FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended: March 31, 2001
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-26540
-------
NEWSEDGE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-3016142
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 Blanchard Road
Burlington, Massachusetts 01803
(Address of principal executive offices)
(781) 229-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 60 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of each class Outstanding at April 30, 2001
- ------------------- -----------------------------
Common Stock, par value $.01 18,621,403
NEWSEDGE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2001 and 2000 5
Notes to the Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21
PART II - OTHER INFORMATION
Item 6(a) Exhibits 22
Item 6(b) Reports on Form 8-K 22
Signature 23
Exhibit Index 24
2
PART I - FINANCIAL INFORMATION
ITEM 1
NEWSEDGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 13,473 $ 18,320
Restricted cash (Note 2) 375 404
Accounts receivable 17,754 16,645
Due from Office.com (Note 3) - 1,000
Prepaid expenses and deposits 3,706 3,748
--------- ---------
Total current assets 35,308 40,117
--------- ---------
Property and equipment, net 8,461 8,782
--------- ---------
Other assets 346 345
--------- ---------
Total assets $ 44,115 $ 49,244
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,120 $ 5,761
Accrued expenses 10,534 12,900
Deferred revenue, current 24,917 25,837
Current portion of long-term obligations - -
--------- ---------
Total current liabilities 40,571 44,498
--------- ---------
Deferred revenue, noncurrent 47 35
--------- ---------
Stockholders' equity:
Common stock 191 190
Additional paid-in capital 131,716 131,682
Cumulative translation adjustment (149) (104)
Accumulated deficit (125,535) (124,331)
Treasury stock, at cost; 432,000 shares (2,726) (2,726)
--------- ---------
Total stockholders' equity 3,497 4,711
--------- ---------
Total liabilities & stockholders' equity $ 44,115 $ 49,244
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
NEWSEDGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2001 2000
-----------------------
Total revenues $ 17,103 $ 17,329
Costs and expenses:
Cost of revenues 6,382 7,566
Customer support expenses 1,202 1,498
Development expenses 2,312 3,243
Sales and marketing expenses 6,769 9,766
General and administrative expenses 896 2,593
-------- --------
Total costs and expenses 17,561 24,666
-------- --------
Loss from operations (458) (7,337)
Interest income and other, net 233 229
-------- --------
Loss from continuing operations before
provision for income taxes (225) (7,108)
Provision for income taxes 9 24
-------- --------
Net loss from continuing operations (234) (7,132)
Loss from discontinued operations, net - (1,859)
Net gain (loss) on disposal of
Individual.com, Inc (970) 5,494
-------- --------
Income (loss) froms discontinued operations (970) 3,635
-------- --------
Net loss $ (1,204) $ (3,497)
======== ========
Basic and diluted net loss per share
Continuing operations $ (0.01) $ (0.40)
Discontinued operations (0.05) 0.20
-------- --------
Total $ (0.06) $ (0.20)
-------- --------
Weighted average common shares outstanding 18,608 17,684
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
NEWSEDGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
THREE MONTHS ENDED
MARCH 31,
------------------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net loss $ (1,204) $ (3,497)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 883 1,575
(Gain)/Loss on disposal of Individual.com, Inc. 970 (5,494)
Changes in assets and liabilities:
Accounts receivable 1,109 (8,354)
Prepaid expenses and deposits 42 (471)
Accounts payable and accrued expenses (3,007) 4,116
Deferred revenue (920) 7,540
-------- ---------
Net cash used in operating activities (4,345) (4,585)
-------- ---------
Cash flows from investing activities:
Net proceeds from disposal of Individual.com, Inc. - 1,095
Unrecognized portion of deferred gain from disposal of Ind.com, Inc. 30 -
Purchases of property and equipment (562) (867)
Restricted Cash 29 -
Decrease (increase) in other assets (1) -
-------- ---------
Net cash provided by (used in investing activities (504) 228
-------- ---------
Cash flows from financing activities:
Proceeds from issuances related to stock plans, including tax benefits 35 646
Principal payments under capital leases - (122)
Decrease in long-term obligations 12 151
-------- ---------
Net cash provided by financing activities 47 675
-------- ---------
Effect of exchange rate on cash and cash equivalents (45) 77
-------- ---------
Decrease in cash and cash equivalents (4,847) (3,605)
Cash and cash equivalents, beginning of period 18,320 20,278
-------- ---------
Cash and cash equivalents, end of period $ 13,473 $ 16,673
======== =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 7 $ 5
======== =========
Cash paid for interest $ - $ 16
======== =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
NEWSEDGE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF THE BUSINESS
NewsEdge Corporation ("the Company" or "NewsEdge") is a leading provider of
content solutions and electronic publishing technologies for business Web sites
and enterprise Intranets. The Company's mission is to make news and information
valuable for business. NewsEdge services provide access to value- added news
over the Internet or customer intranets. The Company aggregates and adds value
to news and information from over 2,000 sources published by over one hundred
global content providers. This information is customized and filtered so that
users can readily find the most important, relevant stories from the
overwhelming volume of daily news that is available.
NewsEdge Corporation is headquartered in Burlington, Massachusetts, with
sales offices and distributors throughout North America, South America, Europe,
Asia and the Middle East.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements of the Company presented
herein have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto for the year ended
December 31, 2000 included in the Company's Form 10-K. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows of the Company and its subsidiaries.
Quarterly operating results are not necessarily indicative of the results that
would be expected for the full year.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents and Investments
Cash equivalents consist of highly-liquid investments purchased with an
original maturity of three months or less. At March 31, 2001, the Company had
restricted cash of $375,000, which was required under the Company's letter of
credit agreements.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133, as amended by SFAS No. 137 and 138, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The adoption of SFAS No. 133 did not have a material impact on the Company's
consolidated financial statements.
The Securities and Exchange Commission released Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements, on December 3, 1999.
This SAB provides additional guidance on the accounting for revenue recognition,
including both broad conceptual discussions as well as certain industry-specific
guidance. The guidance is effective in the fourth quarter 2000. The adoption of
SAB 101 did not have a material impact on the Company's results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of
Accounting Principles Board ("APB") Opinion No. 25. The interpretation clarifies
the application of APB Opinion No. 25 in certain situations, as defined. The
interpretation is effective July 1, 2000, but covers certain events occurring
during the period after December 15, 1998, but before the effective date. The
adoption of this interpretation did not have any effect on the accompanying
financial statements.
3. DISCONTINUED OPERATIONS
On February 18, 2000, the Company entered into a purchase and sale
agreement with Office.com, Inc. to sell its ownership interest in its wholly
owned subsidiary, Individual.com, Inc. Upon the initial closing, the Company
sold 80% of its ownership interest in Individual.com, Inc. for a purchase price
of $8.0 million payable in installments receivable through December 2000, of
which the Company received $2.5 million in February 2000 and $2.5 million in May
2000. The purchase and sale of the remaining 20% of Individual.com, Inc., was
completed on August 1, 2000, under the terms of an amended agreement, pursuant
to which the Company received payments of $3.0 million in September 2000 and
$1.0 million on December 26, 2000 and was due to receive a final payment of $1.0
million on February 28, 2001.
During 2000, the Company recorded a net gain on the sale of Individual.com,
Inc. totaling approximately $8,314,000. The Company also made payments to retain
the Individual.com workforce, which have been included as a reduction in the
gain on the sale. Office.com, Inc., its parent WinStar New Media Company, Inc.
and its parent WinStar Communications, Inc. each made voluntary filings under
Chapter 11 of the U.S. Bankruptcy Code on April 18, 2001. As a result, in the
first quarter of 2001, the Company reversed $970,000 of the previously
recognized gain on the sale transaction related to the final $1.0 million due
from Office.com as of February 28, 2001.
The Company has presented the operating results of Individual.com, Inc. as
discontinued operations for all periods presented. Included in these results
are revenues from the Individual.com business for the three-month period ending
March 31, 2001 of $0 as compared to $297,000 for the same period in 2000.
7
4. SEGMENT REPORTING
On December 31, 1998, NewsEdge Corporation adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. This
pronouncement established standards for public companies relating to the
reporting of financial and descriptive information about their operating
segments in financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by management in deciding how to allocate resources and in
assessing performance of the business.
The Company evaluates its continuing operations in one product segment:
Enterprise.
The Company pursues the market for content solutions and electronic
publishing technologies through one primary line of business: the Enterprise
business. The Enterprise business uses direct selling and telesales efforts and
targets large organizations, publisher and individual websites. The Enterprise
content solutions deliver news and information to large numbers of users within
organizations through their corporate intranet or local area networks and to
destination websites as a content service for visitors of those sites.
Segment data excludes information pertaining to the discontinued operations
of Individual.com, Inc. (see Note 3).
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance of its segments based on revenues and segment profitability. Segment
profitability is defined by the Company as profit or loss from operations before
income taxes, interest and merger, disposition and other charges. Noncash
expenses included in the segment profitability measure have been detailed
separately in the table below.
Three Months Ended March 31,
2001 2000
---------- ----------
(in thousands)
Revenues:
Enterprise $17,103 $17,329
Other - -
------- -------
Total revenues $17,103 $17,329
======= =======
Loss from continuing operations before mergers,
dispositions and other charges, interest and
income taxes:
Enterprise $ (878) $(7,337)
Other - -
------- -------
$ (878) $(7,337)
======= =======
Noncash expenses by segment:
Enterprise $ 883 $ 1,554
Other - -
8
5. COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, requires that items defined
as other comprehensive income, such as foreign currency translation adjustments,
be separately classified in the financial statements and that the accumulated
balance of other comprehensive income be reported separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The components of comprehensive income for the three months ended March
31, 2001 and 2000 are as follows:
THREE MONTHS ENDED
(in thousands) MARCH 31,
-----------------------------------------
2001 2000
-----------------------------------------
(in thousands)
Comprehensive loss:
Net loss $(1,204) $(3,497)
Other comprehensive income (loss):
Foreign currency adjustment (45) 77
-----------------------------------------
Comprehensive loss $(1,249) $(3,420)
=========================================
6. EARNINGS PER SHARE
In accordance with SFAS No. 128, Earnings per Share, basic and diluted
earnings per share were computed by dividing net loss by the weighted average
number of common shares outstanding during the first three months of 2001 and
2000. Diluted earnings per share excludes shares issuable from the assumed
exercise of 5,689,883 and 3,807,949 of stock options and warrants as of March
31, 2001 and 2000, respectively, as their effect would be antidilutive.
9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
Condition and Results of Operations
Except for the historical information contained herein, this Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding, among other items, (i) NewsEdge's growth strategies; (ii)
anticipated trends in our business; (iii) our ability to expand our service
offerings; and (iv) our ability to satisfy working capital requirements.
NewsEdge makes these forward-looking statements under the provision of the "Safe
Harbor" section of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on our expectations and are subject
to a number of risks and uncertainties, certain of which are beyond our control.
Actual results could differ materially from these forward-looking statements as
a result of a number of factors including, but not limited to, those factors
described in "Certain Factors Affecting Future Operating Results" contained
herein.
Introduction and Overview
NewsEdge Corporation (Nasdaq: NEWZ) is a global provider of syndicated
content services and electronic publishing technologies for business. Our
customers include both content creators, such as information publishers, and the
operators of the world's most active Web sites. We offer technology and services
for customers to create, manage and deploy content for millions of end-users
through Intranets, Web sites, portals, Extranets and distribution channels.
The market for content solutions and electronic publishing technologies is
pursued by us through the sale of our Information Products and Content Solutions
service offerings via our Enterprise business, which uses both a direct and
telesales selling effort. Our Enterprise revenues consist primarily of
subscription fees related to the Enterprise service offerings. Additionally,
Enterprise revenues include royalty revenues generated from content sales billed
directly by third party information providers to customers, revenue generated
from professional consulting services and revenue generated from installations
and related computer hardware sales.
Subscription agreements across all product segments are generally for an
initial term of twelve months, payable in advance, and are automatically
renewable for successive one-year periods unless the customer delivers notice of
termination prior to the expiration date of the then current agreement.
Subscription revenues associated with these agreements are recognized ratably
over the subscription term, beginning upon installation of the service.
Accordingly, a substantial portion of our revenue is recorded as deferred
revenue.
Certain newswires offered by us for use within our services are purchased
by the customer directly from the news provider and payments are made directly
from our customer to the provider. For some of these newswires, we receive
royalty revenue based on payments made by the customer to the news provider. We
recognize the royalty revenue when we receive payment from the news provider.
For the remaining newswires that are resold by us to our customers, we bill the
customer for the newswire directly and then pay a royalty to the news provider.
Such royalty expenses are included in our cost of revenues.
Individual.com, Inc. operated our single-worker news service business unit,
which derived its revenues from targeted advertising and electronic commerce. On
February 18, 2000, we entered into a purchase and sale agreement with
Office.com, Inc., an indirect subsidiary of WinStar Communications, Inc., which
provided for the sale of all the issued and outstanding capital stock of
Individual.com to Office.com. An initial purchase and sale of 4.0 million of the
shares occurred on February 18, 2000. The purchase and sale of the remaining 1.0
million shares, or 20% of Individual.com, occurred on August 1, 2000. Under the
terms of the amended stock purchase agreement, we received installment payments
of $2.5 million in February 2000, $2.5 million in May 2000, $3.0 million in
September 2000 and $1.0 million in December 2000, and were due to receive a
final payment of $1.0 million on February 28, 2001 which has not yet been made.
In the third quarter of 2000, we recorded the remaining $2.0 million gain on the
sale transaction based on the sale of the remaining 20% of Individual.com, Inc.
For the twelve months ended December 31, 2000 we recorded a net gain on the sale
of Individual.com totaling $8.3 million. Concurrently with the execution of the
purchase and sale agreement, we also entered into a facilities services
agreement and a license agreement with Office.com. We also made payments to
retain the Individual.com workforce, which along with other transaction fees,
have been included as a reduction in the gain on the sale. Office.com, its
parent WinStar New Media Company, Inc. and its parent WinStar Communications,
Inc. each made voluntary filings under Chapter 11 of the U.S. Bankruptcy Code on
April 18, 2001. As a result, in the first quarter of 2001, we reversed $970,000
of the previously recognized gain on the sale transaction related to the final
$1.0 million due us from Office.com as of February 28, 2001.
10
On December 7, 1999, we entered into a purchase and sale agreement with
RoweCom, Inc., whereby RoweCom would purchase all of our outstanding shares of
common stock for approximately $227 million. The acquisition was subject to the
approval of the stockholders of both companies. On March 6, 2000, the agreement
was mutually terminated by both parties. For the three months ended March 31,
2000 we incurred costs of $1.4 million comprised of legal, retention and
acquisition related expenses charged to operations. No costs were incurred for
the three months ended March 31, 2001.
In March 2000, the Board of Directors approved, and in early May 2000, we
announced a strategic expansion of our traditional business focus. In order to
capitalize on our media sources, personalization strategy, and international
sales and support infrastructure, we have moved into the content solutions
business marketplace by offering Content Solutions, our competitive content
solution applications for business Web sites and enterprise intranets. We
believe that syndicated content offerings, in addition to providing
infrastructure and solution applications to our clients, will allow us to drive
traffic and commerce on our client's Web sites. For the three months ended
March 31, 2000 we incurred costs of $2.1 million of non-recurring expenses
charged to operations, which relate to our transition to the new strategic
direction. These costs comprise primarily asset write-offs and reserves. No
costs were incurred for the three months ended March 31, 2001.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2001 AS
COMPARED TO THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
REVENUES
Total revenues for the three-month period ended March 31, 2001 decreased
1.3% to $17.1 million compared to $17.3 million for the same period in 2000. The
decrease reflects the highly competitive environment that has been affecting our
enterprise business generally, including renewal rates and new sales orders.
During the first quarter of 2001, we only recognized license revenue resulting
from our license agreement with Office.com which was prepaid through February
18, 2001, the first year of the contract. Although we provided services pursuant
to the second year of this contract, which would have allowed us to recognize an
additional $250,000 of licensing revenue, due to the bankruptcy filings to
Office.com and its parent companies, we did not recognize this additional
revenue.
COST OF REVENUES
Cost of revenues consists primarily of royalties paid to information
providers, payroll and related expense for the editorial and news operations
staff, as well as data transmission and computer-related costs for the support
and delivery of our services. Cost of revenues for the three-month period ended
March 31, 2001 decreased 15.6% to $6.4 million from $7.6 million for the same
period in 2000. As a percentage of total revenues, cost of revenues for the
three-month period ended March 31, 2001 decreased to 37.3% from 43.7% during the
same period in 2000. The decreases were primarily due to the impact of the
higher margin Content Solutions business and a reversal of $456,000 of accrued
royalties which management deemed no longer necessary.
CUSTOMER SUPPORT EXPENSES
Customer support expenses consist primarily of costs associated with
technical support of our installed base of customers. Customer support expenses
for the three-month period ended March 31, 2001 decreased 19.8% to $1.2 million
as compared to $1.5 million for the same period in 2000. As a percentage of
total revenues, customer support expenses for the three-month period ended March
31, 2001 decreased to 7.0% from 8.6% (and from 8.5% when excluding nonrecurring
charges associated with RoweCom and the change in strategic direction) in the
same period in 2000. The decrease in customer support expenses resulted
primarily from lower headcount and related expenses.
11
DEVELOPMENT EXPENSES
Development expenses consist primarily of costs associated with the design,
programming, and testing of our software and services. Development expenses for
the three-month period ended March 31, 2001 decreased 28.7% to $2.3 million as
compared to $3.2 million for the same period in 2000. The decrease was
primarily due to the absence this year of $600,000 of expenses, which
represented a write-off of a software asset in the year ago quarter, related to
our new strategic direction during 2000, and the remaining $300,000 was due to
lower headcount and related expenses in 2001. As a percentage of total revenues,
development expenses for the three-month period ended March 31, 2001 decreased
to 13.5% from 18.7% (and from 15.2% when excluding nonrecurring charges
associated with RoweCom and the change in strategic direction) in the same
period in 2000.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of compensation costs
(including sales commissions and bonuses), travel expenses, trade shows and
other marketing programs. Sales and marketing expenses for the three-month
period ended March 31, 2001 decreased 30.7% to $6.8 million as compared to $9.8
million for the same period in 2000. The decrease was comprised of $1.0
million of expenses in 2000 related to the non-recurring charges for
transitioning us to our new strategic direction, which included $400,000 for a
reserve for bad debts. The remaining $2.0 million of the decrease in sales and
marketing expenses was primarily due to lower investments and spending in
domestic and international sales force and sales management, lower headcount and
related payroll expenses, and less events and direct mail campaign costs in
2001. These expense reductions were part of a concerted and ongoing effort by
us to reduce our operating expenses in line with new business levels and to
achieve our goal of profitability. As a percentage of total revenues, sales and
marketing expenses for the three-month period ended March 31, 2001 decreased to
39.6% from 56.4% (and from 50.8% when excluding nonrecurring charges associated
with RoweCom and the change in strategic direction) in the same period in 2000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of expenses for
finance, office operations, administration and general management activities,
including legal, accounting and other professional fees. General and
administrative expenses for the three-month period ended March 31, 2001
decreased 65.4% to $0.9 million as compared to $2.6 million for the same period
in 2000. The decrease was primarily a result of costs related to the terminated
merger agreement with RoweCom amounting to $1.4 million and approximately $0.5
million of expenses related to the nonrecurring charge for transitioning us to
our new strategic direction in 2000. Excluding these nonrecurring charges,
general and administrative expenses for the first quarter of 2001 were
approximately $100,000 higher than the first quarter of 2000 due to higher legal
and investor relations costs. As a percentage of total revenues, general and
administrative expenses for the three-month period ended March 31, 2001
decreased to 5.2% from 15.0% (and increased from the 4.4% excluding nonrecurring
charges associated with RoweCom and the change in strategic direction) in the
same period in 2000.
LOSS FROM OPERATIONS
Operating loss for the quarter ended March 31, 2001 was $458,000 compared
to a loss of $7.3 million for the same period in 2000. Included in the loss from
operations during the first quarter of 2001 were the reversals of $456,000 and
$63,000 in accrued royalty expenses and accrued strategy change expenses,
respectively, no longer needed. Excluding all nonrecurring items in the first
quarter of 2001, the loss from operations would have been $977,000. This
compares to a $3.9 million loss in the first quarter of 2000 excluding all
nonrecurring charges. The $2.9 million decrease in operating loss for the first
quarter of 2001 compared to the first quarter of 2000 (excluding nonrecurring
items in both periods) is due to our continued cost reduction efforts that began
as part of our transition to the Content Solutions strategy as well as the
improved gross margin from our Content Solutions business.
12
INTEREST INCOME AND OTHER, NET
Interest income and other, net for the three-month period ended March 31,
2001 increased slightly to $233,000 from $229,000 for the same period in 2000.
The increase is due to a reduction in interest income associated with lower cash
and investment balances more than offset by interest earned on an office space
security deposit.
PROVISION FOR INCOME TAXES
The provision for income taxes for the three-month period ended March 31,
2001 decreased to $9,000 from $24,000 for the same period in 2000. Components of
the provisions include state taxes due in states that do not have net operating
loss carry-forwards available, foreign tax liabilities and the alternative
minimum tax due under the Internal Revenue Code of 1986, as amended. We have not
recorded a deferred tax benefit in the periods presented for the potential
future benefit of our tax loss carry-forwards as we have concluded that it is
not likely such deferred tax asset would be realized.
DISCONTINUED OPERATIONS
In February 2000, our Board of Directors decided to sell its ownership
interest in Indivdiual.com, Inc., due to the lack of growth in revenue, increase
in expenses and ongoing funding. We have reported the historical operating
results of its Individual.com business segment as discontinued operations.
Revenues from the discontinued operations for the three-month period ending
March 31, 2001 were $0 as compared to $297,000 (for January 1, 2000 to the
February 18, 2000 disposal date) for the same period in 2000. Expenses from
discontinued operations for the three-month period ended March 31, 2001, were $0
and $2.2 million (for January 1, 2000 to the February 18, 2000 sale date to
Office.com) for the same period in 2000. Office.com, its parent WinStar New
Media Company, Inc. and its parent WinStar Communications, Inc. each made
voluntary filings under Chapter 11 of the U.S. Bankruptcy Code on April 18,
2001. As a result, in the first quarter of 2001, we reversed $970,000 of
previously recognized gain on the sale transaction related to the final $1.0
million due to us from Office.com as of February 28, 2001. See Note 3 in the
accompanying Notes to Condensed Consolidated Financial Statements.
NET LOSS FROM CONTINUING OPERATIONS
The net loss for the three-month period ended March 31, 2001 was $234,000,
or $0.01 per share, which compares favorably to a net loss of $7.1 million, or
$0.40 per share during the same period in 2000. Excluding all nonrecurring
items, which include the reversals of $456,000 and $63,000 of accrued royalty
reserves and strategy change reserves, respectively, no longer needed, the loss
from continuing operations was $753,000 or $0.04 per share. The first quarter
of 2000 also included two nonrecurring charges totaling $3.5 million: $1.4
million relating to retention payments, transaction costs, and expenses incurred
as part of the termination of the RoweCom, Inc. acquisition, and $2.1 million
relating to asset write-offs and reserves associated with costs incurred in
transitioning to the new strategy. Excluding these items, the first quarter of
2000 would have resulted in a loss from continuing operations of $3.6 million,
or $0.20 per share.
NET LOSS
The net loss for the three months ended March 31, 2001 was $1.2 million, or
$0.05 per share, which compares favorably to a net loss of $3.5 million or $0.20
per share during the same period in 2000. The net loss for the first quarter of
2001 includes a $970,000 reversal of the previously recognized net gain relating
to the sale of the remaining 20% of Individual.com. Excluding all nonrecurring
items, which include the reversals of $456,000 and $63,000 of accrued royalty
reserves and strategy change reserves, respectively, no longer needed, the net
loss was $753,000, or $0.04 per share, compared to $3.7 million, or $0.20 per
share, in 2000 which includes the total nonrecurring charges of $3.5 million.
The decrease in net loss was due to lower expenses primarily within sales and
marketing and cost of revenues.
13
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents totaled $13.8 million at March 31, 2001, as
compared to $18.7 million at December 31, 2000, a decrease of $4.9 million.
Our operations used $4.3 million of cash in the three months ended March
31, 2001 which accounted for the majority of the decrease for the period. The
use of cash in operations primarily reflects the $234,000 loss from continuing
operations and the $970,000 write off related to the final payment due from the
previously recognized gain on the sale of Individual.com to Office.com. In
addition, accounts payable and accrued expenses used $3.0 million of cash
primarily due to the expected seasonal payments to certain vendors and post
year-end close payments on variable compensation for sales commissions, employee
bonuses, etc. Our investing activities used $504,000 of cash primarily due to
capital expenditures. Our financing activities provided $47,000 primarily from
purchases of stock under our employee stock purchase plan.
In connection with the sale of Individual.com, Inc., we are currently in
the process of negotiating payment terms with Office.com for the final $1
million payment contractually owed by February 2001. Office.com, its parent
WinStar New Media Company, Inc. and its parent WinStar Communications, Inc. each
made a filing under Chapter 11 of the U.S. Bankruptcy Code on April 18, 2001.
We continue to investigate the possibility of investments in or
acquisitions of complementary businesses, services or technologies, although we
have not entered into any commitments or negotiations with respect to any such
transactions.
We believe that our current cash and cash equivalents and the continued
impact of expense reduction programs will be sufficient to satisfy working
capital and capital expenditure requirements for at least the next twelve
months.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below before deciding to invest in
shares of our common stock. The trading price of our common stock could decline
due to any of these risks, in which case you could lose all or part of your
investment. In assessing these risks, you should also refer to the other
information in this and our other public filings, including our financial
statements and the related notes.
We may not be able to manage our growth or hire and retain additional
personnel, which could affect our operating results.
We have experienced growth in our content solutions and electronic
publishing technology revenues and expansion of our operations, which have
placed significant demands on our management, development, sales and
customer support staff. Continued growth will require us to hire and retain
more development, selling and customer support personnel. We have at times
experienced difficulty in recruiting and retaining qualified personnel.
Recruiting and retaining qualified personnel is an intensely competitive
and time-consuming process. We may not be able to attract and retain the
necessary personnel to accomplish our growth strategies. Continued
difficulties with the recruiting and retention of personnel could adversely
affect our ability to satisfy customer demand in a timely fashion or to
satisfactorily support our customers and operations, which could in turn,
materially adversely affect our business, operating results and financial
condition.
14
Our quarterly financial results may be volatile and could cause our stock price
to fluctuate.
Our quarterly operating results may fluctuate significantly in the future
depending on factors such as:
. demand for our services;
. changes in service mix;
. the size, timing and renewal of contracts with corporate
customers, value added resellers, and channel partners and
content providers;
. the effects of new service announcements by us or our
competitors;
. the performance of our technology;
. our ability to develop, market and introduce new and enhanced
versions of our services on a timely basis; and
. the level of product and price competition.
A substantial portion of our costs of revenue, consisting principally of
fees payable to information providers, communications costs and personnel
expenses, is relatively fixed in nature. Our operating expense levels are based,
in significant part, on their expectations of future revenue. If quarterly
revenues are below management's expectations, results of operations would be
adversely affected because a relatively small amount of our costs and expenses
will vary with our revenues.
If we are unable to continue to expand our sales and marketing efforts the
expansion of our business will be impeded.
Our ability to increase revenues will depend upon our ability to expand our
sales force, increase sales to new customers, penetrate into our existing
customer base, and successfully continue to implement our plans to provide
digital content solutions to business web-sites and electronic publishing
technology to publishers. In addition, as of March 31, 2001, we had an
accumulated deficit of approximately $126 million. The time required for us to
reach profitability is highly uncertain and we may not be able to achieve
profitability on a sustained basis, if at all. As a result, it is possible that
in some future quarter our operating results will be below the expectations of
public market analysts and investors. In such event, the price of our common
stock would likely be materially adversely affected. Although we experienced
growth in revenues in recent years within our Content Solutions business, we may
not sustain revenue growth in the future or be profitable on a quarterly or
annual basis.
Our Content Solutions operating history is limited and may not meet
expectations.
Because we commenced our strategic expansion into our Content Solutions
line of business in May 2000, we have limited financial and operating data and a
limited operating history relevant to this business. Accordingly, it is
difficult to evaluate the prospects of these businesses. Our business models are
unproven, which creates a risk that its performance will not meet the
expectations of investors and that the value of our common stock will decline.
Our strategy is dependent on continued growth in use of the Internet for the
delivery of information and if Internet growth does not continue, our business
will suffer.
We distribute certain services across multiple delivery platforms,
including the Internet, private networks based on Lotus Notes and other
groupware products and electronic mail. Because we recently expanded our
strategic focus to target operators of commercial Web sites and publishers,
demand for our services will depend in large part on continued growth in the use
of the Internet and the success of the commercial Web site and publishers we
target. There are critical issues concerning the commercial use of the Internet
that remain unresolved. As a result, communication or commerce over the Internet
may not continue to develop at historical rates and extensive content may not
continue to be provided over the
15
Internet. The Internet may not prove to be a viable commercial marketplace for a
number of reasons, including:
. potentially inadequate development of the necessary infrastructure;
. timely development and commercialization of performance improvements;
and
. delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity.
If the necessary infrastructure or complementary services necessary to make
the Internet a viable commercial marketplace are not developed, or if the
Internet does not become a viable commercial marketplace, our business, results
of operations, and financial condition could be materially adversely affected.
Legal uncertainties and governmental regulation of the Internet could inhibit
growth of the Internet and E-Commerce and adversely affect our business.
Many legal questions relating to the Internet remain unsettled and these
areas of uncertainty may be resolved in ways that damage our business. It may
take years to determine whether and how existing laws governing matters such as
intellectual property, privacy, libel and taxation apply to the Internet. In
addition, new laws and regulations that address issues such as user privacy,
commerce, advertising and the characteristics of and quality of products or
services are becoming more prevalent. As use of the Internet and the prevalence
of e-Commerce grow, there may be calls for further regulation such as more
stringent consumer protection laws. Regulators also continue to evaluate the
best telecommunications policy regarding the transmission of Internet traffic.
In addition, our distribution arrangements and customer contracts could subject
us to the laws of foreign jurisdictions, which may have unpredictable adverse
affects on our business. These possibilities could affect us adversely in a
number of ways:
. new regulation could make the Internet less attractive to users,
resulting in slower growth in its use and acceptance than we expect;
. complying with new regulations could result in additional costs, which
could reduce our margins, or could leave us at risk of potentially
costly legal action; and
. we may be affected indirectly by legislation that fundamentally alters
the practicality or cost-effectiveness of utilizing the Internet,
including the cost of transmitting over various forms of network
architecture, such as telephone networks or cable systems, or the
imposition of various forms of taxation on Internet-related
activities.
We face intense competition that could impede our ability to grow and achieve
profitability.
The business information services industry is intensely competitive and is
characterized by rapid technological change and entry into the field by
extremely large and well-capitalized companies.
We compete or may compete directly or indirectly with the following
categories of companies:
. large, well-established news and information providers such as Dow
Jones, Lexis/Nexis, Pearson, and Thomson;
. Content providers such as Screaming-Media.com, Inc., iSyndicate,
Yellowbrix and WAVO;
. market data services companies such as ADP, Bloomberg and Bridge;
. traditional print media companies that are increasingly searching for
opportunities for on-line provision of news, including through the
establishment of web sites on the Internet;
16
. large providers of LAN-based software systems such as Lotus/IBM and
Microsoft, which could, in the future, ally with competing news and
information providers;
. companies that create and sell software that enables their customers
to aggregate and distribute digital content and/or to integrate
digital content from external sources into their web platforms; and
. to a lesser degree, consumer-oriented, advertising-subsidized Web-
based services and Internet access providers.
Many of the market participants named above have substantially greater
financial, technical and marketing resources than we do.
Increased competition, on the basis of price, delivery systems or
otherwise, may require us to implement price reductions or increase our spending
on marketing or software development, which could have a material adverse effect
on our business and results of operations.
Acquisitions pose significant risks and we may not be able to integrate
acquisitions in a timely and cost efficient manner.
Management may from time to time consider acquisitions of assets or
businesses that it believes may enable us to obtain complementary skills and
capabilities, offer new services, expand our customer base or obtain other
competitive advantages. Such acquisitions involve potential risks, including:
. difficulties in assimilating the acquired company's operations,
technology, services and personnel;
. difficulty in completing and integrating acquired in-process
technology;
. the diversion of management's resources;
. uncertainties associated with operating in new markets and working
with new employees and customers; and
. the potential loss of the acquired company's key employees.
We are dependent on cooperative marketing arrangements with some of our
competitors the loss of which could have a material adverse effect on our
business.
We have entered into certain cooperative marketing agreements and informal
arrangements with software vendors, web site sponsors and operators of online
services, including Microsoft, Netscape, Yahoo! and Dow Jones. These companies
presently market services that compete directly with our services. If our
relationships with these companies were terminated, curtailed, or otherwise
modified, we may not be able to replicate these marketing activities alone or
with others. If these companies were to develop and market their own business
information services or those of our competitors, our business and results of
operations and financial condition may be materially and adversely affected.
Losing major news providers may leave us with insufficient breadth of content to
retain and attract customers.
A significant percentage of our customers subscribe to services provided by
one or more of Press Association Inc., a subsidiary of The Associated Press, Dow
Jones, The Financial Times and Thompson. Our agreements with news providers are
generally for terms of one to three years, with automatic renewal unless notice
of termination is provided before the end of the term by either party. These
agreements may also be terminated by the provider if we fail to fulfill our
obligations under the agreement. Many of these news and information providers
compete with one another and, to some extent, with us. Termination of one or
more significant news provider agreements would decrease the news and
information which we can offer our customers and could have a material adverse
effect on our business, results of operations and financial
17
condition. Also, an increase in the fees paid to our information providers would
have an adverse effect on our gross margins and results of operations.
We are dependent on certain news transmission sources and application service
providers the loss of which could have a material adverse affect on our
business.
Our news and information for certain of the NewsEdge services is
transmitted using one or more of four methods: leased telephone lines,
satellites, FM radio transmission or the Internet. None of these methods of news
and information transmission is within our control, and the loss or significant
disruption of any of them could have a material adverse effect on our business.
Many newswire providers have established their own broadcast communications
networks using one or more of these four vehicles. In these cases, our role is
to arrange communications between the news provider and the NewsEdge customer's
server. For sources which do not have their own broadcast communications
capability, news and information is delivered to our news consolidation
facility, where it is reformatted for broadcast to NewsEdge servers and
retransmitted to customers through one of three methods:
. utilizing our arrangement with Cidera, Inc., a common carrier
communications vendor;
. utilizing our arrangement with eLogic Corporation, which develops and
licenses certain software for our use and acts as an application
service provider in connection with the delivery of our Content
Solutions service; or
. utilizing our own NewsEdge Network, a proprietary entitlement and
delivery system launched in the fall of 1998 that takes advantage of
both leased line and Internet delivery.
Our agreement with Cidera expires on December 31, 2002. This agreement can
be terminated earlier in the event of a material breach by us of the agreement.
Our arrangement with eLogic is set out in a binding term sheet, has an initial
term that expires in January 2002 and is renewable by us for additional one year
periods. If either of our agreements with Cidera or eLogic were terminated on
short notice, or if Cidera or eLogic were to encounter technical or financial
difficulties adversely affecting their ability to continue to perform under
their agreements or otherwise, our business could be materially and adversely
affected. We believe that if Cidera or eLogic were unable to fulfill their
obligations, other sources of retransmission would be available to us including
the NewsEdge Network, although the transition from Cidera or eLogic to those
sources could result in delays or interruptions of service that could have a
material adverse affect on our business, results of operations and financial
condition. WAVO, our previous common carrier communications vendor which
assigned its obligations to Cidera, did experience technical difficulties in May
1998 due to the disablement of the PanAmSat Galaxy IV satellite. This
disablement caused an interruption in the delivery of news services to between
one-third and one-half of our customers. The interruption was resolved in
approximately ten days and did not have a material impact on our financial
results. If our computer or telecommunications systems fail or prove inadequate
there could be a material adverse affect on our business.
If our computer or telecommunications systems fail or prove inadequate
there could be a material adverse affect on our business.
Our operations are dependent on our ability to maintain our computer and
telecommunications systems in effective working order. These systems and
operations are vulnerable to damage or interruption from human error, natural
disasters, telecommunications failures, break-ins, sabotage, computer viruses,
intentional acts of vandalism and similar events. Although we have limited back-
up capability, this measure does not eliminate the significant risk to our
operations from a natural disaster or system failure at our principal site. In
addition, any failure or delay in the timely transmission or receipt of news
feeds and computer downloads from our information providers, due to system
failure of the information providers, the public network or otherwise, could
disrupt our operations. Our insurance policies may not adequately compensate us
for any losses that we may incur because of any failures in our system or
interruptions in delivery of content. Our business, results of operations and
financial condition could be materially adversely affected by any event, damage
or failure that interrupts or delays our operations.
18
The termination of our relationship with eLogic Corporation could have a
material adverse affect on our business.
eLogic Corporation develops and licenses certain software which enables us
to deliver our Content Solutions to our customers. eLogic also acts as an
application service provider in connection with the delivery of our Content
Solutions service. Our arrangement with eLogic is set out in a binding term
sheet, has an initial term that expires in January 2002 and is renewable by us
for additional one year periods. Should eLogic terminate our license to its
software or cease its role as an application service provider for our benefit,
our business, results of operations and financial condition could be materially
adversely affected.
We must keep pace with rapid technological change or business will be adversely
affected.
We may be unable to develop our technology quickly enough to support demand
or changes in technology.
The business information services, software and communications industries
are subject to rapid technological change, which may render existing services
obsolete or require significant unanticipated investments in research and
development. Our future success will depend, in part, upon our ability to
enhance our service offerings and keep pace with technological developments. Our
future success will depend on our ability to enhance existing services, to
develop new services that address the needs of our customers and to respond to
technological advances and emerging industry standards and practices, on a
timely basis. Services as complex as those offered by us entail significant
technical risks, often encounter development delays and may result in service
failures when first introduced or as new versions are released. Any such delays
in development or failures that occur after commercial introduction of new or
enhanced services may result in loss of or delay in market acceptance, which
could have a material adverse effect upon our business, results of operations
and financial condition.
Failure to protect our proprietary rights and intellectual property could
dramatically affect our ability to operate.
We are heavily dependent upon proprietary technology. In addition, we rely
on a combination of trade secret, copyright, patent and trademark laws and non-
disclosure agreements to protect our proprietary rights in our software and
technology. These measures may not be adequate to protect our proprietary
technology. In addition, our competitors may independently develop technologies
that are substantially equivalent or superior to our technologies or services.
We licensed proprietary filtering software, which is used as the filtering
engine within our news Refinery, from each of Sovereign Hill Software, Inc. and
Cornell Research Foundation, Inc. Under the terms of the license agreement with
Sovereign Hill, we have a non-exclusive, worldwide license to use Sovereign
Hill's InQuery retrieval system software until we terminate the license
agreement. Sovereign Hill may also terminate the license agreement if we have
materially breached the agreement and such breach remains uncured for 90 days
after written notice. Under the terms of the license agreement with Cornell, we
had exclusive worldwide rights until February 1999 to design, develop, market,
and sell systems and services based on its SMART software for the retrieval and
dissemination of data from recent and continually changing data sources.
Provided that we do not default on the Cornell license agreement, we will retain
a continuing worldwide, non- exclusive, perpetual royalty-free right to use the
SMART software. We also own and will continue to own, all enhancements to the
SMART software that we have developed. Cornell may, however, have licensed the
SMART software to a third party, including one of our competitors or may do so
in the future.
Potential litigation of third party claims concerning the infringement of
proprietary right could prove costly and time consuming.
There has been substantial litigation in the information services industry
involving intellectual property rights. Although we believe that we are not
infringing the intellectual property rights of others, if such claims were
asserted, they may have a material adverse effect on our business, results of
operations, and financial condition. In addition, inasmuch as we license the
informational content that is included in its services from third parties, our
exposure to copyright infringement actions may increase because we must
19
rely upon third parties for information as to the origin and ownership of our
licensed content. Although we generally obtain representations as to the origins
and ownership of our licensed informational content and generally obtain
indemnification to cover any breach of any such representations, such
representations may not be accurate and indemnification may not adequate
compensation for any breach of such representations. In the future, litigation
may be necessary to enforce and protect our trade secrets, copyrights and other
intellectual property rights. We may also be subject to litigation to defend
against claimed infringement of the rights of others or to determine the scope
and validity of the intellectual property rights of others. Any such litigation
would be costly and divert management's attention, either of which would have a
material adverse effect on our business, results of operations, and financial
condition. Adverse determinations in such litigation could result in the loss of
our proprietary rights, subject us to significant liabilities, require us to
seek licenses from third parties, and prevent us from selling our services, any
one of which could have a material adverse effect on our business, results of
operations, and financial condition.
If we distribute content to unauthorized recipients, we may have to pay damages
to our content providers.
We may be subject to claims for defamation, libel, copyright or trademark
infringement or based on other theories relating to the information it publishes
through its services. These types of claims have been brought, sometimes
successfully, against online services as well as print publications in the past.
Our insurance may not adequately protect it against these claims. In addition,
NewsEdge's proprietary software technologies enable us to deliver content
received from participating content providers only to customers who have been
authorized to access that content. We might inadvertently distribute content to
a customer who is not authorized to receive it, which could subject it to a
claim for damages from the information provider or harm to its reputation in the
market place.
If we are unable to maintain our reputation and expand our name recognition, we
may have difficulty attracting new business and retaining current customers and
employees, and our business may suffer.
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and retaining customers and employees.
We also believe that the importance of reputation and name recognition is
increasing and will continue to increase due to the growing number of providers
of Internet services. If our reputation is damaged or if potential customers are
not familiar with us, we may be unable to attract new, or retain existing,
customers and employees. Promotion and enhancement of our name will depend
largely on its success in continuing to provide effective services. If customers
do not perceive our services to be effective or of high quality, our brand name
and reputation will suffer.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, ("FASB"), issued
SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133, as amended by SFAS No. 137 and 138, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS No. 133 did not have a material impact on our consolidated financial
statements.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of
Accounting Principles Board ("APB") Opinion No. 25. The interpretation clarifies
the application of APB Opinion No. 25 in certain situations, as defined. The
interpretation is effective July 1, 2000, but covers certain events occurring
during the period after December 15, 1998, but before the effective date. The
adoption of this interpretation did not have any effect on the accompanying
financial statements.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates and foreign currency exchange rates. As of
March 31, 2001, we did not use derivative financial instruments for speculative,
hedging or trading purposes.
Interest Rate Risk
We maintain a short-term investment portfolio consisting of U.S. treasury
notes, U.S. Government agencies and corporate bonds. These held-to-maturity
securities are subject to interest rate risk and will fall in value if market
interest rates increase. We have the ability to hold its fixed income
investments until maturity, and therefore would not expect our operating results
or cash flows to be affected to any significant degree by the effect of a sudden
change in market interest rates on our securities portfolio.
Foreign Currency Exchange Risk
As a global concern, we face exposure to adverse movements in foreign
currency exchange rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on our financial
results. Historically, our primary exposures have been related to nondollar-
denominated operating expenses in Canada. The majority of our sales are
denominated in U.S. dollars. We have not determined what impact, if any, the
introduction of the Euro will have on our foreign exchange exposure. We are
prepared to hedge against fluctuations in the Euro if this exposure becomes
material. As of March 31, 2001, the assets and liabilities related to nondollar-
denominated currencies was not material.
21
NEWSEDGE CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K.
6(a) Exhibits.
10.1 Form of Employment Agreement between NewsEdge Corporation and
Clifford Pollan, Ronald Benanto, Charles White, Alton Zink,
Thomas Karanian and David Scott.
6(b) REPORTS ON FORM 8-K
None
22
NEWSEDGE CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
NEWSEDGE CORPORATION
(Registrant)
Date: May 15, 2001 /s/ Ronald Benanto
--------------------------------
Ronald Benanto
Vice President - Finance and CFO
23
NEWSEDGE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Form of Employment Agreement between NewsEdge Corporation and
Clifford Pollan, Ronald Benanto, Charles White, Alton Zink,
Thomas Karanian and David Scott.
24