998 and June 30, 1999, respectively. Net
cash used in operating activities resulted from net operating losses and
increases in accounts receivable, partially offset by increases in accrued
expenses.
12
13
Net cash used in investing activities activities was $.5 million and $.8
million for the six months ended June 30, 1998 and June 30, 1999, respectively.
Net cash used in investing activities was primarily related to purchases of
computer and network equipment, as well as leasehold improvements.
Cash provided by financing activities was $3.6 million and $85.4 million
for the six months ended June 30, 1998 and June 30, 1999, respectively. Net
cash provided by financing activities was primarily due to proceeds from its
initial public offering and private placements of equity securities. In
addition, CareerBuilder has utilized revolving credit lines secured by accounts
receivable and computer equipment to fund its operations, which the Company
paid off by June 30, 1999.
In December 1998, CareerBuilder entered into a $2.0 million revolving
credit facility and a $4.0 million bridge loan. The credit facility and the
bridge loan are secured by substantially all of the Company's assets, and bear
interest at a variable rate. Each of the credit facility and the bridge loan is
evidenced by a promissory note in the amount borrowed. The Company has repaid
both the bridge loan and the revolving credit facility as of June 30, 1999. The
remaining line of credit for $2,000,000 expires on December 28,1999. The company
is in the process of renegotiating the terms of this line of credit.
As of June 30, 1999, CareerBuilder had $78.4 million of cash and cash
equivalents.
CareerBuilder anticipates it will spend up to $.6 million for capital
equipment for the remainder of 1999. CareerBuilder has also entered into
agreements that provide for CareerBuilder to pay advertising and marketing fees
to four of its current CareerBuilder Network affiliates of up to approximately
$3.1 million in 1999. One of these agreements allows the payments to be offset
by job posting fees paid to such affiliate. In addition, under its service and
distribution agreement with Microsoft, CareerBuilder may be required to pay to
Microsoft up to $786,000 in 1999, up to $3.0 million in 2000 and up to $1.8
million in 2001 if Microsoft achieves agreed upon website traffic goals. The
Microsoft career site is expected to implemented in the fall of 1999 and to
date no amounts have been incurred and no payments have been made.
CareerBuilder believes its existing cash and cash equivalents will be
sufficient to meet its anticipated cash requirements for working capital and
capital expenditures for at least the next 12 months. Although CareerBuilder
currently believes that it has sufficient capital resources to meet its
anticipated working capital and capital expenditure requirements beyond the next
12 months, unanticipated events and opportunities may make it necessary for
CareerBuilder to return to the public markets, increase its current credit
facilities or establish new credit facilities or raise capital in private
transactions in order to meet its capital requirements.
YEAR 2000 COMPLIANCE
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems may need to be upgraded in order to be year 2000 compliant or
risk system failure or miscalculations causing disruptions of normal business
activities. Significant uncertainties exist in the software industry concerning
the potential effects associated with the failure of computer systems and
software to be year 2000 compliant. Year 2000 problems could materially and
adversely affect our currently supported products, the CareerBuilder Network and
our internal systems. Moreover, year 2000 problems could disrupt ADP's
operations and materially and adversely affect the purchasing patterns of our
customers. In addition, disruption caused by year 2000 problems could affect
Internet usage generally, which could cause our business, results of operations
and financial condition to be materially and adversely affected. See "Certain
Factors That May Affect Future Results -- We have a number of risks associated
with the year 2000." In addition, employers may elect to spend a greater portion
of their recruiting budgets on traditional recruitment methods rather than risk
disruption in their job advertisements in the event of technical difficulties
related to year 2000 problems.
We have completed an assessment of the year 2000 readiness of our products
and systems. CareerBuilder believes that all of the products and services it
currently offers to its customers were year 2000 compliant at the time of
installation or launch and has conducted tests internally to validate the
compliance of these products. We cannot be certain, however, that these tests
have detected all potential year 2000 problems. It is also possible that members
of the CareerBuilder Network will experience problems with their Internet sites
due to software that is not year 2000 compliant, which could lead to disruptions
on the CareerBuilder Network. CareerBuilder has reviewed year 2000 compliance
statements made by the vendors of its software systems, such as accounting and
database management systems and has completed an assessment of the year 2000
readiness of its internal systems. Based on this review and assessment,
CareerBuilder currently believes that its internal software systems are year
2000 compliant. However, it is possible that such systems could contain
undetected problems that could cause serious and costly disruptions. To address
these potential disruptions, CareerBuilder maintains off-site backup data for
its internal systems and is developing a redundant, outsourced data center as
protection against the failure of the CareerBuilder Network or its associated
hardware.
13
14
To date, because we have used our internal resources to assess year 2000
readiness of our offerings and our internal systems, CareerBuilder has not
incurred significant incremental costs in order to assess and comply with year
2000 requirements and does not believe it will incur significant incremental
costs in the foreseeable future.
CareerBuilder has questioned representatives of ADP and has reviewed
publicly available disclosure relating to ADP's year 2000 readiness. Based on
this review, CareerBuilder believes that ADP will not experience substantial
year 2000 problems. However, it is possible that ADP could experience year 2000
problems that could cause disruptions to ADP's systems and its selling and
billing efforts on behalf of CareerBuilder.
14
15
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 4, 1999, CareerBuilder issued 1,372,817 shares of its common stock
to Microsoft Corporation for an aggregate purchase price of approximately $17.8
million. In addition, for no additional cash consideration, CareerBuilder issued
a warrant to Microsoft representing the right to purchase 873,534 shares of
CareerBuilder's common stock at an exercise price of $13 per share.
Between April 1, 1999 and May 11, 1999, CareerBuilder issued 23,990 shares
of common stock pursuant to option exercises for aggregate proceeds of
approximately $5,000.
The securities issued in the foregoing transactions were (i) offered and
sold in reliance upon exemptions from Securities Act registration set forth in
Section 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, or (ii) with respect to sales by an issuer upon the exercise of
options, sold in reliance upon an exemption from registration under Rule 701 of
the Securities Act. No underwriters were involved in the foregoing sales of
securities.
On May 11, 1999, CareerBuilder's Registration Statement on Form S-1 (SEC
File No. 333-73469), for its initial public offering of 4,400,000 shares on
common stock, par value $0.001, and the offering of 100,000 shares by certain
selling stockholders, became effective. All 4,500,000 shares were sold upon
completion of the initial public offering at an aggregate offering price of
$57,200,000 for the shares offered by the Company and $1,300,000 for the shares
offered by the selling stockholders, reflecting an offering price of $13 per
share. Credit Suisse First Boston Corporation, BancBoston Robertson Stephens
Inc., Hambrecht & Quist LLC and Friedman, Billings Ramsey & Co., Inc. acted as
managing underwriters for the initial public offering. Underwriting discounts
and commissions for the shares CareerBuilder and the selling stockholders sold
in the initial public offering totaled $4,004,000 and $91,000, respectively.
In addition, in connection with its initial public offering, CareerBuilder
incurred an estimated $1.4 million in expenses. None of CareerBuilder's expenses
in connection with the offering were paid directly or indirectly to directors or
officers of CareerBuilder or their associates, or to persons owning 10% or more
of CareerBuilder's common stock or other affiliates of CareerBuilder. After
deducting underwriting discounts and commissions and other expenses,
CareerBuilder and the selling stockholders received net proceeds of
approximately $51,800,000 and $1,209,000, respectively, from the initial public
offering.
In connection with the initial public offering, CareerBuilder registered
and offered the underwriters of the offering an option to purchase an additional
675,000 shares of common stock at the $13 per share offering price. The
underwriters exercised this option on May 17, 1999. The Company, after deducting
underwriting discounts and commissions, received approximately $8,161,000 in
proceeds from the exercise of this option.
The primary purposes of the initial public offering were to obtain
additional capital, create a public market for CareerBuilder's common stock and
facilitate future access to public markets. CareerBuilder is using the majority
of the offering's net proceeds for working capital and general corporate
purposes. CareerBuilder also used a portion of the proceeds to pay all of the
principal and accrued interest on a note payable to PNC Bank in connection with
a bridge loan. The note accrued interest at 12.75% per annum and the outstanding
balance of $2.3 million was repaid on May 18,1999.
15
16
ITEM 5: OTHER INFORMATION
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following risks should be considered in evaluating CareerBuilders
prospects.
WE ARE A YOUNG COMPANY SO WE HAVE ONLY A LIMITED OPERATING HISTORY WITH WHICH
YOU CAN EVALUATE OUR BUSINESS AND PROSPECTS
We commenced operations in November of 1995, recorded our first revenue in
the third quarter of 1996 and introduced the first commercial version of
TeamBuilder Online in November 1997. Accordingly, we have only a limited
operating history with which you can evaluate our business and prospects. In
addition, our prospects must be considered in light of the uncertainties
encountered by companies in the early stages of development in new and rapidly
evolving markets, specifically the online recruitment market. Some of the
uncertainties we face include:
- our ability to attract and retain a larger number of employers to
recruit online using the CareerBuilder Network instead of other online
recruitment providers and traditional recruiting methods;
- our ability to attract a larger number of job seekers to the
CareerBuilder.com flagship site and our interactive media company
affiliates' ability to continue to attract potential job seekers to
the other sites on the CareerBuilder Network; and
- our ability to maintain our current, and add new, online interactive
media companies to the CareerBuilder Network.
If we fail to manage these risks successfully, our business, results of
operations and financial condition will be materially and adversely affected.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE
We have incurred substantial net losses in every fiscal period since we
began operations. For the year ended December 31, 1998, our net loss was $12.0
million. For the quarter ended June 30, 1999, our net loss was $5.2 million. As
of June 30, 1999, our accumulated deficit was approximately $31.4 million. We
are not certain when we will become profitable, if at all. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis. Failure to achieve or maintain profitability may materially and
adversely affect the market price of our common stock. We have generated
relatively small amounts of revenue until recent fiscal quarters, while
increasing operating expenditures in all areas, particularly in sales and
marketing. If revenues grow more slowly than we anticipate, or if operating
expenses exceed our expectations or cannot be adjusted accordingly, our
business, results of operations and financial condition will be materially and
adversely affected.
OUR QUARTERLY RESULTS MAY FLUCTUATE, WHICH COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO FALL
Our quarterly revenue and results of operations are difficult to predict
and may fluctuate significantly from quarter to quarter. If our quarterly
revenue or results of operations fall below expectations of investors or public
market analysts, the price of our common stock could fall substantially. Our
quarterly revenue is difficult to predict and our results of operations may
fluctuate for several reasons, including:
- the online recruitment market is at an early stage of development and
therefore it is difficult to predict customer demand for online
recruitment offerings;
- ADP is our principal sales channel for customers with 100 to 1,000
employees and represented approximately 39% of our total revenue in
the quarter ended June 30, 1999 and 37% year to date. We have no
control over ADP's selling efforts and these efforts will
significantly affect our results of operations in any quarter;
- customers may choose to pay for our services on a per-job posting
basis, instead of a multi-month subscription basis; to the extent a
greater proportion of our revenue is attributable to customers who
choose to pay on a per-job posting basis, our
16
17
operating results may fluctuate to a greater extent from period to
period; Revenue attributable to customers who chose to pay on a
per-job posting basis accounted for approximately 5% of our total
revenue for the quarter ended June 30, 1999 and 5% year to date;
- our cost of revenue, and therefore our operating results, are affected
by the allocation of our customers' job advertisements among the
CareerBuilder.com site and the other sites on the CareerBuilder
Network; and
- our cost of revenue is affected by the relative mix of sales between
our sales force and sales made through ADP; for the three and six
months ended June 30, 1999, we paid sales commissions to ADP of
approximately $.5 million and $.9 million respectively. This
represented 35% and 36% of revenue for the three and six months ended
June 30, 1999 received from customers for which ADP acted as sales
agent.
A significant percentage of our expenses, such as employee compensation and
rent, are relatively fixed. Moreover, our expense levels are based, in part, on
our expectations of future revenue. As a result, any shortfall in revenue in
relation to our expectations could cause significant changes in our results of
operations from quarter to quarter and could result in increased or continued
quarterly losses.
Because of these factors, we believe that period to period comparisons of
our results of operations are not necessarily meaningful, and therefore you
should not rely on our quarterly revenue and results of operations to predict
our future performance.
OUR EARNINGS MAY FLUCTUATE SEASONALLY, WHICH MAY AFFECT OUR FINANCIAL RESULTS
Because our online recruitment business model is new, we do not know if the
online recruitment market is subject to seasonal fluctuations. We believe that
revenue from print media, recruiting search firms and other traditional
recruiting services are generally lower in the months of August, November and
December because of reduced recruiting and job search activity during vacation
periods and holiday seasons. As the online recruitment market develops, we may
find that similar seasonal and cyclical patterns characterize online recruiting
or we may discover other seasonal patterns. In addition, we believe that we may
experience lower sales through our ADP sales channel from November through
January because of a year-end focus by ADP's sales force on ADP's core business,
which may adversely affect our revenue. If seasonal fluctuations develop in the
online recruitment market or as a result of ADP's selling efforts, our business,
results of operations and financial condition could be materially and adversely
affected.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A RECESSION, WHICH MAY AFFECT OUR
FINANCIAL RESULTS
Online recruitment is a new industry and we do not know how sensitive our
industry is to general economic conditions. Demand for online recruitment
offerings may be significantly and adversely affected by the level of economic
activity and employment in the United States and abroad. A recession could cause
employers to reduce or postpone their recruiting efforts generally, and their
online recruiting efforts in particular. Therefore, if a significant economic
downturn or recession occurs in the United States or abroad, our business,
results of operations and financial condition could be materially and adversely
affected.
WE ARE DEPENDENT ON ADP'S SALES FORCE FOR A SIGNIFICANT PORTION OF OUR REVENUE
ADP is our principal sales channel for customers with between 100 and 1,000
employees. Sales of our offerings by ADP accounted for approximately 39% of our
total revenue in the quarter ended June 30, 1999, and 37% year to date. We
expect ADP's contribution to our revenue to continue to increase at least
through 1999. Our existing agreement with ADP may be terminated by ADP at any
time after January 2002 upon 120 days notice. It is possible that ADP's sales
force will not continue to market our services beyond January 2002.
ADP may not continue to market our services at the current levels even
during the remaining term of the agreement. Under our agreement, ADP is not
required to achieve specific revenue targets. Based on our current revenue, our
agreement with ADP provides for sales commissions to ADP ranging from 33 1/3% to
50% of revenue generated by a customer for which ADP acted as a sales agent. ADP
must meet revenue-based milestones for installments under a warrant we issued to
ADP to purchase shares of our common stock to vest. Our agreement with ADP
generally prohibits us from entering into any reseller, distribution or similar
agreement with any other payroll or benefits administration provider. Moreover,
under the terms of the ADP agreement, if ADP determines that the CareerBuilder
Network or TeamBuilder Online have material inadequacies that reduce their
ability to perform competitively in relation to other online recruiting
products, we must correct the deficiencies specified by ADP. If we fail to
correct those deficiencies, ADP is free to market alternative online recruitment
services, including those of our competitors, during the term of our agreement.
Even after the termination of our agreement with ADP, ADP will continue to
receive its share of recurring sales commission revenue derived from customers
originally identified by ADP in its capacity as a sales agent for as long as
these customers continue to receive any of our services for which orders were
procured by ADP.
17
18
We may not be able to attract a sufficient number of employer customers
without the ADP sales channel. In addition, we may compete with ADP for sales of
our services to companies employing between 100 and 1,000 persons. It is
possible that we may not manage this channel conflict effectively and that our
relationship with ADP could be materially and adversely affected. If our
relationship with ADP is discontinued or damaged, or if the level of sales
through the ADP channel is lower than expected, our business, results of
operations and financial condition would be materially and adversely affected.
WE COULD BE REQUIRED TO RECORD SIGNIFICANT EXPENSES IF ADP ACHIEVES REVENUE
GOALS
If ADP achieves specified revenue-based milestones, a warrant to purchase
shares of common stock will become exercisable to purchase up to 380,000 shares
of common stock commencing on each of March 31, 2001 and March 31, 2002 at an
exercise price of $5.00 per share. The revenue-based milestones are measured for
a specific time period by subtracting from total revenue received from customers
for which ADP has acted as sales agent, sales commissions paid to ADP. In order
for the March 2001 installment of the warrant to vest, revenue minus sales
commission for the period from March 1, 1999 through March 30, 2001 must exceed
$10.2 million. In order for the minimum number of shares under the March 2002
installment to vest, revenue minus sales commission for the period from April 1,
2001 through March 30, 2002 must exceed $23.0 million, with $30.0 million
required for the maximum number of shares issuable under the installment to
vest. These milestones are not projections but are solely milestones ADP must
achieve for their warrants to vest. The ADP warrant contains provisions that
increase the number of shares for which the warrant is exercisable if we issue
additional shares, particularly for financing purposes. The maximum number of
shares that are issuable upon exercise of each remaining installment of the
warrant is currently 516,824 shares based on current antidilution calculations.
These provisions are limited so that the number of shares of common stock for
which each of the installments of the warrant may be exercisable is limited to
a maximum of 568,506 shares.
If and when it becomes probable that the net revenue we will receive from
ADP will reach the necessary level for either installment of the warrant to
vest, we would begin to record an expense reflecting the fair value of the
warrant, which will be determined in part based on the market price of the
common stock. We would begin to recognize this expense on the determination of
probability that the revenue targets would be achieved, continuing through the
actual vesting date. We would initially estimate the amount of the expense at
the time of the determination that achievement is probable, based in part on the
market price of the common stock at that time. At the time of actual vesting,
the fair value of the warrant would be remeasured and, if different from the
value used in initially estimating the expense, the difference would be
reflected as an additional charge or credit at that time. Accordingly, the
higher our stock price is at the time probability is determined, or the actual
vesting occurs, the more significant would be the expense we would be required
to record. That expense could be spread over multiple quarters or concentrated
in one quarter. If we are required to record significant expense, our results of
operations for that period could fall below the expectations of our investors or
public market analysts, which could cause the price of our common stock to fall
substantially.
THE INTERNET IS UNPROVEN AS A RECRUITING MEDIUM
Our future is highly dependent on a significant increase in the use of the
Internet as a recruiting medium. The online recruitment market is new and
rapidly evolving, and we cannot yet gauge its effectiveness as compared to
traditional recruiting methods. As a result, demand and market acceptance of
online recruitment offerings are uncertain. Most of our current and potential
employer customers have little or no experience using the Internet for
recruiting purposes and have allocated only a limited portion of their
recruiting budgets to online recruiting. The adoption of online recruiting,
particularly by those entities that have historically relied upon traditional
methods of recruiting, requires the acceptance of a new way of conducting
business, exchanging information and advertising for jobs. Such customers may
find online recruiting to be less effective for meeting their hiring needs
relative to traditional methods of recruiting employees. We cannot assure you
that the online recruitment market will continue to emerge or become
sustainable. If the online recruitment market fails to develop or develops more
slowly than we expect, our business, results of operations and financial
condition would be materially and adversely affected.
OUR BUSINESS MODEL IS UNPROVEN
We first recorded revenue in September 1996 from sales of TeamBuilder
Software. At that time, software sales were a significant component of our
revenue. Beginning in late 1997, we began offering online subscriptions by means
of TeamBuilder Online and software sales became a smaller component of our
revenue. In May 1998, we again evolved our business model when we introduced the
CareerBuilder Network, enabling our customers to advertise job openings across a
network of affiliate sites. Accordingly, our business model and profit potential
are unproven. To be successful, we must develop and market online recruitment
offerings that achieve broad market acceptance by employers, job seekers and
interactive media companies. In addition, CareerBuilder.com and the
CareerBuilder Network affiliate sites must generate sufficient job seeker
traffic with demographic characteristics attractive to our
18
19
employer customers.
It is possible that we will be required to further adapt our business model
in response to additional changes in the online recruitment market or if our
current business model is not successful. If we are not able to anticipate
changes in the online recruitment market or if our business model is not
successful, our business, financial condition and results of operations would be
materially and adversely affected.
WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE "CAREERBUILDER.COM" BRAND
NAME
We believe that continuing to build awareness of the "CareerBuilder.com"
brand name is critical to achieving widespread acceptance of our online
recruitment offerings. Brand recognition is a key differentiating factor among
providers of online recruitment offerings and we believe it could become more
important as competition in the online recruitment market increases. From
November 1995 to June 30, 1999, we have recorded approximately $30.2 million in
sales and marketing expenses. We may find it necessary to accelerate
expenditures on our sales and marketing efforts or otherwise increase our
financial commitment to creating and maintaining brand awareness among potential
customers. If we fail to successfully promote and maintain our brand or incur
significant expenses in promoting our brand, our business, results of operations
and financial condition could be materially and adversely affected.
WE MAY HAVE DIFFICULTY MAINTAINING AND EXPANDING THE CAREERBUILDER NETWORK
We believe that a primary reason the CareerBuilder Network is valuable to
employers is that the websites of the premier interactive media companies who
have executed agreements with us for the development of career sites to be a
part of the CareerBuilder Network appeal to a variety of distinct Internet user
communities in strategic broad-based, vertical, geographic and diversity
categories. Our agreements with these CareerBuilder Network affiliate members
generally have one-year terms, subject to extension. As of the date of this
prospectus, all of the affiliate agreements that have reached the end of their
initial terms have been renewed. However, although presently we have no reason
to believe that any of our affiliate members will not renew their current
agreements, we cannot be sure that in the future all affiliate agreements will
be renewed. In addition, one of our key business strategies is to expand the
CareerBuilder Network by adding additional interactive media affiliates
targeting a variety of distinct online audiences. If an affiliate member
declines to renew its agreement with us and withdraws from the CareerBuilder
Network, and if we are unable to find a suitable replacement for that affiliate
member, or if we otherwise are not successful in our efforts to expand the
CareerBuilder Network, the CareerBuilder Network may be less valuable to
employers, and our business, results of operations and financial condition could
be materially and adversely affected.
OUR PLANS FOR INTERNATIONAL EXPANSION MAY NOT SUCCEED
Our strategy includes expansion into international markets through a
combination of partnerships, acquisitions and internal business expansion. Our
future international operations might not succeed for a number or reasons,
including:
- difficulties in staffing and managing foreign operations;
- competition from local and foreign-based recruitment services;
- legal uncertainties inherent in transnational operations such as
export and import regulations, tariffs and other trade barriers;
- taxation issues;
- unexpected changes in trading policies, regulatory requirements and
exchange rates;
- operational issues such as longer customer payment cycles and greater
difficulties in collecting accounts receivable;
- seasonal reductions in business activity;
- language and cultural differences;
- issues relating to uncertainties of laws and enforcement relating to
the protection of intellectual property; and
- general political and economic trends.
Accordingly, we may not be able to successfully execute our business plan
in foreign markets. If revenue from international ventures is not adequate to
cover our investment in those ventures, our business, results of operations and
financial condition could be
19
20
materially and adversely affected.
WE MAY HAVE DIFFICULTY IN IDENTIFYING AND COMPETING FOR ACQUISITION
OPPORTUNITIES
Our business strategy includes the pursuit of strategic acquisitions. From
time to time, we have engaged in discussions with third parties concerning
potential acquisitions of product lines, technologies and businesses. We
currently do not have active negotiations, commitments or agreements with
respect to any acquisition.
In executing our acquisition strategy, we may be unable to identify
suitable acquisition candidates. In addition, we expect to face competition from
other providers of online recruitment solutions for acquisition candidates,
making it more difficult to acquire suitable companies on favorable terms.
PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT ATTENTION
AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS RESULTS
If we pursue any acquisition, our management could spend a significant
amount of time and effort in identifying, negotiating and completing the
acquisition. If we complete an acquisition, we may have to devote a significant
amount of time and management and financial resources to integrate the acquired
business with our existing business. To pay for an acquisition, we might use
capital stock, or cash, including the proceeds from this offering, or a
combination of both. Alternatively, we may borrow money from a bank or other
lender. If we use capital stock, our stockholders will experience dilution. If
we use cash or debt financing, our financial liquidity will be reduced. In
addition, from an accounting perspective, an acquisition may involve
non-recurring charges or involve amortization of significant amounts of goodwill
that could adversely affect our results of operations.
Despite the investment of these management and financial resources, an
acquisition may not produce the revenue, earnings or business synergies that we
anticipated, and an acquired service or technology may not perform as expected
for a variety of reasons, including:
- difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
- risks of entering markets in which we have no or limited prior
experience;
- the applicability of rules and regulations that might restrict our
ability to operate; and
- the potential loss of key employees of the acquired company.
Accordingly, our acquisition efforts may not succeed, and the time, capital
and management and other resources spent on an acquisition that failed to meet
our expectations could cause our business, results of operations and financial
condition to be materially and adversely affected.
WE ARE EXPERIENCING RAPID GROWTH, WHICH MAY STRAIN OUR RESOURCES
Our rapid growth has sometimes strained, and may in the future strain, our
managerial and other resources. Our acquisition strategy and plans for
international expansion could further increase our growth and place additional
burdens on our resources. Our ability to manage growth will depend, in part, on
our ability to continue to enhance our operating, financial and management
information systems. Our personnel, systems, procedures and controls may not be
adequate to support our growth. If we are unable to manage growth effectively,
our business, results of operations and financial condition could be materially
and adversely affected.
IF WE LOSE THE SERVICES OF A NUMBER OF KEY EXECUTIVES, OUR BUSINESS COULD SUFFER
Our future success depends upon the skills, experience and efforts of our
executive officers and key technical employees, in particular Robert J.
McGovern, our Chairman of the Board, President and Chief Executive Officer. Mr.
McGovern founded CareerBuilder in 1995 and has been instrumental in determining
our structure, direction and focus. None of our employees have employment
agreements with us. If we lose the services of Mr. McGovern or any of our other
executive officers or other key employees, our business, results of operations
and financial condition could be materially and adversely affected.
WE MAY NOT BE ABLE TO HIRE AND RETAIN HIGHLY SKILLED EMPLOYEES, WHICH COULD
AFFECT OUR ABILITY TO COMPETE EFFECTIVELY
We depend upon the ability to attract, hire, train and retain highly
skilled technical, sales and marketing, and support personnel, particularly with
expertise in Internet solutions and online recruiting. Competition for qualified
personnel throughout our industry is
20
21
intense. If we fail to attract, hire or retain such personnel, our business,
results of operations and financial condition could be materially and adversely
affected. We may experience difficulty providing the proper level of service to
our customers or incur increased costs due to rising salary and benefit levels.
In particular, we plan to expand our sales and marketing and customer support
organizations. Based on our experience, it takes an average of four months for a
new salesperson to achieve targeted levels of productivity. If we are not
successful in hiring additional qualified salespeople or increasing the
productivity of our existing sales force, our business, results of operations
and financial condition could be materially and adversely affected.
WE MAY LOSE BUSINESS IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES
Our success is dependent on our ability to develop new and enhanced
software, services and related products to meet rapidly evolving requirements
for online recruitment software and solutions. Trends that could have a critical
impact on our success include:
- rapidly changing technology in the area of online recruiting;
- evolving industry standards, including both formal and de facto
standards relating to online recruiting;
- developments and changes relating to the Internet;
- competing products and services that offer increased functionality;
and
- changes in employer and job seeker requirements.
If we are unable to develop and introduce new products and services, or
enhancements to existing products and services, in a timely and successful
manner, our business, results of operations and financial condition could be
materially and adversely affected.
WE HAVE SIGNIFICANT COMPETITION FROM A VARIETY OF SOURCES
The market for online recruitment solutions is intensely competitive and
highly fragmented. We compete with companies, including recruiting search firms,
that offer a single database "job board" solution, such as Monster.com and
Career Mosaic, as well as newspapers, magazines and other traditional media
companies that provide online job search services, such as CareerPath.com. We
also compete with large Internet information hubs, or portals, such as AOL.com.
We may experience competition from potential customers to the extent that they
develop their own online recruitment offerings internally. In addition, we
compete with traditional recruiting services, such as newspapers and employee
recruiting agencies, for a share of employers' total recruiting budgets. We
expect to face additional competition as other established and emerging
companies, including print media companies and employee recruiting agencies with
established brands, enter the online recruitment market. We may also face
competition from organizations that choose to develop online recruitment
offerings internally. It is also possible that, as the online recruitment market
develops and new products and services are introduced, we may face competition
from the members of the CareerBuilder Network.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater brand recognition and a larger installed customer base than
we do. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships to expand their offerings
and to offer more comprehensive solutions.
We believe that there will be rapid business consolidation in the online
recruitment industry. Accordingly, new competitors may emerge and rapidly
acquire significant market share. In addition, new technologies will likely
increase the competitive pressures that we face. The development of competing
technologies by market participants or the emergence of new industry standards
may adversely affect our competitive position. As a result of these and other
factors, if we are not able to compete effectively with current or future
competitors, our business, results of operations and financial condition could
be materially and adversely affected.
WE HAVE A NUMBER OF RISKS ASSOCIATED WITH THE YEAR 2000
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems may need to be upgraded in order to be year 2000 compliant.
Significant uncertainties exist in the software industry concerning the
potential effects associated with the failure of computer systems and software
to be year 2000 compliant. We have completed an assessment of the year 2000
readiness of our products and systems. We cannot, however, be certain that we
have identified all of the potential risks to our business that could result
from matters related to the year 2000. We have identified the following risks
that you should be aware of:
- UNDETECTED YEAR 2000 PROBLEMS COULD MATERIALLY AND ADVERSELY AFFECT
OUR CURRENTLY SUPPORTED PRODUCTS. We believe that all
21
22
of the products and services we currently offer to our customers were
year 2000 compliant at the time of installation or launch, and we have
conducted tests to validate their compliance. We cannot be certain,
however, that these tests would have detected all potential year 2000
problems. The failure of our currently supported products to be fully
year 2000 compliant could result in claims by or liability to our
customers, job seekers and members of the CareerBuilder Network, in
which case our business, results of operations and financial condition
could be materially and adversely affected. We are also developing a
redundant, out-sourced data center as protection against the failure
of the CareerBuilder Network or its associated software. However,
these precautions may not be sufficient to prevent a failure of the
CareerBuilder Network.
- YEAR 2000 PROBLEMS COULD MATERIALLY AND ADVERSELY AFFECT THE
CAREERBUILDER NETWORK. It is possible that members of the
CareerBuilder Network will experience problems with their Internet
sites due to software that is not year 2000 compliant, leading to
disruptions on the CareerBuilder Network, which could cause our
business, results of operations and financial condition to be
materially and adversely affected.
- YEAR 2000 PROBLEMS COULD MATERIALLY AND ADVERSELY AFFECT OUR INTERNAL
SYSTEMS. We have reviewed year 2000 compliance statements made by the
vendors for some of our internal software systems, such as accounting
and database management, and we have conducted tests to validate the
year 2000 compliance of our internal software systems. Based on these
procedures, we believe that our internal systems are year 2000
compliant. However, it is possible that such systems could contain
undetected problems that could cause serious and costly disruptions
which would have a material adverse effect on our business, results of
operations and financial condition. We maintain off-site backup data
for our internal systems. However, these precautions may not prevent
disruptions in the event our internal systems do not perform as
expected.
- YEAR 2000 PROBLEMS COULD DISRUPT ADP'S OPERATIONS. We have questioned
representatives of ADP and have reviewed publicly available disclosure
as to ADP's year 2000 readiness. Based on this review, we have no
reason to believe that ADP will experience substantial year 2000
problems. Notwithstanding this review, disruption of ADP's operations
resulting from year 2000 problems could have a negative impact on us.
ADP's sales and billing efforts on our behalf could be delayed or
halted. ADP also performs our payroll functions. There could be
significant delays in sending out bills and paying our employees if
ADP experiences year 2000 problems.
- PURCHASING PATTERNS OF OUR CUSTOMERS COULD BE MATERIALLY AND ADVERSELY
AFFECTED BY YEAR 2000 ISSUES. The purchasing patterns of our customers
and potential customers may be materially and adversely affected by
year 2000 issues because they may be required to expend significant
resources on year 2000 compliance matters, rather than investing in
new online recruitment services such as those we offer. In addition,
as the new year approaches, employers may elect to spend a greater
portion of their recruiting budgets on traditional recruitment methods
rather than risk disruption in their job advertisements in the event
of technical difficulties related to year 2000 problems.
- YEAR 2000 PROBLEMS COULD AFFECT THE INTERNET. Disruptions caused by
year 2000 problems could affect Internet usage generally, which could
cause our business, results of operations and financial condition to
be materially and adversely affected.
OUR COMPUTER SYSTEMS AND THE COMPUTER SYSTEMS OF OUR CAREERBUILDER NETWORK
AFFILIATES COULD FAIL OR OVERLOAD
The success of our online recruitment offerings is highly dependent on the
efficient and uninterrupted operation of our computer and communications
hardware systems. Our communications hardware and other computer hardware
operations that maintain the CareerBuilder Network are located at Global
Center's facilities in Herndon, Virginia. Fire, floods, earthquakes, power loss,
telecommunications failures and similar events could damage or cause
interruptions in these systems. Computer viruses, electronic break-ins or other
similar disruptive problems could also adversely affect CareerBuilder.com or
other sites on the CareerBuilder Network. If our systems or the systems of any
of the Internet sites of the members of the CareerBuilder Network are affected
by any of these occurrences, our business, results of operations and financial
condition could be materially and adversely affected. Our insurance policies may
not cover, or if covered, may not adequately compensate us for, any losses that
may occur due to any failures or interruptions in our systems or the systems of
the Internet sites of the members of the CareerBuilder Network. We do not
presently have any secondary "off-site" systems or a formal disaster recovery
plan.
In addition, CareerBuilder.com and the Internet sites of the other members
of the CareerBuilder Network must accommodate a high volume of traffic and
deliver frequently updated information. CareerBuilder.com and the Internet sites
of each of the members of the CareerBuilder Network have in the past and may in
the future experience slower response times or decreased traffic for a variety
of reasons. In addition, our users depend on Internet service providers and
other Internet site operators for access to CareerBuilder.com and the Internet
sites of the members of the CareerBuilder Network. Many of the Internet service
providers have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. If we experience any of these problems, our business, results of
operations and financial condition could be materially and adversely affected.
22
23
WE RELY ON TECHNOLOGY THAT IS OWNED BY THIRD PARTIES
We license technology that is incorporated into our services and related
products from third parties. Examples include licenses from Centura Software
Corporation, for database technology, and from Verity, Inc., for full-text
indexing and searching technology. These licenses are perpetual. In light of the
rapidly evolving nature of Internet technology, we may increasingly need to rely
on technology from other vendors. Technology from others may not continue to be
available to us on commercially reasonable terms, if at all. The loss or
inability to access such technology could result in delays in our development
and introduction of new services and related products or enhancements until
equivalent or replacement technology could be accessed, if available, or
developed internally, if feasible. If we experience such delays, our business,
results of operations and financial condition could be materially and adversely
affected.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR SOFTWARE CONTAINS BUGS
Our software products, including TeamBuilder Online and TeamBuilder
Software, could contain undetected errors or "bugs" that could adversely affect
their performance. Additionally, we regularly introduce new releases and
periodically introduce new versions of our software products. The occurrence of
errors in our current products or new products or enhancements could result in
loss of or delay in revenue, loss of market share, failure to achieve market
acceptance, diversion of development resources, injury to our reputation and
damage to our efforts to build brand awareness, any of which could cause our
business, results of operations and financial condition to be materially and
adversely affected.
OUR BUSINESS IS DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF THE INTERNET
INFRASTRUCTURE
Our success will depend, in large part, upon the development and
maintenance of the Internet infrastructure as a reliable network backbone with
the necessary speed, data capacity and security, and timely development of
enabling products, such as high speed modems, for providing reliable Internet
access and services. We cannot assure you that the Internet infrastructure will
continue to effectively support the demands placed on it as the Internet
continues to experience increased numbers of users, greater frequency of use or
increased bandwidth requirements of users. Even if the necessary infrastructure
or technologies are developed, we may have to spend considerable resources to
adapt our offerings accordingly. Furthermore, in the past, the Internet has
experienced a variety of outages and other delays. Any future outages or delays
could affect the Internet sites on which our customers' job advertisements are
posted and the willingness of employers and job seekers to use our online
recruitment offerings. If any of these events occur, our business, results of
operations and financial condition could be materially and adversely affected.
BREACHES OF INTERNET SECURITY COULD ADVERSELY AFFECT OUR BUSINESS
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any well-publicized compromise of security on the Internet could
deter more people from using the Internet or from using it to conduct
transactions that involve transmitting confidential information, such as a job
seeker's resume or an employer's hiring needs. We may be required to incur
significant costs to protect against the threat of security breaches to
CareerBuilder.com and the CareerBuilder Network or to alleviate problems caused
by such breaches. If any of these events occur, our business, results of
operations and financial condition could be materially and adversely affected.
WE MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
ASSOCIATED WITH THE INTERNET
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, but the legislative and
regulatory treatment of the Internet remains largely unsettled. The U.S.
Congress recently adopted Internet laws regarding copyrights, taxation and the
protection of children. In addition, a number of other legislative and
regulatory proposals under consideration by federal, state, local and foreign
governments could lead to additional laws and regulations affecting the right to
collect and use personally identifiable information, online content, user
privacy, taxation, access charges and liability for third-party activities,
among other things. For example, the growth and development of the market for
Internet commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad, that may impose additional burdens on
companies conducting business over the Internet.
Although our transmissions originate from Virginia, the governments of
other states or foreign countries might attempt to regulate our transmissions or
levy sales or other taxes relating to our activities. The European Union
recently enacted its own privacy regulations that may result in limits on the
collection and use of user information. Courts may seek to apply existing laws
not explicitly relating to the Internet in ways that could impact the Internet,
and it may take years to determine whether and how laws such as those governing
intellectual property, privacy, libel and taxation will affect the Internet and
the online recruitment industry.
23
24
Existing or future laws or regulations affecting the Internet could lessen
the growth in use of the Internet generally and decrease the acceptance of the
Internet as a communications, commercial and advertising medium, and could
reduce the demand for our services or increase our cost of doing business, all
of which could cause our business, financial condition and results of operations
to be materially and adversely affected.
WE MAY BE LIABLE FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE INTERNET
We may be sued for defamation, negligence, copyright or trademark
infringement, personal injury or other legal claims relating to information that
is published or made available on CareerBuilder.com and the other sites on the
CareerBuilder Network. These types of claims have been brought, sometimes
successfully, against online services in the past. We could also be sued for the
content that is accessible from CareerBuilder.com and the other CareerBuilder
Network sites through links to other Internet sites or through content and
materials that may be posted by members in chat rooms or bulletin boards. We
also offer email services, which may subject us to potential risks, such as
liabilities or claims resulting from unsolicited email or spamming, lost or
misdirected messages, security breaches, illegal or fraudulent use of email, or
interruptions or delays in email service. Our insurance does not specifically
provide for coverage of these types of claims and therefore may not adequately
protect us against these types of claims. In addition, we could incur
significant costs in investigating and defending such claims, even if we
ultimately are not found liable. If any of these events occur, our business,
results of operations and financial condition could be materially and adversely
affected.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
PROPRIETARY TECHNOLOGY
Our success depends to a significant degree upon the protection of our
proprietary technology, including TeamBuilder Software and TeamBuilder Online.
The unauthorized reproduction or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology without
paying us for it. If this were to occur, our business, results of operations and
financial condition could be materially and adversely affected.
We rely upon a combination of patents, copyright, trade secret and
trademark laws and non-disclosure and other contractual arrangements to protect
our proprietary rights. The steps we have taken to protect our proprietary
rights, however, may not be adequate to deter misappropriation of proprietary
information. We may not be able to detect unauthorized use of our proprietary
information and take appropriate steps to enforce our intellectual property
rights. Moreover, the laws of other countries in which we may market our
services in the future may afford little or no effective protection of our
intellectual property.
If we resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive and could involve a
high degree of risk.
OTHERS COULD CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY
Although we attempt to avoid infringing known proprietary rights of third
parties, we are subject to the risk of claims alleging infringement of third
party proprietary rights. If we were to discover that any element of our online
recruitment offerings violates third party proprietary rights, we might not be
able to obtain licenses on commercially reasonable terms to continue offering
our entire online recruitment offerings without substantial reengineering and
that any effort to undertake such reengineering might not be successful. In
addition, product development is inherently uncertain in a rapidly evolving
technological environment in which there may be numerous patent applications
pending, which are confidential when filed, with regard to similar technologies.
Any claim of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and could distract
our management from our business. Furthermore, a party making such a claim could
secure a judgment that requires us to pay substantial damages. A judgment could
also include an injunction or other court order that could prevent us from
selling our products. If any of these events occurred, our business, results of
operations and financial condition could be materially and adversely affected.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL AS NEEDED IN THE FUTURE, OUR
BUSINESS MAY BE ADVERSELY AFFECTED
We currently anticipate that our available cash resources combined with the
net proceeds from our public offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 12
months. We may need to raise additional capital, however, to fund more rapid
expansion, both in the United States and internationally, to develop new and to
enhance existing services to respond to competitive pressures, and to acquire
complementary services, businesses or technologies. We have raised capital
through the issuance of equity securities three times since January 1998. If we
raise additional funds through further issuances of equity or convertible debt
securities, the percentage of ownership of our current stockholders will be
reduced and such securities may have rights, preferences and privileges senior
to those of our current stockholders, including stockholders purchasing shares
in this offering. In addition, we may not be able to obtain additional financing
on terms favorable to us, if at all. If
24
25
adequate funds are not available or are not available on terms favorable to us,
our business, results of operations and financial condition could be materially
and adversely affected.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS COULD
DEPRESS OUR STOCK PRICE
Delaware corporate law and our certificate of incorporation and by-laws
contain provisions that could have the effect of delaying, deferring or
preventing a change in control of CareerBuilder or our management. These
provisions could discourage proxy contests and make it more difficult for you
and other stockholders to elect directors and take other corporate actions.
These provisions could also limit the price that investors might be willing to
pay in the future for shares of our common stock. These provisions include:
- authorize the issuance of "blank check" preferred stock, which is
preferred stock that can be created and issued by the Board of
Directors without prior stockholder approval, with rights senior to
those of common stock;
- provide for a staggered Board of Directors, so that it would take
three successive annual meetings to replace all directors;
- prohibit stockholder action by written consent; and
- establish advance notice requirements for submitting nominations for
election to the Board of Directors and for proposing matters that can
be acted upon by stockholders at a meeting.
25
26
ITEM 6: EXHIBITS AND REPORT ON FORM 8-K
Exhibit No. DESCRIPTION
- ----------
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Specimen Certificate for Shares of Common Stock*
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
*Incorporated by reference to the Company's Form S-1 (Registration No.
333-73469) filed April 12, 1999 as amended.
(b) Reports on Form 8-K.
The company filed a report on Form 8-K on May 26, 1999 to announce a strategic
arrangement with Microsoft Corporation.
26
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1999 CAREERBUILDER, INC.
By: /s/ ROBERT J. MCGOVERN
---------------------------
Robert J. McGovern
Chief Executive Officer
By:/s/ JAMES A. THOLEN
---------------------------
James A. Tholen
Chief Financial Officer
(Principal Financial and Accounting Officer)
27
28
EXHIBIT INDEX
Exhibit No. DESCRIPTION
- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 Bylaws of the Company*
4.2 Specimen Certificate for Shares of Common Stock*
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
*Incorporated by reference to the Company's Form S-1 (Registration No.
333-73469) filed April 12, 1999 as amended.
28