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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1998
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: 0-20735
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RESTRAC, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2935271
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
91 HARTWELL AVENUE 02421
LEXINGTON, MA (zip code)
(Address of principal executive offices)
(781) 869-5000
(Registrant's telephone number)
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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 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of the Common Stock on November 19,
1998, as reported on NASDAQ National Market System was approximately
$31,900,000. Shares of Common Stock held by each executive officer and director
and by each person who owned 5% or more of the outstanding Common Stock as of
such date have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares of the registrant's $0.01 par value Common Stock
outstanding on December 22, 1998, was 10,027,919.
Part III incorporates by reference from the definitive proxy statement for
the registrant's fiscal 1998 annual meeting of stockholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.
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RESTRAC, INC.
FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
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PART I
1. Business............................................................................................ 2
2. Properties.......................................................................................... 12
3. Legal Proceedings................................................................................... 12
4. Submission of Matters to a Vote of Securities Holders............................................... 12
PART II
5. Market for Registrant's Common Stock and Related Stockholder Matters................................ 13
6. Selected Consolidated Financial Data................................................................ 13
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 14
8. Financial Statements and Supplementary Data......................................................... 24
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 24
PART III
10. Directors and Executive Officers of the Registrant.................................................. 24
11. Executive Compensation.............................................................................. 24
12. Security Ownership of Certain Beneficial Owners and Management...................................... 24
13. Certain Relationships and Related Transactions...................................................... 25
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................... 25
1
PART I
STATEMENTS MADE OR INCORPORATED IN THIS FORM 10-K INCLUDE A NUMBER OF
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. FORWARD
LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
"ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FUTURE", AND WORDS OF SIMILAR
IMPORT WHICH EXPRESS MANAGEMENT'S BELIEFS, EXPECTATIONS OR INTENTIONS REGARDING
THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. CERTAIN
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE ARE DISCUSSED IN THE SECTION ENTITLED
"FACTORS AFFECTING FUTURE OPERATING RESULTS" WHICH BEGINS ON PAGE 20 OF THIS
FORM 10-K.
ITEM 1. BUSINESS
OVERVIEW
Restrac, Inc. ("the Company"), designs, develops, markets, implements and
supports HR staffing software and services to automate the recruitment,
selection and placement of an organization's workforce. The Company's staffing
solutions enable organizations to strategically manage their human capital by
reducing hiring and placement costs, decreasing time to fill positions and
providing more effective skills management and worker deployment. The Company's
products--RESTRAC HIRE and RESTRAC WEBHIRE-- provide HR departments with
solutions to propagate information about their job openings, and quickly and
efficiently build and search comprehensive "pools" of resumes to find the
workers they need, while also managing the workflow of the staffing process.
These products are primarily licensed by corporate employers experiencing
accelerated growth, a scarcity of skilled labor, significant reorganization or
downsizing, or by companies reengineering their HR function to reduce costs.
The Company's RESTRAC HIRE product is a client/server application that is
sold on a license fee basis. RESTRAC WEBHIRE is an Internet-based service which
is sold on a subscription basis and which is accessed by customers via the
Internet, using a world wide web browser. Both products support Microsoft
Windows and standard industry communications protocols, such as TCP/IP, allowing
for high performance, scaleable implementations.
The Company was incorporated in 1982 as a Massachusetts corporation and was
reincorporated as a Delaware corporation in 1994. Restrac Securities
Corporation, a wholly-owned subsidiary of Restrac, Inc., was incorporated in
September, 1996 as a Massachusetts securities corporation for the purpose of
holding and managing certain of the Company's cash and investments.
INDUSTRY BACKGROUND
The strategic management of workforce skills, or "human capital", is
increasingly viewed as a business imperative and has emerged in recent years as
a key element of corporate strategy. Recruiting and deploying the most qualified
employees is now being recognized as critical to an organization's long-term
success. In addition, intensifying global competition, shortened product
lifecycles and the need to improve operating efficiencies have caused
organizations to search for more efficient ways to employ and deploy a more
dynamic and skilled workforce. As a result, HR departments have come under
increasing pressure to improve the quality of the candidates they hire, to
shorten the time to fill open positions and to reduce the costs associated with
staffing.
Historically, the recruitment, hiring and deployment of an organization's
workforce has been an inefficient, expensive and time-consuming process. These
costs and inefficiencies are due in large part to the difficulty that
organizations have in managing data on workers' skills and to a complex staffing
process
2
which typically involves significant data collection, numerous manual functions
and the coordination of activities among many participants both within and
outside the organization. Organizations need to collect and manage extensive
skills data on their own employees and on a large applicant pool in order to
manage hiring, redeployment, attrition, turnover and growth. Historically,
organizations seeking to fill a position would receive numerous applications and
resumes that were, once the position had been filled, either discarded or stored
in a manner that did not allow the organization to effectively access and search
this data when it sought to fill additional positions in the future.
In order to address the challenges of hiring and deploying workers, HR
departments have begun to automate the staffing process. Until recently, the
only staffing software applications available were applicant tracking systems,
which automated record-keeping functions and did not offer workflow or resume
searching capabilities.
The development of distributed client/server computing and enabling
technologies such as document scanning, optical character recognition (OCR) and
concept-based text searching created a technological framework for the efficient
collection of staffing information and its dissemination among recruiters,
managers and, with the emergence of the Internet and corporate intranets, other
members of the extended enterprise. Client/server technology not only permits
any member of the organization to effectively collect information relating to a
particular job, applicant or employee, but also gives other members of the
organization in geographically dispersed locations rapid access to that
information and enables them to participate in the hiring process.
The emergence of Internet career sites is another dramatic recent
development which creates a significant new forum for sourcing candidates.
Organizations are increasingly turning to advertising on the Internet as an
alternative to traditional print advertising. This has resulted in an increase
in the number of resumes that are received electronically, and driven the need
for tools to manage these responses. As more and more Internet job advertising
sites are created, the administrative challenge of managing the posting of a
company's positions to these sites also becomes more acute.
The emergence of these new technologies, together with the increased
emphasis on the strategic management of human capital, and a tightening labor
market, have created a demand for a new generation of human resource staffing
systems.
THE RESTRAC SOLUTION
The Company's staffing solutions enable organizations to strategically
manage their human capital by reducing hiring and placement costs, decreasing
the time it takes to fill positions and providing more effective skills
management and worker deployment. The Company provides HR departments with
solutions that quickly and efficiently allow position information to be posted
to multiple Internet sites, manage the responses that these postings and print
advertising generate, build and search comprehensive electronic pools of resumes
to find the workers they need, and manage the workflow of the staffing process.
Key attributes of the Restrac solutions are as follows:
COMPREHENSIVE, REUSABLE CANDIDATE POOLS. The Company's software uses resume
scanning and integrated e-mail input from intranets or the Internet to create
consolidated, reusable candidate pools that can be shared throughout the
organization. Manual input is virtually eliminated, allowing organizations to
collect and store skills and experience data on hundreds of thousands of
candidates. The Company's software is designed to provide a shared, re-useable
pool of candidates, reducing the need for organizations to use employment
agencies and advertising to source candidates.
SOPHISTICATED SKILLS MANAGEMENT AND SELECTION. The Company's software uses
a sophisticated search process to rapidly identify and rank qualified candidates
based on skills criteria determined by the user. User searches are enhanced by
the Company's integrated skills library, which translates high-level job
requirements into the words and synonyms commonly used by candidates on resumes.
These same
3
capabilities facilitate the quick and efficient management and redeployment of
an organization's existing workforce in response to job openings, downsizings
and restructurings.
OPEN, RAPIDLY DEPLOYABLE AND SCALEABLE TECHNOLOGY. The Company's software
is based on open, client/server and Internet architectures that support industry
standards, such as Microsoft Windows and most leading relational databases,
server platforms, e-mail systems and desktop productivity tools. The Company's
software is scaleable from the departmental level to multi-site, enterprise-wide
implementations and is designed to easily incorporate new technologies as they
become available.
REDUCED COSTS. By providing an easily-accessible, shared, re-useable pool
of candidates, the Company's software allows organizations to significantly
reduce recruitment advertising costs and employment agency fees. In addition,
the Company's software is designed to reduce HR headcount and increase recruiter
productivity through the elimination of manual entry of resume information and
by increasing the efficiency of the hiring process.
MORE EFFICIENT STAFFING PROCESS. The Company's client/server software
incorporates a user-friendly, process-oriented GUI and is designed to reduce the
time required to fill positions by prompting users to advance candidates through
the staffing process. Such automatic workflow notifications reduce delays
typical to the staffing process and eliminate redundancies. The Company's
software also integrates with e-mail to facilitate access to and participation
in the staffing process. The Company's client/server software can be easily
adapted by the customer to its own staffing requirements without extensive
customization.
STRATEGY
The Company's objective is to maintain its leadership position as a provider
of automated human resource staffing solutions. The Company's RESTRAC HIRE
product has achieved a leading market position among large organizations (2,500+
employees), which are estimated to represent over 15,000 companies in the United
States alone. The introduction of RESTRAC WEBHIRE is intended to make the
Company's solutions available to smaller organizations with 100 to 2,500
employees (of which there are estimated to be over 100,000 in the United
States). Further, the Company believes that the growing globalization of the
workforce combined with the increasing standardization of regulations across the
European Community will provide it with significant opportunities to continue
its international expansion. The Company currently markets its software in
Canada and the United Kingdom.
The Company has established a number of relationships both to leverage
marketing channels and complementary technologies and to meet customer demands
for open, integrated, multi-vendor solutions. The Company's partners include
leading technology vendors such as Verity, Inc. which, as part of an OEM
relationship, provides its text search software for integration with the
Company's internally-developed skills library. The Company also has a
relationship with PeopleSoft, a leading HR management system vendor. The Company
believes that its strategic relationships allow it to bring products to market
more quickly and enhance its image as a provider of industry standard automated
staffing products. The Company intends to continue to pursue the establishment
of such relationships to take advantage of emerging technologies and marketing
opportunities.
PRODUCTS
The Company's principal products have been RESTRAC HIRE and RESTRAC RESUME
READER FOR PEOPLESOFT, which is sold for use in conjunction with the PeopleSoft
HR product. The Company released RESTRAC WORKBENCH FOR MANAGERS and RESTRAC HIRE
LINK FOR PEOPLESOFT during fiscal 1997, and invested a significant portion of
its research and development efforts during fiscal 1997 and 1998 on the November
1997 release of RESTRAC WEBHIRE and the June 1998 release of RESTRAC HIRE FOR
INTRANET.
4
RESTRAC HIRE
The Company's RESTRAC HIRE product automates the applicant sourcing and
selection functions in the staffing process and supports industry standards such
as Microsoft Windows and most leading relational databases (including Oracle,
Microsoft SQLServer and Sybase), server platforms (including Windows NT and many
UNIX variants), e-mail systems (including Microsoft's Mail and Lotus cc:Mail)
and desktop productivity tools (including Microsoft Excel and Microsoft Word).
System prices vary based on a customer's configuration. Maintenance for the
first year is included in the license fee and is renewable on an annual basis
thereafter, at approximately 15% of the license fee. The latest version of
RESTRAC HIRE, RESTRAC HIRE FOR INTRANET, introduced during Fiscal 1998, is based
on three-tier client/server architecture which will enable deployment over
corporate intranets. This product builds on the functionality of RESTRAC HIRE.
The new three-tier technical architecture is designed for easier access, easier
extension, open connectivity, and convenient Internet integration. RESTRAC HIRE
FOR INTRANET is also explicitly designed for internationalization.
RESTRAC WEBHIRE
RESTRAC WEBHIRE is an Internet-based candidate sourcing and management
service introduced by the Company in November 1997. Customers enter their job
openings into WebHire, and choose where they would like to post their jobs by
selecting from a menu of available Internet job posting destinations. Resumes
from interested candidates are received electronically, or on paper. The Company
performs all resume processing and scanning, hosting and administration, and
system maintenance at its RESTRAC WEBHIRE data centers. The Company maintains a
private applicant database with resumes it receives from the customer or
directly from applicants on the customer's behalf. Using passwords, recruiters
will access their private, continuously updated applicant pool via the Internet
from a world-wide web browser to perform candidate searches. RESTRAC WEBHIRE
employs the same powerful concept-based searching as RESTRAC HIRE. After
selecting a short list of candidates, recruiters manage the progress of
applicants through the recruiting process, and can prepare status reports, or
annotate individual resumes and forward them to colleagues via electronic mail.
RESTRAC WEBHIRE is intended to allow smaller, rapidly-growing organizations
to take advantage of the Company's technologies without the associated
infrastructure investment necessary to support a client/ server application.
RESTRAC RESUME READER FOR PEOPLESOFT
The Company's open architecture, which accommodates integration with other
HR software solutions, has allowed the Company to create a plug-in product that
offers high volume resume-scanning, skills management and search capabilities to
users of PeopleSoft's HRMS product. RESTRAC RESUME READER FOR PEOPLESOFT
incorporates the Skill Server and Candidate Finder modules of RESTRAC HIRE.
RESTRAC HIRE LINK FOR PEOPLESOFT
RESTRAC HIRE LINK FOR PEOPLESOFT is an add-on module that integrates the
full functionality of RESTRAC HIRE with the PeopleSoft HRMS application suite.
RESTRAC HIRE LINK FOR PEOPLESOFT eliminates the need to re-key data when a
candidate is hired from within the Restrac system or if an existing employee is
proposed for an internal position. The data is shared seamlessly between the two
systems. The link also synchronizes the common tables individually maintained
within each system to ensure data integrity and significantly reduce the
administrative burden of maintaining two systems.
RESTRAC WORKBENCH FOR MANAGERS
This product was developed in response to the increasing dispersion of the
staffing process outside of HR departments. With RESTRAC WORKBENCH FOR MANAGERS,
hiring managers in companies using RESTRAC HIRE
5
can use Lotus Notes or a web browser to participate directly in certain
functions of the staffing process, including opening a requisition, reviewing
resumes online, managing team interviews and initiating a job offer. Such
self-service solutions should significantly expand the Company's potential
user-base while further reducing the administrative demand on HR departments.
CUSTOMER SERVICES
The Company believes that superior customer service and support are critical
to customer satisfaction. As of September 30, 1998, the Company's customer
service organization included 63 employees, providing Professional Services,
Technical Support and Outsourced Services.
PROFESSIONAL SERVICES. The Professional Services Group manages system
implementation, provides additional services such as process design and system
tailoring and provides basic and advanced training both on-site during system
implementation and at the Company's Corporate Training Centers throughout the
year.
TECHNICAL SUPPORT. The Technical Support Group provides daily assistance to
customers with maintenance agreements through the Company's support help line.
More than 95% of customers who have purchased the Company's client/server,
Windows-based products since their introduction are currently under maintenance
agreements. The Company provides support Monday through Friday from 8:30
a.m.-8:00 p.m. Eastern Time as well as 8:30 a.m.-5:00 p.m. Greenwich Time to
support the Company's European customers.
OUTSOURCED SERVICES. Outsourced Services were introduced by the Company in
July 1996 and, to date, consist primarily of scanning services provided
principally through third-party arrangements. The Company has extended these
services to include correspondence generation.
TECHNOLOGY
In 1993, the Company introduced RESTRAC HIRE, the industry's first
Windows-based client/server staffing system. The Company's RESTRAC HIRE software
is based on the Company's unique client/server development platform, which can
accommodate changing customer needs and technical infrastructure, simplify the
deployment of the Company's client/server software, and enable the rapid
integration of leading edge technologies and other innovations. Key aspects of
the RESTRAC HIRE platform are as follows:
DATA MODEL. The Company's software includes an open, flexible and
extensible model for enterprise staffing that can operate in multiple standard
SQL databases. The model incorporates the Company's expertise in staffing
process modeling and allows for effective workflow and third-party integration.
CENTRALIZED ADMINISTRATION AND SECURITY. The Company's development platform
includes functionality for application deployment and version control, reducing
costs through centralized management by allowing the application to be
configured and updated automatically from a central location. The Company's
products also include security features to control user access. Access to
information and functionality is configured based on the user's login, allowing
users to access their recruiting desktop from anywhere in the system and further
securing against unauthorized access.
SUPPORT FOR HETEROGENEOUS COMPUTING ENVIRONMENTS. The Company's development
platform is designed to enable applications developed on the platform to operate
in diverse computing environments. The platform supports Microsoft Windows on
the client as well as leading relational databases (Oracle, Microsoft SQLServer
and Sybase) and server platforms (including Windows NT and many UNIX variants).
The Company's products use the industry-standard TCP/IP protocol, which allows
the Company to develop applications which operate over local area networks, wide
area networks, intranets and the Internet.
6
ADVANCED TECHNOLOGY INTEGRATION. The Company has designed its development
platform to facilitate the integration of advanced technologies while insulating
the user from the complexities associated with multiple interfaces,
import/export utilities and switching between different applications.
RESTRAC WEBHIRE
RESTRAC WEBHIRE, the Company's Internet-based service offering, is based on
open, extensible Internet development tools. It makes wide use of standard
Microsoft technologies, including Microsoft foundation classes, ActiveX,
distributed common object model (DCOM), Microsoft Internet Information Server,
Microsoft SQL Server and Microsoft Windows NT Server. This adherence to standard
Microsoft technologies ensures that RESTRAC WEBHIRE can be scaled as demand for
the service increases. Client access to the WebHire system is provided through
either Microsoft or Netscape world-wide web browsers.
RESTRAC HIRE FOR INTRANET
RESTRAC HIRE FOR INTRANET, which was released in June of 1998, is a
Microsoft Windows-based application which operates over a standard TCP/IP
intranet connection. The application server component of the product utilizes
Microsoft Windows NT Server and Microsoft Internet Information Server. Client
access is provided via both a Windows application and a browser interface which
is compatible with Microsoft Windows 95 or Microsoft Windows NT. The Company
believes that this innovative architecture combines the functionality of a
traditional client/server application with the easy deployability of an intranet
application.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend upon its ability to
enhance its existing software and develop and introduce new products and
functions which keep pace with rapid changes in the marketplace. The Company has
made increasing investments in its engineering and quality groups to broaden its
product and service offerings, enhance product functionality, improve
performance and expand the ability of its software to interoperate with
third-party software. Research and development expenses totaled (in thousands)
$5,588, $5,446 and $2,341 for fiscal years 1998, 1997, and 1996, respectively.
While the Company expects that certain of its new products and functions will be
developed internally, the Company may, based on timing and cost considerations,
expand its product offerings through acquisitions or strategic relationships.
Software products as complex as those currently under development by the Company
are subject to frequent delays and there can be no assurance that the Company
will not encounter difficulties that could delay or prevent the successful and
timely development, introduction and marketing of these potential new products.
SALES AND MARKETING
The Company markets its enterprise products and services through a direct
sales force in North America and the United Kingdom. The Company supports its
sales force through comprehensive marketing programs which include public
relations, direct mail, advertising, seminars, trade shows, ongoing customer
communication programs and strategic relationships. While the sales cycle varies
from customer to customer, it typically spans four to nine months from
generation of a lead from one of these sources to execution of a license
agreement. The Company's direct sales force is structured regionally and is
managed through sales and service offices in Lexington, Massachusetts, Foster
City, California, Chicago, Illinois and Reading, U.K. and through sales
personnel located in Dallas, New Jersey, Maryland, Raleigh, Seattle, and
Toronto.
During Fiscal 1998 the Company marketed RESTRAC WEBHIRE through telesales
representatives. In Fiscal 1999 the Company will enhance the marketing of
RESTRAC WEBHIRE through the addition of a direct
7
sales force. The average sales cycle for this service is substantially shorter
than that experienced for the Company's enterprise products.
CUSTOMERS
Since the introduction of RESTRAC HIRE in 1993, the Company has licensed its
client/server, Windows-based staffing software to over 375 customers. The
following is a partial listing of the Company's customers as of September 30,
1998:
FINANCIAL SERVICES
AIM Management Group
American Express
Bank of America
BankBoston
Federal Home Loan Mortgage Corporation
First Union
Merrill Lynch
M&T Bank
Nationsbank
Putnam Investments
Union Bank
Visa USA
The World Bank
PUBLISHING/ENTERTAINMENT
Blockbuster Entertainment
Gannett
The New York Times
Paramount Pictures
ENGINEERING/CONSULTING
CH2M Hill
Kelly Services
Logica
Mason & Hanger
BIOTECHNOLOGY/HEALTHCARE/ PHARMACEUTICALS
Abbott Laboratories
Amgen
Bausch & Lomb
Baxter International
Bristol Myers Squibb
Genentech
Genzyme
Johnson & Johnson
The Mayo Clinic
Memorial Sloan Kettering
Millennium Pharmaceuticals
PacifiCare
Pfizer
SmithKline Beecham
INSURANCE
Aetna Life and Casualty
Blue Cross/Blue Shield
Cigna
John Hancock
Occidental Insurance
Phoenix Home Life
Prudential
The Travelers
TECHNOLOGY/COMMUNICATIONS
Ascend Communications, Inc.
AT&T
Amdahl
The Boeing Company
Boston Scientific Corporation
British Telecom
Compaq
Digital Equipment
EMC
Ingram Micro, Inc.
Lockheed
Lucent Technologies
Microsoft
Rockwell International
Sequent Computers
CONSUMER
Anheuser-Busch
British Airways
Canadian Airlines
Canadian Tire
Cargill
Delco
Levi Strauss
Mattel Toys
Nabisco
Overnite Transportation
Random House
Reebok
Staples
Starbucks
The good guys!
Toys R' Us
Williams Sonoma
STRATEGIC RELATIONSHIPS
The Company has established a number of relationships both to leverage
marketing channels and complementary technologies and to meet customer demands
for open, integrated, multi-vendor solutions. Strategic partners are categorized
into four groups: Technology Partners, who provide the Company with innovative
technologies that are integrated into the Company's products; Applications
Partners, who provide the Company's customers with value-added software,
consulting or other services that are complementary to the Company's software
and services and that enable the Company's customers to better utilize the
Company's software; Service and Implementation Partners, who extend the
Company's support, implementation and service offerings by delivering the
specialized services our customers need; and Internet/Information Partners, who
provide the Company's customers with the ability to access and
8
distribute crucial staffing information, including job postings, candidate
information, and resumes, often via the Internet. Examples of the Company's
strategic partners include:
VERITY, INC. The Company's software incorporates the text search software
tools developed by Verity, Inc., a Technology Partner, which allows Restrac
clients to search through vast amounts of candidate and job data, delivering
only the most relevant information directly to the desktop.
PEOPLESOFT, INC. PeopleSoft, Inc., a leading worldwide provider of human
resource software, is an Applications Partner. The Company's RESTRAC RESUME
READER FOR PEOPLESOFT product integrates the Company's high-volume
resume-scanning, skills management and search technology with PeopleSoft's HRMS
product, while RESTRAC HIRE LINK FOR PEOPLESOFT integrates the full
functionality of Restrac Hire with the PeopleSoft HRMS product suite. Both
RESTRAC HIRE and RESTRAC HIRE LINK FOR PEOPLESOFT have formally received the
PeopleSoft Partner Integration Team certification.
SAZTEC INTERNATIONAL. SAZTEC International, a leading provider of
information management services, is a certified Restrac scanning partner. As
such, SAZTEC provides the Company with additional capacity and technical
expertise in outsourced document conversion to support this growing component of
the Company's business.
COMPETITION
The marketplace for staffing solutions is intensely competitive and is
rapidly changing. The Company encounters direct competition from a number of
companies providing human resource staffing solutions, including (i) other human
resource staffing software companies, (ii) providers of general human resource
information systems, (iii) agencies providing or sourcing full-time, contract
and temporary labor, (iv) information systems departments of potential prospects
that develop custom software, (v) providers of other client/server application
software or document management systems and (vi) Internet-based staffing
solution providers.
The Company's primary direct competitor in the enterprise market is Resumix,
Inc. The Company also competes directly against other providers of human
resource staffing software, most of which are small privately held companies
providing less functional products at lower prices. In addition, vendors of
general human resource information systems generally include applicant tracking
modules in their offerings which can compete with the Company's products.
Moreover, there can be no assurance that such vendors will not develop and
market products in direct competition with the Company. Some of the Company's
current and many of the Company's potential competitors are large, publicly
traded organizations with long operating histories and access to significantly
greater financial, technical, marketing and other resources. As a result, they
may be able to respond to market changes, emerging technologies or changes in
customer requirements more rapidly and devote more resources to the development,
marketing and sales of their products than the Company. Competition may increase
from new market entrants or through consolidations in the software industry
and/or cooperative relationships among companies or with third parties.
The Company believes that the principal competitive factors affecting its
market include product functionality, breadth, ease of use, scalability and
flexibility, integration and interoperability with standard platforms and
operating systems and other software products, price, product reputation,
customer service and support, sales and marketing effectiveness and company
reputation. Although the Company believes it competes favorably with respect to
such factors, there can be no assurance that the Company can maintain this
position against current and potential competitors.
INTELLECTUAL PROPERTY
The Company relies on a combination of copyright and trade secret laws,
employee and third-party non-disclosure agreements and other methods to protect
its proprietary rights. The Company believes that, due to the rapid pace of
technological innovation within its industry, the Company's ability to establish
and
9
maintain a position of technology leadership in the industry is dependent more
upon the skills of its development personnel and its existing skills library
than upon the legal protections afforded its existing technology.
The Company's success is dependent in part upon its proprietary software.
There can be no assurance that the Company's agreements with employees,
consultants and others who participate in the development of its software will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known. Furthermore,
there can be no assurance that the measures taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology or independent development by others of similar technology.
The Company is not aware of any patent infringement charge or any violation
of other proprietary rights claimed by any third party relating to the Company
or the Company's products. However, the computer technology market is
characterized by frequent and substantial intellectual property litigation.
Intellectual property litigation is complex and expensive, and the outcome of
such litigation is difficult to predict.
The Company relies on certain technology which it licenses from third
parties. The Company's success will depend in part on its continued ability to
obtain and use licensed technology that is important to the functionality of its
products. An inability to continue to procure or use such technology would
likely have a material adverse effect on the Company's business, financial
condition and operating results.
EMPLOYEES
As of September 30, 1998, the Company had 177 full time employees consisting
of 51 in sales and marketing, 42 in product development, 63 in client services
and 21 in corporate operations. The Company's employees are not represented by
any collective bargaining organizations, and the Company has never experienced
any work stoppages. The Company considers its relations with its employees to be
good.
EXECUTIVE OFFICERS AND DIRECTORS
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
Lars D. Perkins........................... 39 Chief Executive Officer and Chairman of the Board
Martin J. Fahey........................... 44 President, Chief Operating Officer and Director
Thomas F. Brady........................... 46 Vice President of Client Services
Raymond M. Desrochers..................... 31 Vice President of Development--Products
Cynthia G. Eades.......................... 42 Chief Financial Officer, Vice President of Finance, Treasurer
and Secretary
Robert F. Kuhne........................... 63 Vice President of Sales
Robert J. Lederman, Jr.................... 41 Vice President of Human Resources
Timothy J. McManus........................ 45 Vice President of Internet Business Development
Robert J. Perry........................... 41 Vice President of Marketing
Edward F. Murray.......................... 43 Vice President of Development for Electronic Commerce
Russell J. Campanello..................... 42 Director
J. Paul Costello.......................... 59 Director
A. Bruce Johnston......................... 39 Director
LARS D. PERKINS, co-founder of the Company, has served as Chief Executive
Officer and Chairman of the Board of the Company since 1986. Mr. Perkins served
as President of the Company from 1986 to 1997.
MARTIN J. FAHEY, was elected President of the Company and as a member of the
Board of Directors in July 1997. Mr. Fahey joined the Company as Vice President
and Chief Operating Officer in May 1996. From January 1995 to May 1996, Mr.
Fahey was an independent consultant for a variety of software
10
companies. From July 1991 to December 1994, he was Chief Executive Officer of
Vertigo Development, a multimedia company which Mr. Fahey co-founded. Mr. Fahey
was employed by Lotus Development Corporation, a software company, from January
1983 to June 1991, most recently as the Director of Spreadsheet Marketing.
THOMAS F. BRADY joined the Company as Vice President of Client Services in
October 1997. From May 1995 to October 1997, he served as Vice President of
Services of Kronos, Inc., a leading provider of labor management software. Prior
to joining Kronos, Inc., Mr. Brady was employed at Digital Corporation from 1977
to 1995 in various operations and business development management positions.
RAYMOND M. DESROCHERS was named Vice President of Development--Products in
November 1998. From October 1995 to October 1998 he served as Vice President of
Product Development and Quality. From April 1995 to October 1995, he served as
the Company's Director of Product Development and from October 1994 to March
1995, he served as the Company's Manager of Software Development. Mr. Desrochers
was a senior software engineer for the Company from July 1992 to September 1994.
Prior to joining the Company in July 1992, he had been Software Project Manager
for New England Business Service, Inc., a company that provides accounting
software solutions to both small and medium-sized businesses, from October 1991
to June 1992.
CYNTHIA G. EADES joined the Company as Chief Financial Officer, Vice
President of Finance and Treasurer in December 1994. In May 1997, Ms. Eades was
elected to the office of Secretary to the Company. From February 1993 to
February 1994, she was Vice President and Chief Financial Officer of Virtual
World Entertainment, a developer and operator of virtual reality entertainment
centers. Prior to such time, Ms. Eades was employed by Dun & Bradstreet Software
Services, Inc., a business applications software company, as Controller from
October 1991 to February 1993 and Director of Finance from June 1990 to October
1991. Ms. Eades is a Certified Public Accountant and was employed by Price
Waterhouse from June 1978 to June 1990.
ROBERT F. KUHNE joined the Company in July 1997 as the Vice President of
Sales. From July of 1990 to July of 1997, Mr. Kuhne was an independent sales and
marketing consultant specializing in emerging corporations. Prior to his work as
a consultant, Mr. Kuhne was the General Manager and Senior Vice President of
Productivity Products Company, a division of Pansophic Systems, Inc., where he
managed a 400-person organization responsible for worldwide development,
marketing, customer support and sales.
ROBERT J. LEDERMAN, JR. joined the Company as Vice President of Human
Resources in January 1997. From June 1994 to January 1997, Mr. Lederman was
employed by Fidelity Investments as the Director of Human Resources. From June
1992 to June 1994 Mr. Lederman was Director of Employment and Employee Relations
for Clean Harbors Environmental Services Company.
TIMOTHY J. MCMANUS was named Vice President of Internet Business Development
in November 1998. Mr. McManus joined the Company as Vice President of Internet
Products in November 1997. From January 1997 to October 1997, Mr. McManus was
the founder of Calendarcast, Inc., a development stage company evaluating
applications of Internet-based push technologies. From March 1996 to January
1997, Mr. McManus was Vice President of Product Management and Development at
Corechange LLC, a spin-off of Cambridge Technology Partners, Inc. From October
1987 to March 1996, Mr. McManus was employed at Lotus Development Corporation
where he managed a number of key product and business development functions
within both the Communications Products Division and the Desktop Products
Organization.
ROBERT J. PERRY assumed operational responsibility for the marketing
organization in November 1996 and was elected to the office of Vice President,
Marketing effective as of January 1, 1997. Mr. Perry joined the Company in May
1996 as Director of Product Management. From November 1995 through May 1996, Mr.
Perry was an independent marketing and product management consultant. From
October 1983 to November 1995, Mr. Perry was employed by Lotus Development
Corporation most recently as Director of
11
Advanced Corporate Technology Liaisons. He had previously served as Director of
Product Management for Notes, Director of Product Management for Graphical
Spreadsheets and Group Product Manager for Spreadsheets.
EDWARD F. MURRAY joined the Company as Vice President of Development for
Electronic Commerce in November 1998. From September 1996 to November 1998, Mr.
Murray was Vice President and Chief Technologist of the Product Development
division of The Instream Corporation. From October 1989 to October 1995, Mr.
Murray was employed by Lotus Development Corporation where he was responsible
for the development of several product lines including Lotus Works and Lotus
Forms.
RUSSELL J. CAMPANELLO was elected as a director of the Company in October
1994. Since March 1998, Mr. Campanello has served as Senior Vice President,
Human Resources at Genzyme Corporation. From March 1996 to March 1998, Mr.
Campanello was Vice President of Nets Inc. (formerly Industry.Net), a
facilitator of electronic commerce on the Internet. Prior to joining Nets Inc.,
Mr. Campanello spent eight years as the Vice President of Human Resources of
Lotus Development Corporation.
J. PAUL COSTELLO, co-founder of the Company and member of the Board of
Directors of the Company since its founding in 1982. Mr. Costello has served as
President of J. Paul Costello Associates, Inc., a consulting company, since 1969
and of Costello & Company, Inc., a contract recruiting company, since 1979. In
December 1992, he also was named President of Corporate Staffing Center, Inc., a
provider of outsourced staffing services to large corporate clients. Mr.
Costello has been a human resource management consultant for over thirty years.
A. BRUCE JOHNSTON was elected as a director of the Company in January 1994.
Since January 1996, Mr. Johnston has been a Principal of TA Associates, Inc., a
private equity firm. From June 1992 to January 1996, Mr. Johnston was a Vice
President of TA Associates. Prior to such time, Mr. Johnston was a General
Manager of Lotus Development Corporation from June 1988 to June 1992. Mr.
Johnston also serves on the Boards of Directors of Expert Software, Inc. and
Trident International, Inc., both NASDAQ-traded public companies, as well as on
the Boards of Directors of several private companies.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Lexington,
Massachusetts, where it occupies approximately 60,000 square feet of office
space under a lease expiring in December 2003. In addition, the Company has
regional sales and service offices in Foster City, California, Chicago and the
United Kingdom under leases expiring in January and February of 2002 and October
of 1998, respectively. The Company also leases office space for its sales
representatives in Chicago, Dallas, Seattle and Toronto.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
The Company's common stock (NASDAQ symbol RTRK) began trading publicly in
the over-the-counter market through the NASDAQ National Market System on July
23, 1996. The following table sets forth, for the period indicated, the high and
low closing prices of the common stock as reported on the NASDAQ National Market
System. These prices do not include retail markups, markdowns, or commissions.
COMMON STOCK PRICE
PERIOD HIGH LOW
- ------------------------------------------------------------------------------------------------ --------- ---------
October 1, 1996--December 31, 1996.............................................................. $ 17.00 $ 4.44
January 1, 1997--March 31, 1997................................................................. $ 5.00 $ 2.88
April 1, 1997--June 30, 1997.................................................................... $ 4.69 $ 2.50
July 1, 1997--September 30, 1997................................................................ $ 7.75 $ 4.25
October 1, 1997--December 31, 1997.............................................................. $ 7.50 $ 5.00
January 1, 1998--March 31, 1998................................................................. $ 7.00 $ 4.63
April 1, 1998--June 30, 1998.................................................................... $ 8.63 $ 4.38
July 1, 1998--September 30, 1998................................................................ $ 6.13 $ 3.00
The closing sale price of the Common Stock on September 30, 1998 was $3.625.
On December 22, 1998 the closing price reported on the NASDAQ National Market
System for the Common Stock was $5.25.
The market price of the Company's Common Stock has fluctuated significantly
and is subject to significant fluctuations in the future.
HOLDERS OF COMMON STOCK
As of December 22, 1998, there were approximately 60 shareholders of record
of the Company's Common Stock and 10,027,919 shares of common stock outstanding.
DIVIDEND POLICY
The Company has never paid any cash dividends on the Common Stock and does
not anticipate paying dividends in the foreseeable future. The Company intends
to retain any future earnings for use in the Company's business. The payment of
any future dividends will be determined by the Board of Directors in light of
conditions then existing, including the Company's financial condition and
requirements, future prospects, restrictions in financing agreements, business
conditions and other factors deemed relevant by the Board of Directors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for the three fiscal years ended September 30, 1998,
1997 and 1996 and the balance sheets at September 30, 1998 and 1997 are derived
from the consolidated financial statements of the Company included elsewhere in
this Form 10-K. The data set forth below should be read in conjunction with
"Management's Discussion
13
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K.
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Revenue................................................... $ 30,855 $ 22,048 $ 21,592 $ 15,014 $ 9,737
Cost of revenue........................................... 9,001 7,061 6,312 4,409 2,939
Research and development.................................. 5,588 5,446 2,341 1,365 1,343
Sales and marketing....................................... 10,613 8,703 8,004 5,978 3,335
General and administrative................................ 4,322 3,541 2,610 1,714 1,249
Non-recurring charge...................................... -- -- -- 1,011 --
--------- --------- --------- --------- ---------
Income (loss) from operations............................. 1,331 (2,703) 2,325 537 871
Other income, net......................................... 593 671 326 138 73
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income
taxes................................................... 1,924 (2,032) 2,651 675 944
Provision (benefit) for income taxes...................... 577 (752) 1,167 274 338
--------- --------- --------- --------- ---------
Net income (loss)......................................... $ 1,347 $ (1,280) $ 1,484 $ 401 $ 606
Diluted net income (loss) per common share................ $ .16 $ (.16) $ .21 $ .06
Diluted weighted average number of common shares
outstanding............................................. 8,518 8,056 7,222 6,949
SEPTEMBER 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Balance Sheet Data:
Cash, cash equivalents and short term investments.......... $ 16,436 $ 15,155 $ 20,368 $ 2,967 $ 2,735
Working capital............................................ $ 15,304 $ 14,684 $ 17,418 $ 2,079 $ 2,466
Total assets............................................... $ 31,431 $ 27,053 $ 26,310 $ 9,139 $ 6,150
Total liabilities.......................................... $ 11,108 $ 8,513 $ 7,337 $ 9,498 $ 6,629
Stockholders' equity (deficit)............................. $ 20,323 $ 18,540 $ 18,973 $ (359) $ (479)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT PURELY
HISTORICAL ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES AND
EXCHANGE ACT OF 1934, AS AMENDED. FORWARD LOOKING STATEMENTS INCLUDE, WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS "ANTICIPATES", "BELIEVES",
"EXPECTS", "INTENDS", "FUTURE", AND WORDS OF SIMILAR IMPORT WHICH EXPRESS
MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENTIONS REGARDING THE COMPANY'S FUTURE
PERFORMANCE. ALL FORWARD LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY HAS NO
OBLIGATION TO UPDATE ANY SUCH FORWARD LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM ITS HISTORICAL OPERATING RESULTS AND FROM
THOSE ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH BELOW, UNDER "FACTORS
AFFECTING FUTURE OPERATING RESULTS" AND ELSEWHERE IN THIS REPORT.
14
OVERVIEW
The Company's products and services and the markets it serves have evolved
and expanded in concert with the rapid advancements in technology and the
elevated focus on human resource management. From its inception in 1982 through
the first half of fiscal 1993, the Company's product revenue consisted primarily
of DOS-based applicant tracking and succession planning systems. In June 1993,
the Company introduced a Windows-based, client/server staffing solution, which
incorporates high-volume resume-scanning, skills management and search
capabilities. In November 1997, the Company broadened its offerings with the
introduction of RESTRAC WEBHIRE, a service which provides candidate management
functions via the Internet and the World Wide Web. In June 1998, the Company
released HIRE FOR INTRANET, the next generation enterprise-level automated
recruitment solution designed specifically for corporate intranets. The new
product and service releases in fiscal year 1998 enhanced the Company's
enterprise software operating segment and solidified its emerging Internet and
transaction-based solutions segment.
Total revenue consists of product revenue and services revenue. Product
revenue is generated in the enterprise software operating segment and is derived
from perpetual end-user licenses to use the Company's products. Product revenue
is recognized upon delivery, provided there are no significant Company
obligations remaining and collectibility of the revenue is probable. Services
revenue from customer maintenance fees for postcontract support is recognized
ratably over the maintenance term, which is typically 12 months. When customer
maintenance fees are included in an initial software license fee, the Company
allocates approximately 15% of the software license fee to the first year's
maintenance. The amount allocated to customer maintenance fees for the first
year is comparable to customer maintenance fees charged separately by the
Company. Other services revenue from training, installation, consulting and
outsourced services (e.g., scanning, acknowledgement mailings) is recognized as
the related services are performed. Services revenue from RESTRAC WEBHIRE is
recognized ratably over the service term. All customer maintenance fees for
postcontract support and other services revenue for training, installation and
consulting related to enterprise software licensed is attributed to the
enterprise software operating segment. Services revenue for RESTRAC WEBHIRE and
for outsourced services is attributed to the Internet and transaction-based
solutions segment.
During fiscal 1997, the Company increased the size of its operating
facilities by over 100% and entered into new leases for its corporate
headquarters, its Chicago office and its West Coast office. The direct increase
in facilities costs associated with these leases was approximately $1.0 million
in fiscal 1997 and an additional $400 for fiscal 1998. Facilities costs are
allocated among income statement expense categories based principally on
functional headcount.
15
RESULTS OF OPERATIONS
(IN THOUSANDS)
The following table sets forth, for the periods indicated, the percentage of
total revenue represented by each item reflected in the Company's Consolidated
Statements of Operations.
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------------------------
AS A PERCENTAGE OF TOTAL REVENUE: 1998 1997 1996
- --------------------------------------------------------------------------------------------- ----- ----- -----
Revenue:
Product revenue............................................................................ 55% 49% 61%
Services revenue........................................................................... 45 51 39
--- --- ---
Total revenue............................................................................ 100 100 100
--- --- ---
Cost of revenue:
Product revenue............................................................................ 2 3 7
Services revenue........................................................................... 27 29 22
--- --- ---
Total cost of revenue.................................................................... 29 32 29
--- --- ---
Gross margin................................................................................. 71 68 71
--- --- ---
Operating expenses:
Research and development................................................................... 18 25 11
Sales and marketing........................................................................ 35 39 37
General and administrative................................................................. 14 16 12
--- --- ---
Total operating expenses................................................................. 67 80 60
--- --- ---
Income (loss) from operations................................................................ 4 (12) 11
Other income, net............................................................................ 2 3 2
--- --- ---
Income (loss) before provision (benefit) for income taxes.................................... 6 (9) 13
Provision (benefit) for income taxes......................................................... 2 (3) 6
--- --- ---
Net income (loss)............................................................................ 4% (6)% 7%
--- --- ---
--- --- ---
REVENUE
PRODUCT REVENUE. Product revenue was $16,826, $10,783 and $13,265 in fiscal
1998, 1997 and 1996, respectively, representing an increase of 56% from fiscal
1997 to fiscal 1998 and a decrease of 19% from fiscal 1996 to fiscal 1997. The
increase in product revenue in fiscal 1998 resulted largely from an increase in
the number of seats associated with shipments to both new and existing customers
as well as an increase in the average price per seat. More customers chose to
license a large number of users with their initial system deployment, resulting
in a significantly higher average sales price for fiscal 1998. Some customers
initially deploy the product on a selective, divisional or business unit basis
and later license additional users. Over 75% of the reduction in product revenue
in fiscal 1997 as compared to fiscal 1996 is attributable to smaller sales
transactions. The remaining reduction is due to lower shipment volumes in fiscal
1997. Because the Company's product revenue consists of a relatively small
number of large dollar transactions, the average sales price and number of units
shipped can fluctuate widely from period to period. Such fluctuations are not
necessarily indicative of future results. Hardware resales contributed $358 to
the first fiscal 1996 quarter. (The Company no longer serves as a reseller of
hardware). Sales to existing customers represented approximately 33%, 25% and
26% of total software licenses in fiscal years 1998, 1997 and 1996,
respectively.
SERVICES REVENUE. Services revenue was $14,029, $11,265 and $8,327 in
fiscal 1998, 1997 and 1996, respectively, representing an increase of 25% from
fiscal 1997 to fiscal 1998 and 35% from fiscal 1996 to fiscal 1997. Increased
maintenance revenue, generated by the continued growth in the RESTRAC HIRE and
16
RESUME READER FOR PEOPLESOFT installed base, accounts for 59% and 70% of the
total increase in services revenue for fiscal 1998 and fiscal 1997,
respectively. The remaining increases are attributable to the Company's emerging
Internet and transaction-based solutions operating segment, with the
introduction of RESTRAC WEBHIRE in fiscal 1998 and the addition of outsourced
scanning services late in fiscal 1996. There
can be no assurances that the Company will sustain these levels of services
revenue growth.
COST OF REVENUE
COST OF PRODUCT REVENUE. Cost of product revenue includes royalty payments
for third-party software embedded in the Company's products and costs of
documentation and shipping. Cost of product revenue decreased as a percentage of
product revenue to 4% for fiscal 1998 from 7% for fiscal 1997 and 11% for fiscal
1996. The percentage decrease for both periods is due primarily to favorable
rate revisions in the royalties due under third-party licensing arrangements.
COST OF SERVICES REVENUE. Cost of services revenue includes all costs of
maintaining the client services organization and the Internet and
transaction-based solutions segment operations, including salaries and
personnel-related expenses, travel, outside consulting services, facilities cost
and, to a lessor extent, third party scanning services and royalty payments for
software maintenance. For fiscal 1998, 76% of cost of services was attributed to
the enterprise software segment, with the remainder associated with the Internet
and transaction-based solutions segment. This compares to 92% of cost of
services attributed to the enterprise software segment for fiscal 1997. Cost of
services revenue increased 32% to $8,370 for fiscal 1998 from $6,357 for fiscal
1997. Cost of services revenue increased 32% to $6,357 for fiscal 1997 from
$4,827 for fiscal 1996. The increases in absolute dollars for each of the years
are principally attributable to increased personnel and associated costs in the
client services organization to support a larger client base and proportionately
higher services revenue. Cost of services revenue increased as a percentage of
services revenue to 60% for fiscal 1998 from 56% for 1997. Cost of services
revenue decreased as a percentage of services revenue to 56% for fiscal 1997
from 58% for 1996.
The lower mix of services revenue in fiscal 1998 as compared to fiscal 1997
is reflected in the slight increase in gross margin percentage to 71% from 68%.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses include all
costs associated with the product engineering and quality functions, including
salaries and personnel-related expenses, travel, outside consulting services and
facilities costs. Research and development expenses were $5,588 or 18% of total
revenue for fiscal 1998 as compared to $5,446 or 25% of total revenue for fiscal
1997 and $2,341 or 11% of total revenue for fiscal 1996. The increases in
absolute dollars for the years presented are primarily due to increases in both
personnel and consulting expenses in support of the Company's new and existing
product development initiatives and its quality assurance programs. The Internet
and transaction-based solutions segment accounted for 29% of total research and
development expenses in fiscal 1998 and 33% in fiscal 1997. Research and
development expenses will vary from period to period as a percentage of total
revenue dependent upon the stage in product development and the requisite
investment funding of ongoing projects. The Company considers continued
investment in research and development to be integral to its future success. All
of the Company's research and development costs have been expensed as incurred.
SALES AND MARKETING. Sales and marketing expenses include promotional costs
and trade shows and costs associated with personnel involved in sales and
marketing functions, including salaries, commissions and other personnel-related
expenses, travel, outside consulting services and facilities costs. Sales and
marketing expenses were $10,613 or 35% of total revenue for fiscal 1998 as
compared to $8,703 or 39% of total revenue for fiscal 1997 and $8,004 or 37% of
total revenue for fiscal 1996. The increase in absolute dollars in fiscal 1998
from fiscal 1997 is due primarily to the effect of the increased commissions
expense
17
resulting from the increase in revenue and to sales and marketing costs
associated with RESTRAC WEBHIRE, introduced in the first quarter of fiscal 1998.
The Internet and transaction-based solutions segment accounted for 11% of total
sales and marketing expenses in fiscal 1998. The increase in absolute dollars in
fiscal 1997 from fiscal 1996 is due to the Company's investments in its sales
organization in fiscal 1997, adding personnel and expanding its West Coast and
Central U.S. facilities to accommodate the geographic distribution of sales and
services personnel and to better support the customer base. The Company expects
that sales and marketing expenses may vary from year to year as a percentage of
total revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of costs for corporate operations personnel (executive, finance and
accounting, information technology, human resources, legal and administrative),
professional fees and other general corporate expenses. General and
administrative expenses were $4,322 or 14% of total revenue for fiscal 1998 as
compared to $3,541 or 16% of total revenue for fiscal 1997 and $2,610 or 12% of
total revenue for fiscal 1996. The absolute dollar increase for fiscal 1998 as
compared to fiscal 1997 is the result of personnel increases, investments in
internal systems and an increase in bad debt expense during the year. The
increase for fiscal 1997 as compared to fiscal 1996, both in absolute dollars
and as a percentage of total revenue, is largely the result of personnel
increases in support of the Company's infrastructure, increased costs associated
with the Company's having gone public in fiscal 1996, investments in internal
systems and a charge in 1997 related to the move of the Company's corporate
headquarters.
OTHER INCOME, NET
Other income was $593, $671 and $326 in fiscal 1998, 1997 and 1996,
respectively. The variances from period to period are due to fluctuations in the
average combined cash and cash equivalents and short- and long-term investment
balances. The Company expects to continue to yield investment income on its
average balance of combined cash and cash equivalents and short- and long-term
investments at an average rate comparable to that experienced for fiscal 1998.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rate was 30%, (37%) and 44% for the fiscal years
ended 1998, 1997 and 1996, respectively. The changes in the effective tax rate
for both fiscal 1998 as compared to fiscal 1997 and for fiscal 1997 as compared
to fiscal 1996 relate principally to the generation of income or losses from
operations during the respective periods. Minimal taxes are provided for Other
Income generated during fiscal years 1998, 1997 and 1996 as a result of the
favorable tax status of Restrac Securities Corporation and of the investment in
municipal securities during these years. Thus, a higher ratio of Other Income to
Income from Operations can significantly impact the effective tax rate from year
to year. The benefit generated from the net loss in fiscal 1997 was partially
offset by minimum taxes due in certain state jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash and cash equivalents and short-
and long-term investments of $17,329, an increase of $2,174 from $15,155 at
September 30, 1997. Working capital was $15,304 at September 30, 1998 as
compared to $14,684 at September 30, 1997, an increase of $620.
Cash provided by operating activities was $3,176 during the year ended
September 30, 1998. Cash provided by operating activities consisted mainly of
the net income for the fiscal year of $1,347, the effect of depreciation and
amortization of $1,694, growth in deferred revenue of $1,397 and the timing of
receipts and disbursements, resulting in prepayment of certain expenses,
increases in accounts receivable and fluctuations in certain liabilities.
Cash provided by investing activities was $559 during the year ended
September 30, 1998. Cash provided by investing activities consisted mainly of
net proceeds of $1,853 from the purchases and
18
maturities of short- and long-term investments partially offset by the purchase
of property and equipment of $1,278 (primarily computer equipment).
Net cash provided by financing activities for the year ended September 30,
1998 was $292. Financing activities consisted of proceeds from the exercise of
stock options, proceeds from the issuance of stock under the employee stock
purchase plan and payments made under capital lease obligations.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. Cash has
been, and the Company contemplates that it will continue to be, invested in
interest-bearing, investment grade securities.
On November 18, 1998, the Company acquired certain rights and assets and
assumed certain obligations and liabilities of the Junglee subsidiary of
Amazon.com in exchange for $6,000 cash and 1,670,273 shares of common stock (See
Note 10 of Notes to Consolidated Financial Statements).
From time to time, the Company may evaluate other potential acquisitions of
products, businesses and technologies that may complement or expand the
Company's business. Any such transactions consummated may use a portion of the
Company's working capital and/or require the issuance of equity or debt.
The Company believes that its current cash and cash equivalent and
short-term investment balances and cash provided by future operations will be
sufficient to meet its working capital expenditure requirements for at least the
next twelve months. Although operating activities may provide cash in certain
periods, operating and investing activities may use cash in other periods.
Consequently, any future growth may require the Company to obtain additional
equity or debt financing.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. The following paragraphs in this section
include "Year 2000 readiness disclosure" within the meaning of the Year 2000
Information and Readiness Disclosure Act.
The Company has attempted to make an assessment with regard to whether its
own internal information systems are Year 2000 compliant. In particular, the
Company has upgraded its accounting (excluding payroll) and customer management
systems with systems that are warranted by the vendors to be Year 2000
compliant. In addition, the Company plans to seek assurances from its existing
vendors whose systems are not warranted to be Year 2000 compliant that such
systems are Year 2000 compliant. Currently, the Company does not anticipate
purchasing additional systems. The Company does not separately track the
internal costs incurred for Year 2000 projects. Although the Company does not
believe that any additional Year 2000 compliance-related costs will be
significant, there can be no such assurance. Any failure of third-party
equipment or software comprising any part of the Company's systems to operate
properly with regard to Year 2000 and thereafter could require the Company to
incur unanticipated expenses to address associated problems. The Company has
received assurances that all material embedded systems included in the Company's
products are Year 2000 compliant.
The Company believes, based on an internal assessment, that the current
versions of its software products are Year 2000 compliant. The Company limits
its contractual warrantees on Year 2000 compliance to objective performance
standards that the Company has tested, and the Company makes no warrantees for
nonconformance if the Company's software products are combined with other
software or data that are not conducive to accurately calculating, comparing or
sequencing date and time data between the twentieth and twenty-first centuries.
The Company has no plan to ascertain whether the internal systems and products
of its customers are Year 2000 compliant. Although the Company has not been
19
involved in any litigation or proceeding to date involving its products or
services related to Year 2000 issues, there can be no assurance that the Company
will not in the future be required to defend its products or services or to
negotiate resolutions of claims based on Year 2000 issues.
The Company does not have any specific contingency plans if any Year 2000
problems develop with respect to the Company's embedded systems, systems
acquired from vendors or systems used by third parties with whom the Company has
a mutual relationship. Contingency plans will be developed if it appears the
Company or its key vendors will not be Year 2000 compliant, and such
non-compliance is expected to have a material adverse impact on the Company's
operations.
Year 2000 issues may affect the purchasing patterns of customers and
potential customers in a variety of ways. Many companies are expending
significant resources to replace or remedy their current hardware and software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase software products such as those offered by the Company.
The Company does not believe that there is any practical way to ascertain the
extent of, and has no plan to address problems associated with such a reduction
in purchasing resources of its customers. Any such reduction could, however,
result in a material adverse effect on the Company's business, operating results
and financial condition. The Year 2000 issue is pervasive and complex, as
virtually every computer operation will be affected in some way. Consequently,
no assurance can be given that Year 2000 compliance can be achieved without
significant additional costs.
FACTORS AFFECTING FUTURE OPERATING RESULTS
This report contains forward looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended. Forward looking statements include, without
limitation, statements containing the words "Anticipates", "Believes",
"Expects", "Intends", "Future", and words of similar import which express
management's belief, expectations or intentions regarding the Company's future
performance. All forward looking statements included in this report are based on
information available to the Company on the date hereof, and the Company has no
obligation to update any such forward looking statements. The Company's actual
results could differ materially from its historical operating results and from
those anticipated in these forward looking statements as a result of certain
factors, including, without limitation, those set forth below.
The Company operates in a dynamic and rapidly changing environment that
involves risks and uncertainties. The following section lists some, but not all,
of these risks and uncertainties which may have a material adverse effect on the
Company's business, financial condition or results of operations. This section
should be read in conjunction with the audited Consolidated Financial Statements
and Notes thereto, and Management's Discussions and Analysis of financial
Condition and Results of Operations for the years ended September 30, 1998,
1997, and 1996.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's results of operations have been, and may in the future be,
subject to significant quarterly fluctuations, due to a variety of factors,
including the relatively lengthy sales cycle for the Company's products, the
relatively large size of a typical product sale, the timing of contracts, the
introduction of new products by the Company or its competitors, capital spending
patterns of customers, the Company's sales incentive strategy (which is based in
part on annual sales targets) and general economic conditions. Historically,
revenue in each of the first two fiscal quarters has been lower than in the
preceding fourth fiscal quarter (which typically has the highest revenue and net
income), due largely to sales incentive programs. A substantial portion of the
Company's revenue often occurs during the last few weeks of each quarter;
therefore, any delays in orders or shipments are more likely to result in
revenue not
20
being recognized until the following quarter. The Company's current expense
levels are based in part on its expectations of future revenue and, as a result,
net income for a given period could be disproportionately affected by any
reduction in revenue. There can be no assurance that the Company will be able to
achieve significant revenue, that the level of revenue in the future will not
decrease from past levels or that in some future quarter the Company's revenue
or operating results will not be below the expectations of stock market
securities analysts and investors. In such event, the Company's profitability
and price of its Common Stock would likely be materially and adversely affected.
EMERGING MARKETS
The Company's future success is substantially dependent on broader
recognition of the potential benefits afforded by automated staffing software
and services and the growth in demand for such solutions. It is difficult to
assess the size of the market, the customer demands that will evolve, and the
competition that may emerge. There can be no assurance that the market for
automated staffing software and services will continue to grow or that the
introduction of new technologies or services will not render the Company's
existing software and services obsolete or unmarketable.
The market for automated staffing solutions is undergoing rapid changes
including continuing advances in technology and changes in customer requirements
and preferences. These market dynamics have been amplified by the emergence of
the Internet as a communications medium for staffing solutions. The Company's
future success will depend in significant part on its ability to continually
improve the performance, features and reliability of its software and services
in response to the evolving demands of the marketplace and competitive product
offerings, and there can be no assurance that the Company will be successful in
doing so. In addition, an element of the Company's business strategy is the
advancement of products, functionalities and other staffing solutions that
capitalize on the increasing use of the Internet and corporate intranets. There
can be no assurance that the Company will be successful in developing and
marketing products that will keep pace with technological changes in the market
or new technologies introduced by competitors or that it will satisfy evolving
consumer preferences. Maturation of Internet and intranet-based products,
functionalities and other staffing solutions will also depend on increased
acceptance of the Internet for staffing solutions and the development of the
necessary infrastructure to facilitate commercial applications on the Internet.
There can be no assurance of such acceptance or infrastructure development.
Failure to develop and introduce new products, functionalities and other
staffing solutions in a timely fashion could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON PRINCIPAL PRODUCT
The Company currently derives most of its revenue from its RESTRAC HIRE
(including recently introduced HIRE FOR INTRANET) product. As a result, any
factor adversely affecting sales of this product would have a material adverse
effect on the Company. The future success of the Company also depends, in part,
on achieving broader market acceptance of RESTRAC HIRE, as well as the ability
to continue to enhance RESTRAC HIRE to meet the evolving needs of its customers.
Moreover, the Company anticipates that its existing and new competitors will
introduce additional competitive products. This competition may reduce future
market acceptance of RESTRAC HIRE. The market acceptance of the Company's
software is difficult to estimate due in large measure to the effect of new
products, applications or product enhancements, technological changes in the
marketplace for staffing solutions and future competition. There can be no
assurance that the Company will maintain and expand acceptance of RESTRAC HIRE.
The failure of the Company to maintain and expand its market acceptance as a
result of competition, technological change or other factors would have a
material adverse effect on the Company's business, financial condition and
results of operations.
21
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on its senior
management and other key employees. The Company also believes that its future
success will depend in large part on its ability to attract and retain
additional key employees. Competition for such personnel in the computer
software industry is intense, and there can be no assurance that the Company
will be successful in attracting and training such personnel.
DEPENDENCE ON THIRD PARTIES
A key element of the Company's business strategy is to develop relationships
with leading industry organizations in order to increase the Company's market
presence, expand distribution channels and broaden the Company's product line.
The Company believes that its continued success depends in large part on its
ability to maintain such relationships and cultivate additional relationships.
There can be no assurance that the Company's existing strategic partners or
future strategic partners will not develop and market products in direct
competition with the Company or otherwise discontinue their relationships with
the Company, or that the Company will be able to successfully develop additional
strategic relationships.
In addition, certain technology incorporated in the Company's software is
licensed from third parties on a nonexclusive basis. The termination of any of
such licenses, or the failure of the third party licensers to adequately
maintain or update their products, could result in delay in the Company's
ability to ship certain of its products while it seeks to implement technology
offered by alternative sources. In addition, any required replacement licenses
could prove more costly than the Company's current license relationships and
might not provide technology as powerful and functional as the third-party
technology currently licensed by the Company. Also, any such delay, to the
extent it becomes extended or occurs at or near the end of a fiscal quarter,
could have a material adverse effect on the Company's results of operations for
that quarter. While it may be necessary or desirable in the future to obtain
other licenses relating to one or more of the Company's products or relating to
current or future technologies, there can be no assurance that the Company will
be able to do so on commercially reasonable terms or at all.
RISK OF NEW PRODUCT INTRODUCTIONS; RISK OF PRODUCT DEFECTS
As the marketplace for staffing solutions continues to evolve, the Company
plans to develop and introduce new products and services to enable it to
effectively address the changing needs of that market. There is no guarantee
that the Company will be able to develop new products or services or that such
solutions will achieve market acceptance or, if market acceptance is achieved,
that the Company will be able to maintain such acceptance for a significant
period of time. Any inability of the Company to quickly develop products and
services that address changes in technology or customer demands may require the
Company to substantially increase development expenditures or result in loss of
market share to a competitor.
Products as complex as those offered by the Company may contain undetected
errors when first introduced or when new versions are released. The Company has
in the past discovered software errors in certain of its product offerings after
their introduction. There can be no assurance that, despite testing by the
Company errors will not occur in new products or releases after commencement of
commercial shipments, resulting in adverse publicity, in loss of or delay in
market acceptance, or in claims by the customer against the Company, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
MANAGEMENT OF CHANGE
The evolution of the Company's business and expansion of the Company's
customer base has resulted in substantial growth in the number of its employees,
the scope of its operations and financial systems and the geographic area of its
operations, resulting in increased responsibility for management personnel. The
22
Company's future results of operations will depend on the ability of its
officers and other key employees to continue to implement its operational,
customer support, and financial control systems and to expand, train, and manage
its employee base. There can be no assurance that the Company will be able to
manage any future expansion successfully, and any inability to do so would have
a material adverse effect on the Company's business, financial condition and
results of operations.
RELIANCE ON SINGLE CLIENT INTERFACE AND SINGLE SERVER PLATFORM
At the present time, the Company supports client (workstation) platforms
utilizing Microsoft's Windows family of software products, including Windows
3.1, Windows NT and Windows 95. If Microsoft were to fundamentally change the
architecture of its software product such that users of the Company's software
applications experienced significant performance degradation or were rendered
incompatible with future versions of Microsoft's Windows Operating System, the
Company's business, financial condition and results of operations could be
materially adversely effected. If a new client platform or other interface were
to gain broad acceptance in the marketplace, there can be no assurance that the
Company's architecture would be compatible with such an interface.
Certain of the Company's products exclusively operate on Microsoft's NT
Server and Internet Information Server (IIS) platforms. If Microsoft were to
fundamentally change the architecture of its server product such that users of
the Company's software applications experienced significant performance
degradation or were rendered incompatible with future versions of Microsoft's NT
Server or IIS, the Company's business, financial condition and results of
operations could be materially adversely effected. If a new type of server were
to gain broad acceptance in the marketplace, there can be no assurance that the
Company's architecture would be compatible with such a server.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND DEPENDENCE ON PROPRIETARY
RIGHTS; RISK OF LITIGATION
The Company relies on a combination of copyright and trade secret laws,
employee and third party non-disclosure agreements and other methods to protect
its proprietary rights. There can be no assurance that the measures taken by the
Company to protect its proprietary rights will be adequate to prevent
misappropriation of its technology or independent development by others of
similar technology. In addition, the Company may be subject to additional risk
as it enters into transactions in countries where intellectual property laws are
not well developed or are poorly enforced. The Company's inability to protect
its proprietary rights would have a material adverse effect on the Company's
business, financial condition and results of operations.
As the number of human resource application software products and services
in the industry increases and the functionality of these solutions further
overlaps, software developers and publishers may increasingly become subject to
infringement claims. There can be no assurance that third parties will not
assert infringement claims against the Company in the future with respect to
current or future products. Although the Company is not currently the subject of
any intellectual property litigation, there has been substantial litigation
regarding copyright, patent and other intellectual property rights involving
computer software companies. Any claims or litigation, with or without merit,
could be costly and could result in a diversion of management's attention, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in such claims or
litigation may require the Company to obtain a license and/or pay damages, which
could also have a material adverse effect on the Company's business, financial
condition and results of operations.
VOLATILITY OF STOCK PRICE
As is frequently the case with stock of high technology companies, the
market price the Company's stock has been and may continue to be quite volatile.
Factors such as quarterly fluctuations in results of operations, announcements
of technological innovations by the Company or its competitors or the
23
introduction of new products by the Company or its competitors, and
macroeconomic conditions in the computer software industries generally, may have
a significant impact on the market price of the stock of the Company. If revenue
or earnings in a quarter fail to meet expectations (published or otherwise) of
the investment community, there could be an immediate impact on the Company's
stock price. Furthermore, the stock market has from time to time experienced
extreme price and volume fluctuations which have particularly affected the
market price for many high technology companies and which, on occasion, have
been unrelated to the operating performance of those companies. These broad
market fluctuations may materially adversely affect the market price of the
stock of the Company.
PRODUCT LIABILITY
Although the Company has not experienced any product liability claims to
date, the sale and support of products by the Company and the incorporation of
products from other companies may entail the risk of product liability claims.
The Company's license agreements with its customers typically contain provisions
intended to limit the Company's exposure to such claims, but such provisions may
not be effective in limiting the Company's exposure. A successful product
liability action brought against the Company could adversely effect the
Company's business, financial condition and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Supplementary Data of the Company
are listed under Part IV, Item 14, of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by reference
to the text appearing under Part I, Item 1--Business under the caption
"Executive Officers and Directors" in this Report, and by reference to the
information included under the headings "Information Regarding Directors",
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders to be filed by the Company within 120 days after the
close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by reference
to the information under the heading "Executive Compensation" in the Company's
definitive Proxy Statement for the 1998 Annual Meeting of Stockholders to be
filed by the Company within 120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by reference
to the information under the heading "Principal And Management Stockholders" in
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders to be filed by the Company within 120 days after the close of its
fiscal year.
24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by reference
to the information under the heading "Certain Relationships and Related
Transactions", if any, in the Company's definitive Proxy Statement for the 1998
Annual Meeting of Stockholders to be filed by the Company within 120 days after
the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
1. Report of Arthur Andersen LLP dated December 16, 1998 (See Page F-2 hereof).
2. Consolidated Balance Sheets as of September 30, 1998 and 1997. (See Page F-3
hereof).
3. Consolidated Statements of Operations for the years ended September 30,
1998, 1997 and 1996 (See Page F-4 hereof).
4. Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the years ended September 30, 1998, 1997
and 1996. (See Page F-5 hereof).
5. Consolidated Statements of Cash Flows for the years ended September 30,
1998, 1997 and 1996. (See Page F-6 hereof).
6. Notes to Consolidated Financial Statements. (See pages F-7 through F-18
hereof).
(A)(2) FINANCIAL STATEMENT SCHEDULES
SCHEDULE NO. DESCRIPTION
- -------------------------------------------------------- --------------------------------------------------------
Schedule II Valuation and Qualifying Accounts
Other schedules are not provided because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
(A)(3) EXHIBITS
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Form 10-K.
EXHIBIT NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
*3.1 Form of Third Amended and Restated Certificate of Incorporation of the Company
*3.2 Amended and Restated By-laws of the Company
*4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the Company
*10.1 Stock Purchase Agreement dated January 5, 1994, as amended, by and between the Company and the
Purchasers identified therein
*10.2 Stock Redemption Agreement dated January 5, 1994 between the Company and J. Paul Costello, Lars D.
Perkins and John P. Jopling
*10.3 Registration Rights Agreement dated January 5, 1994 between the Company and Lars D. Perkins, J. Paul
Costello and John P. Jopling
*10.4 Restrac, Inc. 1994 Stock Option Plan
*10.5 Restrac, Inc. 1996 Stock Option and Grant Plan
***10.6 Restrac, Inc. 1996 Employee Stock Purchase Plan
*10.7 Paid-up Software License dated as of January 1, 1993 by and between the Company and Costello and
Company, Inc.
25
EXHIBIT NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
*+10.8 VAR Agreement dated November 27, 1991 between the Company and Verity, Inc. and amendments #1 and #2
thereto
*+10.9 Value Added Reseller License Agreement dated August 31, 1992 by and between The Analytic Sciences
Corporation and the Company and all amendments thereto
*10.12 Form of Director's Indemnification Agreements
*10.13 Form of Employment Agreement with Senior Management
*10.14 Form of Addendum to Employment Agreement with Senior Management
*10.15 Agreement Pertaining to the Election of Directors dated January 5, 1994 by Lars D. Perkins, J. Paul
Costello and the Purchasers identified therein
*10.16 Shareholder Agreement dated January 5, 1994 by and among the Company and the Shareholders identified
therein
*10.17 Agreement Pertaining to Certain Activities dated January 5, 1994 by and between Lars D. Perkins and
the Company
*10.18 Termination Agreement dated September 30, 1995 by and among the Company and Borwick International,
Inc. and Irving P. Borwick
*10.19 Finder's Fee and Non-Competition Agreement dated September 30, 1995 between the Company and Irving
P. Borwick
***10.22 Lease agreement dated November 12, 1996 between Boston Properties, Inc. and the Company
+**10.24 Amendment #3 to VAR Agreement dated November 27, 1991, between the Company and Verity, Inc.
+10.25 Amendment #4 to VAR Agreement dated November 27, 1991, between the Company and Verity, Inc.
+10.26 VAR Agreement dated June 25, 1998, between the Company and Prime Recognition Corporation
11.1 Schedule regarding computation of earnings per share
***21.1 Subsidiaries of registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule.
* Incorporated by reference to the specified exhibit with the corresponding
numbers in the Company's Registration Statement on Form S-1, as amended
(No. 333-03521), declared effective on July 22, 1996.
** Incorporated by reference to the specified exhibit with the corresponding
numbers in the Company's Annual Report on Form 10- K, filed with the
Commission on December 27, 1996.
*** Incorporated by reference to the specified exhibit with the corresponding
numbers in the Company's Annual Report on Form 10- K, filed with the
Commission on December 27, 1997.
+ Confidential treatment requested as to portions of this document.
(b) Report on Form 8-K.
The Company has not filed any Form 8-K's during the fourth quarter of 1998.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 28th day of
December 1998.
By: /s/ LARS D. PERKINS
-----------------------------------------
Lars D. Perkins,
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ LARS D. PERKINS Director, Chief Executive
- ------------------------------ Officer (Principal December 28, 1998
Lars D. Perkins Executive Officer)
/s/ MARTIN J. FAHEY
- ------------------------------ Director, President and December 28, 1998
Martin J. Fahey Chief Operating Officer
Chief Financial Officer
/s/ CYNTHIA G. EADES (Principal Financial
- ------------------------------ Officer and Principal December 28, 1998
Cynthia G. Eades Accounting Officer)
/s/ RUSSELL J. CAMPANELLO
- ------------------------------ Director December 28, 1998
Russell J. Campanello
/s/ J. PAUL COSTELLO
- ------------------------------ Director December 28, 1998
J. Paul Costello
/s/ A. BRUCE JOHNSTON
- ------------------------------ Director December 28, 1998
A. Bruce Johnston
27
RESTRAC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets as of September 30, 1998 and 1997.............................................. F-3
Consolidated Statements of Operations for the Years Ended September 30, 1998, 1997 and 1996................ F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for
the Years Ended September 30, 1998, 1997 and 1996........................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1998, 1997 and 1996........................................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Restrac, Inc.:
We have audited the accompanying consolidated balance sheets of Restrac,
Inc., as of September 30, 1998 and 1997, and the related consolidated statements
of operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
September 30, 1998. These consolidated financial statements and schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Restrac, Inc. as of September 30, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 16, 1998
F-2
RESTRAC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents................................................................. $ 9,772 $ 5,745
Short-term investments.................................................................... 6,664 9,410
Accounts and installments receivable, less allowance for doubtful accounts of $400 and
$320 at September 30, 1998 and 1997, respectively....................................... 7,282 5,130
Other current assets...................................................................... 1,445 780
Refundable income taxes................................................................... 135 948
Deferred income taxes..................................................................... 900 881
--------- ---------
Total current assets.................................................................. 26,198 22,894
Long-term installments receivable, net...................................................... 581 --
Property and equipment, net................................................................. 2,967 3,383
Long-term investments....................................................................... 893 --
Other assets, net........................................................................... 792 776
--------- ---------
TOTAL ASSETS.......................................................................... $ 31,431 $ 27,053
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligations.............................................. $ 131 $ 144
Accounts payable.......................................................................... 1,799 1,459
Accrued expenses.......................................................................... 3,272 2,523
Deferred revenue.......................................................................... 5,481 4,084
Accrued income taxes...................................................................... 211 --
--------- ---------
Total current liabilities............................................................. 10,894 8,210
--------- ---------
Deferred income taxes....................................................................... 19 --
--------- ---------
Deferred rent............................................................................... 195 172
--------- ---------
Capital lease obligations................................................................... -- 131
--------- ---------
Commitments (Note 2)
Stockholders' Equity:
Preferred stock, $.01 par value--Authorized--5,000,000 shares, Issued and
outstanding--none....................................................................... -- --
Common stock, $.01 par value--Authorized--30,000,000 shares, Issued-- 9,022,674 shares at
September 30, 1998, 8,852,303 shares at
September 30, 1997...................................................................... 90 89
Additional paid-in capital.................................................................. 19,502 19,067
Treasury stock, at cost..................................................................... (831) (831)
Retained earnings........................................................................... 1,562 215
--------- ---------
Total stockholders' equity............................................................ 20,323 18,540
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................ $ 31,431 $ 27,053
--------- ---------
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
RESTRAC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEARS ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Revenue:
Product revenue.......................................................... $ 16,826 $ 10,783 $ 13,265
Services revenue......................................................... 14,029 11,265 8,327
---------- ---------- ----------
Total revenue........................................................ 30,855 22,048 21,592
---------- ---------- ----------
Cost of Revenue:
Product revenue.......................................................... 631 704 1,485
Services revenue......................................................... 8,370 6,357 4,827
---------- ---------- ----------
Total cost of revenue................................................ 9,001 7,061 6,312
---------- ---------- ----------
Gross margin............................................................... 21,854 14,987 15,280
---------- ---------- ----------
Operating Expenses:
Research and development................................................. 5,588 5,446 2,341
Sales and marketing...................................................... 10,613 8,703 8,004
General and administrative............................................... 4,322 3,541 2,610
---------- ---------- ----------
Total operating expenses............................................. 20,523 17,690 12,955
---------- ---------- ----------
Income (loss) from operations.............................................. 1,331 (2,703) 2,325
Other income, net.......................................................... 593 671 326
---------- ---------- ----------
Income (loss) before provision (benefit) for income taxes.................. 1,924 (2,032) 2,651
Provision (benefit) for income taxes....................................... 577 (752) 1,167
---------- ---------- ----------
Net income (loss).......................................................... $ 1,347 $ (1,280) $ 1,484
---------- ---------- ----------
---------- ---------- ----------
Basic net income (loss) per common share................................... $ .16 $ (.16) $ 0.27
---------- ---------- ----------
---------- ---------- ----------
Diluted net income (loss) per common share................................. $ .16 $ (.16) $ 0.21
---------- ---------- ----------
---------- ---------- ----------
Basic weighted average number of common shares outstanding................. 8,273,177 8,056,272 4,646,148
---------- ---------- ----------
---------- ---------- ----------
Diluted weighted average number of common shares outstanding............... 8,517,770 8,056,272 7,222,297
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
RESTRAC, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
REDEEMABLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------------ ------------------------ ADDITIONAL ------------------------
NUMBER CARRYING NUMBER $.01 PAR PAID-IN NUMBER RETAINED
OF SHARES VALUE OF SHARES VALUE CAPITAL OF SHARES COST EARNINGS
----------- ----------- ----------- ----------- ----------- ------------- --------- -----------
Balance, September 30,
1995................. 556 $ 3,842 $ 4,500 45 $ 161 630 $ (805) $ 241
Exercise of common
stock options........ -- -- 67 1 38 -- -- --
Purchase of treasury
stock................ -- -- -- -- -- 57 (26) --
Accretion of
dividends............ -- 230 -- -- -- -- -- (230)
Tax benefit from stock
options exercised.... -- -- -- -- 35 -- -- --
Effect of preferred
stock conversion..... (556) (4,072) 2,503 25 3,479 -- -- --
Public offering
proceeds, net........ -- -- 1,500 15 14,496 -- -- --
Compensation expense on
warrant grants....... -- -- -- -- 14 -- -- --
Net income............. -- -- -- -- -- -- -- 1,484
----------- ----------- ----------- ----- ----------- --- --------- -----------
Balance, September 30,
1996................. -- -- 8,570 86 18,223 687 (831) 1,495
Exercise of common
stock options........ -- -- 265 3 208 -- -- --
Tax benefits from
options exercised.... -- -- -- -- 285 -- -- --
Employee stock purchase
plan stock
issuance............. -- -- 17 -- 79 -- -- --
Compensation expense on
warrant grants....... -- -- -- -- 99 -- -- --
Compensation expense on
stock options........ -- -- -- -- 173 -- -- --
Net loss............... -- -- -- -- -- -- -- (1,280)
----------- ----------- ----------- ----- ----------- --- --------- -----------
Balance, September 30,
1997................. -- -- 8,852 89 19,067 687 (831) 215
Exercise of common
stock options........ -- -- 122 1 254 -- -- --
Employee stock purchase
plan stock
issuance............. -- -- 49 -- 181 -- -- --
Net income............. -- -- -- -- -- -- -- 1,347
----------- ----------- ----------- ----- ----------- --- --------- -----------
Balance, September 30,
1998................. -- $ -- 9,023 $ 90 $ 19,502 687 $ (831) $ 1,562
----------- ----------- ----------- ----- ----------- --- --------- -----------
----------- ----------- ----------- ----- ----------- --- --------- -----------
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance, September 30,
1995................. $ (358)
Exercise of common
stock options........ 39
Purchase of treasury
stock................ (26)
Accretion of
dividends............ (230)
Tax benefit from stock
options exercised.... 35
Effect of preferred
stock conversion..... 3,504
Public offering
proceeds, net........ 14,511
Compensation expense on
warrant grants....... 14
Net income............. 1,484
-------------
Balance, September 30,
1996................. 18,973
Exercise of common
stock options........ 211
Tax benefits from
options exercised.... 285
Employee stock purchase
plan stock
issuance............. 79
Compensation expense on
warrant grants....... 99
Compensation expense on
stock options........ 173
Net loss............... (1,280)
-------------
Balance, September 30,
1997................. 18,540
Exercise of common
stock options........ 255
Employee stock purchase
plan stock
issuance............. 181
Net income............. 1,347
-------------
Balance, September 30,
1998................. $ 20,323
-------------
-------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
RESTRAC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
--------- ---------- ---------
Cash Flows from Operating Activities:
Net income (loss)............................................................. $ 1,347 $ (1,280) $ 1,484
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization................................................. 1,694 1,245 861
Provision for doubtful accounts............................................... 495 15 201
Deferred income taxes, net.................................................... -- (110) (70)
Deferred rent................................................................. 23 172 (45)
Compensation expense on stock options and warrant grants...................... -- 272 14
Changes in assets and liabilities--
Accounts and installments receivable........................................ (2,647) (1,758) (102)
Other current assets........................................................ (665) (482) 225
Refundable income taxes..................................................... 813 (948) --
Long-term installments receivable........................................... (581) -- --
Accounts payable............................................................ 340 888 (15)
Accrued expenses............................................................ 749 (930) 589
Deferred revenue............................................................ 1,397 943 615
Accrued income taxes........................................................ 211 (168) 41
--------- ---------- ---------
Net cash provided by (used in) operating activities....................... 3,176 (2,141) 3,798
--------- ---------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment........................................... (1,278) (2,877) (928)
Maturities and purchases of short-term investments, net....................... 2,746 (9,410) --
Purchase of long-term investments............................................. (893) -- --
Increase in other assets...................................................... (16) (743) (19)
--------- ---------- ---------
Net cash provided by (used in) investing activities....................... 559 (13,030) (947)
--------- ---------- ---------
Cash Flows from Financing Activities:
Payments of capital lease obligations......................................... (144) (27) (9)
Net proceeds from initial public offering of common stock..................... -- -- 14,511
Proceeds from exercise of common stock options................................ 255 211 38
Proceeds from employee stock purchase plan stock issuance..................... 181 79 --
Tax benefit of stock options exercised........................................ -- 285 35
Purchase of treasury stock.................................................... -- -- (25)
--------- ---------- ---------
Net cash provided by financing activities................................. 292 548 14,550
--------- ---------- ---------
Net increase (decrease) in Cash and Cash Equivalents............................ 4,027 (14,623) 17,401
--------- ---------- ---------
Cash and Cash Equivalents, beginning of period.................................. 5,745 20,368 2,967
--------- ---------- ---------
Cash and Cash Equivalents, end of period........................................ $ 9,772 $ 5,745 $ 20,368
--------- ---------- ---------
--------- ---------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest.................................................................... $ 19 $ 5 $ 16
--------- ---------- ---------
Income taxes................................................................ $ 379 $ 442 $ 893
--------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company designs, develops, markets, implements and supports human
resource staffing software and services to automate the recruitment, selection
and placement of an organization's workforce. The Company's staffing software
enables organizations to strategically manage their human capital by reducing
hiring and placement costs, decreasing time to fill positions and providing more
effective skills management and worker deployment. The Company's products
provide human resource departments with solutions to quickly and efficiently
build and search comprehensive "pools" of resumes to find the workers they need,
while also managing the workflow of the staffing process.
In 1982, the Company was incorporated under the laws of the Commonwealth of
Massachusetts. On January 5, 1994, the Company was reincorporated as a Delaware
corporation. On June 15, 1995, the Company amended its Certificate of
Incorporation to effect a name change from MicroTrac Systems, Inc. to Restrac,
Inc.
The accompanying consolidated financial statements include the accounts of
Restrac, Inc. and its wholly-owned subsidiary, Restrac Securities Corporation,
collectively referred to in these Notes to Consolidated Financial Statements as
"the Company." All intercompany accounts and transactions have been eliminated
in consolidation.
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described below and elsewhere in
the Notes to Consolidated Financial Statements.
(A) REVENUE RECOGNITION
Product revenue includes software license fees, and prior to fiscal 1997,
third-party scanning hardware and royalty revenue. Services revenue includes
customer maintenance fees and fees for training, installation, consulting,
scanning and RESTRAC WEBHIRE. The Company recognizes product and services
revenue in accordance with the provisions of Statement of Position (SOP) No.
97-2, SOFTWARE REVENUE RECOGNITION.
Product revenue from software license fees is recognized upon delivery,
provided there are no significant Company obligations remaining and
collectibility of the revenue is probable. If an acceptance period is allowed,
revenue is recognized upon the earlier of the acceptance or the expiration of
the acceptance period, as defined in the applicable software license agreement.
Installments receivable represent the present value of future payments
related to the financing of noncancelable term license agreements that provide
for payment in installments over a five-year period. A portion of each
installment is recognized as interest income in the accompanying consolidated
statements of operations.
Services revenue from customer maintenance fees for postcontract support is
recognized ratably over the maintenance term, which is typically 12 months. When
customer maintenance fees are included in an initial software license fee, the
Company allocates approximately 15% of the software license fee to the first
year's maintenance. The amount allocated to customer maintenance fees for the
first year is comparable to customer maintenance fees charged separately by the
Company. Services revenue from training, installation, consulting and resume
scanning is recognized as the related services are performed. Services revenue
from RESTRAC WEBHIRE is recognized ratably over the service term.
Deferred revenue represents payments received by the Company in advance of
product delivery or service performance.
F-7
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(B) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are generally charged to operations as
incurred. Statement of Financial Accounting Standards (SFAS) No. 86, ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED,
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have not
been material. For the years ended September 30, 1998, 1997 and 1996, all
research and development costs have been expensed.
(C) CASH AND CASH EQUIVALENTS
Cash equivalents are recorded at amortized cost and consist of highly liquid
investments with original maturities of three months or less. At September 30,
1998 and 1997, cash and cash equivalents consisted of the following:
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
Cash and money market funds................................................ $ 2,273 $ 1,795
Municipal securities....................................................... 7,499 3,950
--------- ---------
$ 9,772 $ 5,745
--------- ---------
--------- ---------
(D) SHORT- AND LONG- TERM INVESTMENTS
Short-term investments of $6,664 and $9,410 at September 30, 1998 and 1997,
respectively, consist of investments with original maturities between three and
twelve months. Long-term investments of $893 and $0 at September 30, 1998 and
1997, respectively, consist of investments that will mature greater than twelve
months from the balance sheet date. The average maturities of these long-term
investments are 15.5 months. The Company classifies these short-and long-term
investments as held-to-maturity, and accordingly, they are carried at amortized
cost, which approximates fair market value. These investments consist of
municipal debt securities.
(E) OTHER CURRENT ASSETS
Other current assets primarily consist of prepaid operating expenses. The
Company capitalizes prepaid expenses and amortizes them over the applicable
period of their use. Prepaid expenses amounted to $1,378 and $721 at September
30, 1998 and 1997, respectively.
F-8
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) PROPERTY AND EQUIPMENT
The Company records property and equipment at cost and provides for
depreciation and amortization on a straight-line basis over the estimated useful
lives of the assets, as follows:
SEPTEMBER 30,
ESTIMATED --------------------
ASSET CLASSIFICATION USEFUL LIFE 1998 1997
- --------------------------------------------------------- --------------- --------- ---------
Office equipment......................................... 3--5 Years $ 6,317 $ 5,117
Furniture and fixtures................................... 3--7 Years 636 610
Leasehold improvements................................... Life of Lease 277 358
Equipment under capital lease............................ 3 Years 369 369
--------- ---------
7,599 6,454
Less--Accumulated depreciation and amortization.......... 4,632 3,071
--------- ---------
$ 2,967 $ 3,383
--------- ---------
--------- ---------
Depreciation and amortization expense for the years ended September 30,
1998, 1997, and 1996 amounted to approximately $1,694, $1,245 and $861,
respectively.
(G) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109, a deferred tax asset or
liability is measured by the currently enacted tax rates applied to the
differences between the financial statement and tax bases of assets and
liabilities.
(H) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(I) CONCENTRATION OF CREDIT RISK
The Company has no significant off-balance-sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements. The Company places its cash, cash equivalents and
short-and long-term investments in highly rated institutions or securities. The
Company's accounts receivable credit risk is not concentrated within any
geographical area, and no single customer accounts for greater than 10% of total
revenue or represents a significant credit risk to the Company.
(J) POSTRETIREMENT BENEFITS
The Company offers no postretirement benefits.
F-9
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) NET INCOME (LOSS) PER SHARE
SFAS No. 128, EARNINGS PER SHARE, establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. In accordance with SFAS No. 128, basic net
income (loss) per share for 1998 and 1997 is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for those
periods. Basic net income per common share for 1996 is calculated by dividing
net income applicable to common stockholders, defined as net income decreased by
accreted dividends on preferred stock, by the weighted average number of common
shares outstanding for that period. Diluted net income (loss) per share is
calculated by dividing net income (loss) by the diluted weighted average number
of common shares outstanding for all periods presented. The Company has applied
the provisions of SFAS No. 128 and Staff Accounting Bulletin (SAB) No. 98
retroactively to all periods presented. The following table reconciles the
weighted average common shares outstanding to the shares used in computation of
diluted weighted average common shares outstanding:
YEARS ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Weighted average common shares outstanding............. 8,273,177 8,056,272 4,646,148
Dilutive effect of options............................. 244,593 -- 525,995
Conversion of preferred stock.......................... -- -- 2,050,154
---------- ---------- ----------
Diluted weighted average common shares outstanding..... 8,517,770 8,056,272 7,222,297
As of September 30, 1998, 1997 and 1996, 356,250, 1,003,123, and 0 potential
common shares were outstanding, respectively, but not included in the above
calculation as their effect would have been antidilutive.
(L) STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company determined that it
will continue to account for employee stock-based compensation under Accounting
Principles Board Opinion No. 25 and, pursuant to SFAS 123, has disclosed the pro
forma effect on net income or loss and per share amounts in the notes to the
consolidated financial statements using the fair value-based method for the
fiscal years ended September 30, 1998 and 1997.
(M) NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No.133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for fiscal
years beginning after December 15, 1999. The Company does not expect adoption of
this statement to have a material impact on its consolidated financial position
or results of operations.
F-10
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments, which
include cash equivalents, short- and long-term investments and accounts and
installments receivable, approximates their carrying value.
(O) NONCASH INVESTING AND FINANCING ACTIVITIES
Noncash investing and financing activities include a $246 increase in
equipment under capital leases for the fiscal year ended September 30, 1997 and
tax benefit of stock options exercised of $285 for the year ended September 30,
1997. For the years ended September 30, 1998, 1997 and 1996, additional noncash
investment and financing activities included the issuance of warrants of $0, $99
and $14 and dividend accretion in the amount of $0, $0 and $229, respectively.
(P) RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1997 consolidated
financial statements to conform to the fiscal 1998 presentation. Such
reclassifications have no effect on previously reported net income.
(2) LEASE COMMITMENTS
The Company's corporate headquarters are located in Lexington,
Massachusetts, where it currently occupies approximately 60,000 square feet of
office space under a lease expiring in December 2003. The Company also has
regional sales and service offices in Foster City, California and Chicago, where
it occupies approximately 6,000 square feet in both locations, under leases
expiring in January and February of 2002, respectively. In addition, the Company
leases office space for its sales representatives in Dallas, Reading, U.K.,
Seattle and Toronto, Ontario.
Capital lease obligations consist of amounts due under an equipment lease
agreement expiring in July 1999. At September 30, 1998, the cost and accumulated
depreciation of the related equipment was $246 and $96, respectively.
F-11
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) LEASE COMMITMENTS (CONTINUED)
Future minimum rental payments as of September 30, 1998 under both the
operating and capital leases, are shown in the following table:
CAPITAL OPERATING
LEASES LEASES
---------- -----------
1999.................................................................. $ 137 $ 1,739
2000.................................................................. -- 1,773
2001.................................................................. -- 1,776
2002.................................................................. -- 1,601
2003.................................................................. -- 1,502
Thereafter............................................................ -- 626
---------- -----------
137 9,017
Less--sublease rental income........................................ -- 271
Less--amounts representing interest................................. 6 --
---------- -----------
Present value of minimum lease payments............................... $ 131 $ 8,746
---------- -----------
---------- -----------
Aggregate net rental expense included in the accompanying statements of
income for the fiscal years ended September 30, 1998, 1997 and 1996 is
approximately $1,713, $1,496 and $542, respectively.
Leases with escalating rents or free rent periods are expensed on a
straight-line basis over the fixed term of the lease. Deferred rent of
approximately $195 and $172 is included in the accompanying consolidated balance
sheets at September 30, 1998 and 1997, respectively.
(3) REDEEMABLE CONVERTIBLE PREFERRED STOCK
On January 5, 1994, the Company amended its Certificate of Incorporation to
authorize the issuance of 1,000,000 shares of preferred stock with a par value
of $1.00 per share and issued 556,155 shares of redeemable convertible preferred
stock (Preferred Stock) for a purchase price of $6.30 per share for proceeds of
$3,234, net of $270 of issuance costs. On July 26, 1996, as a result of the
initial public offering, the Company converted the 556,155 shares of Preferred
Stock into 2,502,696 shares of common stock.
During the fiscal year ended September 30, 1996, the carrying value of the
Preferred Stock was increased by accreted dividends of $230. Accreted dividends
were charged to retained earnings in the accompanying consolidated financial
statements. In October 1996, the Company paid $569 of accrued dividends to the
preferred stockholders.
(4) STOCKHOLDERS' EQUITY
(A) AUTHORIZED CAPITAL STOCK
On June 5, 1996, the Company filed a Second Amended and Restated Certificate
of Incorporation, which provided for, among other things (i) an increase in the
number of authorized shares of Common Stock, par value $.01 per share of the
Corporation, to 30,000,000 shares (ii) the authorization of 556,155
F-12
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(4) STOCKHOLDERS' EQUITY (CONTINUED)
shares of Redeemable Convertible Preferred Stock, par value $.01 per share, and
5,000,000 shares of undesignated preferred stock, par value $.01 per share.
(B) STOCK DIVIDEND
On May 8, 1996, the Board of Directors approved a three-for-two stock split,
effected in the form of a stock dividend. Accordingly, all shares of common
stock, options to purchase common stock and the conversion ratio of the
Preferred Stock have been retroactively adjusted to reflect this stock split in
the accompanying fiscal 1996 consolidated statement of changes in redeemable
convertible preferred stock and stockholders' equity (deficit).
(C) INITIAL PUBLIC OFFERING
On July 26, 1996, the Company completed its initial public offering of
common stock. The Company sold 1,500,000 shares of common stock at $11.00 per
share, which generated proceeds of $14,511, net of issuance costs of $834.
(D) EMPLOYEE STOCK PURCHASE PLAN
On May 8, 1996, the Board of Directors authorized the 1996 Employee Stock
Purchase Plan (the Employee Plan). Under the Employee Plan, the Company may
issue up to an aggregate of 400,000 shares of common stock to employees at 85%
of the lower of the fair market value of the common stock on the first or last
day of each six-month purchase period. During fiscal 1998, 1997 and 1996,
48,956, 17,126 and 0 shares, respectively, were issued pursuant to the plan. On
October 1, 1998, 19,194 shares of common stock were issued pursuant to the
Employee Plan.
(E) STOCK OPTION PLANS
The Company has two stock option plans, the 1994 Stock Option Plan (the 1994
Plan) and the 1996 Stock Option and Grant Plan (the 1996 Plan). The 1994 and
1996 Plans enable the Company's Board of Directors to grant nonqualified and
incentive stock options (ISOs) and shares of Common Stock. ISOs are granted at
the then fair market value. Under the terms of the 1994 and 1996 Plans, options
generally vest over four years and expire ten years after the date of grant.
The 1994 and 1996 Plans are administered by the Compensation Committee as
appointed by the Board of Directors from time to time. On December 18, 1997, the
Company amended the 1996 Plan to increase the number of shares available for
grant to 1,708,156 shares of common stock. A total of 641,844 shares of common
stock are reserved for issuance under the 1994 Plan as amended.
In connection with a software development agreement, the Company granted to
a third party warrants to purchase 66,000 shares of common stock in July 1996 at
$11.00 per share. The warrants vest upon completion of certain events. At the
time of issuance, the fair value of the warrants was estimated at approximately
$85. For fiscal 1996, $14 was charged to cost of product revenue and additional
paid-in capital. The warrants were canceled and reissued at a price of $4.38 per
share in January 1997. The
F-13
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(4) STOCKHOLDERS' EQUITY (CONTINUED)
Company recorded a charge of $99 in fiscal 1997, representing the revised fair
market value of the warrants, as calculated using the Black-Scholes option
pricing model in accordance with SFAS No. 123.
Stock option activity for the 1994 and 1996 Plans is as follows:
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE
SHARES PER SHARE PRICE PER SHARE
---------- --------------- -----------------
Outstanding, September 30, 1995................ 601,368 $ 0.44--$2.00 $ 0.82
Granted...................................... 347,280 2.00--19.75 9.52
Exercised.................................... (67,015) 0.44--2.00 1.45
Canceled..................................... (79,342) 0.44--2.00 4.15
---------- --------------- -----
Outstanding, September 30, 1996................ 802,291 0.44--19.75 4.59
---------- --------------- -----
Granted...................................... 1,116,725 2.88--17.00 4.75
Exercised.................................... (265,466) 0.44--3.88 0.81
Canceled..................................... (650,427) 0.44--19.75 7.57
---------- --------------- -----
Outstanding, September 30, 1997................ 1,003,123 0.44--17.00 3.87
---------- --------------- -----
Granted...................................... 363,700 5.63--8.25 6.15
Exercised.................................... (121,415) 0.44--4.67 2.10
Canceled..................................... (152,157) 0.44--8.25 4.05
---------- --------------- -----
Outstanding, September 30, 1998................ 1,093,251 $ 0.44--$17.00 $ 4.80
---------- --------------- -----
---------- --------------- -----
Vested, September 30, 1998..................... 295,473 $ 0.44--$17.00 $ 3.88
---------- --------------- -----
---------- --------------- -----
The weighted-average fair value of the options granted was $4.60, $3.09 and
$6.21 for the years ended September 30, 1998, 1997 and 1996, respectively.
The following table summarizes significant ranges of outstanding and
exercisable options at September 30, 1998.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGES OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ----------------- ----------- ------------------- ------------- ----------- -------------
$0.00--$1.97...... 24,750 6.2 $ 0.44 22,358 $ 0.44
1.98--3.95....... 348,401 7.8 3.55 169,409 3.52
3.96--5.92....... 468,750 8.7 4.92 98,459 4.70
5.93--7.90....... 221,750 9.0 6.18 0 0.00
7.91--9.87....... 18,600 9.5 8.25 0 0.00
9.88--11.85...... 3,500 7.6 11.00 1,968 11.00
15.80--17.78..... 7,500 8.0 17.00 3,279 17.00
----------- -----------
1,093,251 295,473
F-14
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(4) STOCKHOLDERS' EQUITY (CONTINUED)
The weighted-average fair value of the shares issued under the Employee Plan
was $3.70 and $3.49 for the years ended September 30, 1998 and 1997,
respectively.
The fair value of the stock awards, including the options granted under the
1994 Plan and the 1996 Plan, and the shares issued under the Employee Plan, was
estimated using the Black-Scholes model with the following weighted average
assumptions:
1998 1997 1996
--------- --------- ---------
Expected life.................................................. 7 years 6 years 6 years
Risk free interest rate........................................ 5.59% 6.30% 6.31%
Volatility..................................................... 80.0% 65.0% 65.0%
Dividend yield................................................. 0.0% 0.0% 0.0%
Stock-based compensation expense would have decreased net income and
increased net loss by $1,027, $220 and $0 in 1998, 1997 and 1996, respectively
($.12, $.03 and $.00 per basic and diluted share, respectively) if the fair
values of the options granted and stock issued had been recognized as
compensation expense. The pro forma effect on net income and loss for 1998, 1997
and 1996 is not representative of the pro forma effect on net income in future
years, because it does not take into consideration pro forma compensation
expense related to grants made prior to fiscal year 1996.
(5) INCOME TAXES
The provision (benefit) for income taxes in the accompanying consolidated
statements of operations consists of the following for the fiscal years ended
September 30, 1998, 1997 and 1996:
1998 1996 1997
--------- --------- ---------
Current--
Federal........................................................... $ 557 $ (658) $ 969
State............................................................. 20 16 267
--------- --------- ---------
577 (642) 1,236
--------- --------- ---------
Deferred............................................................ --
Federal........................................................... -- (85) (50)
State............................................................. -- (25) (19)
--------- --------- ---------
-- (110) (69)
--------- --------- ---------
Total provision (benefit)..................................... $ 577 $ (752) $ 1,167
--------- --------- ---------
--------- --------- ---------
F-15
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(5) INCOME TAXES (CONTINUED)
The deferred tax amounts as of September 30, 1998 and 1997 are as follows:
1998 1997
--------- ---------
Deferred tax asset--
Nondeductible reserves..................................................... $ 667 $ 385
Deferred revenue........................................................... 259 347
Buyout of distribution rights.............................................. 159 174
Research and development credit............................................ -- 160
--------- ---------
Total gross deferred tax asset......................................... 1,085 1,066
Less--Valuation allowance.................................................... 185 185
--------- ---------
Net deferred tax asset................................................. $ 900 $ 881
--------- ---------
--------- ---------
Deferred tax liability....................................................... $ 19 $ --
--------- ---------
--------- ---------
The Company had a valuation allowance of $185 against its gross deferred tax
asset at September 30, 1998 and 1997. The valuation allowance at September 30,
1998 and 1997 was established due to management's estimate that it was more
likely than not that a benefit of the buyout of distribution rights would not be
realized in the future. At September 30, 1998 and 1997, the Company had
refundable income taxes of $135 and $948, respectively, related to the carryback
of taxable losses to prior periods.
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory federal income tax rate as follows:
1998 1997 1996
--------- --------- ---------
Provision (benefit) at federal statutory rate....................... 34.0% (34.0)% 34.0%
State income tax, net of federal benefit............................ 6.3 (6.3) 6.3
Tax exempt interest income.......................................... (8.3) -- --
Tax effect of equity transaction (Note 4(e))........................ -- -- 3.0
Other, net.......................................................... (2.0) 3.3 .2
--- --------- ---
Effective tax rate............................................ 30.0% (37.0)% 43.5%
--- --------- ---
--- --------- ---
(6) EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan (the Benefit Plan) under
Section 401(k) of the Internal Revenue Code. The Benefit Plan is available to
all full-time U.S. employees. The Benefit Plan allows for employees to make
contributions up to a specified percentage of their compensation. Under the
Benefit Plan, the Company makes discretionary contributions, which for the
fiscal year ended September 30, 1997 was a match of 20% of the employees'
contributions up to a maximum annual match of 5% of each employee's salary. In
September 1997, the Company's discretionary contribution was amended to a match
of 50% of the employees' contributions up to a maximum annual match of 3% of
each employee's salary. The Company contributed approximately $154, $85 and $53
during the fiscal years ended September 30, 1998, 1997 and 1996, respectively.
F-16
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(7) ACCRUED EXPENSES
Accrued expenses at September 30, 1998 and 1997 consist of the following:
1998 1997
--------- ---------
Payroll and payroll-related costs.......................................... $ 1,913 $ 1,029
Buyout of distribution rights.............................................. 50 176
Other accrued expenses..................................................... 1,309 1,318
--------- ---------
$ 3,272 $ 2,523
--------- ---------
--------- ---------
(8) OTHER INCOME
Other income consists of the following:
1998 1997 1996
--------- --------- ---------
Interest income....................................................... $ 651 $ 677 $ 331
Interest expense...................................................... (19) (5) (16)
Other................................................................. (39) (1) 11
--------- --------- ---------
$ 593 $ 671 $ 326
--------- --------- ---------
--------- --------- ---------
(9) BUSINESS SEGMENT INFORMATION
Effective for the year ended September 30, 1998, the Company adopted SFAS
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which
requires disclosure of financial and descriptive information about the Company's
reportable operating segments. The operating segments reported below are the
segments for which separate financial information is available and for which
operating profit/loss amounts are evaluated regularly by senior management in
deciding how to allocate resources and in assessing performance.
The Company has two reportable segments: enterprise software solutions and
internet and transaction-based solutions, the latter of which started to emerge
in fiscal 1997 with the offering of outsourced services (e.g., resume scanning,
acknowledgement letters) and the research and development activities undertaken
for this segment. The Internet and transaction-based solutions segment provides
outsourced management of private candidate pools via RESTRAC WEBHIRE,
subscription services to public pools and job-posting sites, resume scanning,
reference checking and other fee-based staffing functions. The enterprise
software solutions segment provides perpetual licenses to the Company's software
products and the related maintenance, training, implementation and consulting
services in support of such licenses.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Expenses related to general
corporate functions such as Information Technology, Finance and Human Resources,
and general and administrative costs such as depreciation, rent and utilities
are allocated to the reportable segments based on relative headcount as a basis
of relative usage. Income tax provision (benefit) is allocated to the reportable
segments in deriving segment profit (loss) based on each segment's pro rata
income or loss before income tax provision (benefit). The Company has no
intersegment sales and transfers, and does not allocate assets to the operating
segments.
F-17
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(9) BUSINESS SEGMENT INFORMATION (CONTINUED)
The Company's reportable segments are strategic business units that offer
different solutions tailored to a customer's needs. They are managed separately
because each business requires different technology and sales and marketing
strategies.
YEAR ENDED SEPTEMBER 30, 1998:
----------------------------------------------------
INTERNET AND ENTERPRISE
TRANSACTIONS SOFTWARE OTHER CONSOLIDATED
------------ ----------- ----------- ------------
Total Revenue..................................................... $ 2,117 $ 28,738 $ -- $ 30,855
Research & Development $ 1,608 $ 3,980 $ -- $ 5,588
Depreciation and Amortization..................................... $ 218 $ 1,476 $ -- $ 1,694
Other Income, Net................................................. $ -- $ -- $ 593 $ 593
Segment Profit (Loss)............................................. $ (1,821) $ 2,579 $ 589 $ 1,347
YEAR ENDED SEPTEMBER 30, 1997:
----------------------------------------------------
INTERNET AND ENTERPRISE
TRANSACTIONS SOFTWARE OTHER CONSOLIDATED
------------ ----------- ----------- ------------
Total Revenue..................................................... $ 810 $ 21,238 $ -- $ 22,048
Research & Development............................................ $ 1,818 $ 3,628 $ -- $ 5,446
Depreciation and Amortization..................................... $ 120 $ 1,125 $ -- $ 1,245
Other Income, Net................................................. $ -- $ -- $ 671 $ 671
Segment Profit (Loss)............................................. $ (1,393) $ (555) $ 668 $ (1,280)
(10) SUBSEQUENT EVENT
On November 18, 1998, the Company acquired certain assets and assumed
certain obligations of the Junglee Employment Services business of Amazon.com.
In exchange for cash of $6 million and 1,670,273 shares of Restrac common stock,
Restrac received exclusive rights to Junglee's online recruitment technologies.
Restrac also acquired Junglee's Internet production sites and will manage and
develop the employer and career site business relationships established by
Junglee. Restrac did not retain any Junglee personnel in connection with the
transaction.
The allocation of purchase price among the assets acquired and liabilities
assumed will be determined during fiscal 1999 when appraisals, other studies and
additional information become available.
As this acquisition does not represent the acquisition of a business,
separate entity or subsidiary of the seller as anticipated by Regulation S-X,
and since there are no historical financial statements related thereto, no
financial statements are required or included herein.
F-18
SCHEDULE II
RESTRAC, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
BALANCE,
BEGINNING OF CHARGED BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS YEAR TO EXPENSE WRITE-OFFS END OF YEAR
- --------------------------------------------------------------- --------------- ------------- ----------- -------------
Year ended September 30, 1998.................................. $ 320 $ 495 $ 415 $ 400
Year ended September 30, 1997.................................. $ 350 $ 15 $ 45 $ 320
Year ended September 30, 1996.................................. $ 300 $ 201 $ 151 $ 350