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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 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 No. 000-27003
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HeadHunter.NET, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-2403177
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
6410 Atlantic Blvd. Ste. 160, Norcross, GA 30071
(Address of principal executive offices)
770/300-9272
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(Registrant's telephone number, including area code)
Indicate by check X whether the registrant: (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
The number of outstanding shares of the registrant's Common Stock on November
9, 1999 was 10,777,833.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Balance Sheets as of September 30, 1999
And December 31, 1998
Condensed Statements of Operations for the
Three Month and Nine Month Periods ended September 30, 1999
And 1998
Condensed Statements of Cash Flows for the Nine
Month Periods ended September 30, 1999 and 1998
Condensed Notes to Financial Statements
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
ITEM 2 Changes in Securities and Use of Proceeds
ITEM 3 Defaults upon Senior Securities
ITEM 4 Submission of Matters to a Vote of Security Holders
ITEM 5 Other Information
ITEM 6 Exhibits and Reports on Form 8-K
SIGNATURES
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEADHUNTER.NET, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands-except share data)
September 30, December 31,
1999 1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,631 $ 255
Accounts receivable, net of allowances of $229 and $37 at
September 30, 1999 and December 31, 1998, respectively 1,486 297
Affiliates 11 --
Prepaid expenses and other 159 195
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Total current assets 26,287 747
PROPERTY AND EQUIPMENT, net 1,306 447
GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated
amortization of $375 and $228 at September 30, 1999
and December 31, 1998, respectively 604 751
OTHER ASSETS 84 281
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Total assets $ 28,281 $ 2,226
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 1,193 397
Accrued liabilities 1,166 128
Accrued Interest-Affiliates -- 100
Deferred Revenue 84 40
Customer Deposits 22 28
Short-term borrowings-Affiliates -- 3,500
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Total current liabilities 2,465 4,193
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Class A Preferred stock, $.01 par value, 7,500,000 shares
authorized and no shares issued and outstanding at September 30, 1999 and
2,800,000 shares authorized, issued and outstanding at December 31, 1998 -- 28
Class B Serial preferred stock, $.01 par value; 5,000,000 shares
authorized and no shares issued and outstanding at September 30, 1999 -- --
Common stock, $.01 par value, 45,500,000 shares authorized and 10,744,500
issued and outstanding at September 30, 1999 and 50,200,000 shares authorized
and 2,200,000 shares issued and outstanding at December 31, 1998 108 22
Additional Paid in Capital 64,424 4,508
Stock Warrants 342 342
Deferred Compensation (4,560) (2,345)
Accumulated Deficit (34,498) (4,522)
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Total shareholders' equity 25,816 (1,967)
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Total liabilities and shareholders' equity $ 28,281 $ 2,226
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The accompanying notes are an integral part of these statements
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HEADHUNTER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands - except per share data)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
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REVENUES:
Service Revenue $ 2,554 $ 91 $ 4,578 $ 167
Advertising Revenue 339 302 728 504
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Total Revenues 2,893 393 5,306 671
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COST OF REVENUES 33 26 94 64
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Gross profit 2,860 367 5,212 607
OPERATING EXPENSES
Marketing and Selling Expenses 2,940 1,221 5,819 1,729
General and Administrative Expenses 1,156 688 2,363 1,355
Stock Compensation Expense 489 95 5,039 128
Depreciation and Amortization 134 74 333 192
------- ------- ------- -------
Operating loss (1,859) (1,711) (8,342) (2,797)
OTHER INCOME (EXPENSE): 107 (166) 66 (158)
------- ------- ------- -------
NET LOSS $(1,752) $(1,877) $(8,276) $(2,955)
======= ======= ======= =======
NET LOSS PER SHARE:
Basic and diluted net loss per share $ (0.19) $ (0.85) $ (1.05) $ (1.34)
======= ======= ======= =======
Weighted average common shares outstanding 9,147 2,200 7,857 2,200
======= ======= ======= =======
The accompanying notes are an integral part of these statements
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HEADHUNTER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Nine Months Ended
September 30,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,276) $ (2,955)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation 333 192
Amortization of debt issue costs -- 136
Compensation Expense 5,039 128
Changes in working capital:
Increase in current assets (966) (874)
Increase in current liabilities 1,772 963
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Net cash used in operating activities (2,098) (2,410)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,047) (307)
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Net cash used in investing activities (1,047) (307)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Convertible
Class A preferred Stock 407
Proceeds from issuance of Common Stock to
Officers and key employees 280
Proceeds from initial public offering of
Common stock, net of related issuance costs 26,834
Net borrowings (repayments) debt 2,050
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Net cash provided by financing activities 27,521 2,050
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24,376 (667)
CASH AND CASH EQUIVALENTS, beginning of period 255 854
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CASH AND CASH EQUIVALENTS, end of period $ 24,631 $ 187
========== ==========
The accompanying notes are an integral part of these statements
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HEADHUNTER.NET, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
1. The accompanying unaudited interim condensed consolidated financial
statements have been prepared by management of HeadHunter.NET, Inc.
("the Company") in accordance with rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Article 10 of
Regulation S-X of the SEC. The accompanying unaudited condensed
financial statements reflect, in the opinion of management, all
adjustments necessary to achieve a fair statement of the Company's
financial position and results for the interim periods presented. All
such adjustments are of a normal and recurring nature. These condensed
financial statements should be read in conjunction with the Company's
Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 19, 1999.
2. Basic (loss) earnings per common share ("EPS") was computed by
dividing net (loss) income by the weighted average number of shares of
common stock outstanding for the period then ended. The effect of the
Company's stock options (using the treasury stock method) was excluded
in the computation of diluted EPS for the three and nine months ended
September 30, 1999 and 1998, as it is anti-dilutive.
3. On August 24, 1999, the Company completed its initial public offering
of 3,000,000 shares of common stock at an offering price of $10.00 per
share. Net proceeds from the offering were approximately $27.0 million
after deducting underwriters' discounts and commissions and expenses
of the offering. The Company used a portion of the proceeds to pay off
all of its long-term debt. The balance of the proceeds will be used
for working capital and general corporate purposes, including possible
acquisitions. On September 7, 1999, the underwriters exercised their
over-allotment option to purchase an additional 450,000 shares at
$10.00 per share. All of these shares were sold by two selling
shareholders and the Company did not receive any proceeds as a result
of the sale.
4. The Financial Accounting Standards Board has issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which
must be adopted by the year 2000. This statement establishes
accounting and reporting standards for derivative instruments
including derivative instruments embedded in other contracts and for
hedging activities. Adoption of this statement is not expected to have
a material impact on our financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This
statement requires capitalization of costs of internal-use software.
Adoption of this statement is not expected to have a material impact
on our financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements regarding our
expected financial position and operating results, our business
strategy and our financing plans are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking
words such as "may," "will," "anticipate," "estimate," "expect," or
"intend." Known and unknown risks, uncertainties and other factors
could cause our actual results to differ materially from those
contemplated by these statements. Such risks and uncertainties include
our ability to retain and grow our subscriber base, our ability to
successfully integrate new subscribers and/or assets obtained through
acquisitions, the highly competitive markets in which we operate and
our ability to respond to technological developments affecting the
Internet. The Company's S-1 registration statement filed with the
Securities and Exchange Commission on August 19, 1999, discusses some
additional important factors that could cause the Company's actual
results to differ materially from those in such forward-looking
statements.
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OVERVIEW
We provide a leading online recruiting service to employers,
recruiters and job seekers via our web site at www.headhunter.net. Our
web site enables employers and recruiters to advertise job
opportunities and review resumes and enables job seekers to identify,
research and evaluate a broad range of job opportunities.
We derive service revenue primarily from fees paid by employers and
recruiters to: (1) post job opportunities on our web site; (2) improve
the placement of a job opportunity by purchasing our upgrade service,
which elevates the position of a job opportunity in a search result;
and (3) access recently submitted or reserved resumes. To a lesser
extent, we earn advertising revenue from the sale of banner
advertisements on our web site.
Initially, we charged one flat fee for a combination of our services,
although we did not charge employers and recruiters to post job
opportunities on our web site. As a result, revenue was earned
principally from a combination of upgrade fees and the sale of banner
advertisements on our web site, with sales of banner advertising
comprising a more significant percentage of our revenues. We modified
our pricing structure effective as of August 1, 1998 and began
offering upgrade services on a per job basis. As a result of this
pricing change and the growth of our sales force, revenue from upgrade
fees has continued to grow as a percentage of our total revenues.
On June 1, 1999, we began to charge employers and recruiters a fee to
post job opportunities on our web site. Employers and recruiters can
post job opportunities by paying a flat fee of approximately $20 per
job opportunity for a 30-day basic listing. Employers and recruiters
who want to improve the placement of their jobs in a search result in
order to increase the visibility and exposure of their job opportunity
can pay increases in $25 increments. We generally provide favorable
pricing terms to employers and recruiters that post a significant
number of job opportunities. Job posting fees and upgrade fees will
account for a substantial majority of our revenues for the foreseeable
future.
We implemented our "VIP Resume Reserve" service in April 1999. We hold
all resumes in our VIP Resume Reserve for seven days before we post
them for general review on our web site. The reserve also contains
resumes that job seekers specifically request to remain in the reserve
instead of being posted for general review. This service allows
employers and recruiters to pay a quarterly or annual subscription fee
to access our VIP Resume Reserve.
We record advance billings prior to the delivery of services or the
display of an advertisement as deferred revenues and recognize them as
revenue ratably when the services are provided or the advertisements
are displayed. At September 30, 1999, we had approximately $84,000 of
deferred revenues.
Our costs include:
(1) costs of revenues, consisting of bandwidth access
fees, co-location costs and Internet connection
charges;
(2) marketing and selling expenses, consisting primarily
of salaries and commissions for sales, marketing and
customer service personnel, advertising costs and
other marketing-related expenses (including
strategic relationship and product design costs);
(3) general and administrative expenses, consisting
primarily of salaries and related costs for general
corporate functions, including finance and
accounting personnel, software development and
technical personnel, office facilities and fees for
professional services; and
(4) depreciation and amortization, including
depreciation of computer and other equipment and
amortization of goodwill.
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We have recently made significant changes to our pricing policy.
Accordingly, we have an extremely limited operating history on which
to base an evaluation of our company. Thus, period-to-period
comparisons of our operating results are not particularly meaningful,
and you should not rely on the results for any period as an indication
of our future performance. We have experienced, and expect to continue
to experience, seasonality in our user traffic, with lower traffic
during the summer vacation and year-end holiday periods. Because our
business model is new, we do not know if our results of operations are
subject to seasonal fluctuations. We believe that revenue from
classified advertising and other traditional recruiting services is
generally lower in the months of July, November and December because
of vacation periods and holiday seasons. As the online recruiting
market develops, we believe that we may experience similar seasonal
patterns or discover other seasonal patterns.
We have a history of losses and at September 30, 1999, we had an
accumulated deficit of approximately $34.5 million, which includes a
one-time non-cash charge of approximately $21.7 million for the
difference between the fair value and the conversion price of the loan
and security agreement related to conversion of this instrument from
debt to equity in January 1999. This was accounted for as a
distribution to the Class A preferred shareholders and, therefore, an
increase in net loss attributable to common shareholders. We expect to
continue to incur losses and negative cash flow for the foreseeable
future. In addition, to foster our planned growth, we expect to
continue to significantly increase our operating expenses in the areas
of marketing, sales and technology.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain line items in the Company's consolidated statements of operations for
the periods indicated
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
REVENUES:
Service Revenue 88% 23% 86% 25%
Advertising Revenue 12 77 14 75
------ ------ ------ ------
Total Revenues 100 100 100 100
------ ------ ------ ------
COST OF REVENUES 1 7 2 10
------ ------ ------ ------
Gross profit 99 93 98 90
OPERATING EXPENSES
Marketing and Selling Expenses 102 311 112 258
General and Administrative Expenses 40 175 45 202
Stock Compensation Expense 17 24 95 19
Depreciation and Amortization 5 19 6 29
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Operating loss (64) (435) (157) (417)
OTHER INCOME (EXPENSE): 4 (42) 1 (24)
------ ------ ------ ------
NET LOSS (60)% (477)% (156)% (441)%
====== ====== ====== ======
Three Months Ended September 30, 1999, As Compared to the Three Months Ended
September 30, 1998
Revenues. Our revenues increased $2.5 million, or 636%, from $393,000
for the three months ended September 30, 1998 to $2.9 million for the
three months ended September 30, 1999. Service revenues grew from
$91,000 to approximately $2.6 million. This increase primarily
resulted from the pricing change that was implemented on June 1, 1999
and the growth of our direct sales force from 6 sales people as of
September 30, 1998 to 48 sales people as of September 30, 1999. As a
result of this expansion, we grew our customer base to over 5,800
customers at September 30, 1999 and added four new sales offices
located in Chicago, Dallas, San Francisco and New York. During the
same time frame, our advertising revenue grew from $302,000 to
$339,000. This growth resulted from an increase in traffic to our web
site over the same quarter last year, which enabled us to sell more
advertising impressions.
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Costs of revenues. Our costs of revenues increased $7,000, or 27%,
from $26,000 for the three months ended September 30, 1998 to $33,000
for the three months ended September 30, 1999. Cost of revenues
increased primarily due to increased bandwidth access fees,
co-location costs and Internet connection charges to accommodate the
growth in user traffic and content on our web site. However, as a
percentage of our revenue, our costs of revenues decreased from 7% for
the three months ended September 30, 1998 to 1.1% for the comparable
period in 1999. The decrease in costs as a percentage of revenues was
primarily due to economies of scale.
Marketing and selling expenses. Marketing and selling expenses
increased $1.7 million, or 141%, from $1.2 million for the three
months ended September 30, 1998 to $2.9 million for the three months
ended September 30, 1999. Marketing expenses increased $700,000, or
70%, from $1 million for the three months ended September 30, 1998 to
$1.7 million for the three months ended September 30, 1999. This
increase is primarily the result of aggressive advertising and
marketing campaigns designed to attract more employers, recruiters and
job seekers to our web site. Selling expenses increased $1 million, or
500%, from $200,000 for the three months ended September 30, 1998 to
$1.2 million for the three months ended September 30, 1999. This
increase is primarily due to the addition of 42 direct sales personnel
to our sales force from September 30, 1998 through September 30, 1999,
sales management and administrative personnel hired to support our
sales effort, and the addition of four new sales offices located in
Dallas, Chicago, San Francisco and New York.
General and administrative expenses. General and administrative
expenses increased $468,000, or 68%, from $688,000 for the three
months ended September 30, 1998 to $1.2 million for the three months
ended September 30, 1999. The increase in these expenses was primarily
due to the hiring of additional personnel, product development, and
other infrastructure costs. We expect general and administrative
expenses to continue to grow as we hire additional personnel and incur
additional expenses to support the growth of our operations.
Stock Compensation Expense. Stock compensation expense was $489,000 for
the three months ended September 30, 1999. In accordance with
Accounting Principles Board Opinion No. 25, we recognize stock
compensation expense related to the difference between the option grant
price and the estimated fair value of the shares of common stock. The
compensation expense results from options granted beginning in January
of 1998 through May 1999. The total difference between the grant price
and the fair market value for the options will be amortized ratably
over the five year vesting period of the options.
Depreciation and amortization. Depreciation and amortization increased
$60,000, or 81%, from $74,000 for the three months ended September 30,
1998 to $134,000 for the three months ended September 30, 1999. The
increase in depreciation was primarily the result of the purchase of
additional capital equipment. The amortization expense remained
relatively level and relates to the acquisition of software rights of
approximately $1.0 million from a predecessor company.
Nine Months Ended September 30, 1999, As Compared to the Nine Months Ended
September 30, 1998
Revenues. Our revenues increased $4.6 million, or 690%, from $671,000
for the nine months ended September 30, 1998 to $5.3 million for the
nine months ended September 30, 1999. Service revenues grew from
$167,000 to approximately $4.6 million. This increase primarily
resulted from the growth of our direct sales force from 6 sales people
as of September 30, 1998 to 48 sales people as of September 30, 1999.
As a result of this expansion, we grew our customer base to over 5,800
customers at September 30, 1999 and added four new sales offices
located in Chicago, Dallas, San Francisco and New York. During the
same time frame, our advertising revenue grew from $504,000 to
$728,000. This growth resulted from an increase in traffic to our web
site over the same period last year, which enabled us to sell more
advertising impressions.
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Costs of revenues. Our costs of revenues increased $30,000, or 47%,
from $64,000 for the nine months ended September 30, 1998 to $94,000
for the nine months ended September 30, 1999. Cost of revenues
increased primarily due to increased bandwidth access fees,
co-location costs and Internet connection charges to accommodate the
growth in user traffic and content on our web site. However, as a
percentage of our revenue, our costs of revenues decreased from 10%
for the nine months ended September 30, 1998 to 1.8% for the
comparable period in 1999. The decrease in costs as a percentage of
revenues was primarily due to economies of scale.
Marketing and selling expenses. Marketing and selling expenses
increased $4.1 million, or 237%, from $1.7 million for the nine months
ended September 30, 1998 to $5.8 million for the nine months ended
September 30, 1999. Marketing expenses increased $2.0 million, or 143%,
from $1.4 million for the nine months ended September 30, 1998 to $3.4
million for the nine months ended September 30, 1999. This increase is
primarily the result of aggressive advertising and marketing campaigns
designed to attract more employers, recruiters and job seekers to our
web site. Selling expenses increased $2.1 million, or 700%, from
$300,000 for the nine months ended September 30, 1998 to $2.4 million
for the nine months ended September 30, 1999. This increase is
primarily due to the addition of 36 direct sales personnel to our sales
force from September 30, 1998 through September 30, 1999, sales
management and administrative personnel hired to support our sales
effort, and the addition of four new sales offices located in Dallas,
Chicago, San Francisco and New York.
General and administrative expenses. General and administrative
expenses increased $1.0 million, or 74%, from $1.4 million for the
nine months ended September 30, 1998 to $2.4 million for the nine
months ended September 30, 1999. The increase in these expenses was
primarily due to the hiring of additional personnel, product
development, and other infrastructure costs. We expect general and
administrative expenses to continue to grow as we hire additional
personnel and incur additional expenses to support the growth of our
operations.
Stock Compensation Expense. Stock compensation expense was $5 million
for the nine months ended September 30, 1999. During the first nine
months of 1999, we sold 271,167 shares of Class A preferred stock and
140,000 shares of common stock to a group of ten executive officers,
key employees and directors at $1.50 per share and $2.00 per share,
respectively. In accordance with Accounting Principles Board Opinion
No. 25, we recognized $5.0 million of stock compensation expense
related to the difference between the purchase price and the estimated
fair value of the shares of Class A Preferred stock and common stock.
Further, we recognized $1.2 million of compensation expense in the
nine months ended September 30, 1999 related to option grants.
Depreciation and amortization. Depreciation and amortization increased
$141,000, or 73%, from $192,000 for the nine months ended September
30, 1998 to $333,000 for the nine months ended September 30, 1999. The
increase in depreciation was primarily the result of the purchase of
additional capital equipment. The amortization expense remained
relatively level and relates to the acquisition of software rights of
approximately $1.0 million from a predecessor company.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had approximately $24.6 million in cash
and cash equivalents. Net cash used in operating activities was $2.1
million and $2.4 million for the nine months ended September 30, 1999
and 1998, respectively. Net cash used in operating activities primarily
consisted of the net loss for the periods and increases in accounts
receivable.
Net cash used in investing activities were for capital expenditures and
totaled approximately $1 million and $307,000 for the nine months ended
September 30, 1999 and 1998, respectively. The majority of the capital
purchases relate to telecommunications and computer equipment to build
our network infrastructure and office furniture to accommodate our
increased personnel. We currently have no material commitments for
capital expenditures other than in the ordinary course of business.
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Net cash provided by financing activities was $27.5 million and $2.1
million for the nine months ended September 30, 1999 and 1998,
respectively. The increase relates to net proceeds received from the
completion of the Company's initial public offering in August 1999.
We have incurred losses and negative cash flows from operations since
inception as a result of efforts to build out our network
infrastructure, increase staffing, and develop our systems. We
currently estimate that our working capital generated from operations
and the net proceeds of the offering will be sufficient to meet our
anticipated operating and capital expenditure needs for at least the
next 12 months. After this period of time, we may need to seek to
raise additional funds through borrowings or the issuance of equity or
debt securities.
Our ability to grow will depend in part on our ability to expand and
improve our Internet operations, the effectiveness of our sales and
marketing efforts, and our customer support capabilities. We may need
to raise additional funds in order to take advantage of new
opportunities, to react to unforeseen difficulties or to otherwise
respond to competitive pressures. If we raise additional funds by
issuing equity or convertible debt securities, the percentage
ownership of our existing shareholders will be reduced, shareholders
may experience additional dilution, and such securities may have
rights, preferences or privileges senior to those of our common stock.
YEAR 2000 READINESS DISCLOSURE
The year 2000 issue refers to the potential failures that computer
systems may incur as a result of the date change from 1999 to 2000,
such as the inability of such computer systems to properly recognize
date-sensitive data, resulting in the creation of erroneous information
or system failure. These problems generally arise from the fact that
most computer hardware and software has historically used only two
digits to identify the year in a date, often meaning that the computer
will recognize a code of "00" as the year 1900 rather than the year
2000.
Our business could suffer if the systems on which we depend to conduct
our operations are not year 2000 ready. Our potential areas of
exposure include:
- information technology, including computers, software and
systems that we have developed internally or purchased or
licensed from third parties, such as our billing system and
accounts receivable system, and software that manages our web
site content and usage;
- non-information technology, including telephone systems and
other equipment that we use internally; and
- external, third party systems, particularly the systems that
comprise the Internet and those products and services that
allow our users to access the Internet.
If our production and operational systems that support our web site are
not year 2000 ready by December 31, 1999, our services may become
unavailable to visitors to our web site. Although we have not
identified any business activity that we believe will suffer a material
disruption as a result of a year 2000 related event, we face risks
related to year 2000 failures, which could increase our liabilities or
expenses.
To address our year 2000 issues we have formed a Program Office
consisting of three members, which has overall responsibility and
authority for our year 2000 plan and which reports periodically to our
board of directors about our progress towards achieving year 2000
readiness.
Our overall plan to achieve year 2000 readiness includes the following
phases with respect to our information technology and non-information
technology systems:
- assessment of repair requirements, which includes creating
awareness of the issue throughout our company and assessment
of all systems, significant business processes and external
interfaces and dependencies;
- remediation, which includes updating or modifying systems
which are identified as critical to our efforts to become
year 2000 ready;
- testing of systems which have been altered or replaced as
part of our efforts to become year 2000 ready; and
- contingency planning.
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We have substantially completed our assessment phase, including the
determination of whether the systems we were reviewing were:
- internally developed;
- a third party system critical to our operations; or
- a non-critical system or piece of software or hardware.
We believe that we are approximately 85% complete with the remediation
phase of our plan with respect to our critical internal information
technology systems, and 70% complete with respect to our non-critical
information technology systems and non-information technology systems.
We consider any information technology systems to be "critical" if the
failure of such system would result in a significant portion of our
users being unable to access our web site, or prevent us from billing
customers.
We have made a substantial start with the testing phase of our year
2000 plan, but estimate that we are less than 60% complete with all
testing that we intend to conduct with respect to all of our critical
information technology and non-information technology systems. We
currently anticipate that we will complete our testing phase with
respect to all of our critical information technology and
non-information technology systems prior to December 15, 1999.
In addition to our own internal equipment and systems, we are dependent
upon Internet service providers, providers of telecommunication and
data services, government agencies, utility companies, and other third
party service providers over which we can assert little control. If any
of these entities fail to correct their year 2000 issues, our users may
be unable to access our web site, and our operations would suffer.
During the course of our year 2000 plan, we reviewed publicly available
disclosures and in some cases have requested written certification from
the third parties who provide hardware and software that comprise our
critical information technology systems or who operate third party
systems on which we rely. We are currently evaluating the publicly
available information and the responses we have received so far and,
where appropriate, requesting additional information. Approximately 50%
of all of our third party vendors and providers have indicated that
their hardware, software or systems are, or will be, year 2000 ready.
We are currently working with some vendors and providers to further
evaluate possible year 2000 readiness issues and to determine the
expected completion dates of their year 2000 readiness plans. If any of
these critical third party vendors or providers fail to address timely
any year 2000 issue, we could lose our connection to the Internet, or
our users could have reduced access to our web site. We cannot assure
you that the components of our information technology systems provided
by third parties, or the external third party systems on which we rely,
will be year 2000 ready in a timely manner.
We are currently developing and reviewing our contingency plans with
respect to our critical information technology and non-information
technology systems. As part of our contingency plans we expect to
implement redundant systems for our critical information technology
systems. We do not currently have a contingency plan to deal with what
we reasonably believe will be our most likely worst case scenario. We
intend to complete development of our contingency plan by the end of
November. As noted above, we have not identified any specific business
activity that we believe will be materially at risk of significant
year 2000 related disruptions. As we identify specific risks to our
operations, we plan to develop contingency plans to address such
risks.
At September 30, 1999, we had incurred approximately $155,000 in costs
associated with the year 2000 issue and the implementation of our year
2000 plan. We expect that we will incur at least $145,000 in
additional year 2000 expenses. We expense as incurred all costs
associated with our year 2000 compliance program.
Our failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, normal business activities or
operations. Presently, however, we perceive that our most reasonably
likely worst case scenario related to the year 2000 is associated with
potential concerns with third party services or products.
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The estimates and conclusions included in this discussion contain
forward-looking statements and are based on our management's best
estimates of future events. Our expectations about risks, future costs
and the timely completion of our required year 2000 modifications may
turn out to be incorrect and any variance from these expectations
could cause actual results to differ materially from our above
discussion. Factors that could influence risks, amount of future costs
and the effective timing of remediation efforts include our success in
identifying and correcting potential year 2000 issues and the ability
of third parties to address their year 2000 issues. The discussion
above is a "Year 2000 Readiness Disclosure" as defined in the Year
2000 Information and Readiness Disclosure Act of 1998, however,
compliance with this act does not preclude any claims against us that
arise under the federal securities laws.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We believe our exposure to market rate fluctuations on our investments
is nominal due to the short-term nature of those investments. At
present, we do not employ any derivative financial instruments, other
financial instruments or derivative commodity instruments to hedge any
market risks and we do not currently plan to employ them in the
future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property subject to,
any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a) Not Applicable
b) Not Applicable
c) Not Applicable
d) Our registration statement on Form S-1 (File No. 333-80915)
was declared effective on August 19, 1999. We sold 3,000,000
shares of our common stock at an initial price of $10.00 per
share. The offering was a firm commitment underwriting which
was managed by First Union Capital Markets Corp., J.C.
Bradford & Co., Wachovia Securities, Inc. and DLJDirect Inc.
We received net proceeds of approximately $27.0 million after
deducting underwriting discounts, commissions and offering
expenses. On September 7, 1999, the underwriters exercised
their over-allotment option to purchase an additional 450,000
shares of common stock at $10.00 per share. All of these
shares were sold by two selling shareholders and the Company
did not receive any proceeds as a result of the sale.
We used $1.8 million of the net proceeds of the offering to
pay all outstanding indebtedness under our credit facility
with ITC Service Company, a wholly owned
14
subsidiary of ITC Holding Company, Inc., which owned
approximately 49.3% of our outstanding common stock
immediately after the offering. We are currently assessing
the specific uses and allocations for these remaining funds.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote by our security holders during the
third quarter ended September 30, 1999.
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
27.1 Financial Data Schedule (for SEC use only)
27.2 Financial Data Schedule for period ended 12/31/98
(incorporated by reference from Exhibit 27.1 to our
registration statement on Form S-1 (File No.
333-80915)).
b). Reports on Form 8-K
No reports on Form 8-K were filed during the third
quarter ended September 30, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEADHUNTER.NET, INC.
Date: November 12, 1999 By: /s/ Robert M. Montgomery
--------------- -------------------------------------
Robert M. Montgomery
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1999 By: /s/ Mark W. Partin
--------------- -------------------------------------
Mark W. Partin
Chief Financial Officer
(Principal Financial Officer)