UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File number 000-29793
Opus360 Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-4023714
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
39 West 13th Street, 3rd Fl. New York, NY 10011
(Address of Principal Executive Offices) (Zip Code)
212-687-6787
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of April 30, 2001.
Common Stock 49,665,798
(Class) (Outstanding Shares)
Opus360 Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2001 and
December 31, 2000 1
Consolidated Statements of Operations for the three months
ended March 31, 2001 and March 31, 2000 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and March 31, 2000 3
Notes to the Consolidated Financial Statements 4-13
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 14-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Change in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Securities Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
a. Exhibits
Item 1. Financial Statements
Opus360 Corporation and Subsidiaries
Consolidated Balance Sheet
(in thousands)
March 31, December 31,
2001 2000
(unaudited)
--------- ---------
Assets
Cash and cash equivalents $ 24,144 $ 35,835
Accounts receivable, net of allowances 1,126 5,510
Prepaid expenses 4,746 6,742
Other current assets 3,660 2,506
--------- ---------
Total current assets 33,676 50,593
Property and equipment, net 8,411 9,513
Goodwill, net of amortization -- 26,801
Deferred costs and other assets 1,230 725
--------- ---------
Total assets $ 43,317 $ 87,632
========= =========
Liabilities and Stockholders' Equity
Accounts payable $ 2,284 $ 5,189
Accrued expenses 2,537 2,643
Accrued wages -- 3,721
Deferred revenue 2,002 2,484
Line of credit 1,047 1,163
Deferred cost and other current liabilities 226 517
--------- ---------
Total current liabilities 8,096 15,717
Capital lease obligation 104 140
--------- ---------
Total liabilities 8,200 15,857
Common stock, $0.001 par value, 150,000 shares authorized,
49,551 and 50,088 issued and outstanding, respectively 50 50
Series A convertible preferred stock, $0.001 par value, 8,400 shares
authorized, 0 and 0 shares issued and outstanding, respectively -- --
Series B convertible preferred stock, $0.001 par value, 8,700 shares
authorized, 0 and 0 shares issued and outstanding, respectively -- --
Paid-in capital 187,125 192,310
Stock subscription receivable (215) (215)
Treasury stock (166) (31)
Deferred compensation (5,897) (12,017)
Accumulated deficit (143,810) (106,386)
Accumulated other comprehensive loss (3) (3)
Notes receivable for common stock issuances (1,967) (1,933)
--------- ---------
Total stockholders' equity 35,117 71,775
--------- ---------
Total liabilities and stockholders' equity $ 43,317 $ 87,632
========= =========
See accompanying notes to consolidated financial statements
1
Opus360 Corporation and Subsidiaries
Consolidated Statement of Operations
(unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
-------- --------
License revenue $ 15 $ 161
Services, FreeAgent and other revenue 1,526 816
-------- --------
Total revenue 1,541 977
-------- --------
Cost of revenue 565 745
-------- --------
Gross profit 976 232
-------- --------
Salesand marketing, exclusive of $12 and $94 for the periods ended
March 31, 2001 and 2000 respectively, reported below as
amortization of equity-based compensation 3,691 8,660
Product development, exclusive of $146 and $602 for the periods
ended March 31, 2001 and 2000 respectively, reported below as
amortization of equity-based compensation 3,470 7,759
General and administrative, exclusive of $737 and $2,968 for the
periods ended March 31, 2001 and 2000 respectively, reported
below as amortization of equity-based compensation 2,149 2,702
Depreciation and amortization of goodwill 4,164 2,667
Amortization of equity-based compensation 895 3,664
Impairment charge 22,968 --
Loss on disposition 1,402 --
-------- --------
Total operating expenses 38,739 25,452
-------- --------
Loss from operations (37,763) (25,220)
Net interest income 421 202
-------- --------
Loss from operations before income taxes (37,342) (25,018)
Income tax expense -- --
-------- --------
Net loss $(37,342) $(25,018)
======== ========
Basic and diluted net loss per share $ (0.75) $ (1.86)
======== ========
Weighted average common shares used in computing basic and
diluted net loss per share 49,939 13,438
======== ========
Pro forma basic and diluted net loss per share (Note 9) $ (0.64)
========
Weighted average common shares used in computing pro forma
basic and diluted net loss per share (Note 9) 38,879
========
See accompanying notes to consolidated financial statements
2
Opus360 Corporation
Consolidated Statement of Cash Flow
(unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net Loss $(37,342) $(25,018)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,164 2,667
Amortization of equity-based compensation 895 3,664
Other non-cash expenses associated with equity issuances 792 258
Impairment charge 22,968
Loss on disposition 919 --
Changes in operating assets and liabilities:
Accounts receivables 561 (302)
Prepaid expenses and other current assets 756 (329)
Other assets (322) 706
Accounts payable and accrued expenses (2,795) (1,323)
Other liabilities (559) 706
Deferred Revenues (482) 5,207
-------- --------
Total adjustments 26,969 11,254
-------- --------
Net cash used in operating activities $(10,373) $(13,764)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (64) (3,523)
Capitalization of software costs (1,044) --
Decrease in short term investments -- 26,912
Cash used in connection with acquisition of subsidiaries -- (975)
Cash used in acquisition of other assets -- (650)
-------- --------
Net cash (used in) provided by investing activities $ (1,108) $ 21,764
-------- --------
Cash flows from financing activities:
Net proceeds from loans -- 1,008
Repayment of loans (116) --
Net proceeds from issuance of common stock 41 1,276
Repurchase of treasury stock (135)
-------- --------
Net cash (used in) provided by financing activities $ (210) $ 2,284
-------- --------
Net (decrease) increase in cash $(11,691) $ 10,284
Cash:
Beginning of period $ 35,835 $ 1,326
-------- --------
End of period $ 24,144 $ 11,610
======== ========
See accompanying notes to consolidated financial statements
3
Opus360 Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
(all tabular amounts in thousands except per share amounts)
Note 1. Organization and Summary of Accounting Policies
(a) Organization and Description of Business
Opus360 Corporation ("Opus360" or the "Company") was incorporated on
August 17, 1998, under the laws of the State of Delaware.
Opus360 provides internet-based enterprise software that enables
businesses to procure and manage professional services, consultants and systems
integration services. Using the Company's Workforce360 enterprise software -- an
end-to-end infrastructure of interoperable software solutions and hosted
procurement services, -- businesses and service providers can efficiently source
and deploy, increase utilization, and lower the cost of administering their
project-based workforce. Opus360 also licensed Private Labeled Sites; a unique
combination of a client's service marks with its proprietary FreeAgent.com
universal resource locator for the purpose of bringing together buyers and
sellers of contracted labor resources in a single efficient marketplace.
The Company's continued existence is dependent upon several factors
including the Company's ability to sell and successfully implement its software
solutions. The Company has experienced recurring net losses since it commenced
operations on August 17, 1998. At March 31, 2001 the Company has an accumulated
deficit of $143.8 million. The Company has not achieved profitability and
expects to continue to incur net losses in the year ended December 31, 2001. The
Company's business model is dependent on receipt of fees for its labor
procurement and management software solutions. The Company's software products
are delivered over the Internet and compete with traditional recruiting and
project-based work search methods. The Company may not be able to achieve the
level of sales growth required to generate enough cash to fund its operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
The Company's near and long-term operating strategies focus on promoting
its Workforce360 software and services to increase its revenue and cash flow
while better positioning the Company to compete under current market conditions.
The Company has also reorganized its sales and marketing units in an effort to
streamline its sales and marketing strategies and increase its sales efforts.
In the future, the Company may need to raise additional funds through
public or private financings, or other arrangements to fund its operations and
potential acquisitions, if any. The Company currently has no plans to effect any
other offerings, the Company cannot guarantee that such financings or other
arrangements will be available in amounts or on terms acceptable to the Company.
The Company's inability to raise capital when needed could seriously harm the
growth of the business and results of operations.
(b) Recent Developments
On April 11, 2001, the Company signed a definitive agreement with
Proha PLC ("Proha"), a provider of project and resource collaboration solutions
that is listed on the NM-list of the Helsinki Exchange. Under the terms of the
definitive agreement, Artemis Management Systems Inc. ("Artemis"), the project
management and collaboration subsidiary of Proha, will combine with Opus360,
which is expected to be renamed Artemis International Corporation. In
conjunction with the execution of the definitive agreement, the companies have
entered into a bilateral distribution agreement effectively immediately, to sell
their full lines of product and services. The proposed combination will result
in the exchange of the stock of the Artemis subsidiary of Proha for 80% of the
post-transaction issued and outstanding common stock of Opus360. The merger will
be treated for accounting purposes as a reverse acquisition of Opus360.
(c) Basis of Presentation
The unaudited consolidated financial statements have been prepared by the
Company in accordance with generally accepted accounting principles and reflect
all adjustments (all of which are normal and recurring in nature) that, in the
opinion of management, are necessary for a fair presentation of the interim
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for any subsequent
quarters or for the entire year ending December 31, 2001. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted under the Securities and Exchange Commission's ("SEC") rules and
regulations. These unaudited consolidated financial statements and notes
included herein
4
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the year ended December 31, 2000, included in
the Company's Form 10-K Annual Report filed with the SEC on March 19, 2001.
The Company has reclassified a portion of its general and administrative
expenses to allocate total costs for overhead and facilities to each of the
functional areas that use the overhead and facilities services based on their
headcount. These allocated charges include facility rent for the Company's
offices, communication charges, equipment leases, and depreciation expense for
office furniture and equipment. Certain amounts in the prior year financial
statements have been reclassified to conform to the current year presentation.
During the quarter ended March 31, 2001, the Company disposed of a portion
of its FreeAgent.com segment, the e.office business, by selling The Churchill
Benefit Corporation ("Churchill"), the Company's subsidiary which conducted the
e.office business, to an entity formed by its former management while retaining
a 19.9% interest in such entity. The business was disposed of in exchange for
shares of the Company's common stock, with a fair market value of $0.1 million,
the 19.9% interest and a note receivable of $0.5 million with an interest rate
of prime plus 1%. Since this disposition did not represent the disposition of a
full separate line of business and in accordance with APB Opinion No. 30,
"Reporting the Results of Operations- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", the Company reported a loss on disposition of $1.4
million. The Company's consolidated balance sheet at March 31, 2001 does not
include the assets, liabilities and stockholders' equity of Churchill. The
transaction is described in greater detail in footnote 3.
(d) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(e) Accounts Receivable and Accrued Wages Payable
Accounts receivable at December 31, 2000, includes the gross billings owed
by contracting businesses using the services of the Company's e.office
employees. Accrued wages at December 31, 2000, includes the gross billings that
the Company collects for the services its e.office employees provide to these
contracting businesses, less the initial sign up fee and the monthly fees owed
to the Company by the e.office employees. For the year ended December 31, 2000,
the gross billings owed to contracting businesses and included in accounts
receivable was approximately $3.4 million, and the accrued wages was
approximately $3.7 million. At March 31, 2001, neither the gross billings nor
the accrued wages of FreeAgent e.office employees are included in the Company's
consolidated balance sheet reflecting the disposition of that business.
(f) Impairment of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires impairment losses to be recorded on
long-lived assets used in operations, including goodwill, when indicators of
impairment are present and the undiscounted future cash flows, estimated to be
generated by those assets are less than the assets' carrying value. If such
assets are impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair market value of the
assets. Assets to be disposed of are reported at the lower of the carrying value
or fair market value, less cost to sell. During the quarter ended March 31,
2001, the Company reported a charge for such impairment which is described in
greater detail in footnote 7.
(g) Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price paid over the fair
value of tangible and identifiable intangible net assets acquired in business
combinations. Identifiable intangible assets primarily include intellectual
property, trademarks, and core technology. The Company regularly performs
reviews to determine if the carrying value of the goodwill and other intangible
assets is impaired. The purpose for the review is to identify any facts or
circumstances, either internal or external, which indicate that the carrying
value of the asset cannot be recovered. Goodwill and other intangible assets are
stated net of accumulated amortization and are amortized on a straight-line
basis over their expected useful lives of three years. As a result of the
proposed merger, as described in footnote 1(b), the Company has reevaluated the
recoverability of the goodwill based on the remaining projected cash flows
through the acquisition date compared to the fair value of consideration to be
received in connection with the acquisition. Based on this analysis the Company
has determined that previously recorded goodwill is not recoverable and has
recorded the impairment charge in the amount of $22.7 million further described
in footnote 7.
5
(h) Segment Information
The Company discloses information regarding segments in accordance with
SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for reporting of financial
information about operating segments in annual financial statements and requires
reporting selected information about operating segments in interim financial
reports. With the December 31, 2000 decision to eliminate user fees for
FreeAgent.com services and the March 31, 2001 sale of its e.office business, the
Company's operations will be concentrated in a single segment; the development,
marketing and support of its application software products in future periods.
Note 2. Acquisitions
2000
Ithority Corporation
On January 20, 2000, the Company acquired 100% of the outstanding equity
of Ithority Corporation ("Ithority") in exchange for approximately 243,474
shares of the Company's common stock valued at $2.0 million, or $8.21 per share,
plus cash payments of $0.25 million paid on closing and $0.25 million paid in
the second quarter of 2000.
The former shareholders of Ithority were also entitled to up to 177,661
shares of common stock of the Company, which were placed in escrow (the
"Ithority Escrow Shares"), plus $4.0 million of the Company's common stock to be
issued one year after the date of closing based upon the then fair market value
of the Company's common stock (the "Ithority Additional Shares"). On January 10,
2001 as part of the $4 million issuance, the Company issued 196,865 shares of
common stock valued at $0.1 million, or $0.55 per share, to certain of the
former stockholders of Ithority Corporation and paid $0.07 million, or $0.1 per
share, for the repurchase of approximately 7,254,000 shares of common stock
representing the Ithority Escrow Shares and approximately 7,076,000 Ithority
Additional Shares valued at approximately $3.9 million, or $0.55 per share, that
were to be issued to certain of the former shareholders.
The Ithority Escrow Shares and approximately 97% of the Ithority
Additional Shares to be issued to the selling shareholders were subject to three
year vesting agreements under which the Company has the right but not the
obligation to repurchase these shares for $0.01 per share in the event these
shareholders party to such agreements were no longer employed by the Company.
The Company had recorded deferred compensation expense of $5.3 million for the
fair market value of the Ithority Escrow Shares, which were subject to these
continued employment arrangements, and was amortizing such amount over the
vesting period. By the end of the fourth quarter of 2000, all of the affected
selling shareholders had terminated their employment with the Company. In
January 2001, the date of repurchase of these shares, the Company eliminated
$3.7 million of unamortized deferred compensation that it had previously
recorded for the Ithority Escrow Shares.
The Company has included the vested portion of the restricted shares for
purposes of calculating basic earnings per share. The Company has not included
the unvested portion of the restricted shares for purposes of calculating
diluted earnings per share since such amounts are anti-dilutive.
The Company accounted for the acquisition of Ithority using the purchase
method and, accordingly, the results of operations of Ithority are included in
the Company's consolidated financial statements from the date of acquisition.
The purchase price has been allocated to Ithority's historical assets and
liabilities based on the fair values of the assets acquired and liabilities
assumed.
PeopleMover, Inc.:
On February 24, 2000, the Company acquired all of the outstanding equity
of PeopleMover, Inc. ("PeopleMover") for approximately 2,634,000 shares of
Opus360 common stock. Additionally, the Company exchanged options to purchase
approximately 1,189,000 shares of its common stock for outstanding stock options
to purchase PeopleMover common stock.
The purchase price of PeopleMover consisted of 2,634,000 shares of Opus360
common stock valued at approximately $24.0 million, or $9.11 per share, plus the
assumption by Opus360 of options to purchase shares of PeopleMover common stock,
exchanged for options to purchase approximately 1,189,000 shares of Opus360
common stock. The options were valued at approximately $7.9 million using the
Black-Scholes pricing model. Such shares have an aggregate exercise price of
approximately $5.2 million. The Company also incurred acquisition costs of
approximately $0.66 million related to the merger.
Approximately 342,000 shares issued to certain PeopleMover shareholders
are subject to a three-year restricted stock vesting agreement, whereby the
Company has the right but not the obligation to repurchase these shares for
$0.01 per share in the event the shareholder is terminated for cause by the
Company. The Company has included the vested portion of the restricted
6
shares for purposes of calculating basic earnings per share. The Company has not
included the unvested portion of the restricted shares for purposes of
calculating diluted earnings per share since such amounts are anti-dilutive.
The value of the 342,000 shares, which are subject to the vesting
agreement, is approximately $3.1 million, which was recorded to deferred
compensation expense and is being amortized over the term of the vesting
agreement. As of March 31, 2001 the accumulated amortization was $1.1 million.
In the fourth quarter of 2000, the selling shareholders terminated their
employment with the Company resulting in the forfeiture of approximately
one-third of the shares subject to the vesting agreement. As of February 2001,
on the escrow release date, the Company may release and cancel the escrowed
shares that did not vest in accordance with the vesting agreement. During the
quarter ended March 31, 2001 the Company eliminated $0.8 million of unamortized
deferred compensation recorded for those escrowed shares that will no longer
vest as a result of the selling shareholders terminating their employment with
the Company.
The Company accounted for the acquisition of PeopleMover using the
purchase method and, accordingly, the results of operations of PeopleMover are
included in the Company's consolidated financial statements from the date of
acquisition. The purchase price was allocated to PeopleMover's historical assets
and liabilities based on the fair values of the assets acquired and liabilities
assumed.
Note 3. Loss on disposition
During the quarter ended March 31, 2001, the Company disposed of a portion
of its FreeAgent.com segment, the e.office business, by selling The Churchill
Benefit Corporation ("Churchill"), the Company's subsidiary which conducted the
e.office business, to an entity formed by its former management while retaining
a 19.9% interest in such entity. The business was disposed of in exchange for
shares of the Company's common stock, with a fair market value of $0.1 million,
the 19.9% interest and a note receivable of $0.5 million with an interest rate
of prime plus 1%. Since this disposition did not represent the disposition of a
full separate line of business and in accordance with APB Opinion No. 30,
"Reporting the Results of Operations- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", the Company reported a loss on disposition of $1.4
million. The Company's consolidated balance sheet at March 31, 2001 does not
include the assets, liabilities and stockholders' equity of Churchill.
Included in loss from operations are the operating results of the disposed
e.office business operations for the periods ending March 31, 2001 and March 31,
2000, respectively.
March 31, March 31,
2001 2000
------ ------
Revenues $ 404 $ 208
Cost Of revenue 64 5
------ ------
Gross profit 340 203
Operating expenses 390 316
------ ------
Loss before income taxes (40) (113)
Income taxes -- --
Net loss $ (40) $ (113)
====== ======
7
Assets and liabilities of the disposed e.office business operations, in which
the Company has retained a 19.1% interest, are as of March 31, 2001, prior to
the disposition, and as of December 31, 2000, respectively.
March 31, December 31,
2001 2000
-------- --------
Assets:
Cash $ 1,081 $ 593
Trade receivables 3,822 3,911
Prepaid expenses 8 --
Property and equipment, net 27 30
Goodwill, net 822 --
Other assets -- 8
-------- --------
Total assets 5,761 4,542
-------- --------
Liabilities:
Accrued wages (3,937) (3,721)
Other current liabilities (73) 46
Other liabilities (102) (8,848)
-------- --------
Total liabilities ($ 4,112) ($12,615)
-------- --------
Net assets $ 1,649 ($ 8,073)
======== ========
Note 4. Accounts Receivable, net:
At March 31, 2001 and December 31, 2000 the breakdown of accounts
receivable was as follows:
March 31, December 31,
2001 2000
------- -------
Billed receivables $ 874 $ 4,646
Unbilled receivables 532 1,192
------- -------
1,406 5,838
Less allowance for doubtful receivables (279) (328)
------- -------
Total $ 1,127 $ 5,510
======= =======
Changes in the allowance for doubtful receivables were as follows:
March 31, December 31,
2001 2000
------ ------
Beginning balance $ (328) $ 0
Provision for doubtful receivables (153) (328)
Write-offs 202 0
------ ------
Ending balance $ (279) $ (328)
====== ======
Note 5. Lines of Credit
In February 2000 and June 2000, the Company borrowed $1.1 million and $0.7
million, respectively, as part of a $1.8 million equipment line of credit (the
"Facility") with a bank. The annual interest rate on the Facility is equal to
the bank prime rate plus 1.25%. The Company is in compliance with the covenants
under the Facility and it's current outstanding balance under the Facility line
at March 31, 2001 is $1.0 million with an interest rate of 10.75% per annum.
8
Note 6. Commitments
Asset Purchase Agreement
On March 16, 2001, the Company entered into an Asset Purchase Agreement
pursuant to which it agreed to purchase certain assets and assume certain
liabilities of Mirronex Technologies Inc. The obligation to purchase was
contingent upon satisfaction of certain conditions, including approval by the
United States Bankruptcy Court of the purchase agreement in Mirronex's Chapter
11 bankruptcy proceeding, no higher bid by any other party and the delivery of
the identified assets. Bankruptcy Court approval was received on May 7, 2001.
The cash purchase price of $2.0 million will be reduced by a $0.9 million
secured loan made to Mirronex in December 2000 and during the quarter ended
March 31, 2001, and by the liabilities assumed and certain other deductions. The
transaction is expected to close in the first half of calendar year 2001 and
will be accounted for as a purchase.
Registration Rights:
Beginning 180 days after the effective date of the Company's IPO, certain
holders of the Company's common stock and warrants will be entitled to have
their shares registered under the Securities Act of 1933 upon written demand in
certain circumstances. The Company will be responsible for all expenses in
connection with the registration rights.
Advertising Agreements:
In December 1999 and during the first and second quarter of 2000, the
Company entered into several agreements with various media companies and their
affiliated Internet sites pursuant to which the parties agreed to promote their
respective content, products and services, jointly develop various co-branded
websites and feature the Company's services within those co-branded sites. The
Company agreed to spend in the aggregate a minimum of $0.2 million in
development costs, approximately $12.4 million in advertising through March
2005, and an additional $2.0 million in integration fees. In addition the terms
of the agreements allowed the Company to share in the revenue generated on some
co-branded sites.
In October 2000, the Company restructured several of its co-branding and
advertising agreements. Under the revised agreements, the Company has agreed to
purchase an aggregate of $6.3 million in advertising from various media
companies and their affiliated Internet sites through September 2002.
Approximately $3.6 million of the advertising commitment is contingent on the
delivery of a specified number of monthly impressions, which if not delivered
can result in a termination of the commitment. As of March 31, 2001, the Company
has purchased and expensed $2.9 million of the $6.3 million advertising
commitment. The Company will expense the remaining advertising commitment of
$3.4 million upon the delivery of the required amount of advertising
impressions.
Note 7. Impairment Charge
On April 11, 2001, the Company executed a definitive agreement with Proha
PLC ("Proha") pursuant to which the Company has agreed to merge with Proha's
wholly owned subsidiary, Artemis Management Systems ("Artemis") in return for
issuance to Proha of 80% of the Company's post-transaction outstanding common
stock, after which the Company is expected to be renamed Artemis International
Corporation. The merger would result in a reverse acquisition for accounting
purposes, and Artemis would be treated as the acquiror. As a result of the
proposed merger, as described in footnote 1(b), the Company has reevaluated the
recoverability of the goodwill based on the remaining projected cash flows
through the acquisition date including the fair value of consideration to be
received in connection with the acquisition. Based on this analysis the Company
has determined that goodwill is not recoverable and has recorded an impairment
charge in the amount of $22.7 million. In addition a charge of $0.3 million was
recorded to reduce the net current valuation of the Company's personal and
corporate computer equipment.
Note 8. Income Taxes
The Company has not recorded a provision for income tax expenses, as it
has incurred net operating loss for each period since inception.
9
Note 9. Basic and Diluted Net Loss Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
Three months ended
March 31,
2001 2000
----------- --------
Numerator:
Net loss $ (37,342) $(25,018)
=========== ========
Denominator:
Basic and diluted loss per share weighted
average shares 49,939 13,438
=========== ========
Basic and diluted net loss per share $ (0.75) $ (1.86)
=========== ========
For the three months ended March 31, 2001 and March 31, 2000 basic and
diluted net loss per share excludes the effect of 405,631 escrowed shares and
$850,000 of contingently issuable shares of common stock in connection with the
acquisition of Churchill. These shares were cancelled during the quarter ended
March 31, 2001. Diluted net loss for the three months ended March 31, 2001 and
March 31, 2000 does not include the effect of options and warrants to purchase
16,406,442 and 11,457,000 shares of common stock, respectively, or 260,870 and
510,160, respectively, unvested escrowed shares of common stock issued to former
shareholders of PeopleMover and Ithority. Diluted net loss per share for the
three months ended March 31, 2000 does not include 25,441,000 shares of common
stock issuable upon the conversion for Series A and B preferred stock on an
"as-if converted" basis, as the effect of their inclusion is anti-dilutive for
that period.
Pro forma basic and diluted loss per share is computed by assuming the
conversion of all convertible preferred stock into common stock as if such
shares were outstanding from their respective dates of issuance. The basic and
diluted loss per share at March 31, 2001 includes the conversion of the
convertible preferred stock, which occurred on the Company's initial public
offering date of April 7, 2000. The following table sets forth the computation
of the Company's pro forma basic and diluted loss per share (in thousands,
except per share amounts):
Three months ended
March 31,
2001 2000
-------- --------
Numerator:
Net loss $(37,342) $(25,018)
======== ========
Denominator:
Weighted average shares 49,939 13,438
Assumed conversion of preferred stock
Series A 0 12,426
Series B 0 13,015
-------- --------
49,939 38,879
======== ========
Basic and diluted net loss per share $ (0.75)
=========
Pro forma basic and diluted net loss per share $ (0.64)
========
10
Note 10. Stockholders' Equity
Stock Options:
In March 2000, the Company adopted the (1) 2000 Stock Option Plan (the
"2000 Plan"), which provides for the granting of non-qualified and incentive
stock options to employees, board members and advisors (2) the 2000 Non-Employee
Directors' Plan (the "Non-Employee Director Plan"), which provides for
automatic, non-discretionary grants, of non-qualified stock options to
non-employee board members, as defined, and (3) the 2000 Employee Stock Purchase
Plan (the "ESPP"), which permits eligible employees to acquire, through payroll
deductions, shares of the Company's common stock. The 2000 Plan and the
Non-Employee Director Plan authorize the granting of up to 7.5 million and up to
1.13 million options, respectively, and provide for option terms not to exceed
ten years. The ESPP authorizes the issuance of up to 2.25 million shares to
participating employees. The Company's 1998 Stock Option Plan authorized the
granting of up to 6.2 million options and provided for option terms not to
exceed ten years. During the quarter ended March 31, 2000 the Company granted
approximately 1,444,000 options with exercise prices ranging from $0.13 to
$1.00.
During the first quarter of 2000, the Company recorded deferred
compensation of $8.3 million, primarily related to options granted to its new
President, Executive Vice President Software & Technology, and in connection
with granting options to employees and board members. During the quarter ended
March 31, 2001 the Company reduced the amount of the deferred compensation it
had previously recorded, by approximately $0.8 million, representing the
unamortized deferred compensation for employees who were issued stock options
and are no longer employed by the Company.
The Company expects to amortize unamortized deferred compensation expense
of approximately $4.3 million at March 31, 2001, as follows (in thousands):
For the nine months ending December 31, 2001 $ 1,688
For the year ending December 31, 2002 $ 2,251
For the year ending December 31, 2003 $ 348
In connection with the granting of approximately 32,250 stock options in
the first quarter of 2000 to non-employees, the Company recorded deferred
compensation expense of approximately $29,000 for the quarter ended March 31,
2000. These options have been issued under the 1998 Stock Option Plan and
generally vest over three to four years. The Company will amortize deferred
compensation for those options issued to non-employees in accordance with EITF
96-18, and will record expense for the fair market value of the options at each
interim reporting date over which the options vest. Fair market value at each
date of grant and interim reporting period is calculated using the Black-Scholes
pricing model. During the quarter ended March 31, 2001 the Company has not
recorded any additional deferred compensation as all grants made during the
quarter were made to employees at fair market value.
Note 11. Segment Information
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company's reportable segments are
business units that offer different products and services throughout the United
States. With the December 31, 2000 decision to eliminate user fees for
FreeAgent.com services and the March 31, 2001 sale of its e.office business, the
Company's operations will be concentrated in a single segment; the development,
marketing and support of its application software products in future periods.
The Company's accounting policies for these segments are the same as those
described in Note 1 - Organization and Summary of Accounting Policies, above.
11
The table below presents information about segments used by the chief
operating decision-maker of Opus360 for the three months ended March 31, 2001
and March 31, 2000 (in thousands):
Application and
Procurement FreeAgent
Services Services Total
--------------- --------- --------
March 31, 2001:
Revenue $ 1,113 $ 428 $ 1,541
Gross (loss) profit 422 143 565
Net loss before equity-based
Compensation charges (35,130) (1,317) (36,447)
Total assets $ 37,556 $ 5,761 $ 43,317
March 31, 2000:
Revenue $ 679 $ 298 $ 977
Gross (loss) profit 32 200 232
Net loss before equity-based
Compensation charges (9,160) (12,194) (21,354)
Total assets $ 65,076 $ 3,251 $ 68,327
For the three months ended March 31, 2001 and March 31, 2000, the
reconciliation between segment net loss and net loss from operations is as
follows (in thousands):
March 31, 2001
Segment net operating loss $(36,447)
Equity-based compensation (895)
--------
Enterprise net operating loss $(37,342)
March 31, 2000
Segment net operating loss $(21,354)
Equity-based compensation (3,664)
--------
Enterprise net operating loss $(25,018)
Note 12. Subsequent Events
On April 6, 2001, the Company was named as a defendant in a class action
complaint, filed in United States District Court for the Southern District of
New York (the "Court"), alleging violation of federal securities laws.
Subsequent to that date, several other complaints have been filed in the Court
alleging substantially the same claims. The Company believes the claims
described in the various complaints are without merit and intends to vigorously
defend against all such claims.
On April 11, 2001, the Company signed a definitive agreement with Proha
PLC ("Proha"), a provider of project and resource collaboration solutions that
is listed on the NM-list of the Helsinki Exchange. Under the terms of the
definitive agreement, Artemis Management Systems Inc. ("Artemis"), the project
management and collaboration subsidiary of Proha, will combine with Opus360,
which is expected to be renamed Artemis International Corporation. In
conjunction with the execution of the definitive agreement, the companies have
entered into a bilateral distribution agreement effectively immediately, to sell
their full lines of product and services. The proposed combination will result
in the exchange of the stock of the Artemis subsidiary of Proha for 80% of the
post-transaction issued and outstanding common stock of Opus360. The merger will
be treated for accounting purposes as a reverse acquisition of Opus360.
Note 13. Contingencies
Rescission Offer:
As of March 31, 2001, the Company has granted options to purchase
approximately 97,125 shares of its common stock to its former FreeAgent e.office
employees, which may not have complied with certain federal and state securities
laws.
12
As disclosed in the Company's Prospectus dated April 7, 2000, the Company
intends to make a rescission offer to all the FreeAgent e.office employees. The
Company intends to file a registration statement with respect to the rescission
offer under applicable federal and state securities laws. In the rescission
offer, the Company will offer to repurchase from the FreeAgent e.office
employees all of the shares issued upon exercise of options by these employees
before the expiration of the rescission offer registration statement, at the
exercise price paid for these shares, plus interest at the rate of 10% per year
from the date of issuance until the rescission offer expires. The Company will
also offer to repurchase all of the unexercised options issued to these
FreeAgent e.office employees at 20% of the option exercise price multiplied by
the number of shares subject to such options, plus interest at the rate of 10%
per year from the date of issuance until the rescission offer expires. The
rescission offer will expire approximately 30 days after the effectiveness of
the rescission offer registration statement.
Based on the number of options outstanding as of March 31, 2001, the
Company could be required to pay to these FreeAgent e.office employees up to
approximately $0.1 million, including interest, in connection with the
rescission offer. The applicable securities laws do not expressly provide that a
rescission offer will terminate a purchaser's right to rescind a sale of stock,
which was not registered as required. Accordingly, if any FreeAgent e.office
employees reject the rescission offer, the Company may continue to be
contingently liable for the purchase price of these shares and options, which
were not issued in compliance with applicable securities laws. Amounts related
to this contingent liability are not reflected in the accompanying financial
statements.
13
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Act of 1934, as amended. Such statements are based
upon current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical facts may be deemed to be
forward-looking statements. For example, words such as "may", "will", "should",
"estimates", "predicts", "potential", "continue", "strategy", "believes",
"expects", "anticipates", "plans", "intends", and similar expressions are
intended to identify forward-looking statements. Our actual results and the
timing of certain events may differ significantly from the results discussed in
the forward-looking statements. Among the important factors that could cause
actual results to differ significantly from those expressed or implied by such
forward-looking statements are the likelihood or effect of completing the
combination with Artemis Management Systems ("Artemis"); our ability to
successfully integrate our business with that of Artemis, our limited operating
history and expectation of future losses; the failure of the Internet to become
a proven recruitment and project search medium; our need to successfully develop
awareness of our brand names; the failure of our products and services to be
accepted in the marketplace; the intense competition in our industry;
technological change; damage to our reputation which could result from
unexpected network interruption; undetected errors or defects in our services;
breaches of our network security or computer viruses; the imposition of new
burdensome government regulations and legal uncertainties regarding the Internet
which could increase our costs or limit our operations; the potential need for
additional financing; the risk that our proprietary rights may not be fully
protected; uncertainties regarding the application of federal tax and employee
benefit laws to our business which could limit our ability to provide benefits
that will attract free agents or serve our clients; the risk that we may be
subject to employment-related claims relating to free agents, or the
organizations that use their services; legal uncertainties regarding the
application of various federal and state laws into our business; legal
uncertainties regarding the outcome of shareholder suits; as well as the other
risk factors affecting the Company detailed from time to time in documents filed
by the Company with the Securities Exchange Commission ("SEC"), including but
not limited to those discussed under the caption "Risk Factors" in our Annual
Report on Form 10-K filed with the SEC on March 19, 2001.
Overview
In October 2000 we launched our second-generation version of the
integrated Opus360 Workforce Platform, now called Workforce360. This version of
our human capital management software will enable large and mid-size
organizations to manage their project-based workforce, procure contingent
workers from preferred vendors and manage independent contractors through our
FreeAgent.com services. Workforce360 consists of two distinct but tightly
integrated modules for Workforce Management and Workforce Procurement. The
Workforce Management module enables professional services organizations to build
and optimize project teams, increase overall workforce utilization and improve
employee retention rates. The Workforce Procurement Module enables buyers and
suppliers of contract labor to automate and streamline hiring processes, reduce
procurement costs, and track the performance of contract labor suppliers.
Workforce360 is an Internet-based software application that can be deployed by
our customers or delivered as a hosted solution, which reduces the cost of
hardware, maintenance and updates for our customers. Using Workforce360
businesses and service providers can efficiently source and deploy, increase
utilization, and lower the cost of administering their project-based labor.
Results of Operations
We have a short operating history and have incurred substantial losses
since our inception. From the date of our inception in August 1998 through
December 31, 1998, we incurred net losses of $1.1 million. For the year ended
December 31, 1999, we incurred net losses of $29.5 million. For the year ended
December 31, 2000, we incurred net losses of $75.9 million. For the three months
ending March 31, 2001, we incurred net losses of $37.3 million and as of March
31, 2001, we had an accumulated deficit of $143.8 million. Our net losses and
resulting accumulated deficit are primarily due to the costs we incurred to
develop our products and services and to expand our sales and marketing
programs.
Because of the prospective valuation established by the pending
combination with Artemis and our analysis of projected cash flows, we have
recorded a non-cash impairment charge of $23.0 million to write-down the
goodwill and other intangibles associated with the acquisitions of the
PeopleMover, Ithority and IndustryInsite.com businesses completed in the first
quarter of 2000 and to decrease the value of our personal and corporate computer
equipment.
We intend to continue to devote resources to advertising and
brand-marketing programs designed to promote our Workforce360 enterprise
software. We anticipate that we will incur additional salaries and sales
commissions as a result of increased sales personnel and increased sales. Our
marketing and branding programs for our enterprise software will result in an
expanded marketing program for trade shows and customer advisory board meetings.
We believe that these expenses will continue to increase in absolute dollars in
future periods. The increase in sales and marketing costs is expected to be
offset by a decrease in our product development and general and administrative
expenses as we continue to focus on increasing our operating efficiencies while
cutting costs. With the release of the second-generation version of Workforce360
we anticipate that
14
our product development costs will decrease in future periods. We expect to
incur losses from operations for the foreseeable future but these losses are
expected to decrease significantly as a percentage of revenue. To the extent
these decreases in our operating expenses are not followed by commensurate
increases in our revenue, or if we are unable to adjust operating expense levels
as anticipated, our operating losses may exceed our expectations for those
periods. We cannot be certain that we will ever achieve or sustain
profitability.
Three Months Ended March 31, 2001 and 2000
Revenue
For the quarter ended March 31, 2001 our revenue was $1.5 million of which
$1.1 million was derived from Application and Procurement Services ("APS") which
consisted of integration services revenue of $0.7 million and other revenue of
$0.3 million from a fee of $0.3 million in mitigation of a licensee's decision
during the third quarter of 2000, to cease implementation of our product; and
$0.4 million from our FreeAgent services consisting of initial sign-up fees and
monthly fees paid by our former e.office employees. For the quarter ended March
31, 2000 we had revenue of $1.0 million of which approximately $0.3 million was
derived from our FreeAgent.com services consisting of initial sign-up fees and
monthly fees paid by our e.office employees as well as sales of advertising
sponsorships on FreeAgent.com; and $0.7 million related to the Application and
Procurement Services which consisted of the sale of software licenses and
integration services revenues.
Cost of Revenue
Cost of revenue for the quarter ended March 31, 2001, was $0.6 million, a
decrease of 14% from cost of revenue of $0.7 million for the quarter ended March
31, 2000. This reduction was as a result of the decreased amount of salaries and
wages paid to employees that provide implementation and integration services to
customers who were deploying our enterprise software during the quarter,
salaries paid to staff who administer our e.office services and costs associated
with operating the FreeAgent.com website including certain technical personnel
and telecommunications charges. As we continue to increase the sale and
implementation of our enterprise software solution, we expect that cost of
revenue will continue to increase both in absolute dollars and percentage terms
in future periods. Cost of revenue for the quarter ended March 31, 2000, was
$0.7 million and consisted primarily of salaries paid to staff who administered
our FreeAgent e.Office services, costs associated with operating the
FreeAgent.com website including certain technical personnel and
telecommunications charges.
Operating Expenses
Sales and Marketing. Sales and marketing expenses for the quarter ended
March 31, 2001 were $3.7 million, excluding $0.01 million reflected as equity
based compensation below, a decrease of 57% from sales and marketing expenses of
$8.7 million for the quarter ended March 31, 2000. This decrease was primarily
attributable to the decline in marketing and advertising expenses for our
Workforce360 enterprise software and FreeAgent.com website, as well as a decline
in salaries and benefits paid to a reduced sales and marketing staff. As we
focus our resources on advertising and building brand-awareness for our
Workforce360 enterprise software and increase our sales efforts to coincide with
the release of enhanced software solutions, our sales and marketing costs may
increase, primarily due to salaries and commissions paid to our sales and
marketing associates.
Product Development. Product development expenses for the quarter ended
March 31, 2001 were $3.5 million, excluding $0.1 million reflected as equity
based compensation below, a decrease of 55% from product development expenses of
$7.8 million for the quarter ended March 31, 2000. The decrease was primarily
attributable to a lower amount in salaries and benefits paid to our reduced
product development staff and a reduction in the fees paid to our third party
consultants. During the current quarter, we capitalized approximately $1.0
million of software development costs. While we believe that continued
investment in product development is critical to attaining our strategic
objective, we expect our product development expenses to decline in future
periods as our products achieve stability and our processes are refined.
General and Administrative. General and administrative expenses for the
quarter ended March 31, 2001 were $2.1 million, excluding $0.7 reflected as
equity based compensation below, a decrease of 22% over general and
administrative expenses of $2.7 million for the quarter ended March 31, 2000.
The decrease was primarily attributable to a decline in the number of employees
and associated general office expenses, rent and utilities, recruiting fees and
professional fees. Salaries and benefits decreased significantly as we reduced
our general and administrative staff. We expect that our general and
administrative expenses will decrease in future periods as we consolidate our
office facilities and become more efficient in managing these expenditures.
Depreciation and Amortization. Depreciation and amortization expenses for
the quarter ended March 31, 2001 were $4.2 million, consisting primarily of
amortization of goodwill of $3.1 million associated with our acquisitions.
Depreciation and amortization expense was $2.7 million in the quarter ended
March 31, 2000.
15
Amortization of Equity-based Compensation. The amortization of
equity-based compensation for the quarter ended March 31, 2001 was $0.9 million
and consisted of deferred compensation expense for options to purchase common
stock granted to employees having exercise prices below the fair market value of
our common stock at the date of grant as well as deferred compensation expense
for the PeopleMover escrowed shares. Amortization of equity-based compensation
was $3.7 million in the quarter ended March 31, 2000. We will continue to
amortize our equity-based compensation over the vesting period, which is
generally three to four years.
Impairment Charges: In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", we determined that our remaining
goodwill associated with the IndustryInsite.com, Ithority, and PeopleMover
acquisitions was not recoverable. We regularly perform reviews to determine if
the carrying value of our goodwill and other intangible assets is impaired, and
as a result of the proposed merger, as described in footnote 1(b) of the Notes
to the Consolidated Financial Statements, we reevaluated the recoverability of
our goodwill based on the remaining cash flow projections through the
acquisition date including the fair value of consideration to be received in
connection with the acquisition. An impairment charge of $23.0 million, which
included $22.7 million for goodwill impairment and $0.3 million for impairment
of our personal and corporate computer equiptment, was therefore recorded in the
quarter ended March 31, 2001.
Loss on Disposition: During the quarter ended March 31, 2001 the Company
recorded a loss of $1.4 million relating to the disposition of its e.office
business, a back-office and employment service for independent professionals
operated by its former subsidiary, The Churchill Benefit Corporation. In
accordance with the provisions of SAB Topic 5-Z and APB Opinion No.30,
"Reporting the Results of Operations- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", the Company has included the loss on disposition of
the e.office business as an item of loss from operations.
Other Income. Other income for the quarter ended March 31, 2001 was $0.4
million and consisted primarily of interest income from the higher level of cash
balances. Interest income was $0.2 million in the quarter ended March 31, 2000.
Income Tax Expense. We have not recorded a provision for income tax
expense as we have incurred substantial losses in every fiscal period since our
inception.
Liquidity and Capital Resources
We have funded our operations from inception primarily by the sale of our
equity securities, including net proceeds of approximately $132.6 million
through March 31, 2001. In April 2000, we completed our initial public offering
and concurrent private placement to Dell USA L.P., raising approximately $75.1
million net of offering costs.
Cash used in operating activities for the three months ended March 31,
2001 was $10.4 million, primarily due to our net loss of $37.3 million, adjusted
for various non-cash charges including an impairment charge, a non-cash loss on
disposition, non-cash compensation and depreciation and amortization, and
changes in operating assets and liabilities, including changes in our accounts
receivable, accounts payable and accrued expenses. Cash used in operating
activities for the three months ended March 30, 2000 totaled $13.8 million. We
expect to decrease our working capital needs quarter to quarter through more
targeted marketing and advertising, better workforce management and a reduction
in general and administrative expenses.
Cash used in investment activities for the three months ended March 31,
2001 totaled $1.1 million of which $1.0 million was used to fund software
development costs that were capitalized. We used $0.1 million during the quarter
to acquire property and equipment. Cash provided by investing activities for the
three months ended March 31, 2000 was $21.8 million. The sale of short-term
investments provided cash of $26.9 million, and we used $3.5 million to acquire
property and equipment. Our acquisition of a subsidiary and other assets
utilized $1.6 million.
Net cash used in financing activities for the three months ended March 31,
2001 was $0.2 million of which $0.1 million was used to repay loans and $0.1
million was used to repurchase stock. Cash provided by financing activities for
the three months ended March 31, 2000 was $2.3 million of which $1.0 million was
from loan proceeds and $1.3 million was from the issuance of stock relating to
the exercise of options and warrants.
The accompanying financial statements have been prepared assuming that
Opus360 will continue as a going concern. Our history of net losses and negative
cash flows from operations as well as projected additional losses raises
substantial doubt about our ability to continue as a going concern. In the
future, we may need to raise additional funds through public or private
financings, or other arrangements to fund our operations and potential
acquisitions, if any. We currently have no plans to affect any other offerings.
We cannot assure you that any financings or other arrangements will be available
in amounts or on terms acceptable to us or at all and any new financings or
other arrangements could place operating or other restrictions on us. Our
16
inability to raise capital when needed could seriously harm the growth of our
business and results of operations. If additional funds are raised through the
issuance of equity securities, the percentage ownership of our stockholders
would be reduced. Furthermore, these equity securities could have rights,
preferences or privileges senior to our common stock.
As a result of our issuing options to FreeAgent and e.office employees
under circumstances that may have violated the registration requirements of the
Securities Act, we intend to make a rescission offer to these employees, and we
may have a contingent liability of up to $0.1 million.
Recent Accounting Pronouncements
On March 31, 2000 the Financial Accounting Standards Board issued FASB
interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25 (FIN 44). FIN 44
generally applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee status
that occur on or after July 1, 2000, except for the provision related to
repricings and the definition of an employee which apply to awards issued after
December 15, 1998. To the extent that events covered by FIN 44 occur after the
applicable date but prior to July 1, 2000, the effects of applying FIN 44 shall
be recognized on a prospective basis. Accordingly, no adjustments shall be made
upon initial application of FIN 44 to financial statements for periods prior to
July 1, 2000. The Company has determined that the adoption of FIN 44 did not
have a material effect on the Company's operating results.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS No. 133, "Accounting for
Derivative Activities," which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning June 15, 2000. We did not engage in any
derivative instruments or hedging activities during the quarter, and the
statement did not have any effect on the Company's operating results.
Qualitative and Quantitative Disclosure About Market Risk
At March 31, 2001, the majority of our cash balances were held primarily
in the form of short-term highly liquid investment grade corporate and
government securities. As a result, our interest income may be sensitive to
changes in the general level of U.S. interest rates. However, due to the
short-term nature of our investments and the fact that we generally hold these
investments until their maturity dates, we believe that we are not subject to
any material interest or market rate risks.
The Company utilizes lines of credit to purchase equipment and to back
certain financial obligations. The Company's outstanding balance under its lines
of credit at March 31, 2001 was $1.0 million. The Company will pay an aggregate
amount of $1.3 million, including interest, for its two lines of credit, which
mature on February 2003 and June 2003, respectively.
17
ADDITIONAL INFORMATION
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 6, 2001 a lawsuit purporting to be a class action and styled
Bland vs. Opus360 Corporation, et al. was filed in the United States District
Court for the Southern District of New York (the "Bland Action"). The Bland
Action is brought on behalf of a proposed class of all persons who acquired
securities of the Company between April 7, 2000 and December 6, 2000. Named as
defendants in the Bland Action are the Company, eleven current and former
officers and directors of the Company, the underwriters of the Company's initial
public offering and two shareholders who sold stock in a secondary offering
(collectively with the initial public offering, the "Offering") concurrent with
the initial public offering (the "Selling Shareholders").
The amended and restated complaint in the Bland Action alleges that, among
other things, the plaintiff and members of the proposed class were damaged when
they acquired securities of the Company because false and misleading information
and material omissions in the registration statement relating to the Offering
caused the prices of the Company's securities to be inflated artificially. The
amended and restated complaint in the action alleges violations of Sections 11,
12(a)(2), and 15 of the Securities Act of 1933 (the "Securities Act"). Damages
in unspecified amounts and certain rescission rights are sought.
Since the filing of the Bland action, several similar putative class
actions (the "Additional Actions" and together with the Bland Action, the
"Actions") also have been filed in the United States District Court for the
Southern District of New York. The Additional Actions are brought on behalf of
all persons who acquired securities of the Company between April 7, 2000 and
March 20, 2001. Named as defendants in the Additional Actions are the Company,
ten current and former officers and directors of the Company, the underwriters
of the Company's initial public offering and the Selling Shareholders. As in the
Bland Action, the complaints in the Additional Actions allege false and
misleading information and material omissions in the registration statement
relating to the Offering in purported violation of Sections 11, 12(a)(2), and 15
of the Securities Act. Damages in unspecified amounts and certain rescission
rights are sought.
In addition, certain law firms have issued press releases noting that an
action has been commenced against the Company and other defendants for
violations of law substantially similar to the claims stated in the Actions. The
Company has not identified any other actions that are actually filed and pending
other than the Actions.
The Company believes the claims made in the Actions are without merit and
intends to vigorously defend the Actions.
Item 2. Change in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
18
b. Reports on Form 8-K
Current Report on Form 8-K dated March 16, 2001, was filed to report the
execution of the Asset Purchase Agreement dated March 16, 2001, between Mirronex
Technologies Inc. and Opus360 Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date May 11, 2001 Opus360 Corporation
(Registrant)
/s/ Peter Schwartz
------------------
Executive Vice President and
Chief Financial Officer
(Signature)
19