-----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, ABqSm7djJwwLKJxkQipXKdoLov8AT1qjs7X33lmrkXMjSz2eS2aJwKyzbuhS9Ue+ BlCNo/dnqW41aJC/gJYTTA== 0000927016-01-501074.txt : 20010516 0000927016-01-501074.hdr.sgml : 20010516 ACCESSION NUMBER: 0000927016-01-501074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWSEDGE CORP CENTRAL INDEX KEY: 0000858912 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [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: 1637396 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 d10q.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: March 31, 2001 -------------- 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 April 30, 2001 - ------------------- ----------------------------- Common Stock, par value $.01 18,621,403 NEWSEDGE CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE NUMBER Item 1 - Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 5 Notes to the Condensed Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21 PART II - OTHER INFORMATION Item 6(a) Exhibits 22 Item 6(b) Reports on Form 8-K 22 Signature 23 Exhibit Index 24 2 PART I - FINANCIAL INFORMATION ITEM 1 NEWSEDGE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
MARCH 31, DECEMBER 31, 2001 2000 ----------- ------------ ASSETS (UNAUDITED) Current assets: Cash and cash equivalents $ 13,473 $ 18,320 Restricted cash (Note 2) 375 404 Accounts receivable 17,754 16,645 Due from Office.com (Note 3) - 1,000 Prepaid expenses and deposits 3,706 3,748 --------- --------- Total current assets 35,308 40,117 --------- --------- Property and equipment, net 8,461 8,782 --------- --------- Other assets 346 345 --------- --------- Total assets $ 44,115 $ 49,244 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,120 $ 5,761 Accrued expenses 10,534 12,900 Deferred revenue, current 24,917 25,837 Current portion of long-term obligations - - --------- --------- Total current liabilities 40,571 44,498 --------- --------- Deferred revenue, noncurrent 47 35 --------- --------- Stockholders' equity: Common stock 191 190 Additional paid-in capital 131,716 131,682 Cumulative translation adjustment (149) (104) Accumulated deficit (125,535) (124,331) Treasury stock, at cost; 432,000 shares (2,726) (2,726) --------- --------- Total stockholders' equity 3,497 4,711 --------- --------- Total liabilities & stockholders' equity $ 44,115 $ 49,244 ========= =========
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 MARCH 31, ----------------------- 2001 2000 ----------------------- Total revenues $ 17,103 $ 17,329 Costs and expenses: Cost of revenues 6,382 7,566 Customer support expenses 1,202 1,498 Development expenses 2,312 3,243 Sales and marketing expenses 6,769 9,766 General and administrative expenses 896 2,593 -------- -------- Total costs and expenses 17,561 24,666 -------- -------- Loss from operations (458) (7,337) Interest income and other, net 233 229 -------- -------- Loss from continuing operations before provision for income taxes (225) (7,108) Provision for income taxes 9 24 -------- -------- Net loss from continuing operations (234) (7,132) Loss from discontinued operations, net - (1,859) Net gain (loss) on disposal of Individual.com, Inc (970) 5,494 -------- -------- Income (loss) froms discontinued operations (970) 3,635 -------- -------- Net loss $ (1,204) $ (3,497) ======== ======== Basic and diluted net loss per share Continuing operations $ (0.01) $ (0.40) Discontinued operations (0.05) 0.20 -------- -------- Total $ (0.06) $ (0.20) -------- -------- Weighted average common shares outstanding 18,608 17,684 ======== ========
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)
THREE MONTHS ENDED MARCH 31, ------------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net loss $ (1,204) $ (3,497) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 883 1,575 (Gain)/Loss on disposal of Individual.com, Inc. 970 (5,494) Changes in assets and liabilities: Accounts receivable 1,109 (8,354) Prepaid expenses and deposits 42 (471) Accounts payable and accrued expenses (3,007) 4,116 Deferred revenue (920) 7,540 -------- --------- Net cash used in operating activities (4,345) (4,585) -------- --------- Cash flows from investing activities: Net proceeds from disposal of Individual.com, Inc. - 1,095 Unrecognized portion of deferred gain from disposal of Ind.com, Inc. 30 - Purchases of property and equipment (562) (867) Restricted Cash 29 - Decrease (increase) in other assets (1) - -------- --------- Net cash provided by (used in investing activities (504) 228 -------- --------- Cash flows from financing activities: Proceeds from issuances related to stock plans, including tax benefits 35 646 Principal payments under capital leases - (122) Decrease in long-term obligations 12 151 -------- --------- Net cash provided by financing activities 47 675 -------- --------- Effect of exchange rate on cash and cash equivalents (45) 77 -------- --------- Decrease in cash and cash equivalents (4,847) (3,605) Cash and cash equivalents, beginning of period 18,320 20,278 -------- --------- Cash and cash equivalents, end of period $ 13,473 $ 16,673 ======== ========= Supplemental disclosure of cash flow information: Cash paid for income taxes $ 7 $ 5 ======== ========= Cash paid for interest $ - $ 16 ======== =========
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" or "NewsEdge") is a leading provider of content solutions and electronic publishing technologies 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. 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, 2000 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. 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. Cash Equivalents and Investments Cash equivalents consist of highly-liquid investments purchased with an original maturity of three months or less. At March 31, 2001, the Company had restricted cash of $375,000, which was required under the Company's letter of credit agreements. 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. 6 Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued 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 and 138, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 did not 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 adoption of SAB 101 did not have a material impact on the Company's results of operations. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of Accounting Principles Board ("APB") Opinion No. 25. The interpretation clarifies the application of APB Opinion No. 25 in certain situations, as defined. The interpretation is effective July 1, 2000, but covers certain events occurring during the period after December 15, 1998, but before the effective date. The adoption of this interpretation did not have any effect on the accompanying financial statements. 3. DISCONTINUED OPERATIONS On February 18, 2000, the Company entered into a purchase and sale agreement with Office.com, Inc. 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 $8.0 million payable in installments receivable through December 2000, of which the Company received $2.5 million in February 2000 and $2.5 million in May 2000. The purchase and sale of the remaining 20% of Individual.com, Inc., was completed on August 1, 2000, under the terms of an amended agreement, pursuant to which the Company received payments of $3.0 million in September 2000 and $1.0 million on December 26, 2000 and was due to receive a final payment of $1.0 million on February 28, 2001. During 2000, the Company recorded a net gain on the sale of Individual.com, Inc. totaling approximately $8,314,000. The Company also made payments to retain the Individual.com workforce, which have been included as a reduction in the gain on the sale. Office.com, Inc., its parent WinStar New Media Company, Inc. and its parent WinStar Communications, Inc. each made voluntary filings under Chapter 11 of the U.S. Bankruptcy Code on April 18, 2001. As a result, in the first quarter of 2001, the Company reversed $970,000 of the previously recognized gain on the sale transaction related to the final $1.0 million due from Office.com as of February 28, 2001. The Company has presented the operating results of Individual.com, Inc. as discontinued operations for all periods presented. Included in these results are revenues from the Individual.com business for the three-month period ending March 31, 2001 of $0 as compared to $297,000 for the same period in 2000. 7 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 one product segment: Enterprise. The Company pursues the market for content solutions and electronic publishing technologies through one primary line of business: the Enterprise business. The Enterprise business uses direct selling and telesales efforts and targets large organizations, publisher and individual websites. The Enterprise content solutions 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. 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.
Three Months Ended March 31, 2001 2000 ---------- ---------- (in thousands) Revenues: Enterprise $17,103 $17,329 Other - - ------- ------- Total revenues $17,103 $17,329 ======= ======= Loss from continuing operations before mergers, dispositions and other charges, interest and income taxes: Enterprise $ (878) $(7,337) Other - - ------- ------- $ (878) $(7,337) ======= ======= Noncash expenses by segment: Enterprise $ 883 $ 1,554 Other - -
8 5. COMPREHENSIVE INCOME SFAS No. 130, Reporting Comprehensive Income, 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 months ended March 31, 2001 and 2000 are as follows:
THREE MONTHS ENDED (in thousands) MARCH 31, ----------------------------------------- 2001 2000 ----------------------------------------- (in thousands) Comprehensive loss: Net loss $(1,204) $(3,497) Other comprehensive income (loss): Foreign currency adjustment (45) 77 ----------------------------------------- Comprehensive loss $(1,249) $(3,420) =========================================
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 three months of 2001 and 2000. Diluted earnings per share excludes shares issuable from the assumed exercise of 5,689,883 and 3,807,949 of stock options and warrants as of March 31, 2001 and 2000, 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) NewsEdge's growth strategies; (ii) anticipated trends in our business; (iii) our ability to expand our service offerings; and (iv) our ability to satisfy working capital requirements. NewsEdge makes these forward-looking statements under the provision of the "Safe Harbor" section of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, certain of which are beyond our 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 herein. Introduction and Overview NewsEdge Corporation (Nasdaq: NEWZ) is a global provider of syndicated content services and electronic publishing technologies for business. Our customers include both content creators, such as information publishers, and the operators of the world's most active Web sites. We offer technology and services for customers to create, manage and deploy content for millions of end-users through Intranets, Web sites, portals, Extranets and distribution channels. The market for content solutions and electronic publishing technologies is pursued by us through the sale of our Information Products and Content Solutions service offerings via our Enterprise business, which uses both a direct and telesales selling effort. Our Enterprise revenues consist primarily of subscription fees related to the Enterprise service offerings. 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. Subscription agreements across all product segments are generally 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 our revenue is recorded as deferred revenue. Certain newswires offered by us for use within our services are purchased by the customer directly from the news provider and payments are made directly from our customer to the provider. For some of these newswires, we receive royalty revenue based on payments made by the customer to the news provider. We recognize the royalty revenue when we receive payment from the news provider. For the remaining newswires that are resold by us to our customers, we bill the customer for the newswire directly and then pay a royalty to the news provider. Such royalty expenses are included in our cost of revenues. Individual.com, Inc. operated our single-worker news service business unit, which derived its revenues from targeted advertising and electronic commerce. On February 18, 2000, we entered into a purchase and sale agreement with Office.com, Inc., an indirect subsidiary of WinStar Communications, Inc., which provided for the sale of all the issued and outstanding capital stock of Individual.com to Office.com. An initial purchase and sale of 4.0 million of the shares occurred on February 18, 2000. The purchase and sale of the remaining 1.0 million shares, or 20% of Individual.com, occurred on August 1, 2000. Under the terms of the amended stock purchase agreement, we received installment payments of $2.5 million in February 2000, $2.5 million in May 2000, $3.0 million in September 2000 and $1.0 million in December 2000, and were due to receive a final payment of $1.0 million on February 28, 2001 which has not yet been made. In the third quarter of 2000, we recorded the remaining $2.0 million gain on the sale transaction based on the sale of the remaining 20% of Individual.com, Inc. For the twelve months ended December 31, 2000 we recorded a net gain on the sale of Individual.com totaling $8.3 million. Concurrently with the execution of the purchase and sale agreement, we also entered into a facilities services agreement and a license agreement with Office.com. We 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. Office.com, its parent WinStar New Media Company, Inc. and its parent WinStar Communications, Inc. each made voluntary filings under Chapter 11 of the U.S. Bankruptcy Code on April 18, 2001. As a result, in the first quarter of 2001, we reversed $970,000 of the previously recognized gain on the sale transaction related to the final $1.0 million due us from Office.com as of February 28, 2001. 10 On December 7, 1999, we entered into a purchase and sale agreement with RoweCom, Inc., whereby RoweCom would purchase all of our outstanding shares of common stock 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. For the three months ended March 31, 2000 we incurred costs of $1.4 million comprised of legal, retention and acquisition related expenses charged to operations. No costs were incurred for the three months ended March 31, 2001. In March 2000, the Board of Directors approved, and in early May 2000, we announced a strategic expansion of our traditional business focus. In order to capitalize on our media sources, personalization strategy, and international sales and support infrastructure, we have moved into the content solutions business marketplace by offering Content Solutions, our competitive content solution applications for business Web sites and enterprise intranets. We believe that syndicated content offerings, in addition to providing infrastructure and solution applications to our clients, will allow us to drive traffic and commerce on our client's Web sites. For the three months ended March 31, 2000 we incurred costs of $2.1 million of non-recurring expenses charged to operations, which relate to our transition to the new strategic direction. These costs comprise primarily asset write-offs and reserves. No costs were incurred for the three months ended March 31, 2001. RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2001 AS COMPARED TO THE THREE-MONTH PERIOD ENDED MARCH 31, 2000 REVENUES Total revenues for the three-month period ended March 31, 2001 decreased 1.3% to $17.1 million compared to $17.3 million for the same period in 2000. The decrease reflects the highly competitive environment that has been affecting our enterprise business generally, including renewal rates and new sales orders. During the first quarter of 2001, we only recognized license revenue resulting from our license agreement with Office.com which was prepaid through February 18, 2001, the first year of the contract. Although we provided services pursuant to the second year of this contract, which would have allowed us to recognize an additional $250,000 of licensing revenue, due to the bankruptcy filings to Office.com and its parent companies, we did not recognize this additional revenue. COST OF REVENUES Cost of revenues consists primarily of royalties paid to information providers, payroll and related expense for the editorial and news operations staff, as well as data transmission and computer-related costs for the support and delivery of our services. Cost of revenues for the three-month period ended March 31, 2001 decreased 15.6% to $6.4 million from $7.6 million for the same period in 2000. As a percentage of total revenues, cost of revenues for the three-month period ended March 31, 2001 decreased to 37.3% from 43.7% during the same period in 2000. The decreases were primarily due to the impact of the higher margin Content Solutions business and a reversal of $456,000 of accrued royalties which management deemed no longer necessary. CUSTOMER SUPPORT EXPENSES Customer support expenses consist primarily of costs associated with technical support of our installed base of customers. Customer support expenses for the three-month period ended March 31, 2001 decreased 19.8% to $1.2 million as compared to $1.5 million for the same period in 2000. As a percentage of total revenues, customer support expenses for the three-month period ended March 31, 2001 decreased to 7.0% from 8.6% (and from 8.5% when excluding nonrecurring charges associated with RoweCom and the change in strategic direction) in the same period in 2000. The decrease in customer support expenses resulted primarily from lower headcount and related expenses. 11 DEVELOPMENT EXPENSES Development expenses consist primarily of costs associated with the design, programming, and testing of our software and services. Development expenses for the three-month period ended March 31, 2001 decreased 28.7% to $2.3 million as compared to $3.2 million for the same period in 2000. The decrease was primarily due to the absence this year of $600,000 of expenses, which represented a write-off of a software asset in the year ago quarter, related to our new strategic direction during 2000, and the remaining $300,000 was due to lower headcount and related expenses in 2001. As a percentage of total revenues, development expenses for the three-month period ended March 31, 2001 decreased to 13.5% from 18.7% (and from 15.2% when excluding nonrecurring charges associated with RoweCom and the change in strategic direction) in the same period in 2000. 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 March 31, 2001 decreased 30.7% to $6.8 million as compared to $9.8 million for the same period in 2000. The decrease was comprised of $1.0 million of expenses in 2000 related to the non-recurring charges for transitioning us to our new strategic direction, which included $400,000 for a reserve for bad debts. The remaining $2.0 million of the decrease in sales and marketing expenses was primarily due to lower investments and spending in domestic and international sales force and sales management, lower headcount and related payroll expenses, and less events and direct mail campaign costs in 2001. These expense reductions were part of a concerted and ongoing effort by us to reduce our operating expenses in line with new business levels and to achieve our goal of profitability. As a percentage of total revenues, sales and marketing expenses for the three-month period ended March 31, 2001 decreased to 39.6% from 56.4% (and from 50.8% when excluding nonrecurring charges associated with RoweCom and the change in strategic direction) in the same period in 2000. 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 March 31, 2001 decreased 65.4% to $0.9 million as compared to $2.6 million for the same period in 2000. The decrease was primarily a result of costs related to the terminated merger agreement with RoweCom amounting to $1.4 million and approximately $0.5 million of expenses related to the nonrecurring charge for transitioning us to our new strategic direction in 2000. Excluding these nonrecurring charges, general and administrative expenses for the first quarter of 2001 were approximately $100,000 higher than the first quarter of 2000 due to higher legal and investor relations costs. As a percentage of total revenues, general and administrative expenses for the three-month period ended March 31, 2001 decreased to 5.2% from 15.0% (and increased from the 4.4% excluding nonrecurring charges associated with RoweCom and the change in strategic direction) in the same period in 2000. LOSS FROM OPERATIONS Operating loss for the quarter ended March 31, 2001 was $458,000 compared to a loss of $7.3 million for the same period in 2000. Included in the loss from operations during the first quarter of 2001 were the reversals of $456,000 and $63,000 in accrued royalty expenses and accrued strategy change expenses, respectively, no longer needed. Excluding all nonrecurring items in the first quarter of 2001, the loss from operations would have been $977,000. This compares to a $3.9 million loss in the first quarter of 2000 excluding all nonrecurring charges. The $2.9 million decrease in operating loss for the first quarter of 2001 compared to the first quarter of 2000 (excluding nonrecurring items in both periods) is due to our continued cost reduction efforts that began as part of our transition to the Content Solutions strategy as well as the improved gross margin from our Content Solutions business. 12 INTEREST INCOME AND OTHER, NET Interest income and other, net for the three-month period ended March 31, 2001 increased slightly to $233,000 from $229,000 for the same period in 2000. The increase is due to a reduction in interest income associated with lower cash and investment balances more than offset by interest earned on an office space security deposit. PROVISION FOR INCOME TAXES The provision for income taxes for the three-month period ended March 31, 2001 decreased to $9,000 from $24,000 for the same period in 2000. 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. We have not recorded a deferred tax benefit in the periods presented for the potential future benefit of our tax loss carry-forwards as we have concluded that it is not likely such deferred tax asset would be realized. DISCONTINUED OPERATIONS In February 2000, our 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. We have reported the historical operating results of its Individual.com business segment as discontinued operations. Revenues from the discontinued operations for the three-month period ending March 31, 2001 were $0 as compared to $297,000 (for January 1, 2000 to the February 18, 2000 disposal date) for the same period in 2000. Expenses from discontinued operations for the three-month period ended March 31, 2001, were $0 and $2.2 million (for January 1, 2000 to the February 18, 2000 sale date to Office.com) for the same period in 2000. Office.com, its parent WinStar New Media Company, Inc. and its parent WinStar Communications, Inc. each made voluntary filings under Chapter 11 of the U.S. Bankruptcy Code on April 18, 2001. As a result, in the first quarter of 2001, we reversed $970,000 of previously recognized gain on the sale transaction related to the final $1.0 million due to us from Office.com as of February 28, 2001. See Note 3 in the accompanying Notes to Condensed Consolidated Financial Statements. NET LOSS FROM CONTINUING OPERATIONS The net loss for the three-month period ended March 31, 2001 was $234,000, or $0.01 per share, which compares favorably to a net loss of $7.1 million, or $0.40 per share during the same period in 2000. Excluding all nonrecurring items, which include the reversals of $456,000 and $63,000 of accrued royalty reserves and strategy change reserves, respectively, no longer needed, the loss from continuing operations was $753,000 or $0.04 per share. The first quarter of 2000 also included two nonrecurring charges totaling $3.5 million: $1.4 million relating to retention payments, transaction costs, and expenses incurred as part of the termination of the RoweCom, Inc. acquisition, and $2.1 million relating to asset write-offs and reserves associated with costs incurred in transitioning to the new strategy. Excluding these items, the first quarter of 2000 would have resulted in a loss from continuing operations of $3.6 million, or $0.20 per share. NET LOSS The net loss for the three months ended March 31, 2001 was $1.2 million, or $0.05 per share, which compares favorably to a net loss of $3.5 million or $0.20 per share during the same period in 2000. The net loss for the first quarter of 2001 includes a $970,000 reversal of the previously recognized net gain relating to the sale of the remaining 20% of Individual.com. Excluding all nonrecurring items, which include the reversals of $456,000 and $63,000 of accrued royalty reserves and strategy change reserves, respectively, no longer needed, the net loss was $753,000, or $0.04 per share, compared to $3.7 million, or $0.20 per share, in 2000 which includes the total nonrecurring charges of $3.5 million. The decrease in net loss was due to lower expenses primarily within sales and marketing and cost of revenues. 13 LIQUIDITY AND CAPITAL RESOURCES Our cash and cash equivalents totaled $13.8 million at March 31, 2001, as compared to $18.7 million at December 31, 2000, a decrease of $4.9 million. Our operations used $4.3 million of cash in the three months ended March 31, 2001 which accounted for the majority of the decrease for the period. The use of cash in operations primarily reflects the $234,000 loss from continuing operations and the $970,000 write off related to the final payment due from the previously recognized gain on the sale of Individual.com to Office.com. In addition, accounts payable and accrued expenses used $3.0 million of cash primarily due to the expected seasonal payments to certain vendors and post year-end close payments on variable compensation for sales commissions, employee bonuses, etc. Our investing activities used $504,000 of cash primarily due to capital expenditures. Our financing activities provided $47,000 primarily from purchases of stock under our employee stock purchase plan. In connection with the sale of Individual.com, Inc., we are currently in the process of negotiating payment terms with Office.com for the final $1 million payment contractually owed by February 2001. Office.com, its parent WinStar New Media Company, Inc. and its parent WinStar Communications, Inc. each made a filing under Chapter 11 of the U.S. Bankruptcy Code on April 18, 2001. We continue to investigate the possibility of investments in or acquisitions of complementary businesses, services or technologies, although we have not entered into any commitments or negotiations with respect to any such transactions. We believe that our current cash and cash equivalents and the continued 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 An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below before deciding to invest in shares of our common stock. The trading price of our common stock could decline due to any of these risks, in which case you could lose all or part of your investment. In assessing these risks, you should also refer to the other information in this and our other public filings, including our financial statements and the related notes. We may not be able to manage our growth or hire and retain additional personnel, which could affect our operating results. We have experienced growth in our content solutions and electronic publishing technology revenues and expansion of our operations, which have placed significant demands on our management, development, sales and customer support staff. Continued growth will require us to hire and retain more development, selling and customer support personnel. We have at times experienced difficulty in recruiting and retaining qualified personnel. Recruiting and retaining qualified personnel is an intensely competitive and time-consuming process. We may not be able to attract and retain the necessary personnel to accomplish our growth strategies. Continued difficulties with the recruiting and retention of personnel could adversely affect our ability to satisfy customer demand in a timely fashion or to satisfactorily support our customers and operations, which could in turn, materially adversely affect our business, operating results and financial condition. 14 Our quarterly financial results may be volatile and could cause our stock price to fluctuate. Our quarterly operating results may fluctuate significantly in the future depending on factors such as: . demand for our services; . changes in service mix; . the size, timing and renewal of contracts with corporate customers, value added resellers, and channel partners and content providers; . the effects of new service announcements by us or our competitors; . the performance of our technology; . our ability to develop, market and introduce new and enhanced versions of our services on a timely basis; and . the level of product and price competition. A substantial portion of our costs of revenue, consisting principally of fees payable to information providers, communications costs and personnel expenses, is relatively fixed in nature. Our operating expense levels 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 our costs and expenses will vary with our revenues. If we are unable to continue to expand our sales and marketing efforts the expansion of our business will be impeded. Our ability to increase revenues will depend upon our ability to expand our sales force, increase sales to new customers, penetrate into our existing customer base, and successfully continue to implement our plans to provide digital content solutions to business web-sites and electronic publishing technology to publishers. In addition, as of March 31, 2001, we had an accumulated deficit of approximately $126 million. The time required for us to reach profitability is highly uncertain and we may not be able to achieve profitability on a sustained basis, if at all. As a result, it is possible that in some future quarter our operating results will be below the expectations of public market analysts and investors. In such event, the price of our common stock would likely be materially adversely affected. Although we experienced growth in revenues in recent years within our Content Solutions business, we may not sustain revenue growth in the future or be profitable on a quarterly or annual basis. Our Content Solutions operating history is limited and may not meet expectations. Because we commenced our strategic expansion into our Content Solutions line of business in May 2000, we have limited financial and operating data and a limited operating history relevant to this business. Accordingly, it is difficult to evaluate the prospects of these businesses. Our business models are unproven, which creates a risk that its performance will not meet the expectations of investors and that the value of our common stock will decline. Our strategy is dependent on continued growth in use of the Internet for the delivery of information and if Internet growth does not continue, our business will suffer. We distribute certain services across multiple delivery platforms, including the Internet, private networks based on Lotus Notes and other groupware products and electronic mail. Because we recently expanded our strategic focus to target operators of commercial Web sites and publishers, demand for our services will depend in large part on continued growth in the use of the Internet and the success of the commercial Web site and publishers we target. There are critical issues concerning the commercial use of the Internet that remain unresolved. As a result, communication or commerce over the Internet may not continue to develop at historical rates and extensive content may not continue to be provided over the 15 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; . timely development and commercialization of performance improvements; and . delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity. 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, our business, results of operations, and financial condition could be materially adversely affected. Legal uncertainties and governmental regulation of the Internet could inhibit growth of the Internet and E-Commerce and adversely affect our business. Many legal questions relating to the Internet remain unsettled and these areas of uncertainty may be resolved in ways that damage our business. It may take years to determine whether and how existing laws governing matters such as intellectual property, privacy, libel and taxation apply to the Internet. In addition, new laws and regulations that address issues such as user privacy, commerce, advertising and the characteristics of and quality of products or services are becoming more prevalent. As use of the Internet and the prevalence of e-Commerce grow, there may be calls for further regulation such as more stringent consumer protection laws. Regulators also continue to evaluate the best telecommunications policy regarding the transmission of Internet traffic. In addition, our distribution arrangements and customer contracts could subject us to the laws of foreign jurisdictions, which may have unpredictable adverse affects on our business. These possibilities could affect us adversely in a number of ways: . new regulation could make the Internet less attractive to users, resulting in slower growth in its use and acceptance than we expect; . complying with new regulations could result in additional costs, which could reduce our margins, or could leave us at risk of potentially costly legal action; and . we may be affected indirectly by legislation that fundamentally alters the practicality or cost-effectiveness of utilizing the Internet, including the cost of transmitting over various forms of network architecture, such as telephone networks or cable systems, or the imposition of various forms of taxation on Internet-related activities. We face intense competition that could impede our ability to grow and achieve profitability. 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. We compete 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; . Content providers such as Screaming-Media.com, Inc., iSyndicate, Yellowbrix 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; 16 . 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; . companies that create and sell software that enables their customers to aggregate and distribute digital content and/or to integrate digital content from external sources into their web platforms; 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 we do. Increased competition, on the basis of price, delivery systems or otherwise, may require us to implement price reductions or increase our spending on marketing or software development, which could have a material adverse effect on our business and results of operations. Acquisitions pose significant risks and we may not be able to integrate acquisitions in a timely and cost efficient manner. Management may from time to time consider acquisitions of assets or businesses that it believes may enable us to obtain complementary skills and capabilities, offer new services, expand our 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; . difficulty in completing and integrating acquired in-process technology; . the diversion of 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. We are dependent on cooperative marketing arrangements with some of our competitors the loss of which could have a material adverse effect on our business. We have 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 our services. If our relationships with these companies were terminated, curtailed, or otherwise modified, we may not be able to replicate these marketing activities alone or with others. If these companies were to develop and market their own business information services or those of our competitors, our business and results of operations and financial condition may be materially and adversely affected. Losing major news providers may leave us with insufficient breadth of content to retain and attract customers. A significant percentage of our 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. Our 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 we fail to fulfill our obligations under the agreement. Many of these news and information providers compete with one another and, to some extent, with us. Termination of one or more significant news provider agreements would decrease the news and information which we can offer our customers and could have a material adverse effect on our business, results of operations and financial 17 condition. Also, an increase in the fees paid to our information providers would have an adverse effect on our gross margins and results of operations. We are dependent on certain news transmission sources and application service providers the loss of which could have a material adverse affect on our business. Our 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 our control, and the loss or significant disruption of any of them could have a material adverse effect on our business. Many newswire providers have established their own broadcast communications networks using one or more of these four vehicles. In these cases, our 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 our news consolidation facility, where it is reformatted for broadcast to NewsEdge servers and retransmitted to customers through one of three methods: . utilizing our arrangement with Cidera, Inc., a common carrier communications vendor; . utilizing our arrangement with eLogic Corporation, which develops and licenses certain software for our use and acts as an application service provider in connection with the delivery of our Content Solutions service; or . utilizing our 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. Our agreement with Cidera expires on December 31, 2002. This agreement can be terminated earlier in the event of a material breach by us of the agreement. Our arrangement with eLogic is set out in a binding term sheet, has an initial term that expires in January 2002 and is renewable by us for additional one year periods. If either of our agreements with Cidera or eLogic were terminated on short notice, or if Cidera or eLogic were to encounter technical or financial difficulties adversely affecting their ability to continue to perform under their agreements or otherwise, our business could be materially and adversely affected. We believe that if Cidera or eLogic were unable to fulfill their obligations, other sources of retransmission would be available to us including the NewsEdge Network, although the transition from Cidera or eLogic to those sources could result in delays or interruptions of service that could have a material adverse affect on our business, results of operations and financial condition. WAVO, our previous common carrier communications vendor which assigned its obligations to Cidera, 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 our customers. The interruption was resolved in approximately ten days and did not have a material impact on our financial results. If our computer or telecommunications systems fail or prove inadequate there could be a material adverse affect on our business. If our computer or telecommunications systems fail or prove inadequate there could be a material adverse affect on our business. Our operations are dependent on our ability to maintain our computer and telecommunications systems in effective working order. These systems and operations are vulnerable to damage or interruption from human error, natural disasters, telecommunications failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. Although we have limited back- up capability, this measure does not eliminate the significant risk to our operations from a natural disaster or system failure at our principal site. In addition, any failure or delay in the timely transmission or receipt of news feeds and computer downloads from our information providers, due to system failure of the information providers, the public network or otherwise, could disrupt our operations. Our insurance policies may not adequately compensate us for any losses that we may incur because of any failures in our system or interruptions in delivery of content. Our business, results of operations and financial condition could be materially adversely affected by any event, damage or failure that interrupts or delays our operations. 18 The termination of our relationship with eLogic Corporation could have a material adverse affect on our business. eLogic Corporation develops and licenses certain software which enables us to deliver our Content Solutions to our customers. eLogic also acts as an application service provider in connection with the delivery of our Content Solutions service. Our arrangement with eLogic is set out in a binding term sheet, has an initial term that expires in January 2002 and is renewable by us for additional one year periods. Should eLogic terminate our license to its software or cease its role as an application service provider for our benefit, our business, results of operations and financial condition could be materially adversely affected. We must keep pace with rapid technological change or business will be adversely affected. We may be unable to develop our technology quickly enough to support demand or changes in technology. 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. Our future success will depend, in part, upon our ability to enhance our service offerings and keep pace with technological developments. Our future success will depend on our ability to enhance existing services, to develop new services that address the needs of our customers and to respond to technological advances and emerging industry standards and practices, on a timely basis. Services as complex as those offered by us 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 our business, results of operations and financial condition. Failure to protect our proprietary rights and intellectual property could dramatically affect our ability to operate. We are heavily dependent upon proprietary technology. In addition, we rely on a combination of trade secret, copyright, patent and trademark laws and non- disclosure agreements to protect our proprietary rights in our software and technology. These measures may not be adequate to protect our proprietary technology. In addition, our competitors may independently develop technologies that are substantially equivalent or superior to our technologies or services. We licensed proprietary filtering software, which is used as the filtering engine within our news Refinery, from each of Sovereign Hill Software, Inc. and Cornell Research Foundation, Inc. Under the terms of the license agreement with Sovereign Hill, we have a non-exclusive, worldwide license to use Sovereign Hill's InQuery retrieval system software until we terminate the license agreement. Sovereign Hill may also terminate the license agreement if we have materially breached the agreement and such breach remains uncured for 90 days after written notice. Under the terms of the license agreement with Cornell, we had exclusive worldwide rights until February 1999 to design, develop, market, and sell systems and services based on its SMART software for the retrieval and dissemination of data from recent and continually changing data sources. Provided that we do not default on the Cornell license agreement, we will retain a continuing worldwide, non- exclusive, perpetual royalty-free right to use the SMART software. We also own and will continue to own, all enhancements to the SMART software that we have developed. Cornell may, however, have licensed the SMART software to a third party, including one of our competitors or may do so in the future. Potential litigation of third party claims concerning the infringement of proprietary right could prove costly and time consuming. There has been substantial litigation in the information services industry involving intellectual property rights. Although we believe that we are not infringing the intellectual property rights of others, if such claims were asserted, they may have a material adverse effect on our business, results of operations, and financial condition. In addition, inasmuch as we license the informational content that is included in its services from third parties, our exposure to copyright infringement actions may increase because we must 19 rely upon third parties for information as to the origin and ownership of our licensed content. Although we generally obtain representations as to the origins and ownership of our licensed informational content and generally obtain indemnification to cover any breach of any such representations, such representations may not be accurate and indemnification may not adequate compensation for any breach of such representations. In the future, litigation may be necessary to enforce and protect our trade secrets, copyrights and other intellectual property rights. We 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 our business, results of operations, and financial condition. Adverse determinations in such litigation could result in the loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties, and prevent us from selling our services, any one of which could have a material adverse effect on our business, results of operations, and financial condition. If we distribute content to unauthorized recipients, we may have to pay damages to our content providers. We 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. Our insurance may not adequately protect it against these claims. In addition, NewsEdge's proprietary software technologies enable us to deliver content received from participating content providers only to customers who have been authorized to access that content. We might inadvertently distribute content to a customer who is not authorized to receive it, which could subject it to a claim for damages from the information provider or harm to its reputation in the market place. If we are unable to maintain our reputation and expand our name recognition, we may have difficulty attracting new business and retaining current customers and employees, and our business may suffer. We believe that establishing and maintaining a good reputation and name recognition are critical for attracting and retaining customers and employees. We also believe that the importance of reputation and name recognition is increasing and will continue to increase due to the growing number of providers of Internet services. If our reputation is damaged or if potential customers are not familiar with us, we may be unable to attract new, or retain existing, customers and employees. Promotion and enhancement of our name will depend largely on its success in continuing to provide effective services. If customers do not perceive our services to be effective or of high quality, our brand name and reputation will suffer. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, ("FASB"), issued 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 and 138, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 did not have a material impact on our consolidated financial statements. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of Accounting Principles Board ("APB") Opinion No. 25. The interpretation clarifies the application of APB Opinion No. 25 in certain situations, as defined. The interpretation is effective July 1, 2000, but covers certain events occurring during the period after December 15, 1998, but before the effective date. The adoption of this interpretation did not have any effect on the accompanying financial statements. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. As of March 31, 2001, we did not use derivative financial instruments for speculative, hedging or trading purposes. Interest Rate Risk We maintain a short-term investment portfolio consisting of 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. We have the ability to hold its fixed income investments until maturity, and therefore would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio. Foreign Currency Exchange Risk As a global concern, we face 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 our financial results. Historically, our primary exposures have been related to nondollar- denominated operating expenses in Canada. The majority of our sales are denominated in U.S. dollars. We have not determined what impact, if any, the introduction of the Euro will have on our foreign exchange exposure. We are prepared to hedge against fluctuations in the Euro if this exposure becomes material. As of March 31, 2001, the assets and liabilities related to nondollar- denominated currencies was not material. 21 NEWSEDGE CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K. 6(a) Exhibits. 10.1 Form of Employment Agreement between NewsEdge Corporation and Clifford Pollan, Ronald Benanto, Charles White, Alton Zink, Thomas Karanian and David Scott. 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: May 15, 2001 /s/ Ronald Benanto -------------------------------- Ronald Benanto Vice President - Finance and CFO 23 NEWSEDGE CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.1 Form of Employment Agreement between NewsEdge Corporation and Clifford Pollan, Ronald Benanto, Charles White, Alton Zink, Thomas Karanian and David Scott. 24 EX-10.1 2 dex101.txt FORM OF EMPLOYMENT AGREEMENT Exhibit 10.1 EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (this "Agreement") dated as of ___________ ___, ____ (the "Effective Date"), is by and between NewsEdge Corporation (the "Company"), a Delaware corporation having its principal executive offices at 80 Blanchard Road, and ____________ (the "Executive"), an individual residing at ______________________________. The Company and the Executive agree as follows: 1. EMPLOYMENT OF EXECUTIVE. (A) EMPLOYMENT. Subject to the terms and conditions of this Agreement, the Company agrees to employ the Executive, and the Executive agrees to serve, as the Company's _________________, reporting to the Company's ________________ (the Executive's "Supervisor") and having such powers and duties consistent with his position as may reasonably be assigned to him from time to time. The Executive's employment hereunder will commence on the Effective Date and will continue unless terminated as herein provided. (B) COMMITMENT. The Executive represents that he is not currently party to or bound by any commitments that might interfere with or impair his performance of such duties and responsibilities or that are inconsistent with his obligations hereunder. The Executive will devote such time and attention to his duties and responsibilities hereunder as reasonably are required, and will not undertake any commitments that would interfere with or impair his performance of such duties and responsibilities. 2. COMPENSATION. During the term of the Executive's employment with the Company hereunder, the Company will compensate the Executive as follows. (A) SALARY. The Company will pay to the Executive a salary, payable monthly, at the rate of $_______ per annum or such higher rate as the Chief Executive Officer may set from time to time, in its discretion. (B) PERFORMANCE BONUSES. The Executive will be eligible to receive quarterly cash bonuses at an annualized rate of up to __% of his salary, based on the achievement of reasonable individual and Company performance targets to be agreed on by the Executive and the Executive's Supervisor from time to time. If the Executive and the Executive's Supervisor are unable to agree as to individual and Company performance targets, such disputes shall be determined promptly, reasonably and in good faith by the Chief Executive Officer. It is agreed and understood that, for the Executive's employment during this contract year with the Company, the annualized bonus payable upon achievement of such targets shall be $______. (C) BENEFITS. The Company will promptly reimburse all out-of-pocket expenses reasonably incurred by the Executive in the course of performing his employment duties and responsibilities hereunder, subject to receipt of appropriate documentation. The Company will also provide consistent with his position, Company-paid health and life insurance, and with such other fringe benefits as it from time to time may make generally available to its other senior executives at the Executive's level. 3. TERMINATION. (A) EVENTS CAUSING TERMINATION. The Executive's employment hereunder will terminate upon the occurrence of any of the following events: (1) The Executive's death, or a determination of his legal incapacity by a court of competent jurisdiction; (2) The termination of the Executive's employment hereunder by the Company, by written notice to the Executive, upon the Executive's inability due to illness or injury to perform the essential functions of his position with or without reasonable accommodation; (3) The termination of the Executive's employment hereunder by the Company, for Cause, by written notice to the Executive; (4) The termination of the Executive's employment hereunder by the Company, without Cause, by thirty (30) days prior written notice to the Executive; (5) The termination of the Executive's employment hereunder by the Executive, for Good Reason, by thirty (30) days prior written notice to the Company; or (6) The termination of the Executive's employment hereunder by the Executive, without Good Reason, by thirty (30) days prior written notice to the Company. (B) "CAUSE" AND "GOOD REASON" DEFINED. For purposes of this Agreement: "Cause" means: (a) the Executive's conviction of any crime (whether or not involving the Company) (other than unintentional motor vehicle felonies); (b) any act of theft, fraud or embezzlement by the Executive in connection with his work with the Company; or (c) the Executive's continuing, repeated and willful failure or refusal to perform, or continuing, repeated and gross negligence in the performance of, his material duties and services to the Company (other than due to his incapacity due to illness or injury), provided that such failure or refusal or gross negligence continues uncorrected for a period of 30 days after the Executive shall have received written notice from the Chief Executive setting forth with specificity the nature of such failure, refusal, or gross negligence; (d) the breach of this contract by the Executive; (e) or the willful violation of Federal and/or State Securities Laws; or (f) the commission of an act that causes unfair competition for the company. "Good Reason" means the occurrence of one or more of the following occurring without the specific written consent of the Executive: (i) an adverse change in the nature of scope or duties including; budget authority, change in the level of duties or reduction of duties) of the Executive; (ii) an adverse change in the reporting responsibilities (change in supervisor, change in level of supervisor, demotion, or status -- full time/part time, reduced pay -2- of the Executive; (iii) any requirement that the Executive's principle place of work be relocated outside of the Commonwealth of Massachusetts or more than twenty-five (25) miles of its location as of the effective date of this Agreement; or (iv) the Company's breach of any term of this Agreement which is not fully remedied within seven (7) calendar days after receipt by the Company of a written notice from the Executive of such breach; or the diminution in salary, benefits, bonus or any other form of compensation. (C) ADJUSTMENTS UPON TERMINATION. Notwithstanding any other provision of this Agreement: (1) If the Executive's employment with the Company terminates pursuant Section 3(A)(4) (by the Company, without Cause) or Section 3(A)(5) (by the Executive, for Good Reason), then, for a six (6) month period immediately following the date of such termination, the Company will continue to pay the Executive a salary at a rate equal to that at which he was being paid at the time of termination, as well as a pro-rata portion of the bonus specified in Section 2(B), and (subject to Section 3(D) below), will likewise continue to provide the Executive with the benefits that he was receiving at the time of termination (or, if the Company is unable to do so because such benefits may only be provided to current employees, subject to the provisions of Section 3(D) it will provide the Executive with the cash value thereof). In addition to the payments and benefits specified above, the Company will pay the Executive on the date of termination a lump sum payment for all accrued unused vacation time. It is agreed and understood that the Company's duty to make the payments and provide the benefits described in this Section 3(C)(1) shall be conditioned upon the Executive's execution of a satisfactory general release in favor of the Company. (2) If the Executive's employment with the Company terminates other than pursuant to Section 3(A)(4) (by the Company, without Cause) or Section 3(A)(5) (by the Executive, with Good Reason), then the rights of the Executive to receive future compensation pursuant to Section 2 and Section 3 (add) hereof, and all other rights of the Executive hereunder, will cease as of the date of such termination except as may be required by law. As of the date of such termination, the Executive shall receive a lump sum payment for all accrued unpaid wages and accrued unused vacation time. (D) NO DUTY TO MITIGATE; TERMINATION OF BENEFITS. The Executive shall not be required to mitigate the amount of any compensation payable to him pursuant to Section 3(C)(1) hereof, whether by seeking other employment or otherwise. If, during the period during which he is receiving such compensation, the Executive obtains new fulltime employment providing him with benefits comparable to those he is entitled to receive from the Company hereunder, then, when the Executive begins receiving such benefits from his new employer, the Executive will no longer be entitled to receive such benefits from the Company but will continue to be entitled to receive payment of his salary (and other non-duplicative benefits) as provided for herein -3- 4. CHANGE OF CONTROL In the event of a Change of Control (as defined below), the following provisions will supercede Section 3 of this Agreement, which shall terminate and be of no further force or effect: (A) CHANGE OF CONTROL BONUS. Upon the consummation of a transaction resulting in a Change of Control, the Executive (if he is still employed by the Company immediately prior to such consummation) will be paid a bonus equal to twelve months' salary as in effect immediately prior to the announcement of the Change of Control, including for this purpose both the Executive's base compensation and the Executive's targeted bonus amount. (B) TERMINATION AFTER CHANGE OF CONTROL. After consummation of a transaction resulting in a Change of Control, the Executive's employment with the Company may be terminated by either party at any time, for any reason or no reason. In the event that the Executive's employment is terminated by the Company, the fringe benefits (other than stock-based fringe benefits) in which the Executive was participating at the time of his termination will be continued, to the extent that continuation of benefits is permitted under the Company's then-existing benefit plans, for a period of one year after such termination. (C) DEFINITION OF CHANGE OF CONTROL. For purposes of this Agreement, the term "Change of Control" shall mean (i) a sale by the Company of all or substantially all of its business or assets or (ii) a merger or consolidation of the Company with or into another entity whereby the stockholders of the Company immediately prior to the transaction hold less than a majority of the outstanding voting stock of the entity surviving such transaction, or (iii) the transfer, in a single transaction or group or related transactions, of a majority of the outstanding voting stock of the Company to a single purchaser or group of related purchasers. (D) MANAGEMENT BUY-OUT. Notwithstanding the foregoing, no bonus shall be payable pursuant to paragraph (A) above to the Employee if he is a participant in a "Management Buy-Out". For purposes hereof, a "Management Buy-Out" shall mean an Change of Control where the group controlling the entity which acquires the Company's assets or stock or which survives the merger with the Company includes individuals who are executive officers of the Company immediately prior to such Change of Control. Employee shall be deemed a participant in such Management Buy-Out if he is a member of such control group. 5. MISCELLANEOUS (A) BENEFITS OF AGREEMENT; NO ASSIGNMENTS; NO THIRD-PARTY BENEFICIARIES. (1) This Agreement will bind and inure to the benefit of the parties hereto and their respective heirs, successors, and permitted assigns. (2) Neither party will assign any rights or delegate any obligations hereunder without the consent of the other party (except that the Company may assign its rights and delegate its obligations hereunder to any -4- successor to its business, whether by merger or consolidation, sale of stock or of all or substantially all of its assets, or otherwise), and any attempt to do so will be void. (3) Nothing in this Agreement is intended to or will confer any rights or remedies on any person or entity other than the parties hereto, their respective heirs, successors, and permitted assigns. (B) NOTICES. All notices, requests, payments, instructions, or other documents to be given hereunder will be in writing or by written telecommunication, and will be deemed to have been duly given if (i) delivered personally (effective upon delivery), (ii) mailed by registered or certified mail, return receipt requested, postage prepaid (effective five business days after dispatch), (iii) sent by a reputable, established courier service that guarantees next business day delivery (effective the next business day), or (iv) sent by telecopier followed within 24 hours by confirmation by one of the foregoing methods (effective upon receipt of the telecopy in complete, readable form), addressed to the recipient party at its address set forth in the first paragraph hereof (or to such other address as the recipient party may have furnished to the sending party for the purpose pursuant to this section). (C) COUNTERPARTS. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered will be an original, but all of which together will constitute one and the same agreement. In pleading or proving this Agreement, it will not be necessary to produce or account for more than one such counterpart. (D) CAPTIONS. The captions of sections or subsections of this Agreement are for reference only and will not affect the interpretation or construction of this Agreement. (E) CONSTRUCTION. The language used in this Agreement is the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against either party. (F) WAIVERS; AMENDMENTS. No waiver of any breach or default hereunder will be valid unless in writing signed by the waiving party. No failure or other delay by any party exercising any right, power, or privilege hereunder will be or operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. No amendment or modification of this Agreement will be valid or binding unless in a writing signed by both the Executive and the Company. (G) ENTIRE AGREEMENT. This Agreement contains the entire understanding and agreement between the parties, and supersedes any prior understandings or agreements between them, with respect to the subject matter hereof; provided, that except as specifically set forth herein, except the NewsEdge Confidentiality Agreement executed on February, 1998 this Agreement does not affect any agreement between the parties relating to stock options granted by the Company (including its predecessors, successors and affiliates) to the Executive, which agreements will survive the execution and delivery of this Agreement. (H) GOVERNING LAW. This Agreement will be governed by and interpreted and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without reference to principles of conflicts or choice of law. -5- IN WITNESS WHEREOF, each of the Company and the Executive has executed and delivered this Agreement as an agreement under seal as of the date first above written. The EXECUTIVE: ___________________________________ The COMPANY: ___________________________________ Rory Cowan Chairman of the Board -6- ADDENDUM I ---------- The following table sets forth the terms and conditions of the Executive Employment Agreements between NewsEdge Corporation and the Executives.
NAME AND PRINCIPAL POSITION Year ANNUAL SALARY ($) COMPENSATION BONUS - ----------------------------------- ---- ----------------- ------------------ - --------------------------------------------------------------------------------------------------- Cliff Pollan(1) 2001 $250,000 $80,000 President and Chief Executive Officer - --------------------------------------------------------------------------------------------------- Ronald Benanto 2001 $210,000 $80,000 Vice President of Finance and Chief Financial Officer - --------------------------------------------------------------------------------------------------- Charles White 2001 $185,000 $70,000 Vice President, e-Content Business - --------------------------------------------------------------------------------------------------- Thomas Karanian 2001 $185,000 $70,000 Vice President, Development, Operations and Customer Service - --------------------------------------------------------------------------------------------------- Alton Zink 2001 $150,000 $52,000 Vice President, Human Resources - --------------------------------------------------------------------------------------------------- David Scott 2001 $161,000 $60,000 Vice President, Corporate Marketing - --------------------------------------------------------------------------------------------------- John Crozier 2001 $185,000 $90,000 Vice President, North American Sales - --------------------------------------------------------------------------------------------------- Lee Phillips 2001 $150,000 $60,000 Vice President, Product Marketing - ---------------------------------------------------------------------------------------------------
_____________________________ (1) Under Section 4(A) of the Executive Employment Agreement entitled Change of Control, Mr. Pollan is entitled to twelve (12) months' salary. -7- -----END PRIVACY-ENHANCED MESSAGE-----