UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 2001; or
___ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-10541
COMTEX NEWS NETWORK, INC.
(Exact name of registrant as specified in its charter)
New York 13-3055012
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4900 Seminary Road, Suite 600, Alexandria, Virginia 22311
(Address of principal executive office)
Registrant's telephone number, including area code: (703) 820-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. X
As of September 21, 2001, the aggregate market value of the common
stock held by non-affiliates of the Registrant (based upon the last
reported sale price of the common stock as reported by the National
Association of Securities Dealers Inc. through its Electronic OTC
Bulletin Board) was approximately $2,831,000.
As of September 21, 2001, 10,191,373 shares of the Common Stock of
the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in response to Part III of Form 10-K is
hereby incorporated by reference to the specified portions of the
registrant's Proxy Statement to be filed within 120 days of the end
of the fiscal year ended June 30, 2001.
PART I
This section should be read in conjunction with the
financial statements and notes thereto included elsewhere in this
annual report on Form 10-K. Except for the historical
information contained herein, the matters discussed in this 10-K
include forward-looking statements within the meaning of Section
21E of the Securities and Exchange Act of 1934. These forward-
looking statements may be identified by reference to a future
period or by use of forward-looking terminology such as
"anticipate," "expect," "could," "may" or other words of a
similar nature. Forward-looking statements, which we believe to
be reasonable and are made in good faith, are subject to certain
risks and uncertainties, including, but not limited to, those set
forth under "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS." These
risks could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on our
behalf.
Item 1. Business
Overview
We are a leading business-to-business "infomediary"
providing real-time news content to business information
retailers serving the financial services, individual and
institutional investor, wireless and corporate information
markets. We employ internally developed technology to aggregate
and process an average of 20,000 full news stories a day from
over 70 content sources. We aggregate the information to create
and deliver real-time, subject-specific headline, summary and
full story news and information products. Our network of
distributors includes over one thousand web sites and corporate
information applications that benefit from receiving up-to-the-
minute information delivered in an industry standard format,
enhanced with keywords, metadata, stock ticker symbols and
organized by subject. Our news products are read by millions of
end-users.
Our Partners
Distributors. Our distributor partners utilize our content
products to provide their end-users with relevant, timely and
comprehensive coverage. Our content products, tailored to our
distributors' specifications and market requirements, contribute
to the success of their business models.
Our distributor partners also gain cost advantages by using
us as a single source provider. The integration of aggregated
content into our distributors' sites and services requires the
management of only one contract in one technical format.
Licensing content by topical or geographical area is also more
cost effective for distributors since they pay only for specific
content that impacts their target audience.
Contract terms with our distributors generally range from
one to three years. Our revenues are generated through various
models including fixed fee, monthly royalty minimums and variable
royalties based on the growth and success of the distributor's
business model. Revenues are also derived from data
communication charges for the delivery of our products to
distributors. COMTEX offers a variety of delivery options
including the Internet through file transfer protocol (FTP), as
well as through various high speed technologies including virtual
private networks (VPN), leased line, frame relay and
satellite/FM.
Some of our current distributors include:
o Big Charts
o Bloomberg
o CBS Marketwatch
o Dialog
o Factiva
o OneSource
o S&P Comstock
o Zacks Investment Research
We added 176 new distributors during the 2001 fiscal year.
However, more than 150 existing distributors terminated their
contracts with us over the same period. A large number of these
distributors terminated as a result of their lack of funding
and/or bankruptcies. See "Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Financial Condition, Liquidity and Capital Resources." No
individual distributor provides more than 10% of our revenue.
Content Providers. Our content providers supply us with the
information that is the foundation of our product offerings.
Each of our content providers generally offer a single editorial
perspective or area of coverage, which we aggregate with other
content providers to create a real-time, value-added feed,
formatted for our distributors. This content includes:
o Late-breaking domestic and international economic and
political news;
o Financial news;
o Business news and company information; and
o Sports and entertainment news.
Through our network of distributors, our content providers
reach millions of end-users -- gaining rapid access to new
markets, new and increased revenue streams and brand exposure.
Our content providers are able to significantly expand their
reach, while our distributors avoid the work and expense of
aggregating content in diverse formats from multiple sources.
Further, our licensing procedures address content providers'
concerns over unauthorized distribution and publishing. Our
royalty model is highly attractive to our content providers since
it is based on their contribution to our products and, unlike
traditional models, generates royalties regardless of end-user
utilization.
Contract terms with our content providers generally range
from one to three years and include the non-exclusive right to
license content to re-sellers and other information distributors.
This negotiated right is a significant asset since it allows us
to generate revenue based on the end-user reach and business
models of each of our distributor partners. In addition, it
allows us to leverage the distributors' marketing expenditures
and product investments. Costs associated with these licenses
include fixed fees, monthly minimums and/or royalties paid to
content providers based on our information services revenue.
Some of our current providers include The Associated Press,
Business Wire, EDGAR Online, Knight-Ridder, PBI Media Inc., PR
Newswire and United Press International. We also have agreements
with a significant number of internationally based news agencies
including AllAfrica, Inc., Asia Pulse, Business News Americas,
Ltda., New World Publishing and Xinhua.
During fiscal year 2001, we added content from approximately
30 new content providers, bringing the total number of our
content providers to over 70. Some of the content provided by
these new providers includes information related to Securities
and Exchange Commission filings, as well as general news and
business information in French and Spanish.
Technology
During the 2000 fiscal year and the beginning of the 2001
fiscal year, we implemented a new real-time content processing
system designed to more efficiently process and enhance more than
100,000 stories per day. Utilizing our experience in managing and
processing real-time news feeds, we have designed various
processes to improve the quality, reliability, packaging and
ultimately the usability of our content.
The method for processing and converting the real-time news
feeds into content products relies on our computer technology and
data management software. As electronic submissions of news and
information are received, our computers convert each story into a
common data format, apply standardized document coding, or
metadata, and assign relevant keywords, including ticker symbols
of any public companies mentioned in the story. After the
processing has been completed, data management software sorts
each news story into topic-defined product categories. All
content is processed and distributed in real-time without human
intervention.
In addition, the processing system was designed to provide
for the creation of new products and new metadata without
significant additional production or development resources.
Thus, we can create new products from existing content sources
for minimal additional investment or ongoing cost.
Customers, Sales and Marketing
Our customers include business and consumer online services,
personal investor web sites, general information web sites, Wall
Street stock quote vendors, electronic clipping services and
wireless information services who create products and services
using our products. These information service providers then
resell these products and services to end-user markets, business
users and corporations. These end-users use our customers'
services for market research, business intelligence, investment
analysis and entertainment.
Our marketing strategy is to provide the content
infrastructure to our customers, who are predominantly
information service providers. Our customers, in turn, spend
product development and marketing dollars to attract end-users to
their services and product offerings. In this way, we take
advantage of the product and marketing investment of our
customers to attract and assemble a broad user base for our
content offerings.
Our sales force is focused on our four primary markets --
professional investor, individual investor, Internet and
corporate information services markets. The sales force receives
a base salary and earns commissions on both new customers and
revenue growth from existing customers. Our total compensation
plan is consistent with industry compensation practices.
Product and Service Offerings
The core products currently supported by our technical and
customer service departments include a series of topic-defined
news products marketed under the brand name CustomWires. We also
support production of original news products under the brand name
COMTEX Newsroom. Other services include processing and
distribution of publishers' full feeds and hosting and
application services called News Solutions.
CustomWires
CustomWires are topic-defined newswires that contain only
topic-relevant stories from more than 20,000 stories daily, from
more than 70 publishing alliances. Stories are selected by
automated editorial software according to the significance of the
story's content relative to specific CustomWires topics. We
offer fifteen topics under the CustomWires brand name: Business,
Community, Energy, Environment, Finance, Foreign Business,
Government, Healthcare, High Technology, International, Public
Companies, SEC, Sports, Wall Street and World Affairs and an
additional eleven geographical CustomWires focusing on specific
international regions.
Newsroom
Our Newsroom enhanced products provide editorially selected
top news in twelve categories. A broad range of news story
options includes financial markets, industries, general market
and world news. Our editors are skilled at evaluating incoming
news feeds for items that will directly affect business and
investment decisions in a variety of markets. This expertise
ensures that our customers receive relevant and compelling
content. The COMTEX Newsroom, Top Headlines, Front Page,
Financial Updates, Industry Updates and Personal Finance products
are designed specifically to satisfy distributors interested in
reaching a broad audience of business end-users.
Top Headlines. Top Headlines is an editorial service that
selects up to five of the most significant news stories of the
day in each of twelve topic-based CustomWires (Business,
Internet, Community, Energy, Entertainment, Environment,
Finance, Government, Healthcare, High-Tech, International, and
Sports) and are delivered five times every weekday. In addition,
International, Government, Business, Finance, Community and
Sports are updated once a day on Saturday and Sunday.
Front Page. Front Page is designed to reflect the front
page of major U.S. newspapers. Our editors select the day's top
ten news stories highlighting key global news, which is delivered
five times every weekday and once a day on weekends.
Financial Updates. Financial Updates keep businesses
informed of the financial market. Our editors deliver the most
relevant and pertinent financial information from leading
financial information sources twice every weekday. Our editors
provide the basic overview, productivity and analysis for
international and U.S. stock markets and the global bond and fund
markets and also monitor key company mergers, acquisitions, stock
buyouts, hostile takeovers and all economic indicator
announcements and data releases from the Federal Reserve Bank,
Labor Department, Commerce Department, Purchasing Managers Index,
etc.
Industry Updates. Industry Updates afford leading decision-
makers timely and competitive information needed to remain
leaders within their specific industry. A list of the top seven
to ten stories from each industry category is generated and
distributed to customers once a day on weekdays. These
categories include vertical industries such as Airlines,
Automobile, Banking, Hardware, Insurance, Oil, Publishing,
Telecommunications and Utilities.
Personal Finance. Personal Finance highlights personal
investment opportunities, banking, insurance, financial planning,
and financial security. Editors compile five to seven stories
daily on weekdays, from well-known financial providers, to
deliver relevant information on stock tracking, credit
maintenance, taxes, home mortgage, online banking and a host of
other specific topics devised to meet the needs of the individual
investor.
Publisher Full Feeds
Our full feed delivery from a specific publisher provides
customers with the complete content offering from that publisher.
The content is delivered with our electronically enhanced
metadata, ticker symbols and standardized keywords, allowing the
customer to find the most relevant stories and use the content in
conjunction with other COMTEX content.
Our full-feed distribution offers:
o conversion of publisher's content into a standard
electronic format designed to enhance and facilitate
data management;
o addition of text-related keywords, product codes, and
ticker symbols designed to increase usage of
publisher's content only;
o one integration effort for multiple publishers; and
o 24 by 7 monitoring by our technical staff of the
publisher's content
News Solutions
During fiscal year 2001, we launched News Solutions, a suite
of browser-based news applications that allows customers to
integrate news directly into any web site, intranet or extranet.
News Solutions customers determine the specific news required for
their application from any of our product lines -- CustomWires,
Newsroom or Publisher Full Feeds -- and easily, without
programming effort place the content on their site. News
Solutions implementation allows the customer to maintain the look
and feel of their own web site. News Solutions allows customers
to refine the news categories to display only the news that meets
their needs.
News Solutions provides access to the largest quantity and
highest quality of real-time news on the Internet, and customers
only have to add a few lines of News Solutions-generated HTML
compatible code to any web page. With us hosting the content and
applications, the customer requires minimal support or
maintenance.
Processing
Utilizing the same automated editorial and format conversion
process, we also offer news processing services to distributors
and content providers. The content providers and distributors
take advantage of, and leverage the standardized format and value-
added processing for all their content. These services increase
the reliance those content providers and distributors have on us
and, at the same time, attract additional customers to us.
Product Development
Product development activities include quality assurance,
product enhancements and the development of proprietary news
products. For the years ended June 30, 2001, 2000 and 1999 our
product development costs were approximately $605,000, $456,000
and $270,000, respectively. During fiscal years 2000 and 2001,
we made significant investments in product development
infrastructure and development of new products, as well as
additional quality assurance activities.
Employees
We hired 45 new employees across all departments between
July 2000 and March 2001 to accommodate an increase in new
distributors and content providers. Although we gained 176 new
distributors during fiscal year 2001, more than 150 existing
distributors terminated their contracts with us, many due to
their lack of funding and/or bankruptcies, over the same period.
As a result, in June and August 2001, we initiated reductions in
force affecting a total of 29 employees.
At September 21, 2001, we had 54 full-time employees. The
employees are not members of a union and we believe employee
relations are generally good.
Available Information
We file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange
Commission, or SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York,
New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-
0330 for further information on the public reference rooms. Our
SEC filings are also available to the public from the SEC's Web
site at "http://www.sec.gov."
Item 2. Properties
We own no real estate. We lease office space at 4900
Seminary Road in Alexandria, Virginia. We currently occupy
approximately 22,700 square feet at an annual rental of
approximately $554,000. The lease agreement on approximately
15,700 square feet expires in August, 2002. The lease on the
remaining space of approximately 7,000 square feet expires in
August, 2003.
Item 3. Legal Proceedings
We were named as a defendant in a lawsuit filed in the
United States District Court for the Northern District of
Alabama, Northeastern Division on August 25, 2000. The suit was
captioned Clyde Collins Pearson (the "Plaintiff") Individually
and In His Capacity As Representative of the Class of Emulex
Corporation Shareholders Similarly Situated v. Internet Wire,
Inc.; Comtex News Network, Inc.; and Emulex Corporation. The
suit related to Plaintiff's sale of Emulex Corporation stock in
response to a false news release disseminated by or on behalf of
various defendants, including COMTEX. The complaint alleged that
the defendants failed to take reasonably necessary precautions to
prevent the distribution of the false press release attributed to
Emulex. Plaintiff sought $120,000 in actual damages, and
additional punitive damages. We filed a motion to dismiss the
complaint, which was granted by the Court and the case was
dismissed against all defendants on July 5, 2001. The time for
filing a notice of appeal has since expired.
On July 17, 2001, we filed a collection action against
Infospace, Inc., a former customer, in the United States District
Court for the Eastern District of Virginia for payments owed
under contracts with the defendant corporation. The suit is
captioned Comtex News Network, Inc. v. Infospace, Inc. Infospace
filed an Answer and Counterclaim alleging we breached our
agreement and seeks damages of $1,000,000 for lost business, loss
of reputation and good will. We intend to vigorously defend
ourselves against the allegations in the counterclaim.
We are also involved in routine legal proceedings occurring
in the ordinary course of business which in the aggregate are
believed by management to be immaterial to our financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Shares of our common stock, par value $.01 per share, which
we refer to herein as our Common Stock, are traded sporadically
under the symbol CMTX on Over-the-Counter Bulletin Board of the
National Association of Securities Dealers, or OTCBB.
The range of high and low bid quotations for the Common
Stock, as reported on the OTCBB, for each quarterly period during
fiscal years 2000 and 2001 is shown below:
Fiscal Year Ended June 30, 2000 High Low
------------------------------- ------ ------
First Quarter
(7/1 to 9/30/99) 2.6250 1.3125
Second Quarter
(10/1 to 12/31/99) 3.1875 1.0625
Third Quarter
(1/1 to 3/31/00) 8.5000 3.1875
Fourth Quarter
(4/1 to 6/30/00) 6.7500 2.7500
Fiscal Year Ended June 30, 2001 High Low
------------------------------- ------ ------
First Quarter
(7/1 to 9/30/00) 5.2500 3.0000
Second Quarter
(10/1 to 12/31/00) 3.5625 1.5000
Third Quarter
(1/1 to 3/31/01) 2.6875 1.0625
Fourth Quarter
(4/1 to 6/30/01) 1.6000 0.7300
The approximate number of holders of record of our Common
Stock as of September 21, 2001 was 563.
We have never declared or paid a cash dividend on our Common
Stock and do not anticipate the declaration or payment of cash
dividends to shareholders in the foreseeable future.
Item 6. Selected Financial Data
The following table sets forth selected financial data for
each of our last five fiscal years.
Fiscal Year Ended June 30,
--------------------------
(amounts in thousands except per 2001 2000 1999 1998 1997
share data) -------- -------- ------- ------- -------
Total Revenues $ 16,598 $ 12,645 $ 7,557 $ 5,401 $ 4,592
Operating Income $ 310 $ 1,308 $ 542 $ 156 $ 228
Net Income $ 265 $ 1,241 $ 456 $ 64 $ 113
Basic Net Income Per Share $ .03 $ .14 $ .06 $ .01 $ .01
Diluted Net Income Per Share $ .02 $ .10 $ .04 $ .01 $ .01
Balance Sheet Data at Year End:
Total Assets $ 6,565 $ 5,977 $ 2,407 $ 1,434 $ 1,531
Long-term Obligations $ 954 $ 987 $ 1,047 $ 833 $ 788
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Our revenue is primarily derived from charges to distributors for the
licensing of content, including CustomWires, Newsroom products and the
publishers' full feeds, as well as from News Solutions hosting services.
Distributor licenses typically consist of fixed fees as well as minimum royalty
commitments. Royalties are based upon the customer's business and revenue model
such that their success in their market generates increasing revenues for us.
We also derive data communications revenue for charges to distributors for the
actual delivery of our products.
Other sources of revenue include content processing for distributors and
processing and distribution services for content providers. Several distributors
have found it advantageous to have us process their proprietary content for them
so that it is in our format. Processing fees may include initial implementation
fees, monthly minimums and a percentage of the royalties earned by the licensor
of the content. Similarly, several content providers have contracted to deliver
their content through our processing system to take advantage of our packaging,
formatting and delivery of their content to their own customers. Processing
revenues may consist of implementation fees, monthly minimums and a percentage
of their revenues earned.
Although we are based in the United States, we may in the future attempt to
increase the number of our distributors and content-providers and improve our
technology by establishing operations and/or joint ventures internationally.
RESULTS OF OPERATIONS
Comparison of the Fiscal Year ended June 30, 2001 to the Fiscal Year ended
June 30, 2000
Revenues consist primarily of royalty revenues and fees from the licensing
of content products to information distributors, as well as revenues from data
communications charges for delivery of our products. During the year ended June
30, 2001, our total revenues were approximately $16,598,000, an increase of
approximately $3,952,000, or 31%, from total revenues of $12,645,000 for the
year ended June 30, 2000. Our revenues from new customers were partially offset
by a decline in revenues from existing customers. Many of these customers were
in the Internet and personal investor markets who declared bankruptcy or who
were unable to obtain funding and remain in business.
Our cost of revenues consists primarily of content licensing fees and
royalties to content providers, as well as data communication costs for the
delivery of our products to customers. The cost of revenues for the year ended
June 30, 2001 was approximately $4,678,000, an increase of approximately
$856,000, or 22%, from the cost of revenues for the year ended June 30, 2000.
The increase in cost is primarily due to an increase in content royalties
related to the increase in revenues for the period, because the contracts with
our content providers call for licensing fees to increase along with royalty
payments to us. The increase is offset partially by decreases in data
communications costs resulting from the continued implementation of more cost-
effective vehicles for the delivery of our products to our customers. With the
increased reliability and industry-wide acceptance of the Internet, we have
transitioned customers from higher cost satellite/FM and leased line deliveries
to FTP delivery of our content.
The gross profit for the year ended June 30, 2001 was approximately
$11,920,000, an increase of approximately $3,097,000, or 35%, over the prior
year. The gross margin percentage improved for the year ended June 30, 2001 to
approximately 72% from approximately 70% in the prior year due to the decrease
in data communications costs discussed above.
Total operating expenses for the year ended June 30, 2001 were
approximately $11,609,000, an increase of approximately $4,095,000, or 54%, from
the operating expenses for the year ended June 30, 2000. This increase in
operating expenses includes increases in expenses associated with the addition
of personnel and technology to support increased distributors and content
providers; increases in marketing and public relations activities; and
expenditures to promote COMTEX and our products and services. In addition, we
incurred an increase of approximately $315,000 in stock-based compensation.
Technical operations and support expenses during the year ended June 30,
2001 increased approximately $1,131,000, or 54%, over these expenses in the year
ended June 30, 2000. This increase was due primarily to increased personnel,
software and maintenance expenses, offset partially by decreased consulting
expenses related to software support of our former content-processing platform.
Product development expenses increased by approximately $150,000, or 33%,
for the year ended June 30, 2001 compared to the year ended June 30, 2000. This
increase is the result of additional personnel and related expenses. Product
development activities include quality assurance, enhancements to our products,
and the development of proprietary news products.
Sales and marketing expenses increased by approximately $429,000, or 19%,
for the year ended June 30, 2001 compared to the year ended June 30, 2000. This
increase was due to the addition of sales and marketing personnel and
advertising and public relations expenses related to the promotion and branding
of COMTEX and our products and services.
General and administrative expenses for the year ended June 30, 2001 were
approximately $1,540,000, or 64%, greater than these expenses during the year
ended June 30, 2000. This increase was due to additional personnel and related
expenses, increased legal fees and investor relations consulting, expanded
office space and an increase of approximately $598,000 in the provision for bad
debts. The increase in bad debt expense relates in large part to the loss of
customers due to their lack of funding and/or bankruptcies.
In connection with the transfer of stock options from the chairman of our
board of directors to certain employees, we recorded stock-based compensation
expense of approximately $315,000 during the year ended June 30, 2001. We did
not record stock-based compensation during fiscal year 2000.
Depreciation and amortization expenses for the year ended June 30, 2001
were approximately $531,000, or 218% higher than these expenses during the prior
year. The increase was due primarily to the deployment of upgraded production
software and hardware and increased capital expenditures related to increasing
capacity and redundancy of our production systems, as well as furniture and
equipment for the addition of personnel.
Other expense, net of interest income and interest expense, decreased
approximately $24,000, or 36%, during the year ended June 30, 2001 from the
prior year, reflecting an increase in interest income earned on our cash
balances.
Comparison of the Fiscal Year ended June 30, 2000 to the Fiscal Year ended June
30, 1999
We earned operating income of approximately $1,308,000 during the year
ended June 30, 2000, compared to operating income of $542,000 during the year
ended June 30, 1999. We earned net income of approximately $1,241,000 during
the year ended June 30, 2000, compared to net income of approximately $456,000
for the year ended June 30, 1999. As discussed below, the improvement in
operating income and net income was due primarily to a 67% growth in revenues
and an improved gross profit margin, offset partially with a 62% corresponding
increase in cost of revenues and operating expense. The improvement in net
income also included an increase in interest income earned on cash balances.
The fiscal year 2000 results reflect fourth quarter revenues that included
the resolution of royalties due for content usage during fiscal year 2000 and
prior periods previously unreported to us by a single distributor. The
resolution increased revenues, gross profit, operating income and net income by
$250,000, $207,000, $138,000 and $138,000, respectively.
Our revenues consist primarily of royalty revenues and fees from the
licensing of content products to information distributors, as well as revenues
from data communications charges for delivery of our products. During the year
ended June 30, 2000, our total revenues were approximately $12,645,000, or
approximately $5,088,000, or 67%, greater than the total revenues for the year
ended June 30, 1999. Of the increase in revenues, approximately 54% reflects
revenues from new customers obtained during the twelve months ended June 30,
2000, with the remaining 46% reflecting growth in revenues from the existing
customer base.
Our cost of revenues consists primarily of content license fees and
royalties earned by our content providers for the distribution of content, as
well as data communication costs for the delivery of our products to our
customers. The cost of revenues for the year ended June 30, 2000 was
approximately $3,822,000, or $1,009,000, or 36%, greater than the cost of
revenues for the year ended June 30, 1999. The increase in cost is primarily
due to an increase in content royalties related to the increase in revenues for
the period. The increase is offset partially by decreases in data
communications costs resulting from the implementation of a more cost effective
method for delivery of our products to customers, as well as an improvement in
earned minimum royalties for certain information providers.
The gross profit for the year ended June 30, 2000 was approximately
$8,823,000, or a $4,079,000 (86%) improvement in gross profit over the prior
year. The gross margin percentage improved for the year ended June 30, 2000 to
approximately 70% from approximately 63% in the prior year due to both a
decrease in the royalty percentage paid for content and the decrease in data
communications costs. The decrease in the royalty percentage was the result of
an improvement in earned minimum royalties for certain information providers.
Total operating expenses for the year ended June 30, 2000 were
approximately $7,514,000, representing an approximately $3,313,000, or 79%,
increase in operating expenses from the year ended June 30, 1999. This increase
in operating expenses is due primarily to increases in expenses associated with
increased headcount and technology and general business consultants as we made
investments in infrastructure. In addition, we increased marketing and public
relations activities and expenditures to promote the Company and our products
and services.
Technical operations and support expenses during the year ended June 30,
2000 increased approximately $1,184,000, or 128%, over these expenses in the
year ended June 30, 1999. This increase was due primarily to increased
headcount and consulting costs associated with technology projects and client
support.
Product development expenses increased by approximately $186,000, or 69%,
for the year ended June 30, 2000 compared to the year ended June 30, 1999. This
increase is the result of additional personnel in this department. Product
development activities include quality assurance, enhancements to our products,
and the development of proprietary news products.
Sales and marketing expenses increased by approximately $1,000,000, or 78%,
for the year ended June 30, 2000 compared to the year ended June 30, 1999. The
increase was due to increased compensation arising from the addition of sales
and marketing personnel, additional commissions based on the increase in
revenues during the year, as well as marketing and public relations expenses
related to the promotion and branding of the Company and our products and
services.
General and administrative expenses for the year ended June 30, 2000 were
approximately $805,000, or 50%, greater than these expenses during the year
ended June 30, 1999. This increase was due to additional personnel and related
benefits, executive incentive compensation programs, expanded office space,
recruitment, professional fees and general business consulting, offset partially
by a decrease in the provision for bad debts.
Depreciation and amortization expenses for the year ended June 30, 2000
were approximately $138,000, or 131%, higher than these expenses during the
prior year. The increase was due primarily to the development and deployment of
new platforms for our products and services as well as capital expenditures to
support additional personnel.
Other expense decreased by approximately $19,000, or 22%, from the year
ended June 30, 1999, and reflected an increase in interest income earned on our
cash balances, partially offset by increased interest expense.
Income tax expense remained unchanged for the year ended June 30, 2000
compared to the prior year. Except for nominal franchise fees, we did not
record an income tax expense due to the utilization of Net Operating Loss (NOL)
and Investment Tax Credit (ITC) carryforwards.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 30, 2001, our operations produced operating income
of approximately $310,000 and net income of approximately $265,000. At June 30,
2001, we had working capital of approximately $131,000 as compared with working
capital of approximately $1,316,000 at June 30, 2000. The decrease in working
capital was due primarily to the use of cash for capital expenditures discussed
below. We had net stockholders' equity of approximately $3,109,000 at June 30,
2001, as compared to net stockholders' equity at June 30, 2000, of approximately
$2,378,000. The increase in stockholders' equity was due to the retention of
net income, as well as the issuance of stock under our Stock Option and Employee
Stock Purchase Plans.
For the year ended June 30, 2001, our operating activities generated
approximately $1,338,000 in cash. We had cash of approximately $367,000 at June
30, 2001, compared to approximately $1,655,000 at June 30, 2000. To date, our
operations have generated cash flow sufficient to cover our monthly expenses.
We have reinvested a significant portion of our operating cash flows. This
includes investments in administrative, sales, marketing and technical personnel
and in expanding our contractual base with content-providers so as to improve
the quality and flexibility of our information products. All of these factors
contribute to improving our ability to sell and deliver quality products and
services.
In addition, we made capital expenditures of approximately $2,684,000 in
the year ended June 30, 2001, to increase the capacity and redundancy of our
production systems, accommodate additional personnel and office space and
upgrade administrative software. These investments improve our product
capabilities, reliability and our ability to meet future content and client
processing requirements. We anticipate continued investment, although at
decreased levels, to expand product capabilities, technology platforms and
infrastructure. We do not anticipate significantly increasing our number of
employees over the next 12 months.
We lost over 150 customers during fiscal year 2001; primarily due to
failing business models and businesses, bankruptcies or lack of funding and
consolidation within the Internet, Wall Street and corporate-reseller markets.
We have responded to the loss of this annuity revenue by appropriate operating
expense reductions and continue to focus on cost-savings efforts. These
efforts include reductions in force in June and August 2001, impacting a total
of 29 employees, as well as limitations on discretionary spending.
In June 2001, we obtained a $500,000 line of credit to assist us with short-
term fluctuations in cash flow, if necessary. The line of credit bears interest
at the Prime Rate and expires June 29, 2002. To date we have not used this
facility but may do so in the future.
In August 2001, we signed an amendment to the 10% Senior Subordinated and
Secured Note payable to AMASYS Corporation, or AMASYS, extending the term of the
note from July 1, 2002 to July 1, 2008. Included in the amendment is a
provision for AMASYS to convert all or a portion of the outstanding principal
amount, plus accrued interest, into common stock of COMTEX. The note is
convertible at a price of $1.00 per share, which price increases by $0.10 upon
each anniversary of the amendment. There is no restriction on the number of
shares that may be issued upon conversion of the note.
Currently, our operations generate cash flow sufficient to cover our
monthly expenses and we believe that cash from operations will provide us with
adequate cash resources to meet our obligations on a short-term basis. Our
ability to meet our liquidity needs on a long- term basis depends on our ability
to generate sufficient revenues and cash to cover our current obligations and to
pay down our current and long-term debt obligations. Any further corporate
consolidation or market deterioration affecting our customers could limit our
ability to generate such revenues. No assurance may be given that we will be
able to maintain the revenue base or the size of profitable operations that may
be necessary to achieve our liquidity needs.
EBITDA, as defined below, decreased approximately 10% to $1,398,000 for the
year ended June 30, 2001 compared to $1,552,000 for fiscal year 2000. The
decrease is primarily due to the increase in operating expenses, excluding
stock-based compensation and depreciation and amortization, partially offset
by increased revenues and the improvement in gross profit margin.
EBITDA consists of earnings before interest expense, interest and other
income, income taxes, stock-based compensation and depreciation and
amortization. EBITDA does not represent funds available for management's
discretionary use and is not intended to represent cash flow from operations.
EBITDA should also not be construed as a substitute for operating income or a
better measure of liquidity than cash flow from operating activities, which are
determined in accordance with generally accepted accounting principles. EBITDA
excludes components that are significant in understanding and assessing our
results of operations and cash flows. In addition, EBITDA is not a term defined
by generally accepted accounting principles and as a result our measure of
EBITDA might not be comparable to similarly titled measures used by other
companies.
However, we believe that EBITDA is relevant and useful information, which
is often reported and widely used by analysts, investors and other interested
parties in our industry. Accordingly, we are disclosing this information to
permit a more comprehensive analysis of our operating performance, as an
additional meaningful measure of performance and liquidity, and to provide
additional information with respect to our ability to meet future debt service,
capital expenditure and working capital requirements. See the audited financial
statements and notes thereto contained elsewhere in this report for more
detailed information.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
An investment in our common stock involves a high degree of risk. The
following risk factors should be considered carefully in evaluating COMTEX News
Network and our business. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. Our financial condition, operating results and the trading price of
our common stock could be materially, adversely affected 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 notes
thereto.
We Depend On the Continued Growth In the Use of the Internet, Particularly For
News and Financial Information
Our business depends on businesses and consumers continuing to increase
their use of the Internet for obtaining news and financial information.
Internet usage may be inhibited for a number of reasons including inadequate
network infrastructure; security concerns; inconsistent quality of service; and
availability of cost-effective, high-speed service. Because the market for our
products is rapidly evolving, it is difficult to predict with any certainty the
growth rate, if any, and the ultimate size of our markets. If the market fails
to continue to develop, develops more slowly than expected or becomes saturated
with competitors; if our services do not maintain significant market acceptance;
if our customers' business models are not successful; or if pricing becomes
subject to considerable competitive pressures; our business operations and
financial condition would be materially, adversely affected.
We Face Intense Competition That Could Impede Our Ability to Grow and Maintain
Profitability
The business information services industry is intensely competitive and is
characterized by rapid technological change and entry into the field by large
and well-capitalized companies. Many of our competitors have substantially
greater financial, technical and marketing resources than we do. Our
competitors include Internet-focused aggregators and distributors of content,
individual national and international electronic news and information services,
and traditional content providers seeking new markets for their content or
seeking direct relationships with distributors.
We expect competition to continue to increase as the market for content
aggregation increases, as current competitors improve their offerings, as new
competitors attempt to enter the market, and as traditional content providers
seek new markets for their content and direct relationships with distributors.
While we believe our continued investment in content, new products and
technology, as well as the expansion of our distributor partnerships will
continue to favorably position us in the market, it is possible that our
competitors may acquire significant market share and we may not be able to
retain our customers.
Furthermore, 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 affect on our business and operating results.
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
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and retaining customers and employees.
We believe that the importance of reputation and name recognition will 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 our 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.
Some of Our Customers Are Recently Established Internet Companies Who Pose
Credit Risks
While we continue to attract and retain large and mid-sized, established
customers, a number of our customers are smaller Internet companies with limited
operating histories, who operate at a loss and have limited cash reserves and
limited access to additional capital. With some of these customers, we have
experienced difficulties collecting accounts receivable. In addition, we lost
over 90 customers directly due to the failure of their business models to
sustain operations. As a result, our bad debt expense for the year ended June
30, 2001, was approximately $824,000, an increase of $598,000 over the previous
fiscal year. We may continue to encounter these difficulties in the future. If
any significant part of our customer base continues to experience economic
difficulties or is unable to pay our fees, for any reason, our business would be
materially, adversely affected.
We Could Face Additional Risks and Challenges as We Expand Internationally and
May Face Unexpected Costs in Developing International Revenues
We have created a foreign corporation in anticipation of expanding to
international operations. If our revenues from international operations do not
exceed the expense of establishing and maintaining these operations, our
business, financial condition and operating results may be materially, adversely
affected. We have only limited experience in international operations and we
may not be able to capitalize on our investment in these markets.
In addition, there are risks inherent in doing business internationally,
including unexpected changes in regulatory requirements, potentially adverse tax
consequences, export restrictions and controls, tariffs and other trade
barriers, difficulties in staffing and managing foreign operations, political
instability, fluctuations in currency exchange rates, and seasonal reductions in
business activity during the summer months. Any of these risks could have a
material, adverse affect on the success of our international operations and on
our business, financial condition and operating results.
Unauthorized Break-ins to Our Systems Could Harm Our Business
Although we have implemented strict security policies and perimeter
defenses, our computer and telecommunications systems are vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions, which could
lead to interruptions in, delays in or loss of data. In addition, unauthorized
persons may improperly access our data. Any intrusions may harm us and may be
very expensive to remedy and could damage our reputation and discourage new and
existing customers from using our service.
If Equipment Failures Interrupt the Distribution of Content to Our Customers, We
Could Lose Customers and Our Reputation May Be Adversely Affected
We rely on third-party telecommunications networks for the distribution of
our content. Any failure of these networks could interrupt or delay our
service, which could lead to customers canceling contracts and could damage our
reputation and our ability to attract additional customers.
Substantially all of our computer and communications hardware resides in
one location in Alexandria, Virginia. Any disaster, power outage or system
failure that causes interruptions in our ability to provide our services to our
customers could reduce customer satisfaction and our ability to attract
additional customers.
Losing Major Content Providers May Leave Us With Insufficient Breadth Of Content
To Retain And Attract Customers
We do not generate original content and are therefore highly dependent upon
third-party content providers. If we were to lose one of our major content
providers and were not able to obtain similar content from another source, our
services would be less attractive to customers. In addition, we cannot be
certain that we will be able to license content from our current or new
providers on favorable terms in the future, if at all.
We Depend on Key Personnel
Our future success will depend to a significant extent on the continued
services of our senior management and other key personnel. We do not maintain
"key person" life insurance for any of our personnel. Our future success will
also depend on our ability to attract, retain and motivate other highly skilled
employees. Companies in our industry compete intensely to hire and retain
qualified personnel and if we are not able to attract the employees we need or
retain the services of those we have hired, our business operations would be
materially, adversely affected.
Our Common Stock Price is Volatile and Could Fluctuate Significantly
The trading price of our Common Stock has been, and may continue to be,
subject to wide fluctuations. Our stock is traded on the Over-the-Counter
Bulletin Board of the National Association of Securities Dealers, which limits
our exposure to market analysts, and in turn may limit our volume of trading.
During fiscal year 2001, the closing prices of our Common Stock ranged from
$0.75 to $6.125. Our stock price may fluctuate in response to a number of
events and factors, such as quarterly variations in operating results;
announcements of technological innovations or new products by us or our
competitors; the operating and stock price performance of other companies that
investors may deem comparable; and news reports relating to trends in our
markets.
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of such companies.
These broad market and industry fluctuations may adversely affect the price of
our Common Stock, regardless of our operating performance.
Potential Acquisitions and Strategic Investments May Result in Increased
Expenses, Difficulties in Integrating Target Companies and Diversion of
Management's Attention
We anticipate that from time to time, we may consider acquisitions of
assets or businesses that we believe may enable us to obtain complementary
skills and capabilities, offer new services, expand our customer base or obtain
other competitive advantages. Growth through acquisitions involves potential
risks, including, but not limited to, the diversion of management's attention
during the acquisition process; costs, delays and difficulties of integrating
the acquired company's operations, technology and personnel into our operations;
the adverse affect on earnings of amortizing any intangible assets acquired; the
issuance of new equity securities diluting the holdings of existing
stockholders; and the uncertainty of working with new employees and customers.
We Do Not Intend to Pay Dividends
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any cash dividends in the foreseeable future.
Our Executive Officers, Directors and 5% or Greater Stockholders Significantly
Influence All Matters Requiring Stockholder Vote
Our executive officers and directors, in the aggregate, beneficially own
approximately 50% of our outstanding common stock. As a result, our executive
officers and directors are able to significantly influence the outcome of all
matters requiring approval by our stockholders, including the election of
directors and approval of significant transactions. This concentration of
ownership could delay, deter or prevent a change of control and could adversely
affect the price that investors are willing to pay in the future for shares of
our common stock.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
None.
Item 8. Financial Statements and Supplementary Data
The information required by this item is set forth under Item 14, which is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The information required by Items 10, 11, 12 and 13 of Part III of Form 10-K has
been omitted in reliance on General Instruction G(3) to Form 10-K and is
incorporated herein by reference to our proxy statement to be filed with the
Securities and Exchange Commission ("SEC") pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) 1. Financial Statements
Report of Independent Auditors F-1
Balance Sheets at June 30, 2001 and 2000 F-2
Statements of Operations for the fiscal
years ended June 30, 2001, 2000, and 1999 F-3
Statements of Stockholders' Equity (Deficit)
for the fiscal years ended June 30, 2001,
2000 and 1999 F-4
Statements of Cash Flows for the fiscal
years ended June 30, 2001, 2000 and 1999 F-5
Notes to Financial Statements F-6
2. Financial Statement Schedules
The schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(b) Reports on Form 8-K
None
(c) Exhibits
3.1 Restated Certificate of Incorporation of the
Company, (incorporated by reference to the Company's
Registration Statement on Form S-1
(File No. 2-72408 NY), declared effective
on July 22, 1981).
3.2 Certificate of Amendment of Certificate of
Incorporation of the Company effective May 14, 1996.
(incorporated by reference on Form 10-K dated
June 30, 1996).
3.3 Amended and Restated By-Laws of the Company.
10.4 Stock Option Agreement between the Company and C.W.
Gilluly and Marny Gilluly, dated May 16, 1995
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q dated March 31, 1995).
10.6 Agreement between Infotechnology, Inc. and the
Company, dated May 16, 1995 (incorporated by reference
to the Company's Quarterly Report on Form 10-Q dated
March 31,1995).
10.8 Amended, Consolidated and Restated 10% Senior
Subordinated Secured Note, dated May 16, 1995
(incorporated by reference to the Company's
Quarterly Report on Form 10-Q Dated March 31, 1995).
10.9 Comtex Scientific Corporation 1995 Stock Option Plan
(incorporated by reference to the Company's Proxy
Statement dated November 9, 1995).
10.10 Lease Agreement between Plaza IA Associates Limited
Partnership and the Company dated April 6, 1996
(incorporated by reference to the Company's
Quarterly Report on Form 10-Q dated March 31, 1996).
10.14 Employment Agreement with Charles W. Terry dated
July 29, 1994 (incorporated by reference to Company's
Form 10-Q dated September 30, 1998).
10.15 First Allonge to Amended, Consolidated and Restated
10% Senior Subordinated Secured Note between the Company
and AMASYS Corporation dated as of June 30, 1999
(incorporated by reference to Company's Form 10-K dated
June 30, 1999).
10.16 First Amendment to Comtex Scientific Corporation 1995
Stock Option Plan, effective September 15, 1997,
dated February 7, 2000.
10.17 Second Amendment to Comtex Scientific Corporation 1995
Stock Option Plan, effective December 2, 1999, dated
February 7, 2000.
10.18 Third Amendment to Comtex News Network, Inc. 1995 Stock
Option Plan, effective December 7, 2000, dated
June 1, 2001.
10.19 Second Amendment to Amended, Consolidated and Restated
10% Senior Subordinated Secured Note between the Company
and AMASYS Corporation dated as of August 31, 2001.
23 Consent of Independent Auditors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 28, 2001
COMTEX NEWS NETWORK, INC.
By: /s/ Charles W. Terry By: /s/ Robin Y. Deal
Charles W. Terry Robin Y. Deal
President and Chief Executive Vice President, Finance &
Officer Accounting
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
DIRECTORS:
Signature Title Date
--------- ----- ------------------
/s/ C.W. Gilluly, Ed.D. Chairman September 28, 2001
C.W. Gilluly, Ed.D. and Director
/s/ John S. Brunette Director September 28, 2001
John S. Brunette
/s/ Erik Hendricks Director September 28, 2001
Erik Hendricks
/s/ Robert A. Nigro Director September 28, 2001
Robert A. Nigro
/s/ John D. Sanders, Ph.D. Director September 28, 2001
John D. Sanders, Ph.D.
/s/ Charles W. Terry Director, September 28, 2001
Charles W. Terry President and CEO
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
COMTEX News Network, Inc.
We have audited the accompanying balance sheets of COMTEX News
Network, Inc. as of June 30, 2001 and 2000 and the related
statements of operations, stockholders' equity (deficit), and
cash flows for each of the three years in the period ended June
30, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of COMTEX News Network, Inc. at June 30, 2001 and 2000, and the
results of its operations and its cash flows for each of the
three years in the period ended June 30, 2001, in conformity with
accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
McLean, Virginia
August 24, 2001
PAGE>
COMTEX NEWS NETWORK, INC.
BALANCE SHEETS AT JUNE 30,
2001 2000
------------- ------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 367,493 $ 1,655,222
Accounts Receivable, Net of Allowance of
approximately $554,000 and $314,000 at
June 30, 2001 and June 30, 2000,
respectively 1,897,983 2,086,701
------------- ------------
Prepaid Expenses and Other Current Assets 367,112 185,692
TOTAL CURRENT ASSETS 2,632,588 3,927,615
PROPERTY AND EQUIPMENT, NET 3,730,653 1,829,060
DEPOSITS AND OTHER ASSETS 201,802 219,978
------------- ------------
TOTAL ASSETS $ 6,565,043 $ 5,976,653
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 2,501,834 $ 2,551,775
Note Payable - 60,000
------------- ------------
TOTAL CURRENT LIABILITIES 2,501,834 2,611,775
LONG-TERM LIABILITIES:
Long-Term Note Payable - Affiliate 953,954 986,954
------------- ------------
TOTAL LONG-TERM LIABILITIES 953,954 986,954
------------- ------------
TOTAL LIABILITIES 3,455,788 3,598,729
COMMITMENTS AND CONTINGENCIES (Notes 11 and 13)
STOCKHOLDERS' EQUITY
Common Stock, $0.01 Par Value - Shares
Authorized: 18,000,000; Shares issued and
outstanding: 10,191,373 and 9,967,897,
respectively 101,914 99,679
Additional Capital 11,867,469 11,403,826
Accumulated Deficit (8,860,128) (9,125,581)
------------- ------------
Total Stockholders' Equity 3,109,255 2,377,924
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,565,043 $ 5,976,653
============= ============
The accompanying "Notes to Financial Statements" are an
Integral part of these financial statements
F-2
COMTEX NEWS NETWORK, INC.
STATEMENTS OF OPERATIONS
Fiscal Year Ended June 30,
2001 2000 1999
----------- ------------ ----------
Revenues $16,597,518 $ 12,645,344 $ 7,557,397
Cost of Revenues 4,677,945 3,822,385 2,813,841
----------- ------------ ----------
Gross Profit 11,919,573 8,822,959 4,743,556
Operating Expenses
Technical Operations & Support 3,242,673 2,111,843 928,073
Product Development 605,433 455,834 270,070
Sales and Marketing 2,710,316 2,281,350 1,280,887
General and Administrative 3,962,681 2,422,394 1,617,136
Stock-based Compensation 314,600 - -
Depreciation and Amortization 773,672 243,075 105,257
----------- ------------ ----------
Total Operating Expenses 11,609,375 7,514,496 4,201,423
----------- ------------ ----------
Operating Income 310,198 1,308,463 542,133
Other income/(expense)
Interest Expense (102,698) (106,121) (86,680)
Interest Income 68,915 52,586 1,009
Other Income/(Expense) (8,859) (12,987) -
----------- ------------ ----------
Other Expense, net (42,642) (66,522) (85,671)
Income Before Income Taxes 267,556 1,241,941 456,462
Income Taxes 2,103 444 441
----------- ------------ ----------
Net Income $ 265,453 $ 1,241,497 $ 456,021
=========== ============ ==========
Basic Earnings Per Common Share $ .03 $ .14 $ .06
=========== ============ ==========
Weighted Average Number of Common Shares 10,026,735 9,051,214 7,984,389
=========== ============ ==========
Diluted Earnings Per Common Share $ .02 $ .10 $ .04
=========== ============ ==========
Weighted Average Number of Shares
Assuming Dilution 13,969,090 12,669,045 11,343,804
=========== ============ ==========
The accompanying "Notes to Financial Statements" are an
Integral part of these financial statements
F-3
COMTEX NEWS NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE FISCAL YEARS ENDED
JUNE 30, 2001, 2000 AND 1999
Common Shares Outstanding
-------------------------- Total
Number of Par Additional Accumulated Stockholders'
Shares Value Capital Deficit Equity/(Deficit)
---------- ---------- ----------- -------------- ---------------
Balance at June 30, 1998 7,896,231 $ 78,962 $ 9,987,098 $ (10,823,099) $ (757,039)
Exercise of Stock Options 154,492 1,545 18,995 20,540
Issuance of Stock - ESPP 73,707 737 25,708 26,445
Net Income 456,021 456,021
---------- ---------- ----------- -------------- ---------------
Balance at June 30, 1999 8,124,430 81,244 10,031,801 (10,367,078) (254,033)
Exercise of Stock Options 524,647 5,247 75,043 80,290
Issuance of Stock - ESPP 18,820 188 47,243 47,431
Private Placement Shares 1,300,000 13,000 1,249,739 1,262,739
Net Income 1,241,497 1,241,497
---------- ---------- ----------- -------------- ---------------
Balance at June 30, 2000 9,967,897 99,679 11,403,826 (9,125,581) 2,377,924
========== ========== =========== ============== ===============
Exercise of Stock Options 134,180 1,342 62,574 63,916
Issuance of Stock - ESPP 89,296 893 86,469 87,362
Stock-based compensation 314,600 314,600
Net Income 265,453 265,453
---------- ---------- ----------- -------------- ---------------
Balance at June 30, 2001 10,191,373 $ 101,914 $11,867,469 $ (8,860,128) $3,109,255
========== ========== =========== ============== ===============
The accompanying "Notes to Financial Statements" are an
Integral part of these financial statements
F-4
COMTEX NEWS NETWORK, INC.
STATEMENTS OF CASH FLOWS
Fiscal Year Ended
June 30,
-----------------------------------------
2001 2000 1999
----------- ------------ ----------
Cash Flows from Operating Activities:
Net Income $ 265,453 $ 1,241,497 $ 456,021
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization Expense 773,672 243,075 105,256
Bad Debt Expense 823,850 225,500 349,045
Stock-based compensation 314,600 - -
Loss on disposal of assets 8,859 166,238 -
Changes in Assets and Liabilities:
Accounts Receivable (635,132) (971,864) (807,380)
Prepaid Expenses and Other Current Assets (181,420) (113,030) (53,150)
Deposits and Other Assets 18,176 (165,786) 250
Accounts Payable and Accrued Expenses (49,941) 977,171 565,208
----------- ------------ ----------
Net Cash provided by Operating Activities 1,338,117 1,602,801 615,250
Cash Flows from Investing Activities:
Purchases of Property and Equipment (2,684,124) (1,395,772) (642,708)
Proceeds from Disposal of Assets - 2,450 -
----------- ------------ ----------
Net Cash used in Investing Activities (2,684,124) (1,393,322) (642,708)
Cash Flows from Financing Activities:
Proceeds from Notes Payable - - -
Repayments on Notes Payable (93,000) (40,000) (94,660)
Proceeds from Issuance of Stock - Private Placement - 1,262,739 -
Proceeds from Issuance of Stock - Employee Stock Purchase Plan 87,362 47,431 26,445
Proceeds from Exercise of Stock Options 63,916 80,290 20,540
----------- ------------ ----------
Net Cash provided by (used in) Financing Activities 58,278 1,350,460 (47,675)
----------- ------------ ----------
Net Increase (decrease) in Cash and Cash Equivalents (1,287,729) 1,559,939 (75,133)
Cash and Cash Equivalents at Beginning of Period 1,655,222 95,283 170,416
----------- ------------ ----------
Cash and Cash Equivalents at End of Period $ 367,493 $ 1,655,222 $ 95,283
========== ============ ==========
The accompanying "Notes to Financial Statements" are an
Integral part of these financial statements
F-5
COMTEX NEWS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
1. THE COMPANY
COMTEX News Network, Inc. (the "Company" or "COMTEX") is
a leading business-to-business "infomediary" providing real-time
news content to business information retailers serving the
financial services, individual and institutional investor, wireless
and corporate information markets. We employ internally developed
technology to aggregate and process an average of 20,000 full news
stories a day from over 70 content sources. We aggregate the
information to create and deliver real-time, subject-specific
headline, summary and full story news and information products.
Our network of distributors includes over one thousand web sites
and corporate information applications that benefit from receiving
up-to-the-minute information delivered in an industry standard
format, enhanced with keywords, metadata, stock ticker symbols and
organized by subject. Our news products are read by millions of end-
users.
Consistent with standard practice in the information
aggregation industry, the Company generally has renewable long-term
contractual relationships with those information providers and
information distributors with which it does business. These
information services contracts typically provide for both minimum
fees and royalties based upon expected and achieved volumes of
usage. Fees and royalties from information distributors comprise
the majority of the Company's revenues. Data communications
revenues represent the contractual charges for delivering the
information over various media. Fees and royalties due to
information providers, along with telecommunications costs and
employee payroll costs, comprise the majority of the Company's
costs and expenses. The Company operates and reports in one
segment, information services.
AMASYS Corporation, ("AMASYS") (the successor corporation to
Infotechnology, Inc., "Infotech"), a Delaware corporation, legally
or beneficially controls 4,693,940 (approximately 46%) of the
issued and outstanding shares of the Company. Of the Company's
common stock owned by AMASYS, 2,540,503 shares are subject to
option by C.W. Gilluly, Ed.D., the Chairman of the Board of
Directors of both the Company and AMASYS. Dr. Gilluly and his
spouse, Marny Gilluly, (the "Gillulys") also directly own options
to acquire an additional 1,804,003 shares of the Company's common
stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of 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 contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers all highly liquid investments with
maturity dates of 90 days or less at the time of purchase to be
cash equivalents.
Revenue Recognition
Information services revenues are recognized as services are
rendered based on contractual terms such as usage, fixed fee,
percentage of distributor revenues or other pricing models.
Effective April 1, 2001, the Company changed its method of
accounting for revenue recognition in accordance with Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements. Previously, the Company recognized revenue for start-
up fees upon execution of a contract for content services. The
Company routinely completed implementation of its content feed to
the customer at the time of execution. Under the new accounting
method adopted, the Company now defers start-up fee revenues over
the initial term of the contract. The cumulative effect of the
change was not material to the financial statements of the Company.
Data communications revenues are recognized in accordance with
contract terms as costs are incurred. Amounts received in advance
are deferred and recognized over the service period.
Research and Development
The Company conducts ongoing research and development in the
areas of product enhancement and quality assurance. Such costs are
expensed as incurred. Costs for fiscal years 2001, 2000 and 1999
were approximately $605,000, $456,000 and $270,000, respectively.
Property and Equipment
Property and equipment are stated at cost. Maintenance and
repairs are charged to expense as incurred and the cost of renewals
and betterments are capitalized.
Depreciation and amortization are computed using the straight-
line method over the estimated lives of the related assets - five
years for furniture and fixtures, computer equipment and software
development and three years for purchased software. Leasehold
improvements are amortized using the straight-line method over the
lesser of the lease term or the estimated useful lives of the
related assets.
Upon retirement or sale, the cost and related accumulated
depreciation or amortization of assets are removed from the
accounts and any resulting gain or loss is included in the
determination of net income.
Software for Internal Use
The Company has adopted the provisions of Statement of
Position No. 98-1 (SOP 98-1) Accounting for the Costs of
Computer Software for Internal Use. SOP 98-1 requires the
capitalization of certain costs incurred in the development
process. Capitalized costs consist of certain external direct
costs of third party software integrated into the Company's
product, development services performed by consultants and
payroll costs for employees who are directly associated with the
development process.
Income Taxes
Deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of
assets and liabilities using the enacted tax rates in effect for
the year in which the differences are expected to reverse.
Stock Based Compensation
The Company grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the
shares at the date of the grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and, accordingly, recognizes no
compensation expense for the stock option grants under the Stock
Option Plan.
Risks and Uncertainties
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable. The Company periodically performs credit evaluations
of its customers' financial condition and generally does not
require collateral on accounts receivable. As of June 30, 2001 and
2000, none of the Company's customers accounted for 10% or more of
gross revenues. The Company maintains reserves on accounts
receivable and to date credit losses, in the aggregate, have not
exceeded management's expectations.
Earnings per Common Share
Basic earnings per share ("EPS") is calculated by dividing net
earnings available to common shares by weighted average common
shares outstanding. Diluted EPS is calculated similarly, except
that it includes the dilutive effect of the assumed exercise of
stock options.
Fair Value of Financial Instruments
Accounts receivable, accounts payable, accrued expenses and
other current assets and liabilities are carried at amounts which
reasonably approximate their fair values because of the relatively
short maturity of those instruments. It is not practical to
estimate the fair value of the Company's Long-term Note Payable to
Affiliate due to its unique nature.
Recent Pronouncements
In June 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS No. 133, which was implemented in
fiscal year 2001. The adoption of SFAS No. 133, as amended, did not
have a significant effect on the Company's financial statements.
In June 2001, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 141,
Business Combinations, and No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for
goodwill and other intangible assets beginning in the first
quarter of fiscal 2003. Application of the non-amortization
provisions of the Statement is not expected to result in a
material change in net income. If necessary, the Company will
perform the first of the required impairment tests of goodwill
and indefinite lived intangible assets as of July 1, 2002, and
has not yet determined what the effect of these tests will be on
the earnings and financial position of the Company.
Reclassifications
Certain fiscal year 2000 and 1999 amounts have been
reclassified to conform to the fiscal year 2001 presentation.
3. RELATED PARTY TRANSACTIONS
Note Payable to AMASYS
In June 1999, the Company executed an amended Note to AMASYS
to incorporate outstanding interest of approximately $254,000 into
the principal amount of the note payable to AMASYS due July 1,
2002. The Note bears interest at a rate of 10% on the principal
balance of $953,954 at June 30, 2001. Principal payments of
$33,000 were made during fiscal year 2001 on the balance of
$986,954 at June 30, 2000. The Note is collateralized by a
continuing interest in all receivables, all products of such
receivables and the proceeds thereof, all purchase orders, and all
patents and technology now or hereafter held or received by the
Company.
Approximately $97,000, $105,000 and $28,000 in interest was
paid to AMASYS during the fiscal years ended June 30, 2001, 2000
and 1999, respectively.
During August 2001, AMASYS and COMTEX signed an amendment to
the Note Payable to AMASYS, (Second Amendment to Amended,
Consolidated and Restated 10% Senior Subordinated Secured Note)
(the "Amended Note") extending the term of the note until July 1,
2008. In addition to the extension of the term, the Amended Note
includes a provision for AMASYS to convert all or a portion of the
outstanding principal amount, plus accrued interest, into common
stock of COMTEX. The Amended Note is convertible at a price of
$1.00 per share, which price increases by $0.10 upon each
anniversary of the amendment.
Stock Option Transfer
During fiscal year 2001, the Gillulys transferred 242,000 of
their stock options, which are fully exercisable at $0.10 per
share, to certain members of management. This transfer resulted in
compensation expense to the Company of $314,600.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30:
2001 2000
------------- ---------------
Computer Equipment $ 2,656,134 $ 1,361,937
Furniture and Fixtures 435,816 178,679
Software and Software Development 2,258,897 1,291,898
Leasehold Improvements 183,204 38,722
Other Equipment 14,064 14,064
------------- ---------------
5,548,115 2,885,300
Less Accum. Depreciation & Amort. (1,817,462) (1,056,240)
------------- ---------------
Net $ 3,730,653 $ 1,829,060
============= ===============
Depreciation expense for the fiscal years ended June 30, 2001,
2000 and 1999 was $432,000 $136,000 and $93,000, respectively.
Amortization expense was $342,000, $107,000 and $12,000 for the
fiscal years ended June 30, 2001, 2000 and 1999, respectively.
5. NOTES PAYABLE
Notes payable consisted of the following at June 30:
2001 2000
--------- ----------
Note Payable to Century National Bank $ - $ 60,000
Less Current Portion - 60,000
--------- ----------
Total Long-Term Notes Payable $ - $ -
========= ==========
Approximately $2,000, $7,000 and $18,000 in interest was paid
to Century National Bank during the fiscal years ended June 30,
2001, 2000 and 1999, respectively.
In September 1997, the Company obtained a $50,000 line of
credit and a $140,000 three year term loan from Century National
Bank with annual principal repayments of $40,000, $40,000 and
$60,000 due September 1998, September 1999 and September 2000,
respectively. Both facilities were guaranteed by C.W. Gilluly,
Ed.D. The line of credit facility was renewed for one year in
December 1998. In May 1999, the line of credit was increased to
$250,000 bearing interest at a rate of prime plus one percent
annually (8.75% at June 30, 1999). The Company opted not to renew
the line of credit at the end of its one-year term. The term note
bore interest at a rate of prime plus two percent annually and was
paid in full as of September 2000.
In June 2001, the Company obtained a $500,000 line of credit
with Century National Bank. The line of credit is collateralized
by a security interest in all inventory, chattel paper, accounts,
equipment and general intangibles. The line of credit bears
interest at the Prime Rate and expires June 29, 2002. The Company
is subject to certain financial covenants pursuant to the line of
credit, including working capital, cash flow coverage, debt service
coverage and tangible net worth requirements. At June 30, 2001,
the Company was in compliance with all debt covenants.
6. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Fiscal Year Ended June 30,
2001 2000 1999
------------ ----------- -----------
Numerator:
Net Income $ 265,453 $ 1,241,497 $ 456,021
============ =========== ===========
Denominator:
Denominator for basic earnings
per share - weighted average
shares 10,026,735 9,051,214 7,984,389
Effect of dilutive securities:
Stock Options 3,942,355 3,617,831 3,359,415
------------ ----------- -----------
Denominator for diluted
earnings per share 13,969,090 12,669,045 11,343,804
============ =========== ===========
Basic Earnings Per Share $ .03 $ .14 $ .06
Diluted Earnings Per Share $ .02 $ .10 $ .04
7. INCOME TAXES
Income taxes included in the Statements of Operations consist principally
of state income taxes and local franchise taxes. The tax provision for
continuing operations differs from the amounts computed using the statutory
federal income tax rate as follows:
2001 2000 1999
------- ----- ------
Provision at statutory federal income tax rate 34% 34% 34%
Provision - state income tax 4 4 4
Change in valuation allowance (38) (38) (38)
------- ----- ------
Effective income tax rate 0% 0% 0%
======= ===== ======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes.
Significant components of the deferred tax assets and liabilities were as
follows:
As of June 30,
2001 2000
---------- ----------
Deferred tax assets:
Net operating loss carryforwards - Operations $ 608,771 $ 728,859
Net operating loss carryforwards - NQSOs 144,484 128,904
Amortization 26,167 26,167
Allowance for bad debts 210,480 119,446
Options to Executives 129,808 -
Accrued vacation, bonus and commissions 59,776 169,413
Note receivable reserve 34,132 34,132
Alternative minimum tax credit carryforward 19,865 19,865
Deferred revenue and charitable contributions 4,887 -
---------- ----------
Total deferred tax assets 1,238,370 1,226,786
Deferred tax liabilities:
Depreciation (137,070) (19,876)
---------- ----------
Total deferred tax liabilities (137,070) (19,876)
---------- ----------
Deferred tax assets less liabilities 1,101,300 1,206,910
Less: Valuation Allowance (1,101,300) (1,206,910)
Net deferred tax asset (liability) $ - $ -
=========== ===========
The Company has net operating loss (NOL) and business tax credit
carryforwards available to offset future taxable income of
approximately $2,000,000 as of June 30, 2001. The net change in
valuation allowance during 2001 was a decrease of approximately
$106,000. These NOL and ITC carryforwards expire beginning in the
year 2002.
8. STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Plan")
provides for both incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, and
non-qualified stock options to purchase shares by key employees,
consultants and directors of the Company. The Company has
3,901,935 shares reserved for issuance under the 1995 Plan as of
June 30, 2001, subject to annual increases as determined by the
Board of Directors. The exercise price of an incentive stock
option is required to be at least equal to 100% of the fair market
value of the Company's common stock on the date of grant (110% of
the fair market value in the case of options granted to employees
who are 10% shareholders). The exercise price of a non-qualified
stock option is required to be not less than the par value, nor
greater than the fair market value, of a share of the Company's
common stock on the date of the grant. The term of an incentive or
non-qualified stock option may not exceed ten years (five years in
the case of an incentive stock option granted to a 10%
stockholder).
Information with respect to stock options under the 1995 Plan is as
follows:
2001 2000 1999
------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------------
Outstanding at
beginning of
year 1,633,805 $ 0.84 1,767,583 $ 0.25 1,554,412 $ 0.14
Granted 717,125 2.45 548,500 2.17 398,000 0.62
Exercised ( 134,180) 0.48 ( 514,147) 0.15 ( 154,492) 0.13
Expired/
Forfeited (252,660) 2.90 (168,131) 1.02 (30,337) 0.26
----------- ---------- ----------
Outstanding at
end of year 1,964,090 1.19 1,633,805 0.84 1,767,583 0.25
=========== ========== ==========
Options
exercisable at
year-end 1,208,700 0.52 1,119,353 0.30 1,417,718 0.18
Weighted
average fair
value of
options
granted $ 1.98 $ 1.80 $ 0.62
The following table summarizes information about the stock options outstanding
at June 30, 2001:
Outstanding Exercisable
------------------------------------------------------ --------------------------
Weighted-
Weighted- Average Weighted-
Exercise Number of Average Remaining Average
Price Shares Exercise Contractual Number of Exercise
Price Life (years) Shares Price
------------------------------------------------------ --------------------------
$ 0.10-0.36 992,475 $ 0.18 5.44 992,475 $ 0.18
$ 1.05-1.97 404,125 $ 1.70 9.16 70,640 $ 1.51
$ 2.05-4.88 567,490 $ 2.59 8.87 145,585 $ 2.38
--------- ---------
1,964,090 1,208,700
The Company has adopted the disclosure-only provisions of SFAS
No. 123. Had compensation cost for the Company's stock option plan
been determined based upon the fair value at the grant date for
awards under the plan consistent with the methodology prescribed
under SFAS No. 123, the Company's net income/(loss) in fiscal years
2001, 2000 and 1999 would have been approximately $(45,016),
$1,052,000 and $328,000, or $ .00, $ .12 and $ .04 per share,
respectively.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing fair value model.
The following weighted-average assumptions were used for grants:
dividend yield of 0%; expected volatility of 1.10 to 1.56; expected
life of the option term of 5 years and risk-free interest rate of
4.82% to 6.22%.
9. EMPLOYEE STOCK PURCHASE PLAN
In December 1997, stockholders approved the 1997 Employee
Stock Purchase Plan. The purpose of the Plan is to secure for the
Company and its stockholders the benefits of the incentive inherent
in the ownership of Common Stock by present and future employees of
the Company. The Plan is intended to comply with the terms of
Section 423 of the Internal Revenue Code of 1986, as amended, and
Rule 16b-3 of the Securities Exchange Act of 1934. Under the terms
of the Plan individual employees may pay up to $10,000 for the
purchase of the Company's common shares at 85% of the determined
market price.
10. SUPPLEMENTARY INFORMATION
Income Statement
The following income statement items were charged to costs and expenses:
Fiscal Year Ended June 30,
2001 2000 1999
----------- ----------- --------------
Maintenance and Repairs $ 150,878 $ 96,685 $ 48,355
Advertising and Promotion Costs 369,522 241,437 74,033
Royalties 4,257,494 3,205,744 2,014,141
Allowance for Doubtful Accounts
The following table summarizes activity in the allowance for doubtful
accounts:
Fiscal Year Ended June 30,
--------------------------
2001 2000 1999
----------- ---------- -----------
Beginning Balance $ 314,331 $ 350,868 $ 66,916
Additions 823,850 225,500 349,045
Write-Offs (584,285) (262,037) (65,093)
----------- ----------- ------------
Balance at End of Year $ 553,896 $ 314,331 $ 350,868
=========== =========== ============
11. COMMITMENTS AND CONTINGENCIES
The Company leases office space under noncancelable operating
leases that expire beginning August 31, 2002. The leases require
fixed escalations and payment of property taxes, insurance and
maintenance costs.
The future minimum rental commitments under operating leases are as
follows:
Fiscal year ending Minimum Rental
ending June 30, Commitments
------------------- ------------------
2002 561,197
2003 234,306
2004 28,492
2005 and beyond -
------------------
$ 823,995
==================
Rent expense under all operating leases totaled approximately
$554,000, $278,000 and $192,000 for the fiscal years ended June 30,
2001, 2000 and 1999, respectively.
The Company has filed a collection action against a former
customer in the United States District Court for the Eastern
District of Virginia for payments owed under contracts with the
defendant corporation. The defendant corporation filed an Answer
and Counterclaim alleging COMTEX breached its agreement and seeks
damages of $1,000,000 for lost business, loss of reputation and
good will. The Company intends to vigorously defend itself against
the allegations in the counterclaim.
12. 401(K) PLAN
The Company has a 401(k) plan available to all full-time
employees who meet a minimum service requirement. Employee
contributions are voluntary and are determined on an individual
basis with a maximum annual amount equal to the maximum amount
allowable under federal tax regulations. All participants are
fully vested in their contributions. The 401(k) plan provides for
discretionary Company contributions. The Company did not make any
contributions during the fiscal years ended June 30, 2001, 2000 and
1999.
13. SUBSEQUENT EVENTS
The Company was named as a defendant in a lawsuit filed in the
United States District Court for the Northern District of Alabama,
Northeastern Division on August 25, 2000. The suit was captioned
Clyde Collins Pearson (the "Plaintiff") Individually and In His
Capacity As Representative of the Class of Emulex Corporation
Shareholders Similarly Situated v. Internet Wire, Inc.; Comtex News
Network, Inc.; and Emulex Corporation. The suit related to
Plaintiff's sale of Emulex Corporation stock in response to a false
news release disseminated by or on behalf of various defendants,
including the Company. The complaint alleged that the defendants
failed to take reasonably necessary precautions to prevent the
distribution of the false press release attributed to Emulex.
Plaintiff sought $120,000 in actual damages, and additional
punitive damages. The Company filed a motion to dismiss the
complaint, which was granted by the Court and the case was
dismissed July 5, 2001. The time for filing a notice of appeal has
since expired.
14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations
for the years ended June 30, 2001 and 2000. The results for the
quarter ended September 30, 2000 reflect an adjustment related to
stock-based compensation, which was not included in Form 10-Q for
that period.
Quarter Ended:
----------------------------------------------------
September 30, December 31, March 31, June 30,
2000 2000 2001 2001
------------ ------------- ----------- -----------
Revenues $ 4,161,097 $ 4,324,648 $ 4,306,391 $ 3,805,382
Gross Profit 3,000,876 3,168,716 3,134,803 2,615,178
Net Income/(Loss) 173,191 112,388 70,179 (90,305)
Net Income/(Loss) per share,
basic $ 0.02 $ 0.01 $ 0.01 $ (0.01)
Shares used in per share
calculation, basic 9,968,150 9,982,881 10,062,307 10,093,602
Net Income per share, diluted
$ 0.01 $ 0.01 $ 0.01 $ (0.01)
Shares used in per share
calculation, diluted 13,785,500 13,814,914 14,062,685 14,213,260
Quarter Ended:
----------------------------------------------------
September 30, December 31, March 31, June 30,
1999 1999 2000 2000
------------ ------------- ----------- ----------
Revenues $ 2,408,894 $ 2,900,551 $ 3,369,881 $ 3,966,018
Gross Profit 1,599,316 1,967,883 2,402,601 2,853,159
Net Income 276,865 265,590 317,094 381,948
Net Income per share basic $ 0.03 $ 0.03 $ 0.03 $ 0.04
Shares used in per share
calculation, basic 8,125,102 8,457,025 9,728,062 9,894,667
Net Income per share, diluted
$ 0.02 $ 0.02 $ 0.02 $ 0.03
Shares used in per share
calculation, diluted 12,100,225 12,329,142 13,015,757 13,231,056