UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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
The Company hereby amends Part I, Item I to correct the Consolidated
Statements of Cash Flows for the three months ended March 31, 2001 and
March 31, 2000, for a typographical error.
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
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
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
------------------- -------------------
Sales and 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
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 991 -
Changes in operating assets and liabilities: 561 (302)
Accounts receivables
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
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 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 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.
(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 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)
====== ======
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 $ 873 $ 4,646
Unbilled receivables 532 1,192
------- -------
1,405 5,838
Less allowance for doubtful receivables (279) (328)
------- -------
Total $ 1,126 $ 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.
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.
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)
========
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.
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.
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.
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 21, 2001 Opus360 Corporation
/s/ Peter Schwartz
-------------------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)