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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 001-15503
WORKSTREAM INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
N/A Canada
- --------------------------------- -------------------------------
(IRS Employer Identification No.) (State or Other Jurisdiction of
Incorporation or Organization)
495 March Road, Suite 300, Ottawa, Ontario K2K 3G1
- ------------------------------------------- -------
(Address of Principal Executive Offices) (Zip Code)
(613) 270-0619
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 / /
As of August 31, 2002, there were 17,958,577* common shares, without par
value, outstanding.
* Excluding 1,620,646 common shares held in escrow under acquisition agreements.
WORKSTREAM INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Unaudited Financial Statements
Unaudited Consolidated Balance Sheets as of
August 31, 2002 and May 31, 2002...............................................2
Unaudited Consolidated Statements of Operations for
the Quarters Ended August 31, 2002 and 2001....................................3
Unaudited Consolidated Statements of Comprehensive Loss
for the Quarters Ended August 31, 2002 and 2001................................4
Unaudited Consolidated Statements of Cash Flows
for the Quarters Ended August 31, 2002 and 2001................................5
Notes to Unaudited Consolidated Financial Statements...............................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................21
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds.........................................22
Item 6. Exhibits and Reports on Form 8-K ................................................ 23
Signatures.....................................................................................................24
Certifications................................................................................................ 25
1
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
WORKSTREAM INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(UNITED STATES DOLLARS)
August 31, 2002 May 31, 2002
--------------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,127,647 $ 1,297,656
Restricted cash 2,136,565 1,957,090
Short-term investments 137,857 345,206
Accounts receivable, net of allowance for doubtful accounts of
$162,047 (May 31, 2002 - $165,870) 1,854,051 1,314,958
Prepaid expenses 100,040 144,400
Deferred tax asset 135,000 135,000
Other receivables 103,827 91,188
------------ ------------
5,594,987 5,285,498
CAPITAL ASSETS 2,477,985 1,557,303
DEFERRED TAX ASSET 694,148 694,148
OTHER ASSETS 376,867 146,605
ACQUIRED INTANGIBLE ASSETS 11,443,323 2,853,871
GOODWILL 18,123,837 12,738,172
------------ ------------
$ 38,711,147 $ 23,275,597
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,019,216 $ 1,136,662
Accrued liabilities 1,278,031 839,078
Accrued exit costs 841,549 --
Line of credit 1,427,771 1,364,723
Accrued compensation 1,338,695 900,360
Current portion of long-term obligations 41,775 26,175
Current portion of related party obligations 1,038,176 1,116,943
Deferred income tax liability 161,820 490,862
Current portion of capital lease obligations 362,740 48,411
Deferred revenue 1,476,143 1,038,886
------------ ------------
9,985,916 6,962,100
DEFERRED INCOME TAX LIABILITY 4,413,966 650,686
CAPITAL LEASE OBLIGATIONS 141,494 119,939
LEASEHOLD INDUCEMENTS 120,876 143,866
CONVERTIBLE NOTES 193,318 131,597
LONG-TERM OBLIGATIONS 96,218 102,521
RELATED PARTY OBLIGATION 371,330 408,070
------------ ------------
COMMITMENTS AND CONTINGENCIES 15,323,118 8,518,779
------------ ------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK
Issued and outstanding - 17,958,577 common shares
(May 31, 2002 - 14,851,905) 44,103,254 33,135,734
Additional paid-in capital 4,675,015 4,792,887
Accumulated other comprehensive loss (887,609) (885,961)
Accumulated deficit (24,502,631) (22,285,842)
------------ ------------
23,388,029 14,756,818
------------ ------------
$ 38,711,147 $ 23,275,597
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
2
WORKSTREAM INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNITED STATES DOLLARS)
Three Months Ended Three Months Ended
August 31, 2002 August 31, 2001
------------------ -------------------
REVENUE $ 4,645,714 $ 1,849,278
COST OF REVENUES 878,997 583,376
------------ ------------
GROSS PROFIT 3,766,717 1,265,902
------------ ------------
EXPENSES
Selling and marketing 2,051,149 1,010,727
General and administrative 2,553,944 534,796
Research and development 308,240 345,063
Amortization and depreciation 1,256,366 314,078
------------ ------------
6,169,699 2,204,664
------------ ------------
OPERATING LOSS (2,402,982) (938,762)
------------ ------------
OTHER INCOME AND EXPENSES
Interest and other income 12,932 62,465
Interest and other expense (158,608) (39,601)
------------ ------------
(145,676) 22,864
------------ ------------
LOSS BEFORE INCOME TAX (2,548,658) (915,898)
Recovery of deferred income taxes 331,869 146,538
------------ ------------
NET LOSS FOR THE PERIOD $ (2,216,789) $ (769,360)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD 16,983,809 9,559,819
============ ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.13) $ (0.08)
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
3
WORKSTREAM INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNITED STATES DOLLARS)
THREE MONTHS ENDED THREE MONTHS ENDED
AUGUST 31, 2002 AUGUST 31, 2001
------------------- -------------------
Net loss for the period $ (2,216,789) $ (769,360)
Other comprehensive income:
Cumulative translation adjustment (net
of tax of $nil) 1,648 23,133
------------ ----------
Comprehensive loss for the period $ (2,215,141) $ (746,227)
============ ==========
The accompanying notes are an integral part of these unaudited financial
statements.
4
WORKSTREAM INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNITED STATES DOLLARS)
THREE MONTHS THREE MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
2002 2001
------------ ------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period $ (2,216,789) $ (769,360)
Items not involving cash:
Amortization and depreciation 1,249,819 323,172
Non-cash interest on convertible notes 61,721 -
Recovery of deferred income taxes (331,869) (146,538)
Non-cash compensation expense - 150,000
Net change in operating components of working capital (367,880) (434,155)
------------ -----------
(1,604,998) (876,881)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets (34,598) (25,577)
Cash acquired (paid) for business acquisitions (net of
acquired cash of $1,649,671, 2001 - $142,212) 1, 649,671 (1,183,788)
Acquisition of intangible assets - (68,810)
Increase in restricted cash (179,475) -
Sale of short-term investments 213,494 2,319,105
------------ -----------
1,649,092 1,040,930
------------ -----------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from exercise of options 13,207 -
Costs related to issuance of convertible debt (82,197) -
Repayment of bank debt (156,302) (196,917)
Shareholder loan repayments (143,300) -
Capital lease payments (53,023) -
Proceeds from bank financing 213,048 193,000
Long-term debt repayments - (19,951)
------------ -----------
(208,567) (23,133)
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES (5,536) 23,133
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE PERIOD (170,009) 163,314
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 1,297,656 64,959
------------ -----------
CASH AND CASH EQUIVALENTS,
END OF THE PERIOD $ 1,127,647 $ 228,273
============ ===========
The accompanying notes are an integral part of these unaudited financial
statements.
5
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: NATURE OF OPERATIONS
Workstream Inc. ("Workstream" or the "Company"), formerly known as
E-Cruiter.com, is a provider of Web-enabled tools and professional services for
human capital management (HCM). The Company offers a diversified suite of
high-tech and high-touch services aimed at addressing the full life cycle of the
employer-employee relationship. Workstream's HCM technology backbone enables
companies to streamline the management of enterprise human processes, including
recruitment, assessment, deployment and career transitions.
Note 2: BASIS OF PRESENTATION
The consolidated interim unaudited financial statements included herein
have been prepared by Workstream, without audit, in accordance with United
States generally accepted accounting principles. The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. The earnings of the subsidiaries are included from the date of
acquisition. At August 31, 2002, the Company's subsidiaries are Paula Allen
Holdings, Inc. ("AAA"), OMNIpartners, Inc. ("OMNI"), RezLogic, Inc.
("RezLogic"), 6FigureJobs.com, Inc. ("6Figures") and Icarian Inc. ("Icarian").
These unaudited financial statements should be read in conjunction with
the Company's most recent annual financial statements for the year ended May 31,
2002. These interim unaudited financial statements are prepared following
accounting policies consistent with the Company's financial statements for the
year ended May 31, 2002. In management's opinion, all adjustments necessary for
a fair presentation are reflected in the interim periods presented. All
adjustments are of a normal, recurring nature.
Note 3: ACQUISITION TRANSACTIONS
Acquisition of Icarian Inc.
On June 28, 2002, the Company acquired 100% of the outstanding stock of
Icarian Inc., a California based company. As consideration for the purchase, the
Company issued to the shareholders of Icarian 2,800,000 common shares valued at
approximately $9.9 million. Icarian is a provider of Human Capital Management
(HCM)Web-enabled solutions and professional services.
Management has prepared a valuation of the net tangible and intangible
assets acquired. This valuation is presently subject to finalization. The excess
of the purchase price over the appraised value of the net tangible and
identifiable intangible assets acquired has been allocated to goodwill. The
acquired current liabilities included $1,115,340 for exit costs associated with
employee severance pay and elimination of office space.
The goodwill resulting from the transaction has been allocated to the
Recruiting Services business segment.
The purchase price has been allocated as follows:
Share consideration......................................... $ 9,908,640
Cash consideration.......................................... 10,000
Acquisition costs........................................... 232,559
------------
10,151,199
------------
Current assets.............................................. 2,310,587
Tangible long-term assets................................... 1,187,907
Current liabilities......................................... (3,705,446)
Long-term liabilities assumed............................... 121,682
Intangible assets:
Acquired technology..................................... 7,670,000
Customer base........................................... 723,337
Deferred income tax liability........................... (3,357,300)
------------
Total net identifiable assets............................... 4,950,767
------------
Goodwill.................................................... $ 5,200,432
============
6
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Acquisition of PureCarbon, Inc.
On July 1, 2002, the Company acquired certain assets and liabilities of
PureCarbon, Inc., a California based company ("PureCarbon"). As consideration
for the purchase, the Company issued to the shareholders of PureCarbon 263,158
common shares, valued at approximately $1,000,000. PureCarbon is the provider of
award-winning Internet software (JobPlanet) designed to integrate with
behind-the-scenes human resources and recruiting technology. As additional
contingent consideration, the Company will issue to PureCarbon shareholders the
number of shares equal to $500,000 divided by the closing price on or prior to
August 15, 2003 should certain revenue targets for the twelve month period
ending June 30, 2003 be realized.
Management prepared a valuation of the net tangible and intangible
assets acquired. The excess of the purchase price over the value of the net
tangible and identifiable intangible assets acquired has been allocated to
goodwill.
The goodwill resulting from the transaction has been allocated to the
Recruiting Services business segment.
The purchase price has been allocated as follows:
Share consideration.............................................. $ 1,000,000
Acquisition costs................................................ 38,000
-----------
1,038,000
-----------
Current assets................................................... 215,405
Tangible long-term assets........................................ 144,819
Current liabilities assumed...................................... (118,000)
Intangible assets:
Acquired technology.......................................... 667,000
Customer base................................................ 344,000
Trademarks, domain names..................................... 8,350
Deferred income tax liability................................ (408,807)
-----------
Total net identifiable assets.................................... 852,767
-----------
Goodwill......................................................... $ 185,233
===========
Contingent consideration relating to prior acquisitions
As at August 31, 2002 a total of 1,620,646 common shares were held in
escrow relating to prior acquisitions as further described below.
Pursuant to the purchase agreement for AAA, a balance of 500,000
additional common shares may be released from escrow subject to the achievement
of targets for the twelve month period ending December 31, 2002. If issued, the
500,000 common shares would result in additional goodwill being recorded.
7
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Pursuant to the purchase agreement for OMNI an additional 500,000
common shares were held in escrow pending the achievement of certain revenue
targets for the twelve months ended June 30, 2002. Management has evaluated
revenue results and has determined that the targets were not achieved.
Therefore, 500,000 common shares held in escrow were cancelled during September
2002.
Pursuant to the purchase agreement for RezLogic an additional 297,021
common shares were held in escrow pending the achievement of certain revenue and
profit targets for the twelve months ending June 30, 2002. Management has
evaluated results achieved and has determined that the targets were not met.
Therefore, 297,021 common shares held in escrow will be cancelled.
Pursuant to the purchase agreement for 6Figures an additional 323,625
common shares may be released from escrow subject to achievement of certain
revenue and profit targets for the twelve month period ending September 30,
2002. Any additional common shares issued will result in additional goodwill
being recorded.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to
the acquisitions made by Workstream as if the transactions occurred at the
beginning of each of the three month periods ended August 31, 2002 and August
31, 2001.
Three Months Ended Three Months Ended
August 31, 2002 August 31, 2001
--------------------- ------------------------
Revenues $ 5,157,654 $ 6,959,335
Cost of revenues 919,081 2,569,573
------------ -------------
Gross profit 4,238,573 4,389,762
Expenses 7,356,803 11,842,227
------------ -------------
Operating loss (3,118,230) (7,452,465)
Interest and other income and expense (149,963) (36,035)
Recovery of deferred income taxes 436,483 436,483
------------ -------------
Net loss $ (2,831,710) $ (7,052,017)
============ =============
Weighted average number of common shares 17,921,795 17,884,209
============ =============
Pro forma earnings per shares $ (0.16) $ (0.39)
============ =============
8
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 4: CAPITAL ASSETS
August 31, 2002 May 31, 2002
------------------- ------------------
Furniture, equipment and leaseholds $1,969,200 $1,441,436
Office equipment 219,713 222,518
Computers and software 3,056,788 2,254,455
---------- ----------
5,245,701 3,918,409
Less: accumulated amortization (2,767,716) (2,361,106)
---------- ----------
$2,477,985 $1,577,303
========== ==========
Note 5: ACQUIRED INTANGIBLE ASSETS
August 31, 2002 May 31, 2002
------------------- ------------------
Customer base $ 3,555,337 $ 2,488,000
Acquired technologies 9,156,632 819,632
Trademarks, domain names and intellectual property 457,760 449,410
Other - 2,260
----------- -----------
Total cost 13,169,729 3,759,302
----------- -----------
Accumulated amortization:
Customer base (886,241) (619,611)
Acquired technologies (745,895) (212,039)
Trademarks, domain names and intellectual property (94,270) (71,521)
Other - (2,260)
----------- -----------
Total accumulated amortization (1,726,406) (905,431)
----------- -----------
Net acquired intangible assets $11,443,323 $ 2,853,871
=========== ===========
9
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 6: LINES OF CREDIT, RESTRICTED CASH AND SHORT-TERM INVESTMENTS
At August 31, 2002, the Company had $1,427,771 outstanding on two lines
of credit from SunTrust Bank and Bank of Montreal. Certain assets of the
Company, including short-term investments, property and receivables, are pledged
as collateral for these facilities.
August 31, 2002 May 31, 2001
--------------- ------------
Line of credit - SunTrust $ 992,892 $ 992,892
Line of credit - Bank of Montreal 434,879 221,831
Line of credit - Harris Bank - 150,000
----------- -----------
Total line of credit $ 1,427,771 $ 1,364,723
=========== ===========
Certain of the Company's short-term investments have been provided as
collateral for the SunTrust line of credit. It bears interest at the rate of
return on these short-term investments plus 1.5%. During the period, the line of
credit had an effective interest rate of 3.87%. The Company is permitted to draw
up to $1,000,000 against this facility.
The operating line of credit with Harris Bank is authorized for up to
$150,000. The interest rate on this line of credit is subject to change from
time to time based on changes in the lender's prime rate. During the period, the
line of credit had an effective interest rate of 4.75%. The line of credit was
paid down to $nil in June 2002.
The Company has a line of credit with the Bank of Montreal at an
effective rate of 4.75%. The Company is permitted to draw up to $1,000,000
(Canadian dollars) against this facility based on compensating balances on
deposit with the bank. The Company has drawn $677,889 Cdn as of August 31, 2002.
The Company has provided collateral of $830,000 Cdn, leaving $152,111 available
to be drawn on this line.
At August 31, 2002, and May 31, 2002, a total of $2,136,565 and
$1,957,090, respectively, of cash and short-term deposits were pledged as
collateral for these facilities and the Company's leases and therefore
restricted from the Company's use, to the following institutions:
August 31, 2002 May 31, 2001
--------------- ------------
SunTrust Bank $ 992,892 $ 992,892
SunTrust Bank - credit card department 13,824 37,086
Bank of America - credit card reserve 399,883 399,883
----------- ----------
Bank of Montreal - Term loan, line of credit
and letter of credit for facility lease 729,966 527,229
----------- ----------
$ 2,136,565 $1,957,090
=========== ==========
10
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 7: RELATED PARTY OBLIGATIONS
August 31, 2002 May 31, 2001
--------------- ------------
Notes payable $ 74,638 $ 115,437
Shareholder loans 1,334,868 1,409,576
----------- -----------
1,409,506 1,525,013
Less: current portion 1,038,176 1,116,943
----------- -----------
$ 371,330 $ 408,070
=========== ===========
Note 8: CAPTIAL LEASE OBLIGATIONS
August 31, 2002 May 31, 2001
--------------- ------------
Capital leases $ 504,234 $ 168,350
Less current portion 362,740 48,411
---------- -----------
$ 141,494 $ 119,939
========== ===========
Capital lease obligations relate to office equipment, computers and
software, and bear interest at rates that range from 7.5% to 16% per annum.
These leases mature at various times through December 2006.
Note 9: CONVERTIBLE NOTES
August 31, 2002 May 31, 2001
--------------- ------------
Convertible notes, face value $ 2,900,000 $ 2,900,000
Less: Amount allocated to detachable warrants (1,038,380) (1,038,380)
Amount allocated to beneficial conversion
feature (1,763,387) (1,763,387)
----------- ------------
Discounted value of convertible notes 98,233 98,233
Amortization of discount 95,085 33,364
----------- ------------
Convertible notes $ 193,318 $ 131,597
=========== ============
11
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During April and May of 2002, the Company issued 8% Senior Subordinated
Convertible Notes (the "Convertible Notes") with detachable warrants as further
described below. The total gross proceeds received upon issuance of the
convertible notes totaling $2,900,000 was allocated between the convertible debt
and warrants based on their relative fair values. The fair value of the
detachable warrants was calculated using the Black Scholes pricing model.
Additionally, the Convertible Notes have a non-detachable conversion feature
where the fair value of the underlying equity securities exceeds the conversion
price of the debt ("beneficial conversion feature"). The value ascribed to the
beneficial conversion feature is recorded as paid-in capital. The total discount
on the Convertible Notes relating to both the detachable warrants and the
beneficial conversion feature is recognized as interest expense using the
effective yield method over the two year term to maturity of the Convertible
Notes.
The detachable warrants entitle the Convertible Note holders to
purchase 658,000 common shares at an exercise price of $3.70 per share, subject
to adjustment upon the occurrence of certain events. The Convertible Notes are
convertible into a class of preferred shares known as Class A Preferred Shares,
which have yet to be authorized. In the event the Class A Preferred Shares are
not authorized, the Convertible Notes are convertible into common shares.
The proceeds from the sale of these securities are being used for
general working capital purposes.
Note 10: COMMON SHARES AND WARRANTS
The authorized share capital consists of an unlimited number of no par
value common shares. The Company has 17,958,577 shares that are outstanding as
of August 31, 2002 (May 31, 2002 - 14,851,905). As of August 31, 2002 1,620,646
common shares were being held in escrow as a result of the terms of acquisitions
(see note 3). These shares may be released from escrow if certain profit and/or
revenue targets are achieved. The periods covered by the escrow agreements
extend until December 31, 2002.
During the quarter ended August 31, 2002, 50,000 previously issued
underwriter warrants were exercised on a cashless basis resulting in the
issuance of 35,674 common shares.
Note 11: SEGMENTED AND GEOGRAPHIC INFORMATION
The following is a summary of the Company's operations by business
segment and by geographic region for the three month period ended August 31,
2002 and August 31, 2002.
ENTERPRISE CAREER
RECRUITING TRANSITION
SERVICES SERVICES TOTAL
----------- ----------- -------
BUSINESS SEGMENT
THREE MONTHS ENDED
AUGUST 31, 2002
Revenue $ 2,303,761 $ 2,341,953 $ 4,645,714
Expenses 3,610,072 2,502,796 6,112,868
------------ ------------ ------------
Business segment loss $ (1,306,311) $ (160,843) (1,467,154)
============ ============
Corporate overhead, other revenues
and expenses (749,635)
------------
Net loss $ (2,216,789)
============
AS AT AUGUST 31, 2002
Business segment assets $ 7,164,693 $ 387,563 $ 7,552,256
Intangible assets 10,713,259 730,064 11,443,323
Goodwill 11,050,753 7,073,084 18,123,837
------------ ------------ ------------
$(28,928,705) $ (8,190,711) 37,119,416
============ ============
Assets not allocated to business segments 1,591,731
------------
Total assets $ 38,711,147
============
THREE MONTHS ENDED
AUGUST 31, 2001
Revenue $ 846,370 $ 1,002,908 $ 1,849,278
Expenses 1,586,584 911,686 2,498,270
------------ ------------ ------------
Business segments income (loss) $ (740,214) $ 91,222 (648,992)
============ ============
Corporate overhead, other revenues
and expenses (120,368)
------------
Net loss $ (769,360)
============
AS AT AUGUST 31, 2001
Business segment assets $ 4,341,247 $ 278,457 $ 4,619,704
Intangible assets 1,110,842 1,617,125 2,727,967
Goodwill 2,162,727 6,086,068 8,248,795
------------ ------------ ------------
$ 7,614,816 $ 7,981,650 15,596,466
============ ============
Assets not allocated to business segments 1,506,724
------------
Total assets $ 17,103,190
============
12
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
GEOGRAPHY
THREE MONTHS ENDED AUGUST 31, 2002
CANADA USA TOTAL
-------- ------- -------
Revenue $ 758,417 $ 3,887,297 $ 4,645,714
Expenses 1,083,924 5,961,945 7,045,869
----------- ------------ ------------
Geographical loss $ (325,507) $ (2,074,648) (2,400,155)
=========== ============
Other revenues and expenses 183,366
------------
Net loss $ (2,216,789)
============
AS AT AUGUST 31, 2002
Geographic segment assets excluding goodwill
and intangibles $ 4,434,253 $ 3,118,003 $ 7,552,256
=========== ============
Assets not allocated to specific geographic
segments 31,158,891
------------
Total assets $ 38,711,147
============
THREE MONTHS ENDED AUGUST 31, 2001
Revenue $ 632,852 $ 1,216,426 $ 1,849,278
Expenses 723,862 1,774,408 2,498,270
----------- ------------ ------------
Geographical loss $ (91,010) $ (557,982) $ (648,992)
=========== ============
Other revenues and expenses (120,368)
------------
Net loss $ (769,360)
============
AS AT AUGUST 31, 2001
Geographic segment assets excluding goodwill
and intangibles $ 1,861,512 $ 5,486,159 $ 7,347,671
=========== ============
Assets not allocated to specific geographic
segments 9,755,519
------------
Total assets $ 17,103,190
============
13
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 12: RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB approved the issuance of SFAS No. 143,
Accounting for Asset Retirement Obligations, which is effective for fiscal years
beginning after June 15, 2002, which for the Company is the fiscal year
beginning June 1, 2003. This standard establishes accounting standards for the
recognition and measurement of legal obligations associated with the retirement
of tangible long-lived assets. The Company has not yet assessed the impact of
the adoption of this new standard on its financial statements.
In December 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This standard replaces FAS 121, but retains its fundamental provisions with
respect to the recognition and measurement of the impairment of long-lived
assets to be held and used and the measurement of long-lived assets to be
disposed of by sale. This standard is effective for fiscal years beginning after
December 15, 2001, which for the Company is the fiscal year beginning June 1,
2002. The Company is in the process of evaluating the impact this standard will
have on the financial statements.
Note 13: EARNINGS PER SHARE
For all the periods presented, diluted net loss per share equals basic
net loss per share due to the antidilutive effect of employee stock options,
warrants and escrowed shares. The following outstanding instruments could
potentially dilute basic earnings per share in the future:
THREE MONTHS ENDED
AUGUST 31, 2002
------------------
Stock options 1,817,247
Escrowed shares 1,620,646
Convertible Notes 966,667
Warrants issued with Convertible Notes 658,000
Underwriter warrants 440,000
---------
Potential increase in number of shares
from dilutive instruments 5,502,560
=========
In September 2002, 500,000 of the shares held in escrow for
OMNIpartners contingent consideration were cancelled and an additional 297,021
shares held in escrow for RezLogic Inc. contingent consideration will be
cancelled. (see Note 3)
The weighted average price of the options exercisable at August 31, 2002 was
$3.17.
Note 14: SUBSEQUENT EVENTS
Acquisition of Xylo Inc.
On September 13, 2002, the Company acquired 100% of the stock of Xylo,
Inc. a Washington-based provider of Web-based Employee Retention Management
(ERM) solutions focused on providing customized retention solutions to Fortune
500 companies. Xylo's work/life customizable software offers employee programs
in one externally-hosted platform, giving clients control over content and
applications. As consideration for the purchase, the Company issued to the
14
WORKSTREAM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
shareholders of Xylo, Inc. 702,479 common shares, valued at approximately $1.7
million. Under this agreement, an additional 330,579 common shares may be issued
if certain revenue targets are met for the twelve month period ending September
30, 2003. The Company preliminarily estimates that it will record approximately
$750,000 in tangible assets, $300,000 in liabilities and approximately
$1,250,000 in intangibles and goodwill from this acquisition.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements discussed in Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations), and Item 3
(Quantitative and Qualitative Disclosures About Market Risk) and elsewhere in
this Form 10-Q constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements concerning Management's expectations, strategic objectives, business
prospects, anticipated economic performance and financial condition and other
similar matters involve known and unknown risks, uncertainties and other
important factors that could cause the actual results, performance or
achievements of results to differ materially from any future results,
performance or achievements discussed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: inability to offer services that are superior and cost effective when
compared to the services being offered by the Company's competitors; we have no
assurance that a client will remain a long term client as we generally enter
into subscription agreements with the Company's Ecruiter Enterprise clients for
terms of one year or less; inability to further identify, develop and achieve
success for new products, services and technologies; increased competition and
its effect on pricing, spending, third-party relationships and revenues; as well
as the inability to enter into successful strategic relationships and various
other matters, many of which are beyond the Company's control and other factors
as are described in Item 7 (Management's Discussion and Analysis of Financial
Condition and Results of Operations) of the Company's Form 10-K for the fiscal
year ended May 31, 2002. The words "estimate," "project," "intend," "believe,"
"plan" and similar expressions are intended to identify forward-looking
statements. Forward-looking statements speak only as of the date of the document
in which they are made. The Company disclaims any obligation or undertaking to
provide any updates or revisions to any forward-looking statement to reflect any
change in the Company's expectations or any change in events, conditions or
circumstances on which the forward-looking statement is based.
The following discussion and analysis should be read in conjunction
with our unaudited consolidated financial statements and accompanying notes for
the three month period ended August 31, 2002. All figures are in United States
dollars, except as otherwise noted.
Management has prepared unaudited pro forma financial information which
can be found in Note 3 of the unaudited financial statements. Management's
discussion and analysis refers to this information. All pro forma financial
information gives effect to the acquisitions made by us as if the transactions
had occurred at the beginning of the three month periods ended August 31, 2002
and August 31, 2001.
OVERVIEW
We are a leading provider of human capital management (HCM) services.
We offer a combination of high-tech and high-touch services, giving customers
the ability to manage their complete recruiting and outplacement needs on a
single Workstream platform.
The past three months have resulted in significant changes in the
business. During this quarter we completed the acquisition of Icarian Inc. and
PureCarbon, Inc. These acquisitions increased our service offerings and revenue
streams. During the quarter we focused on integrating the acquired entities and
expanding the reach of the existing business. We have also continued to reduce
costs by consolidating operations, resulting in staff reductions of redundant
positions and related overhead and reducing research and development
expenditures.
16
CRITICAL ACCOUNTING POLICIES
Our most critical accounting policies relate to the assessment of
goodwill impairment, impairments in intangible assets and the valuation of net
deferred tax assets. Management applies judgment to value these assets. Changes
in assumptions used would impact our financial results.
Goodwill is assessed for impairment on an annual basis or more
frequently if circumstances warrant. We assess goodwill by comparing the
carrying value of goodwill to the estimated future cash flows over a five year
period and discount these cash flows back to a present value, using a 15%
discount rate. Changes in the discount rate used, or in other assumptions in the
model, would result in wide fluctuations in the value of goodwill that is
supported. Any such changes may result in additional impairment write-downs.
We value intangible assets, such as a customer base acquired in an
acquisition, based on estimated future income applying historical customer
retention rates. If the customer base acquired discontinues using our service
earlier than historical experience, we may be required to record an impairment
of intangible assets. The valuation of acquired technology is based on the cost
incurred to develop the software that is then licensed to our clients.
Consideration is also given to the useful life and its demand in the
marketplace. Changes in circumstances impacting other assumptions used to value
intangible assets could also lead to future impairments.
We apply significant judgment in recording net deferred tax assets,
which has resulted from the loss carry forwards of companies that we acquire.
The recording of deferred tax assets requires estimates of future profits from
the acquired company to be forecast. Actual results may differ from amounts
estimated.
REVENUES
Consolidated revenues were $4,645,714 for the three months ended August
31, 2002 ("first quarter 2003") compared to $1,849,278 for the three months
ended August 31, 2001("first quarter 2002"). The significant growth in revenues
is attributed to the companies that we acquired during fiscal 2002, and first
quarter 2003. Acquired revenues, not included in the first quarter 2002
contributed $2,806,056 during this quarter. Career Transition service revenues
for first quarter 2003 were $2,341,953 compared to $1,002,908 in first quarter
2002 and were a major contributor to total revenue growth this quarter.
Enterprise Recruiting Service revenues for the first quarter 2003 were
$2,303,761 compared to $846,370 for first quarter 2002. The increase in revenues
was primarily due to the acquisition of RezLogic Inc., OMNIpartners and
6Figures.com Inc. in fiscal year 2002 and Icarian Inc. and PureCarbon, Inc. in
fiscal 2003.
Pro forma revenues for first quarter 2003 were $5,157,654 compared to
$6,959,335 for first quarter 2002. Pro forma revenues include the revenues of
all acquisitions for the full reporting periods, instead of from their
acquisition date. The decline in pro forma revenues reflects the impact of
clients that Icarian lost subsequent to August 31, 2001 but prior to being
acquired by us. Additionally, the economic downturn which began in the second
half of calendar 2001 has continued to impact our recruiting research services.
We also closed four underperforming Career Transition offices in the first
quarter of fiscal 2003, causing some loss of revenues.
Management believes that the acquisitions completed in fiscal 2002 and
first quarter 2003 will have a significant impact on future revenues by allowing
us to deliver a full range of recruiting and outplacement products and services
through our 18 offices across North America.
17
COST OF REVENUES
Cost of revenues for first quarter 2003 were $878,997 compared to
$583,376 for first quarter 2002. While the total cost of revenues has increased
significantly due to acquisitions, as a percentage of revenue these costs have
declined to 19% for first quarter 2003 from 31.5% for first quarter 2002. Career
Transition cost of revenues accounted for $376,377 and Enterprise Recruiting
Services was $502,620 of the total cost of revenues for the quarter.
On a pro forma basis, cost of revenues decreased to $919,081 for the
first quarter 2003 compared to $2,569,573 for first quarter 2002. Since the
consummation of the acquisitions, management has proceeded with the
consolidation of certain cost centers and the elimination of redundant
operations.
Cost of revenues includes the cost of network operations, client
support and charges related to third-party services.
GROSS PROFITS
Consolidated gross profits were $3,766,717 for first quarter 2003 or
81% of revenues compared to $1,265,902 or 68% of revenues for the first quarter
2003. The significant increase in gross profits is due to the acquisitions made
in fiscal 2002 and 2003.
Career Transition Services gross profit was $1,965,577 or 84% of Career
Transition Services revenues and Enterprise Recruiting Services gross profit
represented $1,801,140 or 78% of Enterprise Recruiting Services revenues for
first quarter 2003.
Pro forma gross profits were $4,238,573 or 82% of revenues for first
quarter 2003 compared to $4,389,762 or 63% of revenues for first quarter 2002.
OPERATING EXPENSES
Total operating expenses were $6,169,699 for first quarter 2003,
compared to $2,204,664 for first quarter 2002. Acquisitions accounted for all of
the increase in total operating expense for first quarter 2003. On a pro forma
basis, operating expenses were $7,356,803 for first quarter 2003 compared to
$11,842,227 for first quarter 2002. This decline in pro forma operating expenses
was due to the consolidation of certain cost centers and the elimination of
redundant operations. In addition, four Career Transition offices were closed in
the first quarter of fiscal 2003, which we believe will further reduce operating
expenses by approximately $650,000 annually in the future. Certain integration
costs have offset savings due to the relocation of data center equipment and
personnel.
SELLING AND MARKETING
Selling and marketing expenses were $2,051,149 for first quarter 2003
compared to $1,010,727 for first quarter 2002. This increase is attributed to
the acquisitions made in fiscal 2002 and 2003. Commission expense is
approximately 16% of the total selling and marketing expense and is expected to
increase at the same rate as revenues grow.
On a pro forma basis, selling and marketing expenses were $2,169,677
for first quarter 2003, compared to $4,885,474 for first quarter 2002. The
decline is a result of the consolidation of marketing and public relations
programs. Additionally, we have reduced the sales force where demand for
research recruiting services has declined.
18
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2,553,944 for first quarter
2003, compared to $534,796 for first quarter 2002, an increase of $2,019,148,
reflecting increased costs related to the acquisitions made in fiscal 2002 and
2003, which management believes will be partially offset in the future by
continued consolidation of some administrative functions.
On a pro forma basis, general and administrative expenses were
$2,928,559 for first quarter 2003 compared to $2,711,750 for first quarter 2002.
RESEARCH AND DEVELOPMENT
Research and development costs were $308,240 for first quarter 2003
compared to $345,063 for first quarter 2002. The decline is primarily due to the
completion of various projects under development in prior periods and our
strategy to acquire technology through acquisition. We feel that we can acquire
new technology at less cost and more efficiently than developing new software
platforms with internal resources. Most of our research and development efforts
are incurred in the Enterprise Recruiting division.
On a pro forma basis, research and development expenses were $503,540
for first quarter 2003, compared to $1,879,848 for first quarter 2002.
DEPRECIATION/AMORTIZATION EXPENSE
Depreciation and amortization expenses were $1,256,366 for first
quarter 2003, compared to $314,078 for first quarter 2002. Amortization of
acquired intangibles arising from acquisitions accounted for most of the
increase in amortization. On a pro forma basis, depreciation and amortization
expense was $1,725,200 for first quarter 2003 and $2,365,155 for first quarter
2002.
INTEREST INCOME
Interest income was $12,932 for first quarter 2003, compared to $62,465
for first quarter 2002. Interest expense was $ 158,608 for first quarter 2003,
compared to $39,601 for first quarter 2002. The increased interest expense was
due to increases in both short and long-term obligations.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 2002, we had $3,402,069 in cash, cash equivalents,
restricted cash and short-term investments. We have made significant investment
in acquiring new service lines which has reduced available cash and increased
long-term debt. Furthermore, capital requirements have exceeded cash flows from
operations in the quarter. At August 31, 2002, $2,136,565 of these cash and
short- term investment balances were restricted from use because they were
collateral for debt, leases and a letter of guarantee. These restricted cash
balances could be reduced in the future by lease payments, any repayments on
lines of credit and improvement in the return rate on credit card charges
accepted by us for our services.
For first quarter 2003, cash used in operations totaled $1,604,998,
consisting primarily of the net loss for the period of $2,216,789, offset by
non-cash expenses such as depreciation, amortization, and non-cash interest. Our
working capital deficiency increased to $4,390,929 as at August 31, 2002, an
increase of $2,714,327 from May 31, 2002 as a result of the cash used in
operations and a $1,115,340 provision made for exit costs for employee severance
and elimination of office space related to the Icarian acquisition.
Net cash provided by investing activities during first quarter 2003,
was $1,649,092. Cash acquired in the Icarian acquisition of $1,649,671 provided
most of the cash from investing activities.
19
Net cash used by financing activities was $208,567 for first quarter
2003. Financing outflows consisted primarily of the repayment of capital leases
of $53,023, repayment of a loan to a shareholder of an acquired company of
$143,300 and the repayment of bank line of credit of $156,302.
We have had operating losses since our inception and have had negative
cash flow from operations for first quarter 2003. However, management believes
the elimination of redundancies in the companies acquired in fiscal 2002 and
2003, the consolidation of ongoing operations and reductions in research and
development efforts previously discussed, will improve cash flow in the future.
Management is currently assessing an additional credit facility proposal.
Management believes this additional facility, and the changes made in fiscal
2002 and first quarter 2003, along with further consolidation of cost centers
and elimination of redundancies will result in cash flows from operations which,
together with current cash reserves and credit facilities, will be sufficient to
meet our working capital and capital expenditure requirements for the
foreseeable future.
ACQUISITIONS
We constantly endeavor to increase our share of, and strengthen our
position in, the HCM market. A key component of our business strategy is to
continue to acquire companies offering services similar or complementary to
ours. The HCM market has experienced significant consolidation in the last
several months as companies attempt to expand their service offerings and
broaden their revenue bases to achieve rapid growth and profitability. By
implementing our business strategy and identifying the consolidation trend in
its relatively early stages, we have been able to complete acquisitions of
several companies which we believe compliment our current business.
On June 28, 2002, we acquired 100% of the outstanding shares of Icarian
Inc., a California based company. As consideration for the sale, we issued to
the shareholders of Icarian 2,800,000 common shares valued at approximately $9.9
million. Icarian is a provider of Web-enabled solutions and professional
services. Icarian's Recruitment Management Suite is Web-native software, offered
on an ASP basis, with a user interface that provides full functionality for
management of the hiring process. Icarian's Connectivity, Interactive Job Site
and Reporting modules offer HR Professionals the capability to integrate with
human resource management systems, candidate and campaign management, and strong
reporting for both compliance and cost reporting for a corporation's employee
acquisition process. Icarian had revenues of approximately $5.7 million for the
twelve months ended December 31, 2001 and recorded a net loss of approximately
$25.8 million. We recorded $8,393,337 in intangible assets and $5,200,432 in
goodwill from the acquisition. We will incur approximately $1.1 million in exit
costs to integrate the Icarian acquisition, primarily associated with severance
pay and facility closure costs.
On July 1, 2002, we acquired certain assets and liabilities of
PureCarbon Inc., a California based company. As consideration for the sale, we
issued to the shareholders of PureCarbon 263,158 common shares valued at
$1,000,000. Under this agreement, additional common shares valued at $500,000
may be issued if PureCarbon achieves certain revenue targets for the twelve
months ending June 30, 2003. Any contingent consideration issued will be
recorded as additional goodwill resulting from the acquisition. PureCarbon is
the provider of award-winning Internet software (JobPlanet) designed to
integrate easily with behind-the-scenes human resources and recruiting
technology. JobPlanet is built on a robust technology platform making it easier
to build and implement an employment web site that mirrors our client's
corporate brand image. We believe this front-end platform fits well with our
back-end Hiring Management Systems to create a compelling end-to-end solution,
that our corporate clients desire. We have recorded $1,019,350 in intangible
assets and $185,233 in goodwill from the acquisition.
We believe that these acquisitions are important to our evolution from
a recruitment application service provider into an HCM business process
aggregator. These additions have broadened our revenue base and diversified our
product offering.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are primarily exposed to market risks associated with fluctuations
in interest rates and foreign currency exchange rates.
INTEREST RATE RISKS
Our exposure to interest rate fluctuations relates primarily to our
short-term investment portfolio and our bank credit. We invest our surplus cash
in an investment trust established by a Canadian chartered bank and in a
Certificate of Deposit in a bank in the United States. The investment trust
holds various short-term, low-risk instruments, and can be withdrawn without
penalty at any time. The interest income from these investments is subject to
interest rate fluctuations which our management believes will not have a
material impact on our financial position.
We have a revolving line of credit with SunTrust Bank, which bears
interest at a rate of 3.87%, the rate of return on the short-term investments
provided as collateral plus 1.5%, until October 2002. As of August 31, 2002,
$992,892 had been drawn on the line of credit. We have also established a
CDN$1,000,000 line of credit with the Bank of Montreal which bears interest at
4.75%. We have drawn CDN$677,889 on this facility as of August 31, 2002. We can
draw an additional $152,111 before additional collateral would be required.
The majority of our interest rates are fixed, therefore we have
limited exposure to risks associated with interest rate fluctuations.
The impact on net interest income of a 100 basis point adverse change
in interest rates for the quarter ended August 31, 2002 would have been less
than $10,000.
FOREIGN CURRENCY RISK
We have monetary assets and liability balances denominated in Canadian
Dollars. As a result, fluctuations in the exchange rate of the Canadian dollar
against the U.S. dollar will impact our reported net asset position. A 10%
adverse change in foreign exchange rates would result in a decrease in the our
reported net asset position of approximately $50,000.
21
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 28, 2002, we acquired 100% of the outstanding stock of Icarian
in connection with the merger of Workstream Acquisition, Inc., a wholly-owned
subsidiary of ours, with and into Icarian, Inc. As consideration for the
purchase, we issued the former shareholders of Icarian 2,800,000 of our common
shares valued at approximately $9.9 million. The common shares were sold to the
former shareholders of Icarian, consisting of a limited number of accredited
investors, in reliance on the exemption from registration provided by Rule 506
promulgated under the Securities Act of 1933.
On July 1, 2002 we acquired certain assets and liabilities of
PureCarbon, Inc. As consideration for the purchase, we issued to the
shareholders of PureCarbon 263,158 of our common shares, valued at approximately
$1,000,000. The common shares were sold to the shareholders of PureCarbon,
consisting of a limited number of accredited investors, in reliance on the
exemption from registration provided by Rule 506 promulgated under the
Securities Act of 1933.
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
We filed the following reports on Form 8-K during the last quarter of
the period covered by this report:
(1) Current Report on Form 8-K with respect to Item 5 filed on
June 27, 2002;
(2) Current Report on Form 8-K with respect to Items 2, 5, and 7
filed on July 10, 2002; and
(3) Current Report on Form 8-K with respect to Item 9 filed on
August 29, 2002.
23
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.
Workstream Inc.
(Registrant)
DATE: October 15, 2002 By: /s/ Michael Mullarkey
------------------------------------
Michael Mullarkey,
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
DATE: October 15, 2002 By: /s/ Paul Haggard
------------------------------------
Paul Haggard,
Chief Financial Officer and Secretary
(Principal Financial Officer)
24
CERTIFICATIONS
I, Michael Mullarkey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Workstream Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or person's performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 15, 2002 /s/ Michael Mullarkey
-----------------------------------
Michael Mullarkey
Chief Executive Officer
25
I, Paul Haggard, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Workstream Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons perfoming the equalivant function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 15, 2002 /s/ Paul Haggard
-------------------------------
Paul Haggard
Chief Financial Officer
26