-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OSkMHcS77ZgwAODPBYBBzetJLTobFaXEd1NMNA4CuE214vPz/DjiES0es1klJhkG WIM7EHVTfowX4FRNTCHiFw== /in/edgar/work/20000808/0000927016-00-002768/0000927016-00-002768.txt : 20000921 0000927016-00-002768.hdr.sgml : 20000921 ACCESSION NUMBER: 0000927016-00-002768 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWSEDGE CORP CENTRAL INDEX KEY: 0000858912 STANDARD INDUSTRIAL CLASSIFICATION: [7370 ] IRS NUMBER: 043016142 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26540 FILM NUMBER: 687925 BUSINESS ADDRESS: STREET 1: 80 BLANCHARD RD CITY: BURLINGTON STATE: MA ZIP: 01803 BUSINESS PHONE: 7812293000 MAIL ADDRESS: STREET 1: DESKTOP DATA INC STREET 2: 80 BLANCHARD RD CITY: BURLINGTON STATE: MA ZIP: 01803 FORMER COMPANY: FORMER CONFORMED NAME: DESKTOP DATA INC DATE OF NAME CHANGE: 19950629 10-Q 1 0001.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended: June 30, 2000 ------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-26540 ------- NewsEdge Corporation (Exact name of registrant as specified in its charter) DELAWARE 04-3016142 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 80 Blanchard Road Burlington, Massachusetts 01803 (Address of principal executive offices) (781) 229-3000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 60 days. Yes X . No ___. ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of each class Outstanding at July 31, 2000 - ------------------- ---------------------------- Common Stock, par value $.01 17,717,140 NEWSEDGE CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 Notes to the Condensed Consolidated Financial Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk PART II - OTHER INFORMATION Item 6(a) Exhibits Item 6(b) Reports on Form 8-K Signature Exhibit Index Exhibit 2 PART I - FINANCIAL INFORMATION ITEM 1 NEWSEDGE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 30, December 31, 2000 1999 --------------------- --------------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 20,004 $ 20,278 Accounts receivable 12,720 11,280 Due from WinStar 3,000 - Prepaid expenses and deposits 6,433 5,132 --------------------- --------------------- Total current assets 42,157 36,690 --------------------- --------------------- Property and equipment, net 7,732 9,398 --------------------- --------------------- Other assets 1,124 1,766 --------------------- --------------------- Total assets $ 51,013 $ 47,854 ===================== ===================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,313 $ 2,869 Accrued expenses 16,504 14,837 Deferred revenue, current 27,348 23,010 Current portion of long-term obligations 74 303 --------------------- --------------------- Total current liabilities 48,239 41,019 --------------------- --------------------- Deferred revenue, noncurrent 222 124 --------------------- --------------------- Stockholders' equity: Common stock 182 181 Additional paid-in capital 130,783 130,136 Cumulative translation adjustment (87) (58) Accumulated deficit (125,600) (120,822) Treasury stock, at cost; 432,000 shares (2,726) (2,726) --------------------- --------------------- Total stockholders' equity 2,552 6,711 --------------------- --------------------- Total liabilities & stockholders' equity $ 51,013 $ 47,854 ===================== =====================
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 NEWSEDGE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Total revenues $ 17,672 $ 18,441 $ 35,001 $ 36,801 Costs and expenses: Cost of revenues 7,605 7,616 15,171 15,336 Customer support expenses 1,345 1,226 2,843 2,519 Development expenses 2,384 2,146 5,627 4,485 Sales and marketing expenses 7,685 7,807 17,451 15,744 General and administrative expenses 1,420 723 4,013 1,450 Merger, disposition and other charges (453) - (453) - -------- -------- -------- -------- Total costs and expenses 19,986 19,518 44,652 39,534 -------- -------- -------- -------- Loss from operations (2,314) (1,077) (9,651) (2,733) Interest income and other, net 275 456 504 888 -------- -------- -------- -------- Loss from continuing operations before provision for Income taxes (2,039) (621) (9,147) (1,845) Provision for income taxes 15 18 39 51 -------- -------- -------- -------- Net loss from continuing operations (2,054) (639) (9,186) (1,896) Loss from discontinued operations, net - (1,972) (1,859) (3,900) Net gain on disposal of Individual.com, Inc. 773 - 6,267 - -------- -------- -------- -------- Income (loss) from discontinued operations 773 (1,972) 4,408 (3,900) -------- -------- -------- -------- Net Loss $ (1,281) $ (2,611) $ (4,778) $ (5,796) ======== ======== ======== ======== Basic and diluted net loss per share Continuing operations $ (0.12) $ (0.04) $ (0.52) $ (0.11) Discontinued operations 0.04 (0.11) 0.24 (0.22) -------- -------- -------- -------- Total $ (0.08) $ (0.15) $ (0.28) $ (0.33) ======== ======== ======== ======== Weighted average common shares outstanding 17,696 17,351 17,690 17,328 ======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 NEWSEDGE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Six Months Ended June 30, -------------------------------------------------- 2000 1999 --------------------- --------------------- Cash flows from operating activities: Net loss $ (4,778) $ (5,797) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,435 1,972 Gain from disposal of Individual.com, Inc. (5,494) - Gain on disposal of property and equipment - - Changes in assets and liabilities: Accounts receivable (2,217) 1,031 Prepaid expenses and deposits (1,301) (54) Accounts payable and accrued expenses 2,926 (2,887) Deferred revenue 4,319 2,900 --------------------- --------------------- Net cash used in operating activities (4,110) (2,835) --------------------- --------------------- Cash flows from investing activities: Net proceeds from disposal of Individual.com, Inc. 4,368 - Decrease in investments, net - 3,782 Purchases of property and equipment (1,023) (1,835) Decrease in other assets 3 4 --------------------- --------------------- Net cash provided by investing activities 3,348 1,951 --------------------- --------------------- Cash flows from financing activities: Proceeds from issuances related to stock plans, including tax benefits 648 1,217 (Increase) Decrease in long-term obligations 98 (355) Purchase of treasury stock - (484) Principal payments under capital leases (229) (250) --------------------- --------------------- Net cash provided by financing activities 517 128 --------------------- --------------------- Effect of exchange rate on cash and cash equivalents (29) (114) --------------------- --------------------- Decrease in cash and cash equivalents (274) (870) Cash and cash equivalents, beginning of period 20,278 37,808 --------------------- --------------------- Cash and cash equivalents, end of period $ 20,004 $ 36,938 ===================== ===================== Supplemental disclosure of cash flow information: Cash paid for income taxes $ 31 $ 44 ===================== ===================== Cash paid for interest $ 16 $ 42 ===================== =====================
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 NEWSEDGE CORPORATION AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Nature of the Business NewsEdge Corporation ("the Company") is a leading provider of eContent applications for business web sites and enterprise intranets. The Company's mission is to make news and information valuable for business. NewsEdge services provide access to value-added news over the Internet or customer intranets. The Company aggregates and adds value to news and information from over 2,000 sources published by over one hundred global content providers. This information is customized and filtered so that users can readily find the most important, relevant stories from the overwhelming volume of daily news that is available. NewsEdge Corporation is headquartered in Burlington, Massachusetts, with sales offices and distributors throughout North America, South America, Europe, Asia and the Middle East. On December 7, 1999, the Company entered into a purchase and sale agreement with RoweCom, Inc., whereby RoweCom would purchase all of the outstanding shares of common stock of the Company for approximately $227 million. The acquisition was subject to the approval of the stockholders of both companies. On March 6, 2000, the agreement was mutually terminated by both parties. The Company incurred costs of $1.4 million, comprised of legal, employee retention and acquisition-related expenses charged to operations during the first quarter of 2000. During the second quarter of 2000, the Company incurred an additional $668,000 relating to remaining employee retention expenses. In March 2000, the Company's Board of Directors approved, and in early May 2000, the Company announced a strategic expansion of its traditional business focus. In order to capitalize on its media sources, personalization strategy, and international sales and support infrastructure the Company has moved into the eContent business marketplace by offering competitive eContent applications for business web sites and enterprise intranets. eContent is the constantly changing information required for web-sites to encourage and foster high frequency usage and support other web-based interactions. The Company believes that syndicated eContent and contextual commerce (the ability to map business content to transaction opportunities) offerings, in addition to providing infrastructure and solution applications to the Company's clients, will allow the Company to drive traffic and commerce on its client's web sites. The Company incurred $2,066,000 of non-recurring expenses charged to operations as of June 30, 2000 related to transitioning the Company to its new strategic direction. These costs were comprised primarily of asset write-offs and reserves. 2. Significant Accounting Policies Basis of Presentation The condensed consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 1999 included in the Company's Form 10-K. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries. Quarterly operating results are not necessarily indicative of the results that would be expected for the full year. 6 Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents and Investments The Company applies Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. Accordingly, the Company's investments are classified as held-to-maturity and are recorded at amortized cost. Cash equivalents consist of highly-liquid investments purchased with an original maturity of three months or less. Reclassifications Certain prior year amounts have been reclassified to conform with current year's presentation. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to have a material impact on the Company's consolidated financial statements. The Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, on December 3, 1999. This SAB provides additional guidance on the accounting for revenue recognition, including both broad conceptual discussions as well as certain industry-specific guidance. The guidance is effective in the fourth quarter 2000. The Company does not expect the adoption of SAB 101 to have a material impact on the Company's results of operations. 3. Discontinued Operations On February 18, 2000, the Company entered into a purchase and sale agreement to sell its ownership interest in its wholly owned subsidiary, Individual.com, Inc. Upon the initial closing, the Company sold 80% of its ownership interest in Individual.com, Inc. for a purchase price of $8,000,000 payable by $2,500,000 in cash and $5,500,000 in installment receivables payable through December 2000. Upon a second closing which is scheduled to occur in February 2001, the Company expects to receive an additional $2,000,000 in consideration for the remaining 20% ownership interest. The Company received $2,500,000 on both February 18, 2000 and May 1, 2000 representing the initial purchase and first installment balances due. Individual.com, Inc. operated the Company's single-worker news service business unit, which derives its revenues from targeted advertising and electronic commerce. 7 The Company estimates a total gain on the sale of Individual.com totaling $8,267,000 before applicable income taxes. The Company also made payments to retain the Individual.com workforce, which along with other transaction fees, have been included as a reduction in the gain on the sale. The Company recorded $5,494,000 of the gain in February 2000. In the second quarter of 2000, the Company recorded an adjustment to the sale transaction expenses in the amount of $773,000. The Company expects to record the remainder of the gain in February 2001, when the second of the two closings is expected to occur. Subsequent to the close of the second quarter of 2000, the Company completed the sale of the remaining 20% of Individual.com. Under the terms of the new agreement, the Company will receive a $3.0 million payment on September 1, 2000, a $1.0 million payment on December 31, 2000 and the final $1.0 million payment on February 28, 2001. As a result of this agreement, the Company will report a gain in the third quarter of 2000 of approximately $2.0 million. The Company has presented the operating results of Individual.com, Inc. as discontinued operations for all periods presented. The Company has not restated the consolidated balance sheet for the net assets of Individual.com, Inc., which total $1.2 million at December 31, 1999. Included in these results are revenues from the Individual.com business for the three- and six month periods ending June 30, 2000 were $0 and $297,000, respectively, as compared to $1,137,000 and $2,156,000, respectively for the same periods in 1999. 4. Segment Reporting On December 31, 1998, NewsEdge Corporation adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. This pronouncement established standards for public companies relating to the reporting of financial and descriptive information about their operating segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance of the business. The Company evaluates its continuing operations in two product segments: Enterprise and Other. The Company pursues the market for news and current awareness through one primary line of business: the Enterprise business. The Enterprise business uses direct selling and telesales efforts and targets large organizations and individual websites. The Enterprise services deliver news and information to large numbers of users within organizations through their corporate intranet or local area networks and to destination websites as a content service for visitors of those sites. In addition to the Enterprise business, the Company also reports a segment of Other, which consists of services which were phased out by the Company during 1999. Segment data excludes information pertaining to the discontinued operations of Individual.com, Inc. (see Note 3). The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance of its segments based on revenues and segment profitability. Segment profitability is defined by the Company as profit or loss from operations before income taxes, interest and merger, disposition and other charges. Noncash expenses included in the segment profitability measure have been detailed separately in the table below. The Company does not evaluate the assets of each operating segment separately as the majority of such assets are commingled and transferable among the different segments. 8
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2000 1999 2000 1999 --------------------- --------------------- (in thousands) Revenues: Enterprise $ 17,672 $ 18,051 $ 35,001 $ 35,770 Other - 390 - 1,031 --------------------- --------------------- Total revenues $ 17,672 $ 18,441 $ 35,001 $ 36,801 ===================== ===================== Loss from continuing operations before mergers, dispositions and other charges, interest and income taxes: Enterprise $ (2,767) $ (957) $(10,104) $ (2,661) Other - (120) - (72) Noncash expenses by segment: Enterprise $ 860 $ 817 $ 2,414 $ 1,583 Other - 21 - 48
5. Comprehensive Income The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective January 1, 1998. SFAS No. 130 requires that items defined as other comprehensive income, such as foreign currency translation adjustments, be separately classified in the financial statements and that the accumulated balance of other comprehensive income be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The components of comprehensive income for the three and six months ended June 30, 2000 and 1999 are as follows:
Three Months Ended Six Months Ended June 30, June 30, (in thousands) ---------------------------------------------------------- 2000 1999 2000 1999 ---------------------------------------------------------- Comprehensive income (loss): Net loss $ (1,281) $ (2,611) $ (4,778) $ (5,797) Other comprehensive income (loss): Foreign currency adjustment (106) (70) (29) (114) ---------------------------------------------------------- Comprehensive loss $ (1,387) $ (2,681) $ (4,807) $ (5,911) ==========================================================
6. Earnings Per Share In accordance with SFAS No. 128, Earnings per Share, basic and diluted earnings per share were computed by dividing net loss by the weighted average number of common shares outstanding during the first six months of 2000 and 1999. Diluted earnings per share excludes shares issuable from the assumed exercise of 5,022,886 and 4,092,679 of stock options and warrants as of June 30, 2000 and 1999, respectively, as their effect would be antidilutive. 9 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Except for the historical information contained herein, this Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding, among other items, (i) the Company's growth strategies; (ii) anticipated trends in the Company's business; (iii) the Company's ability to expand its service offerings; and (iv) the Company's ability to satisfy working capital requirements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of a number of factors including, but not limited to, those factors described in "Certain Factors Affecting Future Operating Results" contained in the Company's Annual Report on Form 10-K for the fiscal year ended 1999. Introduction and Overview NewsEdge Corporation (the Company) is a leading provider of eContent applications for business web sites and enterprise intranets. The Company's mission is to make news and information valuable for business. NewsEdge services provide access to value added news over the Internet or customer Intranets. The Company aggregates and adds value to news and information from over 2,000 sources published by over one hundred global content providers. This information is customized and filtered so that users can readily find the most important, relevant stories from the overwhelming volume of daily news that is available. The market for news and current awareness is pursued by the Company through its Enterprise business, which uses a direct selling effort and targets large organizations. The Enterprise services deliver news and information to large numbers of users within organizations through their corporate Intranet or local area networks and to destination websites as a content service for visitors of those sites. The Company's Enterprise revenues consist primarily of subscription fees related to the various Enterprise service offerings and eContent products and services. Additionally, Enterprise revenues include royalty revenues generated from content sales billed directly by third party information providers to customers, revenue generated from professional consulting services and revenue generated from installations and related computer hardware sales. Individual.com, Inc. operated the Company's single-worker news service business unit, which derived its revenues from targeted advertising and electronic commerce. On February 18, 2000, the Company, Office.com and Individual.com, Inc. entered into the purchase and sale agreement providing for the sale by the Company of all the issued and outstanding capital stock of Individual.com, Inc. to Office.com. An initial purchase and sale of 4,000,000 of the shares occurred on February 18, 2000. The purchase and sale of the remaining 1,000,000 shares shall occur no later than February 28, 2001. Pursuant to the purchase agreement, the aggregate purchase price for the total 5,000,000 shares was $10,000,000 in cash payable in installments on February 18, 2000, May 1, 2000, December 26, 2000 and February 28, 2001. Subsequent to the close of the second quarter of 2000, the Company completed the sale of the remaining 20% of Individual.com. Under the terms of the new agreement, the Company will receive a $3.0 million payment on September 1, 2000, a $1.0 million payment on December 31, 2000 and the final $1.0 million payment on February 28, 2001. As a result of this agreement, the Company will report a gain in the third quarter of 2000 of approximately $2.0 million. The Company estimates a total gain on the sale of Individual.com totaling $8,267,000 before applicable income taxes. The Company also made payments to retain the Individual.com workforce, which along with other transaction fees, have been included as a reduction in the gain on the sale. The Company recorded $5,494,000 of the gain in February 2000. In the second quarter of 2000, the Company recorded and adjustment to the sale transaction in the amount of $773,000. The Company expects to record the remainder of the gain in February 2001, as the second of the two closings is expected to occur. 10 In addition to the Enterprise business, the Company also reports a segment of "other" revenue, which consists of services which were phased out by the Company during 1999. The Company's "other" revenues consist primarily of subscription fees generated from sales of services. The Company now reports the Individual.com business as discontinued operations. Subscription agreements across all product segments are primarily for an initial term of twelve months, payable in advance, and are automatically renewable for successive one-year periods unless the customer delivers notice of termination prior to the expiration date of the then current agreement. Subscription revenues associated with these agreements are recognized ratably over the subscription term, beginning upon installation of the service. Accordingly, a substantial portion of the Company's revenues is recorded as deferred revenue. Certain newswires offered by the Company for use within its services are purchased by the customer directly from the news provider and payments are made directly from the NewsEdge customer to the provider. For some of these newswires, the Company receives royalty revenue based on payments made by the customer to the news provider. For other newswires that are resold by the Company to the NewsEdge customer, the Company bills the customer for the newswire directly and then pays a royalty to the news provider. Such royalty expenses are included in the Company's cost of revenues. The Company is headquartered in Burlington, Massachusetts, with sales offices and distributors throughout North America, South America, Europe, Asia and the Middle East. On December 7, 1999, the Company entered into a purchase and sale agreement with RoweCom, Inc., whereby RoweCom would purchase all of the outstanding shares of common stock of the Company for approximately $227 million. The acquisition was subject to the approval of the stockholders of both companies. On March 6, 2000, the agreement was mutually terminated by both parties. The Company incurred costs of $1.4 million, comprised of legal, retention and acquisition related expenses charged to operations during the first quarter of 2000. During the second quarter of 2000, the Company incurred an additional $668,000 related to remaining employee retention expenses. In March 2000, the Company's Board of Directors approved, and in early May 2000, the Company announced a strategic expansion of its traditional business focus. In order to capitalize on its media sources, personalization strategy, and international sales and support infrastructure the Company has moved into the eContent business marketplace by offering competitive eContent applications for business web sites and enterprise intranets. eContent is the constantly changing information required for web-sites to encourage and foster high frequency usage and support other web-based interactions. The Company believes that syndicated eContent and contextual commerce (the ability to map business content to transaction opportunities) offerings, in addition to providing infrastructure and solution applications to the Company's clients, will allow the Company to drive traffic and commerce on its client's web sites. The Company incurred $2,066,000 of non-recurring expenses charged to operations as of June 30, 2000 related to transitioning the Company to its new strategic direction. These costs were comprised primarily of asset write-offs and reserves. Results of Operations for the Three- and Six- Month Periods Ended June 30, 2000 as Compared to the Three-and Six- Month Periods Ended June 30, 1999 Revenues Total revenues for the three-month period ended June 30, 2000 decreased 3.8% to $17.7 million compared to $18.4 million for the same period in 1999. Total revenues for the six months ended June 30, 2000 decreased 4.9% to $35.0 million compared to $36.8 million during the same period in 1999. The decrease is primarily due to declines in revenues from both the Company's enterprise product line and other harvested lines. Enterprise revenue for the three-month period ended June 30, 2000 decreased 2.2% to $17.7 million as compared to $18.1 million in 1999. Enterprise revenue for the six months ended June 30, 2000 decreased 2.2% to $35.0 million as compared to $35.8 million for the same period in 1999. The decrease reflects disappointing new orders rates at the end of the fourth quarter of 1999 when our sales force was distracted by the impending RoweCom merger transaction and the highly competitive environment that has been affecting our enterprise business. 11 Other revenues consist of revenues from product lines being terminated or de- emphasized by the Company. During the three- and six-months ended June 30, 1999 the Company recorded $390,000 and $1.0 million in other revenues, respectively. No amounts were recorded during the comparable period in 2000 as these product lines have been completely terminated by the Company. Cost of revenues Cost of revenues consists primarily of royalties paid to information providers, payroll and related expenses for the editorial and news operations staff, as well as data transmission and computer-related costs for the support and delivery of the Company's services. Cost of revenues for the three-month period ended June 30, 2000 and 1999 remained constant at $7.6 million. Cost of revenues for the six month period ended June 30, 2000 decreased slightly to $15.2 million from $15.3 million for the same period in 1999. As a percentage of total revenues, cost of revenues for the three- and six-month periods ended June 30, 2000 increased to 43.0% and 43.4%, respectively from 41.1% and 41.6%, respectively for the same period in 1999. The percentage increases in the three- and six-month periods ended June 30, 2000 compared to the same periods in 1999 were primarily due to new fixed-price contracts with information providers. On a sequential basis, the gross margin as a percentage of revenue increased from 56.3% in the first quarter of 2000 to 57.0% in the second quarter of 2000, reflecting the initial impact of a larger percentage of the Company's sales coming from higher margin eContent business. Customer support expenses Customer support expenses consist primarily of costs associated with technical support of the Company's installed base of customers. Customer support expenses for the three-month period ended June 30, 2000 increased 8.3% to $1.3 million as compared to $1.2 million for the same period in 1999. Customer support expenses for the six-month period ended June 30, 2000 increased 12% to $2.8 million as compared to $2.5 million for the same period in 1999. The increase in customer support expenses resulted primarily from higher headcount and related expenses. As a percentage of total revenues, customer support expenses for the three-month period ended June 30, 2000 increased to 7.6% from 6.6% in the same period in 1999. Excluding nonrecurring charges, customer support expenses for the six- month period ended June 30, 2000 were 8.0% of total revenues. As a percentage of total revenues, customer support expenses for the six-month period ended June 30, 2000 increased to 8.1% from 6.8% in the same period in 1999. Development expenses Development expenses consist primarily of costs associated with the design, programming, and testing of the Company's software and services. Development expenses for the three-month period ended June 30, 2000 increased 14.3% to $2.4 million as compared to $2.1 million for the same period in 1999. Development expenses for the six-month period ended June 30, 2000 increased 24.4% to $5.6 million as compared to $4.5 million for the same period in 1999. The increase for the six-month period ended June 30, 2000 was primarily due to $600,000 of expenses, which represent a write-off of a software asset, related to the Company's new strategic direction, and the remainder of the increase is due to new product development costs invested in the new strategy. As a percentage of total revenues, development expenses for the three-month period ended June 30, 2000 increased to 13.5% from 11.6% in the same period in 1999. Excluding nonrecurring charges, development expenses for the six-month period ended June 30, 2000 were 14.3% of total revenues. As a percentage of total revenues, development expenses for the six-month period ended June 30, 2000 increased to 16.1% from 12.2% in the same period in 1999. 12 Sales and marketing expenses Sales and marketing expenses consist primarily of compensation costs (including sales commissions and bonuses), travel expenses, trade shows and other marketing programs. Sales and marketing expenses for the three-month period ended June 30, 2000 decreased 1.3% to $7.7 million as compared to $7.8 million for the same period in 1999. Sales and marketing expenses for the six- month period ended June 30, 2000 increased 11.5 % to $17.5 million as compared to $15.7 million for the same period in 1999. The increase for the six-month period ended June 30, 2000, was primarily comprised of $1.0 million of expenses related to the non-recurring charges for transitioning the Company to its new strategic direction, which included $400,000 for a reserve for bad debts. The remaining $800,000 of the increase in sales and marketing expenses were primarily due to higher investments and spending in domestic and international sales force and sales management headcount, related payroll expenses, and events. As a percentage of total revenues, sales and marketing expenses for the three-month period ended June 30, 2000 increased to 43.5% from 42.3% in the same period in 1999. Excluding nonrecurring charges, sales and marketing expenses for the six-month period ended June 30, 2000 were 47.1% of total revenues. As a percentage of total revenues, sales and marketing expenses for the six-month period ended June 30, 2000 increased to 49.9% from 42.8% in the same period in 1999. Sales and marketing expenses, however, declined in the second quarter of 2000 sequentially by $1.9 million from the first quarter of 2000, excluding nonrecurring items. This sequential decrease reflects headcount reductions, improved sale productivity and a higher percentage of the Company's selling resources being devoted to lower cost telesales efforts as part of its new eContent strategy. General and administrative expenses General and administrative expenses consist primarily of expenses for finance, office operations, administration and general management activities, including legal, accounting and other professional fees. General and administrative expenses for the three-month period ended June 30, 2000 increased $677,000 to $1.4 million as compared to $723,000 for the same period in 1999. General and administrative expenses for the six-month period ended June 30, 2000 increased $2.5 million to $4.0 million as compared to $1.5 million for the same period in 1999. The increase for the six-month period ended June 30, 2000 was primarily a result of the terminated merger agreement with Rowecom of which $668,000 of employee retention expenses were incurred in the second quarter of 2000, and $1.4 million of expenses were incurred during the first quarter of 2000. The remainder of the increase was due to approximately $500,000 of expenses related to the nonrecurring charge for transitioning the Company to its new strategic direction. As a percentage of total revenues, general and administrative expenses for the three-month period ended June 30, 2000 increased to 8.0% from 3.9% in the same period in 1999. Excluding nonrecurring charges, general and administrative expenses for the three- and six-month period ended June 30, 2000 were both 4.3% of total revenues. As a percentage of total revenues, general and administrative expenses for the six-month period ended June 30, 2000 increased to 11.5% from 3.9% in the same period in 1999. Operating loss Operating loss for the quarter ended June 30, 2000 was $2.3 million compared to $1.1 million for the same period in 1999. Excluding one-time items, the operating loss was $2.1 million, which represents an approximate 50% sequential reduction from the $3.9 million operating loss recorded in the first quarter of 2000, excluding one-time items. This sequential reduction is due to $343,000 sequential revenue increase and $1.6 million reduction in total expenses resulting from the Company's cost reduction efforts that began as part of its transition to the eContent strategy. Merger, disposition and other expenses Merger, disposition and other related expenses for the three- and six-month period ended June 30, 2000 consisted of the reversal of acquisition-related reserves no longer deemed necessary by the Company. There were no merger, disposition and other related expenses during the three- and six-month periods ended June 30, 1999. 13 Interest income and other, net Interest income and other, net for the three- and six-month periods ended June 30, 2000 decreased to $275,000 and $504,000, respectively from $456,000 and $888,000, respectively for the same period in 1999. The decrease is due to a reduction in interest income associated with lower cash and investment balances. Provision for income taxes The provision for income taxes for the three-and six-month periods ended June 30, 2000 decreased to $15,000 and $39,000, respectively from $18,000 and $51,000, respectively for the same period in 1999. Components of the provisions include state taxes due in states that do not have net operating loss carry- forwards available, foreign tax liabilities and the alternative minimum tax due under the Internal Revenue Code of 1986, as amended. The Company has not recorded a deferred tax benefit in the periods presented for the potential future benefit of its tax loss carry-forwards as the Company has concluded that it is not likely such deferred tax asset would be realized. Discontinued operations In February 2000, the Company's Board of Directors decided to sell its ownership interest in Indivdiual.com, Inc., due to the lack of growth in revenue, increase in expenses and ongoing funding. The Company has reported the historical operating results of its Individual.com business segment as discontinued operations. Revenues from the discontinued operations for the three-and six month periods ending June 30, 2000 were $0 and $297,000, respectively, (for the time period from January 1, 2000 to the February 18, 2000 disposal date) as compared to $1,137,000 and $2,156,000, respectively for the same periods in 1999. Revenues decreased as a result of the shorter reporting period and the decision by new management to convert from a mix of subscription fees and advertising revenue model to a advertising revenue only model. Expenses from discontinued operations for the three- and six-month period ended June 30, 2000, were $0 and $2.2 million, respectively (for the time period January 1, 2000 to the February 18, 2000 sale date to Winstar) compared to $3.1 million and $6.0 million, respectively for the same periods in 1999. See Note 3 in the accompanying Notes to Condensed Consolidated Financial Statements. Net Loss The net loss for the three-month period ended June 30, 2000 was $1.3 million, or $0.08 per which compares to a net loss of $2.6 million, or $0.15 per share during the same period in 1999. The second quarter of 2000 results reflect the favorable impact of a $773,000 net gain relating to an adjustment to sale transaction expenses resulting from the February sale of 80% of the Company's equity interest in Individual.com, Inc. In addition, the results for the quarter ended June 30, 1999 include the operating loss from discontinued operations of approximately $2.0. As a result, the net loss from continuing operations increased to $2.1 million for the quarter ended June 30, 2000, or $0.12 per share, compared to $639,000, or $0.04 per share for the same period in 1999. The net loss for the six-month period ended June 30, 2000 was $4.8 million, or $0.28 per share, respectively, which compares to a net loss of $5.8 million, or $0.33 per share, respectively during the same period in 1999. The six-month ended June 30, 2000 results reflect the favorable impact of the $6.3 million net gain on the February sale of 80% of the Company's equity interest in Individual.com, Inc., offset by $1.9 million of operating loss from discontinued operations for the period prior to the sale. The net loss from continuing operations for the six-month period ended June 30, 2000 increased to $9.2 million, or $0.52 per share, compared to $1.9 million, or $0.10 per share for the same period in 1999. The increase resulted from two different nonrecurring charges taken in the first six months of 2000 totaling $4.1 million, of which $2.0 million was related to retention payments, transaction costs, and expenses incurred as part of the termination of the RoweCom, Inc. acquisition. An additional $2.1 million in asset write-offs and reserves associated with costs to be incurred in transitioning the Company to the new strategy were also recorded in the first quarter of 2000. Excluding all the year-to-date nonrecurring charges, net loss from continuing operations for the six months ended June 30, 2000 amounted to $5.5 million, which compares to a net loss of $1.9 million for the same period in 1999. The increase was due to a decline in revenue and increased expenses within sales and marketing and development. 14 Liquidity and Capital Resources The Company's cash and cash equivalents totaled $20.0 million at June 30, 2000, as compared to $20.3 million at December 31, 1999, a decrease of $300.000. The Company's operations used $4.1 million of cash in the six-months ended June 30, 2000. The use of cash in operations primarily resulted from the Company's net loss for the period, of which $1.9 million in operating losses were from the Individual.com, Inc. discontinued business. The Company's investing activities provided $3.3 million of cash for the period, due primarily to the $4.3 million net cash proceeds from the February 2000 sale of Individual.com, Inc., partially offset by approximately $1.0 million fixed asset purchases. The Company's financing activities provided $517,000 for the period, derived primarily from employee stock option exercises (including tax benefits). In connection with the sale of Individual.com Inc., the Company expects to receive an additional $5.0 million of which $3.0 million will be received on September 1, 2000, $1.0 million will be received on December 26, 2000 and the final $1.0 million will be received on February 28, 2001. The Company continues to investigate the possibility of investments in or acquisitions of complementary businesses, services or technologies, although the Company has not entered into any commitments or negotiations with respect to any such transactions. On August 4, 2000, the Company consummated a sale of 868,234 shares of its Common Stock for an aggregate purchase price of $1,845,000. The sale was accomplished by a private placement of the Common Stock to primarily officers, directors and affiliates of the Company. In connection with the private placement, the Company also issued warrants to purchase approximately 492,000 shares of Common Stock with an exercise price of $4.00 per share. The Company believes that its current cash and cash equivalents, the expected proceeds from the sale of Individual.com, Inc., the just completed sale of common stock, and the impact of expense reduction programs will be sufficient to satisfy working capital and capital expenditure requirements for at least the next twelve months. Certain Factors Affecting Future Operating Results The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. Actual results could differ materially as a result of a variety of factors. The discussion highlights some of the risks which may affect future operating results. Management of Growth and Hiring of Additional Personnel The Company has experienced growth in its new eContent revenues and expansion of its operations which have placed significant demands on the Company's management, development, sales and customer support staff. Continued growth will require the Company to hire and retain more development, selling and customer support personnel. The Company has at times experienced difficulty in recruiting and retaining qualified personnel. Recruiting and retaining qualified personnel is an intensely competitive and time-consuming process. There can be no assurance that the Company will be able to attract and retain the necessary personnel to accomplish its growth strategies. Continued difficulties with the recruiting and retention of personnel could adversely affect the Company's ability to satisfy customer demand in a timely fashion or to support satisfactorily its customers and operations, which could in turn, materially adversely affect its business, operating results and financial condition. Fluctuations in Quarterly Results The Company's quarterly operating results may fluctuate significantly in the future depending on factors such as demand for its services, changes in service mix, the size and timing of new and renewal subscriptions from corporate customers, advertising revenue levels, the effects of new service announcements by the Company and its competitors, the ability of the Company to develop, market and introduce new and enhanced versions of its services on a timely basis and the level of product and price competition. A substantial portion of the Company's cost of revenue, which consists principally of fees payable to information providers, communications costs and personnel expenses, is relatively fixed in nature. The operating expense levels of the Company are based, in significant part, on their expectations of future revenue. If quarterly revenues are below management's expectations, results of operations would be adversely affected because a relatively small amount of the Company's costs and expenses will vary with its revenues. 15 Future Operating Results Uncertain The Company's ability to increase its revenues will depend upon its ability to expand its sales force, increase sales to new customers and penetration into existing customers, as well as its ability to successfully implement its plans to provide digital eContent to business web-sites. In addition, as of June 30, 2000, the Company had an accumulated deficit of approximately $125.6 million. The time required for the Company to reach profitability is highly uncertain and there can be no assurance that the Company will be able to achieve profitability on a sustained basis, if at all. As a result, it is possible that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. Although the Company experienced growth in revenues in recent years, there can be no assurance that, in the future, the Company will sustain revenue growth or be profitable on a quarterly or annual basis. On May 31, 2000, the Company received a notice from the Nasdaq Stock Market, Inc. ("Nasdaq") indicating that, as of March 31, 2000, the Company was not in compliance with the net tangible assets maintenance standards required for continued listing on the Nasdaq National Market System. The Company thereafter requested a hearing before a Nasdaq panel to evaluate the Company's ability to satisfy the maintenance standards established by Nasdaq and that hearing has been scheduled for August 10, 2000. If the Nasdaq panel makes an adverse determination regarding the Company's continued listing, the Company's stock may not continue to be listed on the Nasdaq National Market System. In that circumstance, the Company will seek to have its Common Stock continue to be listed on Nasdaq's Small Cap Market or on another appropriate trading exchange or market. The failure of the Company's Common Stock to remain listed on the Nasdaq National Market or Nasdaq Stock Market could adversely affect the liquidity of the Company's Common Stock. Dependence on Continued Growth in Use of the Internet The Company distributes certain services across multiple delivery platforms, including the Internet, private networks based on Lotus Notes and other groupware products, electronic mail, and facsimile. Sales of certain of the Company's services depend upon the adoption of the Internet as a widely used medium for commerce and communication. Rapid growth in the use of and interest in the Internet is a recent phenomenon. As a result, there can be no assurance that communication or commerce over the Internet will continue to develop at historical rates or that extensive content will continue to be provided over the Internet. The Internet may not prove to be a viable commercial marketplace for a number of reasons, including potentially inadequate development of the necessary infrastructure, or timely development and commercialization of performance improvements. In addition, to the extent that the Internet continues to experience significant growth in the number of users and level of use, there can be no assurance that the Internet infrastructure will continue to be able to support the demands placed upon it by such potential growth or that the performance or reliability of the web will not be adversely affected by this continued growth. The Internet could lose its viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity, or due to increased governmental regulation. Laws and regulations that address issues such as user privacy, pricing and the characteristics of and quality of products or services are becoming more prevalent. Changes in or insufficient availability of telecommunications services to support the Internet also could result in slower response times and adversely affect usage of the web and the Company's online services. If the necessary infrastructure or complementary services necessary to make the Internet a viable commercial marketplace are not developed, or if the Internet does not become a viable commercial marketplace, the Company's business, results of operations, and financial condition could be materially adversely affected. 16 Competition The business information services industry is intensely competitive and is characterized by rapid technological change and entry into the field by extremely large and well-capitalized companies. The Company competes or may compete directly or indirectly with the following categories of companies: . large, well-established news and information providers such as Dow Jones, Lexis/Nexis, Pearson, and Thomson; . eContent providers such as ScreamingMedia.com, Inc., iSyndicate and WAVO, . market data services companies such as ADP, Bloomberg and Bridge; . traditional print media companies that are increasingly searching for opportunities for on-line provision of news, including through the establishment of web sites on the Internet; . large providers of LAN-based software systems such as Lotus/IBM and Microsoft, which could, in the future, ally with competing news and information providers; and . to a lesser degree, consumer-oriented, advertising-subsidized Web-based services and Internet access providers. Many of the market participants named above have substantially greater financial, technical and marketing resources than the Company. Increased competition, on the basis of price or otherwise, may require price reductions or increased spending on marketing or software development, which could have a material adverse effect on the Company's business and results of operations. Risks Relating to Acquisitions Management may from time to time consider acquisitions of assets or businesses that it believes may enable the Company to obtain complementary skills and capabilities, offer new services, expand its customer base or obtain other competitive advantages. Such acquisitions involve potential risks, including difficulties in assimilating the acquired company's operations, technology, services and personnel, completing and integrating acquired in-process technology, diverting management's resources, uncertainties associated with operating in new markets and working with new employees and customers, and the potential loss of the acquired company's key employees. Dependence on Cooperative Marketing Arrangements The Company has entered into certain cooperative marketing agreements and informal arrangements with software vendors, Web site sponsors and operators of online services, including Microsoft, Netscape, Yahoo! and Dow Jones. These companies presently market services that compete directly with those of the Company. If the Company's marketing activities with such companies were terminated, reduced, curtailed, or otherwise modified, the Company may not be able to replace or supplement such efforts alone or with others. If these companies were to develop and market their own business information services or those of the Company's competitors, the Company's business and results of operations and financial condition may be materially and adversely affected. 17 Dependence on News Providers A significant percentage of the Company's customers subscribe to services provided by one or more of Press Association Inc., a subsidiary of The Associated Press, Dow Jones, The Financial Times and Thompson. The Company's agreements with news providers are generally for terms of one to three years, with automatic renewal unless notice of termination is provided before the end of the term by either party. These agreements may also be terminated by the provider if the Company fails to fulfill its obligations under the agreement. Many of these news and information providers compete with one another and, to some extent, with the Company. Termination of one or more significant news provider agreements would decrease the news and information which the Company can offer its customers and could have a material adverse effect on the Company's business, results of operations and financial condition. Also, an increase in the fees required to be paid by the Company to its information providers would have an adverse effect on the Company's gross margins and results of operations. Dependence on News Transmission Sources The Company's news and information for certain of the NewsEdge services is transmitted using one or more of four methods: leased telephone lines, satellites, FM radio transmission or the Internet. None of these methods of news and information transmission is within the control of the Company, and the loss or significant disruption of any of them could have a material adverse effect on the Company's business. Many newswire providers have established their own broadcast communications networks using one or more of these four vehicles. In these cases, the Company's role is to arrange communications between the news provider and the NewsEdge customer's server. For sources which do not have their own broadcast communications capability, news and information is delivered to the Company news consolidation facility, where it is reformatted for broadcast to NewsEdge servers and retransmitted to customers through one of two methods: . an arrangement between the Company and WAVO Corporation, a common carrier communications vendor, or . the Company's own NewsEdge Network, a proprietary entitlement and delivery system launched in the fall of 1998 that takes advantage of both leased line and Internet delivery. WAVO presently also markets services that compete directly with those of the Company. WAVO is also the communications provider for many newswires offered by the Company through NewsEdge services. The Company's agreement with WAVO expires on December 31, 2002. This agreement can be terminated earlier in the event of a material breach by the Company of the agreement. If the agreement with WAVO were terminated on short notice, or if WAVO were to encounter technical or financial difficulties adversely affecting its ability to continue to perform under the agreement or otherwise, the Company's business could be materially and adversely affected. The Company believes that if WAVO were unable to fulfill its obligations, other sources of retransmission would be available to the Company including the NewsEdge Network, although the transition from WAVO to those sources could result in delays or interruptions of service that could have a material adverse affect on the Company's business, results of operations and financial condition. WAVO did experience technical difficulties in May 1998 due to the disablement of the PanAmSat Galaxy IV satellite. This disablement caused an interruption in the delivery of news services to between one-third and one-half of the Company's customers. The interruption was resolved in approximately ten days and did not have a material impact on the Company's financial results. 18 Risk of System Failure or Inadequacy The Company's operations are dependent on its ability to maintain its computer and telecommunications systems in effective working order. These systems and operations are vulnerable to damage or interruption from human error, natural disasters, telecommunication failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. Although the Company has limited back-up capability, this measure does not eliminate the significant risk to the Company's operations from a natural disaster or system failure at its principal site. In addition, any failure or delay in the timely transmission or receipt of news feeds and computer downloads from its information providers, due to system failure of the information providers, the public network or otherwise, could disrupt the Company's operations. The Company's insurance policies may not adequately compensate us for any losses that it may incur because of any failures in its system or interruptions in delivery of content. The Company's business, results of operations and financial condition could be materially adversely affected by any event, damage or failure that interrupts or delays our operations. Rapid Technological Change The business information services, software and communications industries are subject to rapid technological change, which may render existing services obsolete or require significant unanticipated investments in research and development. The Company's future success will depend, in part, upon its ability to enhance its service offerings and keep pace with technological developments. The Company's future success will depend on its ability to enhance its existing services, to develop new services that address the needs of its customers and to respond to technological advances and emerging industry standards and practices, each on a timely basis. Services as complex as those offered by the Company entail significant technical risks, often encounter development delays and may result in service failures when first introduced or as new versions are released. Any such delays in development or failures that occur after commercial introduction of new or enhanced services may result in loss of or delay in market acceptance, which could have a material adverse effect upon the Company's business, results of operations and financial condition. Proprietary Rights and Intellectual Property The Company is heavily dependent upon proprietary technology. In addition, the Company relies on a combination of trade secret, copyright and trademark laws and non-disclosure agreements to protect its proprietary rights in its software and technology. There can be no assurance that such measures are or will be adequate to protect the Company's proprietary technology. In addition, there can be no assurance that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies or services. The Company licensed the proprietary SMART filtering software, which is used as the filtering engine within the Company's news Refinery, from Cornell Research Foundation, Inc. ("Cornell University"). Under the terms of the license agreement with Cornell University, the Company had exclusive worldwide rights until February 1999 to design, develop, market, and sell systems and services based on the SMART software for the retrieval and dissemination of data from recent and continually changing data sources. Provided that the Company does not default on the license agreement, the Company will retain a continuing worldwide, non-exclusive, perpetual royalty-free right to use the SMART software; and in addition, the Company owns, and will continue to own, all enhancements to the SMART software that it has developed. There can be no assurance, however, that Cornell University has not or will not license the SMART software to a third-party, including a competitor of the Company. In addition, Cornell University may terminate the license agreement if the Company has materially breached the agreement and such breach remains uncured for 60 days after written notice of such breach has been given. If the license agreement for the SMART technology were to terminate, there can be no assurance that a replacement solution could be developed or acquired, on a timely basis or at all, and on favorable terms to the Company. Consequently, any termination of the Company's license agreement with Cornell University would have a material adverse effect on the Company's business, results of operations, and financial condition. 19 There has been substantial litigation in the information services industry involving intellectual property rights. Although the Company believes that it is not infringing the intellectual property rights of others, there can be no assurance that such claims, if asserted, would not have a material adverse effect on the Company's business, results of operations, and financial condition. In addition, inasmuch as the Company licenses the informational content that is included in its services from third parties, its exposure to copyright infringement actions may increase because the Company must rely upon such third parties for information as to the origin and ownership of such licensed content. Although the Company generally obtains representations as to the origins and ownership of such licensed informational content and generally obtains indemnification to cover any breach of any such representations, there can be no assurance that such representations will be accurate or that such indemnification will provide adequate compensation for any breach of such representations. In the future, litigation may be necessary to enforce and protect trade secrets, copyrights and other intellectual property rights of the Company. The Company may also be subject to litigation to defend against claimed infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others. Any such litigation would be costly and divert management's attention, either of which would have a material adverse effect on the Company's business, results of operations, and financial condition. Adverse determinations in such litigation could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties, and prevent the Company from selling its services, any one of which could have a material adverse effect on the Company's business, results of operations, and financial condition. Potential Liability For Information Transmitted The Company may be subject to claims for defamation, libel, copyright or trademark infringement or based on other theories relating to the information it publishes through its services. These types of claims have been brought, sometimes successfully, against online services as well as print publications in the past. The Company's insurance may not adequately protect it against these claims. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to have a material impact on the Company's consolidated financial statements. The Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, on December 3, 1999. This SAB provides additional guidance on the accounting for revenue recognition, including both broad conceptual discussions as well as certain industry-specific guidance. The guidance is effective in the fourth quarter 2000. The Company does not expect the adoption of SAB 101 to have a material impact on the Company's results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk The following discussion about the Company's market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company is exposed to market risk related to changes in interest rates and foreign currency exchange rates. As of June 30, 2000, the Company did not use derivative financial instruments for speculative or trading purposes. Interest Rate Risk The Company invests in short-term and cash equivalent investment instruments such as U.S. treasury notes, U.S. Government agencies and corporate bonds. These held-to-maturity securities are subject to interest rate risk and will fall in value if market interest rates increase. The Company has the ability to hold its fixed income investments until maturity, and therefore the Company would not expect its operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on its securities portfolio. 20 Foreign Currency Exchange Risk As a global concern, the Company faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on the Company's financial results. Historically, the Company's primary exposures have been related to non-dollar-denominated operating expenses in Canada. The majority of Company sales are denominated in U.S. dollars. The Company has not determined what impact, if any, the introduction of the Euro will have on its foreign exchange exposure. The Company is prepared to hedge against fluctuations in the Euro if this exposure becomes material. As of June 30, 2000, the assets and liabilities of the Company related to non-dollar- denominated currencies was not material. 21 NEWSEDGE CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders was held on June 15, 2000. Holders of an aggregate of 18,148,535 shares at the close of business on April 15, 2000 were entitled to vote at the meeting. At such meeting, the Company's stockholders voted as follows: Proposal I. To re-elect Messrs. Rory J. Cowan and William A. Devereaux and to elect Messr. Murat H. Davidson to the Board of Directors for a three-year term.
Total Vote for Total Vote Against Abstentions from Broker Director Name Proposal Proposal I Proposal I Non-votes - ----------------------------------------------------------------------------------------------------------- Rory J. Cowan 15,605,421 582,618 N/A N/A William A. Devereaux 15,696,119 591,920 N/A N/A Murat H. Davidson 15,635,216 552,832 N/A N/A
Messrs. Clifford M. Pollan, Peter Woodward and Michael E. Kolowich will continue to hold office until the 2001 Annual Meeting of Stockholders or until their successors have been duly elected or until their earlier resignation or removal. Messrs., James D. Daniell and Basil P. Regan will continue to hold office until the 2002 Annual Meeting of Stockholders or until their successors have been duly elected or until their earlier resignation or removal Proposal II. To approve a further increase of 1,537,600 shares for issuance under the Company's 1995 Stock Plan.
Total Vote for Total Vote Against Abstentions from Broker Non- Proposal I Proposal II Proposal II votes - ---------------------------------------------------------------------------------------- 7,828,338 1,246,058 6,807 7,106,836
Proposal III. To approve the 2000 Non-Officer and Non-Director Stock Plan.
Total Vote for Total Vote Against Abstentions from Broker Non- Proposal I Proposal II Proposal II votes - ---------------------------------------------------------------------------------------- 7,826,210 1,244,177 10,816 7,106,836
Proposal IV. To ratify the selection of the firm of Arthur Andersen LLP as independent auditors for the fiscal year ending December 31, 2000.
Total Vote for Total Vote Against Abstentions from Broker Non- Proposal I Proposal II Proposal II votes - ---------------------------------------------------------------------------------------- 16,155,507 19,508 13,024 N/A
Item 6. Exhibits and Reports Filed on Form 8-K. 6(a) Exhibits. 27.1 - Financial Data Schedule for the three-month period ended June 30, 2000 6(b) REPORTS ON FORM 8-K None 22 NEWSEDGE CORPORATION AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEWSEDGE CORPORATION (Registrant) Date: August 7, 2000 /s/ Ronald Benanto ------------------------------ Ronald Benanto Vice President - Finance and CFO 23 NEWSEDGE CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1 -- Amendment No. 1 dated August 1, 2000 to Stock Purchase Agreement dated February 18, 2000 by and among the Company, Office.com Inc. and Individual.com, Inc. 10.1 -- 2000 Non-Officer and Non-Director Stock Plan (filed as Annex B to the - ------- --------------------------------------------------------------------- Company's Proxy Statement filed pursuant to Section 14(A) of the ---------------------------------------------------------------- Securities and Exchange Act of 1934 on May 22, 2000 and incorporated herein by reference) ---------------------------------------------------- 27.1 -- Financial Data Schedule for June 30, 2000 EX-2.1 2 0002.txt AMENDMENT NO 1 DATED 8/1/2000 Exhibit 2.1 ----------- NEWSEDGE CORPORATION 80 Blanchard Road Burlington, Massachusetts 01803-5125 August 1, 2000 Office.com Inc. 300 Park Avenue - 15/th/ Floor New York, New York 10010 Individual.com Inc. 685 Third Avenue New York, New York 10017 Attention: Stuart B. Rekant Gentlemen: Reference is made to: (A) The Stock Purchase Agreement dated February 18, 2000 between Office.com Inc ("Office") and NewsEdge Corporation ("NewsEdge") relating to the sale and purchase of the capital stock of Individual.com Inc. ("Individual") (the "Stock Purchase Agreement"); and (B) The NERTS License Agreement dated February 18, 2000 by and between NewsEdge and Individual and Office (the "License Agreement"). NewsEdge hereby represents and confirms that its ownership of at least 20% of the capital stock of Individual is no longer necessary for NewsEdge to be able to grant the rights under the Third-Party Content Agreements (as defined in the License Agreement) granted by it to Individual pursuant to the License Agreement. Accordingly, this will confirm our agreement as follows: 1. The Stock Purchase Agreement is hereby amended to provide that (a) the Second Closing (as defined therein) shall take place on the date hereof concurrently with the execution of this Letter Agreement and in effectuation thereof NewsEdge shall deliver to Office, by overnight courier, a stock power with respect to the Remaining Shares (as defined in the Stock Purchase Agreement and which are in the possession of counsel to Office) duly executed by NewsEdge for transfer of the Remaining Shares to Office; (b) the Third Installment (as defined in the Stock Purchase Agreement) of $3,000,000 shall be paid by wire transfer to NewsEdge=s account on September 1, 2000, without interest; (c) $1,000,000 of the Final Payment (as defined in the Stock Purchase Agreement) shall be paid by wire transfer to NewsEdge=s account on December 26, 2000, without interest, and the remaining $1,000,000 of the Final Payment shall be paid by wire transfer to NewsEdge's account on February 28, 2001, without interest; and (d) Section 1.02(b) of the Stock Purchase Agreement is hereby deleted. 2. The License Agreement is hereby amended to provide that the NewsEdge review topics to be delivered to Individual pursuant to Section 2 of the License Agreement are also to be delivered to Office and that the licenses granted to Individual by NewsEdge pursuant to Section 3.1 thereof are also to be granted to Office and that the responsibilities specified in Section 2.2 thereof and the limitations specified in Section 3.2 thereof shall apply to Office as well as to Individual. 3. Section B.2 of Exhibit B to the License Agreement is hereby amended to read as follows: AB.2 Renewal Term(s). For the first Renewal Term, Individual.com --------------- shall pay NewsEdge a fee of Two Million Dollars ($2,000,000.00) for use of the NERTs, payable in four (4) equal quarterly installments of Five Hundred Thousand Dollars ($500,000) at the end of each three- month period during such Renewal Term. No less than ninety (90) days prior to the end of each Renewal Term (if any), the parties shall commence good faith negotiations regarding the fee for the subsequent Renewal Term.@ Please confirm your agreement to the foregoing by signing a counterpart of this Letter Agreement in the place provided below and returning it to the undersigned. On receipt of such signed counterpart, NewsEdge will effectuate delivery to Office of a stock power with respect to the Remaining Shares as set forth above. Very truly yours, NEWSEDGE CORPORATION By: /s/ Ronald R. Benanto Title: Chief Financial Officer ----------------------- AGREED: OFFICE.COM INC. By:______________________ Title:_____________________ INDIVIDUAL.COM INC. By:______________________ Title:_____________________ EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 20,004 20,004 0 0 15,720 15,720 0 0 0 0 42,157 42,157 24,441 24,441 16,709 16,709 51,013 51,013 48,239 48,239 0 0 0 0 0 0 182 182 2,370 2,370 51,013 51,013 17,672 35,001 17,672 35,001 7,605 15,171 19,986 44,652 0 0 0 0 0 0 (2,039) (9,147) 15 39 (2,054) (9,186) 773 4,408 0 0 0 0 (1,281) (4,778) (0.08) (0.28) (0.08) (0.28)
-----END PRIVACY-ENHANCED MESSAGE-----