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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 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: 000-27577
HARRIS INTERACTIVE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 16-1538028
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
135 CORPORATE WOODS, ROCHESTER, NY 14623
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (585) 272-8400
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 BY CHECKMARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [ ]
On December 31, 2002, 52,480,872 shares of the Registrant's Common Stock, $.001
par value, were outstanding.
HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2002
INDEX
PAGE
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets at December 31, 2002
and June 30, 2002 3
Consolidated Statements of Operations for the three
and six months ended December 31, 2002 and 2001 4
Consolidated Statements of Cash Flows for the six months
ended December 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 12
Item 3: Quantitative and Qualitative Disclosures About Market Risk 18
Item 4: Controls and Procedures 18
Part II: Other Information
Item 1: Legal proceedings 19
Item 2: Changes in Securities and Use of Proceeds 19
Item 3: Defaults Upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 5: Other Information 20
Item 6: Exhibits and Reports on Form 8-K 20
Signatures 20
2
HARRIS INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
December 31, June 30,
2002 2002
------------ --------
ASSETS
Current assets:
Cash and cash equivalents $ 17,675 $ 10,787
Marketable securities 12,479 17,070
Accounts receivable, less allowances of $407 and $474, respectively 21,464 20,791
Costs and estimated earnings in excess of billings on uncompleted
Contracts 3,576 4,669
Other current assets 4,950 4,808
--------- ---------
Total current assets 60,144 58,125
Property, plant and equipment, net 8,566 9,703
Goodwill 63,677 63,428
Other intangibles, less accumulated amortization of $564 and $408,
respectively 886 1,042
Other assets 3,392 3,221
--------- ---------
Total assets $ 136,665 $ 135,519
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installment of long-term debt $ 175 $ 1,193
Accounts payable 7,284 7,417
Accrued expenses 8,114 11,081
Short-term borrowings 632 811
Billings in excess of costs and estimated earnings on
uncompleted contracts 12,238 9,824
--------- ---------
Total current liabilities 28,443 30,326
Long-term debt, excluding current installment 224 314
Other long-term liabilities 1,121 1,579
Stockholders' equity:
Common stock, $.001 par value, 100,000,000 Shares authorized; 53,136,472
shares issued at December 31,
2002 and 53,020,087 shares issued at June 30, 2002 53 53
Additional paid in capital 177,185 177,014
Unamortized deferred compensation (102) (147)
Accumulated other comprehensive loss (232) (248)
Accumulated deficit (68,334) (71,402)
Officer loan -- (277)
Less: Treasury stock at cost, 655,600 shares at
December 31, 2002 and June 30, 2002 (1,693) (1,693)
--------- ---------
Total stockholders' equity 106,877 103,300
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 136,665 $ 135,519
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
3
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues from services $ 32,468 $ 24,804 $ 62,797 $ 41,938
Cost of services 16,944 14,405 33,496 23,593
------------ ------------ ------------ ------------
Gross profit 15,524 10,399 29,301 18,345
Operating expenses:
Internet database development expenses 383 84 439 132
Sales and marketing expenses 2,226 2,742 4,135 4,353
General and administrative expenses 11,380 12,248 22,327 22,275
Restructuring (credits) charges and asset write-downs (389) 6,222 (389) 6,222
------------ ------------ ------------ ------------
Operating income (loss) 1,924 (10,897) 2,789 (14,637)
Interest and other income 149 406 317 935
Interest expense (19) (25) (38) (44)
------------ ------------ ------------ ------------
Income (loss) before income taxes 2,054 (10,516) 3,068 (13,746)
------------ ------------ ------------ ------------
Income tax expense -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) 2,054 (10,516) 3,068 (13,746)
============ ============ ============ ============
Basic net income (loss) per share $ 0.04 $ (0.23) $ 0.06 $ (0.34)
============ ============ ============ ============
Diluted net income (loss) per share $ 0.04 $ (0.23) $ 0.06 $ (0.34)
============ ============ ============ ============
Weighted average shares outstanding - basic 52,488,181 46,028,791 52,522,702 40,286,159
============ ============ ============ ============
Weighted average shares outstanding - diluted 54,656,732 46,028,791 54,509,331 40,286,159
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
4
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the Six Months Ended
December 31,
2002 2001
Cash flows from operating activities:
Net income (loss) $ 3,068 $(13,746)
Adjustments to reconcile net income (loss) to net cash
used in operating activities -
Depreciation and amortization 2,771 3,621
Restructuring (credits) charges and asset write-offs (389) 6,222
Amortization of deferred compensation 45 145
Amortization of premium and discount on marketable securities 103 (27)
(Increase) decrease in -
Accounts receivable (506) 1,791
Cost and estimated earnings in excess of billings on
Uncompleted contracts 1,135 1,076
Other current assets (124) 536
Other assets (168) 52
(Decrease) increase in -
Accounts payable (247) (2,733)
Accrued expenses (2,650) (2,774)
Other liabilities (493) 145
Billings in excess of costs and estimated earnings on
uncompleted contracts 2,370 881
-------- --------
Net cash provided by (used in) operating activities 4,915 (4,811)
-------- --------
Cash flows from investing activities:
Cash paid in connection with acquisitions, net of cash acquired (249) (3,091)
Purchase of marketable securities (12,096) (18,601)
Proceeds from maturities and sales of marketable securities 16,536 27,015
Capital expenditures (1,390) (1,328)
-------- --------
Net cash provided by investing activities 2,801 3,995
-------- --------
Cash flows from financing activities :
Decrease in short-term borrowings (184) (530)
Decrease in long-term borrowings (1,111) (1,560)
Issuance of common stock and stock options 471 407
Purchase of treasury stock -- (901)
-------- --------
Net cash used in financing activities (824) (2,584)
Effect of exchange rate changes on cash and cash equivalents (4) (58)
-------- --------
Net increase (decrease) in cash and cash equivalents 6,888 (3,458)
Cash and cash equivalents at beginning of period 10,787 10,585
-------- --------
Cash and cash equivalents at end of period $ 17,675 $ 7,127
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
Harris Interactive Inc. (the "Company" or "Harris Interactive") is a global
market research, polling and consulting firm, using Internet-based and
traditional methodologies to provide our clients with information about the
views, behaviors and attitudes of people worldwide. Known for The Harris Poll
(R), the Company has over 45 years experience in providing clients with market
research and polling services including custom, multi-client and service bureau
research, in addition to customer relationship management services.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The consolidated balance sheet as of June 30, 2002 has been
derived from the audited consolidated financial statements of the Company.
These unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K, filed by the Company with the Securities and
Exchange Commission on September 30, 2002.
2. EARNINGS PER SHARE
The following table presents the shares used in computing basic and diluted
earnings per share ("EPS") for the three and six months ended December 31, 2002.
Unexercised stock options to purchase 1,873,651 and 1,885,871 shares of the
Company's common stock for the three and six months ended December 31, 2002,
respectively, at weighted average prices per share of $5.22 and $5.20,
respectively, were not included in the computations of diluted earnings per
share because the options exercise prices were greater than the average market
price of the Company's common stock during the respective periods. During
periods of losses from continuing operations, all potentially dilutive
securities are excluded from the calculation of diluted net loss per share as
the effect would be anti-dilutive.
- -------------------------------------------------------------------------------------------------
Three Months ended Six Months ended
December 31, 2002 December 31, 2002
- -------------------------------------------------------------------------------------------------
Weighted average outstanding common shares for basic EPS 52,488,181 52,522,702
- -------------------------------------------------------------------------------------------------
Diluted effect of outstanding stock options 2,168,551 1,986,629
- -------------------------------------------------------------------------------------------------
Shares for diluted EPS 54,656,732 54,509,331
- -------------------------------------------------------------------------------------------------
6
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. COMPREHENSIVE INCOME (LOSS)
The components of the Company's total comprehensive income (loss) were:
Three months ended Six months ended
------------------ ----------------
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) $ 2,054 $ (10,516) $ 3,068 $ (13,746)
Foreign currency translation
adjustments 249 (157) 62 (191)
Unrealized loss on
marketable securities (26) (80) (46) (76)
---------- ---------- ---------- ----------
Total comprehensive income (loss) $ 2,277 $ (10,753) $ 3,084 $ (14,013)
========== ========== ========== ==========
4. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS 145, SFAS 146 and SFAS 148
In May 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements 4, 44 and 64, Amendment of FASB Statement No. 13
and Technical Corrections". SFAS No. 145 eliminates the requirement that gains
and losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect.
However, an entity is not prohibited from classifying such gains and losses as
extraordinary items, so long as they meet the criteria outlined in Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal Occurring Events and Transactions. SFAS No.
145 also eliminates the inconsistency between the accounting for sale-leaseback
transactions and certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This statement is effective for
financial statements issued for fiscal years beginning after May 15, 2002, with
early adoption encouraged. The Company has adopted SFAS No. 145. There was no
impact.
In July 2002, the Financial Accounting Standards Board issued SFAS 146,
"Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. Previous accounting guidance was provided by Emerging Issues
Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS No. 146 replaces EITF Issue No. 94-3.
This statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company will adopt SFAS No. 146, as
applicable, beginning in the third quarter of this fiscal year.
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.
SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company is required to follow the
prescribed format and provide the additional disclosures required by SFAS No.
148 in its
7
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
annual financial statements for the year ended June 30, 2003 and must also
provide the disclosures in its quarterly reports containing condensed financial
statements for interim periods beginning with the quarterly period ended March
31, 2003. The Company anticipates that the adoption of SFAS 148 will not have an
impact on the Company's consolidated financial statements.
5. BUSINESS COMBINATIONS
On November 1, 2001 the Company acquired all of the issued and outstanding
shares of common stock, par value $.001 per share, of Total Research Corporation
("Total Research"), a Delaware corporation, located in Princeton, New Jersey,
pursuant to the Agreement and Plan of Merger, dated as of August 5, 2001, among
the Company, Total Merger Sub Inc., a Delaware corporation and direct, wholly
owned subsidiary of the Company, and Total Research. Pursuant to the merger
agreement, Total Merger Sub was merged with and into Total Research (the
"Merger"), with Total Research continuing as the surviving corporation and as a
direct, wholly owned subsidiary of the Company. Harris Interactive and Total
Research are engaged in complementary businesses in the market research and
polling industry. The acquisition has created opportunities for revenue growth,
cost savings and other synergies including the ability to convert Total Research
traditional-based clients to the Internet, sell to one another's customers,
offer customers more comprehensive and diverse products and services, and use a
combined worldwide network.
Upon consummation of the Merger, each outstanding share of Total Research common
stock was converted into the right to receive 1.222 shares of Harris Interactive
common stock, par value $.001 per share. An aggregate of approximately
16,610,000 shares of common stock, with an estimated fair value of $41,259, was
issued to the stockholders of Total Research Corporation. The value was
determined using the average fair market value of the stock for the range of
trading days beginning August 2, 2001 and ending August 8, 2001. Additionally,
pursuant to the merger agreement, all outstanding options to purchase shares of
Total Research common stock were, upon consummation of the Merger, fully vested
and converted into an option to purchase 1.222 shares of Harris Interactive
common stock. As a result, the former option holders of Total Research received
from Harris Interactive options to purchase approximately 2,899,000 shares of
Harris Interactive common stock, with an estimated fair value of $3,609. The
acquisition was accounted for as a purchase in accordance with FAS 141 and is
included in the Company's financial statements commencing on November 1, 2001.
The Company recorded approximately $50,530 in goodwill and intangibles related
to the acquisition in accordance with the provisions of SFAS 142 (See Notes 8
and 9).
The pro forma information set forth below assumes the acquisition with Total
Research Corporation had occurred at the beginning of fiscal 2002, after giving
effect to adjustments for amortization of intangibles.
The pro forma information is presented for informational purposes only and is
not necessarily indicative of the results of operations that would have been
achieved had the acquisitions been consummated at that time.
Three months ended Six months ended
December 31, December 31,
-------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Revenue $ 32,468 $ 26,173 $ 62,797 $ 56,029
Net income (loss) 2,054 (18,289) 3,068 (21,708)
Income(loss) per share - basic $ 0.04 $ (0.35) $ 0.06 $ (0.42)
Income(loss) per share - diluted $ 0.04 $ (0.35) $ 0.06 $ (0.42)
8
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5. BUSINESS COMBINATIONS CONT.
In September 2001, the Company acquired all of the issued and outstanding stock
of M&A Create Limited, a privately owned company headquartered in Tokyo, Japan,
in consideration of cash and shares of Harris Interactive common stock.
Additionally, in August 2001, the Company acquired all of the issued and
outstanding stock of Market Research Solutions Limited, a privately owned U.K.
company, headquartered in Oxford, England, in consideration of a combination of
cash and shares of Harris Interactive common stock.
Supplemental cash flow information and non-cash investing and financing
activities are as follows:
As of December 31, 2002
Acquisitions - Market Research Solutions Limited
And M&A Create Limited:
Fair value of assets acquired $ 4,500
Liabilities assumed 6,568
Stock issued 2,256
Acquisition - Total Research Corporation:
Fair value of assets acquired $ 13,443
Liabilities assumed 16,925
Stock issued 41,259
Fair value of stock options issued 3,609
6. RESTRUCTURING (CREDITS) CHARGES AND ASSET WRITE-DOWNS
During the second quarter of fiscal 2002, the Company recorded a restructuring
and asset write-down charge of $6,222 directly related to the operational
integration of Harris Interactive and Total Research. Management developed a
formal plan that included a 5% reduction in Harris Interactive staff of the
full-time workforce in Rochester, NY; New York, NY; Norwalk, CT and a few other
outlying locations. The affected employees were mainly support staff with
overlapping functions in the combined Company. Other integration actions
included the closing of our telephone center located in Youngstown, OH and
offices in New York, NY and Chicago, IL, which resulted in asset write-downs and
a reserve for lease commitments at these locations. The plan was formally
communicated to the affected employees during the second fiscal quarter of 2002.
The following table summarizes activity with respect to the restructuring
charges for the period ended December 31, 2002:
Asset write- Lease
Severance downs Commitments Total
--------- ------------ ----------- -----
Net charge fiscal 2002 $ 1,169 $ 2,792 $ 2,261 $ 6,222
Asset write-downs during fiscal 2002 0 (2,792) 0 (2,792)
Cash payments during fiscal 2002 (1,098) 0 (160) (1,258)
------- ------- ------- -------
Remaining reserve at June 30, 2002 71 0 2,101 2,172
Cash payments during fiscal 2003 (71) 0 (721) (792)
Fiscal 2003 second quarter reversal (389) (389)
------- ------- ------- -------
Remaining reserve at December 31, 2002 $ 0 $ 0 $ 991 $ 991
======= ======= ======= =======
9
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. RESTRUCTURING (CREDITS) CHARGES AND ASSET WRITE-DOWNS CONT
As of June 30, 2002, all actions were completed, however cash payments for lease
commitments will be made on a longer-term basis according to the contractually
scheduled payments of such commitments and will continue through 2005. Total
number of employees included in the charge and ultimately terminated was 82.
During the second quarter of 2003, the Company reversed $389 of lease
commitments that were no longer required. The reversal is due to the Company
obtaining a release from its obligations under a previous lease obligation.
7. GEOGRAPHIC INFORMATION
The Company identifies its segments based on the Company's geographic locations
and industries in which the Company operates. The Company currently has one
reportable segment. However, the Company is comprised of operations in the U.S.,
United Kingdom and Japan. Non-US market research is comprised of operations in
the United Kingdom and Japan. There were no significant inter-segment
transactions that materially affected the financial statements. Geographic
information for the three and six months ended December 31, 2002, 2001 and 2000
are as follows:
US United Kingdom Japan
Market Market Market
Research Research Research Total
-------- -------------- --------- -------
Three months ended December 31, 2002:
Revenues.................................. $ 25,681 $ 5,218 $ 1,569 $32,468
Long-lived assets......................... 63,195 9,234 3,219 75,648
Three months ended December 31, 2001:
Revenues.................................. $ 18,951 $ 4,524 $ 1,329 $24,804
Long-lived assets......................... 66,267 9,094 3,186 78,547
Three months ended December 31, 2000:
Revenues.................................. $ 14,532 $14,532
Long-lived assets......................... 16,921 16,921
Six months ended December 31, 2002:
Revenues.................................. $ 48,477 $ 11,299 $ 3,021 $62,797
Long-lived assets......................... 63,195 9,234 3,219 75,648
Six months ended December 31, 2001:
Revenues.................................. $ 33,264 $ 6,396 $ 2,278 $41,938
Long-lived assets......................... 66,267 9,094 3,186 78,547
Six months ended December 31, 2000:
Revenues.................................. $ 26,585 $26,585
Long-lived assets......................... 16,921 16,921
10
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8. ACQUIRED INTANGIBLE ASSESTS SUBJECT TO AMORTIZATION
As of December 31, 2002
--------------------------------
Gross carrying Accumulated
Amount Amortization
-------------- ------------
Amortized intangible assets
Contract-based intangibles $1,450 $ 564
------ ------
Total $1,450 $ 564
====== ======
December 31, December 31,
Aggregate amortization expense: 2002 2001
------ ------
For the three months ended $ 78 $ 60
------ ------
For the six months ended $ 156 $ 85
------ ------
Estimated amortization expense:
For the year ending June 30, 2003 $ 312
------
For the year ending June 30, 2004 $ 312
------
For the year ending June 30, 2005 $ 312
------
For the year ending June 30, 2006 $ 106
------
9. GOODWILL
The changes in the carrying amount of goodwill for the period ended December 31,
2002 are as follows:
Balance as of July 1, 2001 $ 8,913
Acquisitions of Market Research Solutions Limited and M&A Create Limited
during the quarter ended September 30, 2001 $ 5,276
------------
Balance as of September 30, 2001 $ 14,189
Acquisition of Total Research during the quarter ended December 31, 2001 $ 49,488
------------
Balance as of December 31, 2002 $ 63,677
============
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE DISCUSSION IN THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS FORM 10-Q THAT
ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING
EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON THE
INFORMATION AVAILABLE TO HARRIS INTERACTIVE ON THE DATE HEREOF, AND HARRIS
INTERACTIVE ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENT.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED HEREIN. THE
RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS HARRIS INTERACTIVE FILES
FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, SUCH AS OUR 10-K
FILED SEPTEMBER 30, 2002 FOR THE FISCAL YEAR ENDED JUNE 30, 2002 WITH THE
SECURITIES AND EXCHANGE COMMISSION SHOULD BE REVIEWED.
OVERVIEW
We provide market research, polling and consulting services to a broad range of
companies, non-profit organizations and governmental agencies. Since 1956, we
have provided these services utilizing traditional market research and polling
methodologies, such as direct mail, telephone-based surveys, mall intercepts,
focus groups and in-person interviews. In September 1997, we began developing
our Internet panel and building the technology infrastructure to provide online
market research and polling services. In November 1997, we introduced our first
Internet-based market research and polling products and services.
We generally perform traditional and Internet-based custom research services on
a fixed fee basis in response to client-generated requests. We sell our
multi-client research products on a periodic subscription basis, typically
annually. Harris Interactive Service Bureau performs research for other market
research firms on a project-by-project basis in response to requests from those
firms.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported therein. The most significant of
these involving difficult or complex judgements in fiscal 2003 include:
o Revenue recognition,
o Provision for uncollectible accounts,
o Valuation of goodwill and intangible assets and other long-lived assets,
o Realizability of deferred tax assets, and
o HIpoints(TM) loyalty program.
In each situation, management is required to make estimates about the effects of
matters or future events that are inherently uncertain.
Revenues under fixed fee arrangements are recognized on a percentage of
completion method based on the ratio of costs incurred to total estimated costs.
These revenues include amounts billed to our clients to cover subcontractor
costs and other direct expenses. Provisions for estimated contract losses, if
any, is made in the period such losses are determined. Subscription revenues are
recognized upon delivery of the research product. Revisions to estimated costs
and differences between actual contract losses and estimated contract losses
would affect both the timing of revenue allocated and the results of operations
of the Company. We consider all of the revenues from a project to be
Internet-based whenever 50% or more of the surveys used in the completed project
were completed by online panelists over the Internet.
The Company maintains provisions for uncollectible accounts for estimated losses
resulting from the inability of its customers to remit payments. If the
financial condition of customers were to deteriorate, thereby resulting in an
inability to make payments, additional allowances may be required.
The Company assesses the carrying value of its identifiable intangible assets,
long-lived assets and goodwill whenever events or changes in circumstances
indicate that the carrying amount of the underlying asset may not be
recoverable. Certain factors
12
which may occur and indicate that an impairment exists include, but are not
limited to: significant under performance relative to historical or projected
future operating results; significant changes in the manner of the Company's use
of the underlying assets; and significant adverse industry or market trends. In
the event that the carrying value of assets is determined to be unrecoverable,
the Company would record an adjustment to the respective carrying value. With
respect to goodwill, the Company will complete its two-step impairment test on
an annual basis.
The Company evaluates the valuation allowance and the realizability of its
deferred tax assets on an ongoing basis. In the determination of the valuation
allowance, the Company has considered future taxable income. Should the Company
determine that it is more likely than not that it will realize certain of its
deferred tax assets in the future, an adjustment would be required to reduce the
existing valuation allowance and increase income.
Since July 2001, the Company has had a loyalty program (HIpointsTM) whereby
points are awarded to market survey respondents who register for the Company's
online panel, complete online surveys and refer others to join the online panel.
The earned points, which are non-transferable, may be redeemed for gifts from a
specific product folio. The Company maintains a reserve for the obligation of
future redemption of outstanding points, calculated based on the expected
redemption rate of the points. This expected redemption rate is estimated based
on research from other loyalty and retention programs and the Company's actual
redemption rates to date. An actual redemption rate that differs from this
estimated redemption rate may have a material impact the results of operations
of the Company.
BUSINESS COMBINATIONS
On November 1, 2001 the Company acquired all of the issued and outstanding
shares of common stock, par value $.001 per share, of Total Research Corporation
("Total Research"), a Delaware corporation, headquartered in Princeton, New
Jersey, pursuant to the Agreement and Plan of Merger, dated as of August 5,
2001, among the Company, Total Merger Sub Inc., a Delaware corporation and
direct, wholly owned subsidiary of the Company, and Total Research. Pursuant to
the merger agreement, Total Merger Sub was merged with and into Total Research
(the "Merger"), with Total Research continuing as the surviving corporation and
as a direct, wholly owned subsidiary of the Company. Harris Interactive and
Total Research are engaged in complementary businesses in the market research
and polling industry. The acquisition has created opportunities for revenue
growth, cost savings and other synergies including the ability to convert Total
Research traditional-based clients to the Internet, sell to one another's
customers, offer customers more comprehensive and diverse products and services,
and use a combined worldwide network.
Upon consummation of the Merger, each outstanding share of Total Research common
stock was converted into the right to receive 1.222 shares of Harris Interactive
common stock, par value $.001 per share. An aggregate of approximately
16,610,000 shares of common stock, with an estimated fair value of $41.3
million, was issued to the stockholders of Total Research Corporation. The value
was determined using the average fair market value of the stock for the range of
trading days beginning August 2, 2001 and ending August 8, 2001. Additionally,
pursuant to the merger agreement, all outstanding options to purchase shares of
Total Research common stock were, upon consummation of the Merger, fully vested
and converted into an option to purchase 1.222 shares of Harris Interactive
common stock. As a result, the former option holders of Total Research received
from Harris Interactive options to purchase approximately 2,899,000 shares of
Harris Interactive common stock, with an estimated fair value of $3.6 million.
The acquisition was accounted for as a purchase in accordance with FAS 141 and
is included in the Company's financial statements commencing on November 1,
2001.
The Company recorded approximately $50.5 million in goodwill and intangibles
related to the acquisition in accordance with the provisions of SFAS 142 (See
Notes 8 and 9).
RESTRUCTURING (CREDITS) CHARGES AND ASSET WRITE-DOWN CHARGE
During the second quarter of fiscal 2002, the Company recorded a restructuring
and asset write-down charge of $6.2 million directly related to the operational
integration of Harris Interactive and Total Research. Management developed a
formal plan that included a 5% reduction in Harris Interactive staff of the
full-time workforce in Rochester, NY; New York, NY; Norwalk,
13
CT and a few other outlying locations. The affected employees were mainly
support staff with overlapping functions in the combined Company. Other
integration actions included the closing of our telephone center located in
Youngstown, OH and offices in New York, NY and Chicago, IL, which resulted in
asset write-downs and a reserve for lease commitments at these locations. The
plan was formally communicated to the affected employees during the second
fiscal quarter of 2002. The Company realized approximately $1.1 million in
non-cash savings and $1.9 million in cash savings in fiscal 2002. The Company
estimates non-cash savings of approximately $2.1 million and cash savings of
approximately $5.6 million, in fiscal 2003. The following table summarizes
activity with respect to the restructuring charges for the period ended
December 31, 2002:
Asset write- Lease
Severance downs Commitments Total
--------- ------------ ----------- -----
Net charge fiscal 2002 $ 1,169 $ 2,792 $ 2,261 $ 6,222
Asset write-downs during fiscal 2002 0 (2,792) 0 (2,792)
Cash payments during fiscal 2002 (1,098) 0 (160) (1,258)
------- ------- ------- -------
Remaining reserve at June 30, 2002 71 0 2,101 2,172
Cash payments during fiscal 2003 (71) 0 (721) (792)
Fiscal 2003 second quarter reversal - - (389) (389)
------- ------- ------- -------
Remaining reserve at December 31, 2002 $ 0 $ 0 $ 991 $ 991
======= ======= ======= =======
As of June 30, 2002, all actions were completed, however cash payments for lease
commitments will be made on a longer-term basis according to the contractually
scheduled payments of such commitments and will continue through 2005. Total
number of employees included in the charge and ultimately terminated was 82.
During the second quarter of 2003, the Company reversed $389 of lease
commitments that were no longer required. The reversal is due to the Company
obtaining a release from its obligations under a previous lease obligation.
14
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated our results of
operations expressed as a percentage of revenues:
Three months ended Six months ended
December 31, December 31,
2002 2001 2002 2001
Revenues from services 100% 100% 100% 100%
Cost of services 52 58 53 56
------ ------ ------ ------
Gross profit 48 42 47 44
------ ------ ------ ------
Operating expenses:
Internet database development 1 - 1 -
Sales and marketing 7 11 7 11
General and administrative 35 50 36 53
Restructuring charges and asset
write-downs (1) 25 (1) 15
------ ------ ------ ------
Operating income (loss) 6 (44) 4 (35)
Interest and other income, net - 2 1 2
------ ------ ------ ------
Net income (loss) 6 (42) 5 (33)
====== ====== ====== ======
THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
Revenues from services. Total revenues increased 31% to $32.5 million for the
quarter ended December 31, 2002, from $24.8 million for the quarter ended
December 31, 2001. This increase was attributable to growth in several markets,
most prominently healthcare and pharmaceuticals, as well as incremental revenues
generated from the acquisition of Total Research Corporation on November 1,
2001. Revenues from Internet-based services was $15.3 million, or 47% of total
revenues, for the second quarter of fiscal 2003, compared with $8.2 million, or
33% of revenues for the second quarter of fiscal 2002. This increase was due to
the acquisition of new Internet-based revenues as well as the conversion of
existing, traditional work to the Internet.
Gross profit. Gross profit increased to $15.5 million, or 48% of revenues,
during the second quarter of fiscal 2003, from $10.4 million or 42% of revenues
for the same prior year quarter, primarily due to the growth in Internet-related
business relative to overall revenue growth.
Internet database development. Internet database development costs were $0.4
million for the second quarter of fiscal 2003 compared to $0.1 million for the
second quarter of fiscal 2002. The increase of $0.3 million was related to the
establishment of our Western European panel as well as the expansion of our US
panel, which are both expected to continue throughout fiscal 2003.
Sales and marketing. Sales and marketing expenses decreased to $2.2 million, or
7% of revenues, for the second quarter of fiscal 2003 compared with $2.7
million, or 11%, of revenues from the same prior year quarter. As a percentage
of revenue, sales and marketing expenses decreased four percentage points. The
decrease is attributable to reductions in headcount and related expenses,
reflecting the Company's continuing efforts to reduce costs, as well as
productivity improvements from the increased experience level of the Company's
salesforce with Harris Interactive sales and marketing strategies.
General and administrative. General and administrative expenses decreased to
$11.4 million, or 35% of revenues, for the quarter ended December 31, 2002, as
compared to $12.2 million or 50% of revenues for the same prior year quarter.
The decrease reflects reductions in headcount and related expenses, rent expense
and depreciation expense, and reflect the Company's continuing efforts to reduce
costs.
Interest and other income, net. Net interest and other income totaled $0.1
million for the quarter ended December 31, 2002 compared with $0.4 million for
the quarter ended December 31, 2001. The decrease was primarily attributable to
a lower average marketable securities balance and interest rates for fiscal 2003
compared to the prior year.
15
SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001
Revenues from services. Total revenues increased 50%, from $41.9 million in
fiscal 2002 to $62.8 million in fiscal 2003. This increase was primarily
attributable to the incremental revenue generated from the acquisition of Total
Research Corporation. Additionally, excluding the acquisition, the Company
recognized a modest increase in revenues related to our expanding Internet
client base and Internet-based market research products and services, which
contributed $26.7 million in total revenues for the six months ended December
31, 2002, as compared to $16.1 million for the same prior year period.
Gross profit. Gross profit was $29.3 million, or 47% of revenues, for the first
half of fiscal 2003, compared with $18.3 million, or 44% of revenues, in fiscal
2002. The improvement in gross margin resulted primarily from the growth in
Internet-related business relative to overall revenue growth.
Internet database development. Internet database development costs increased to
$0.4 million for the first half of fiscal 2003 from $0.1 million for the first
half of fiscal 2002. The increase of $0.3 million was related to the
establishment of our Western European panel as well as the expansion of our US
panel, which are both expected to continue throughout fiscal 2003.
Sales and marketing. Sales and marketing expenses for the first half of fiscal
2003 were $4.1 million, or 7% of revenue, compared with $4.4 million, or 11% of
revenue, for fiscal 2002. As a percentage of revenue, sales and marketing
expenses decreased three percentage points. The decrease is attributable to
reductions in headcount and related expenses, reflecting the Company's
continuing efforts to reduce costs, as well as productivity improvements from
the increased experience level of the Company's salesforce with Harris
Interactive sales and marketing strategies.
General and administrative. General and administrative expenses were $22.3
million, or 36% of revenues, for the first half of fiscal 2003 compared with
$22.3 million, or 53% of revenues, for fiscal 2002. The decrease reflects
reductions in headcount and related expenses, rent expense and depreciation
expense, and reflect the Company's continuing efforts to reduce costs.
Interest and other income, net. Net interest and other income totaled $0.3
million for the first half of fiscal 2003 compared with $0.9 million for fiscal
2002. The decrease was primarily attributable to a lower average marketable
securities balance and interest rates for fiscal 2003 compared to the prior
year.
SIGNIFICANT FACTORS AFFECTING COMPANY PERFORMANCE
In the past, the Company has disclosed EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) because management believes that EBITDA, although
not a GAAP measurement, is widely understood and is an additional tool that
assists investors in evaluating current operating performance of the business
without the effect of the non-cash depreciation and amortization expenses. While
instructive, EBITDA should not be considered as an alternative to net income or
cash flows from operations or any other GAAP measure of performance or
liquidity.
Globally, for the three and six months ended December 31, 2002, EBITDA was $3.3
million, or 10% of revenues, and $5.5 million, or 9% of revenue, respectively.
In the US alone, for the three and six months ended December 31, 2002, EBITDA
was $3.1 million, or 11% of revenues, and $4.9 million, or 10% of revenue,
respectively.
The primary factors driving the growth in the Company's gross profit, EBITDA and
net income are growth in revenues and the percentage of those revenues that are
derived from Internet versus non-Internet work. The Company's model is based
upon the premise that Internet work is more profitable than traditional work,
due to the comparatively low variable cost of Internet work. Thus, to the extent
the mix of Internet work increases, assuming that operating expenses continue to
be managed at current levels, all of the above financial results should improve.
In any particular quarter, however, the mix could be affected by receipt of
large non-Internet projects.
For the quarter ended December 31, 2002, the Company's actual Internet mix was
47% on a global basis and 57% in the United States alone. Although the Company
continues to work to convert projects to the Internet in the United States,
there is also a significant new growth opportunity in Europe, where the ability
to change the Internet mix is dependent upon the Company's ability to continue
to expand the size of its respondent panel and increase customer acceptance of
Internet-based work. The globalization of the Internet portion of the Company's
business has commenced and is expected to increase over the next several years.
16
Because the bulk of the Company's business consists of specific client projects,
the Company must continually generate new business from existing clients as well
as new sources, both for internal growth and to replace contracts which are
concluded or which are not renewed. Although no current clients constitute more
than 5% of the Company's revenues, the Company has had to, and in the future
will likely have to, generate significant amounts of replacement and additional
revenue as customer relationships change. The Company's ability to generate
revenues is dependent not only on execution of its business plan but also may be
affected by the risk factors outlined in our most recently filed Form 10-K,
dated September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a line of credit with a commercial bank providing
borrowings up to $5.0 million in fiscal 2003 and 2002, at prime. The prime rate
in effect at December 31, 2002 was 4.25%. Borrowings under this arrangement are
due upon demand. There were no borrowings outstanding under this agreement at
December 31, 2002 and 2001. The line of credit is collateralized by the assets
of the Company.
As of December 31, 2002, the Company had short-term and long-term borrowings of
$0.6 million and $0.4 million, respectively, limited to operations in Japan.
Interest rates related to the borrowings range from 1.8% to 3.0% with maturity
dates extending to 2006. There are no restrictive covenants associated with
these borrowings.
Net cash provided by operating activities was $4.7 million for the first six
months of fiscal 2003 compared with net cash used in operating activities of
$4.8 million for the same period during fiscal 2002. The positive cash flow in
fiscal 2003 was primarily the result of the Company generating net income in
fiscal 2003 compared to the funding of net losses, including the restructuring
and asset impairment charge, in fiscal 2002.
Net cash provided by investing activities was $3.1 million for the first six
months of fiscal 2003, compared with $4.0 million for the same period in the
prior year. The decrease resulted from the maturity and liquidation of fewer
marketable securities in fiscal 2003 compared to fiscal 2002. Investing
activities for the first six months of fiscal 2002 also included the use of $3.1
million related to acquisitions. Capital expenditures of $1.4 million for the
first half of fiscal 2003 were consistent with the $1.3 million from the same
prior year period.
Net cash used in financing activities was $0.8 million for the first six months
of fiscal 2003, compared with $2.6 million for the same period during fiscal
2002. The decrease is due to fewer repayments of long-term and short-term debt
obligations in fiscal 2003 compared to fiscal 2002. Financing activities for the
first six months of fiscal 2002 also included the repurchase of 422,900 shares
being held as Treasury Stock, there were no purchases of Treasury Stock in
fiscal 2003.
Our capital requirements depend on numerous factors, including market acceptance
of our products and services, the resources we allocate to the continuing
development of our Internet infrastructure and Internet panel, marketing and
selling of our services, our promotional activities, acquisition activity and
other factors. While management anticipates continuing expenditures for
property, plant and equipment and working capital requirements throughout fiscal
2003, these expenditures are expected to be consistent with fiscal 2002.
At December 31, 2002, the Company had $30.2 million in cash and marketable
securities. The Company believes that its existing funds and funds generated
from operations will be sufficient to support its planned operations for the
foreseeable future.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The carrying values of financial instruments including cash and cash
equivalents, marketable securities, accounts receivable and accounts payable,
approximate fair value because of the short maturity of these instruments.
We have historically had very low exposure to changes in foreign currency
exchange rates. Therefore we have not used derivative financial instruments to
manage foreign currency fluctuation risk. While the United Kingdom now
contributes significantly to our revenues, we continue to believe our exposure
to foreign currency fluctuation risk is low. As we continue to expand globally,
the risk of foreign currency exchange rate fluctuation may increase. Therefore,
in the future, we may consider utilizing derivative instruments to mitigate such
risks.
17
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
as of a date within 90 days of the filing date of this report, the Company's
principal executive officer and principal financial officer have concluded that
the Company's disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"))
are effective to ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation. There were no
significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.
18
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the normal course of business, the Company is at times subject to pending and
threatened legal actions and proceedings. After reviewing pending and threatened
actions and proceedings with counsel, management believes that the outcome of
such actions or proceedings is not expected to have a material adverse effect on
our business, financial condition or results of operations.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 6, 1999, the Securities and Exchange Commission declared effective
the Company's Registration Statement on Form S-1 (No. 333-87311). Pursuant to
this Registration Statement, the Company completed an initial public offering of
6,670,000 shares of its common stock. Proceeds to the Company from the Offering
totaled approximately $85.5 million.
The Company issued and sold an aggregate of 2,500 shares of its common stock to
employees during the second quarter of fiscal 2003, upon the exercise of options
granted under the Company's 1997 stock option plan, at a price of $1.26 per
share, for an aggregate cash consideration of $3,150. As to each employee of the
Company who was issued the common stock described in this paragraph, the Company
relied on Rule 701 under the Securities Act of 1933, as amended. Each person was
granted an option to purchase shares of the Company's common stock pursuant to a
written contract between such person and the Company, and the Company was
eligible to use Rule 701 at the time the options herein reported as exercised
were originally granted in accordance with Rule 701(b).
During the period from December 6, 1999 through December 31, 2002, the Company
used a portion of the proceeds from its public offering as follows: (i)
approximately $54.8 million of net cash used for working capital and general
corporate purposes, including capital expenditures (ii) approximately $11.4
million of net cash used for the expansion of our Internet panel (iii)
approximately $11.3 million of net cash for business acquisitions, and (iv)
approximately $4.0 million of net cash used in connection with the repayment of
short-term and long-term borrowings.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2002 annual meeting of stockholders was held on November 18, 2002. The
following matters were voted upon and received the votes set forth below:
1. The individuals named below were re-elected to three-year terms as directors.
Votes Cast
----------------------------
Withheld
Director For Authority
- -------- --- ---------
Albert A. Angrisani 42,037,945 4,086,281
Gordon S. Black 44,568,651 1,555,575
James R. Riedman 42,149,184 3,975,042
Directors continuing in office were Leonard R. Bayer, Benjamin Addoms, David
Brodsky, Thomas D. Berman and Howard L. Shecter.
19
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) - Exhibits
10.1 Confidentiality and Non-Competition Agreement of Gordon S. Black
99.1 Certificate of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350
(Section 906 of the Sarbanes-Oxley Act of 2002).
99.2 Certificate of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350
(Section 906 of the Sarbanes-Oxley Act of 2002).
(b) - Reports on Form 8-K
None.
SIGNATURE
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,
February 10, 2003 Harris Interactive Inc.
By /s/ BRUCE A. NEWMAN
---------------------------------------------
Bruce A. Newman
Chief Financial Officer, Secretary and Treasurer
(On Behalf of the Registrant and as Principal
Financial and Accounting Officer)
20
CERTIFICATION
I, Gordon S. Black, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harris Interactive
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 officer 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 officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons 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 officer 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: February 10, 2003 Signature: /s/ GORDON S. BLACK
------------------------------------
Gordon S. Black
Chairman and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
I, Bruce A. Newman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harris Interactive
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 officer 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 officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons 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
7. The registrant's other certifying officer 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: February 10, 2003 Signature: /s/ BRUCE A. NEWMAN
------------------------------------
Bruce A. Newman
Chief Financial Officer, Secretary
And Treasurer
(Principal Financial Officer)