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, 2000; 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 25, 2000, the aggregate market value of the common
stock held by non-affiliates of the Registrant (based upon the
average bid and asked prices of the common stock as reported by the
National Association of Securities Dealers Inc. through its
Electronic OTC Bulletin Board) was approximately $ 18,421,000.
As of September 25, 2000, 9,968,237 shares of the Common Stock of
the Registrant were outstanding.
<PAGE>
PART I
Item 1. Business
Comtex News Network ("COMTEX" or the "Company") was
incorporated in New York in 1980.
Overview
COMTEX is a leading and dynamic business-to-business
"Infomediary" that aggregates and redistributes diverse real-time
global news and information for the Internet, Wall Street and
corporate reseller markets. COMTEX delivers aggregated content
from approximately 10,000 global sources representing a network of
over 50 real-time information providers to Web sites and other
online, wireless and electronic information services in its
distribution network. The Company's distribution network consists
of more than 750 Web sites and information services creating a
potential audience of millions of end users. COMTEX generates its
revenues from licensing content and processing services.
The licensing and use of COMTEX' aggregated news service
provides distribution partners with substantial benefits.
Distribution partners' reliance on, and use of, outsourced COMTEX
aggregated news feeds and services enables them to focus on their
core competencies as well as bring news products to market more
quickly and less expensively.
The real-time nature of the content, as well as its breadth
and depth of coverage, provide the critical element in developing
and maintaining a compelling user experience on the distribution
partners' sites and services. COMTEX' content plays a crucial role
for these distribution partners by aiding in attraction and
retention of customers to their services. This in turn drives
their revenue models whether they be subscription, advertising or
commerce based models.
Additional advantages are afforded to COMTEX' distribution
partners. The integration of content on the distributors' sites
and services requires only one contractual relationship to manage
and one technical format to address. In addition, licensing
content by topical or geographical area is more cost effective for
the distributor since they only pay for and manage the content
they need.
COMTEX' publisher partners provide the content for COMTEX'
products and contain late-breaking U.S. and international news and
events, worldwide economic news and indices, news and information
on both public and private companies, and up-to-the-minute sports
and entertainment news from around the world.
<PAGE>
COMTEX currently aggregates over 50 real-time news publishers
providing content from over 10,000 global sources. Real-time
denotes the electronic transmission of breaking news stories while
events are actually happening and, in most cases, before the
story's appearance in print and television media. Using
proprietary automated technology, COMTEX re-packages these wires
into topical wires called CustomWires (see Product and Service
Offerings below). Distributor partners choose those CustomWires
which best match their applications and end-users' needs.
CustomWires include topics such as business, finance,
environment, healthcare, public companies and energy and can
include stories from any or all of COMTEX' publishers. Content can
also be packaged by publisher or by more than 10 geographical
regions.
Likewise, COMTEX' network of over 350 distributors, with over
750 distribution points, plays a critical role and creates an
attractive business proposition for its network of content
partners. Through the Company's network of distributors, its
content partners gain rapid access to new markets, reaching
potentially millions of end-users, new revenue streams and brand
exposure while focusing corporate resources on quality content
generation.
COMTEX' relationships with, and ever increasing offerings of,
its content partners allows it to be the one-stop solution for the
Company's distribution partners. Publishers of real-time news only
cover their own editorial perspective and specific area of
coverage or expertise. COMTEX brings together these disparate
sources in a real-time, value-added and single feed and format
source. Distributors are able to deliver better products,
significantly faster and more cost effectively due to COMTEX'
expertise as an infomediary.
A significant portion of the content COMTEX aggregates
focuses on business and financial news, both domestic and
international. This news content is a critical factor in business
and investment decisions since it is updated and distributed in
real-time throughout the day.
Distributor information services must provide, in a timely
fashion, the broadest coverage possible to be competitive in this
web-enabled information age. Further, the content they offer to
their constituencies must be relevant and pertinent to the
critical decisions that are driving their users. With the breadth
and depth of real-time news that COMTEX can deliver via its
aggregated and topical news feeds, information services keep their
sites and services competitive.
Distribution Partners
Contracts with COMTEX' distribution partners generally and
historically have a term of one to three years. Revenues consist
of fixed fees, monthly royalty minimums and royalties, usually
based on the success of the distributor's revenue model.
<PAGE>
On the Internet, COMTEX' distribution partners include Big
Charts, CBS Marketwatch, CompuServe, CNN Interactive, InfoSpace,
Internet.com, Microstrategy, Motley Fool, Office.com, OneSource,
PC Quote.com, Phone.com, Powerize.com, StockPoint, Thomson
Financial, VerticalNet, Zacks and more. Other corporate
distribution partners include Dialog Corporation, NewsEdge,
Reuters Business Briefs, and WAVO. Wall Street distributors
include information services such as AT Financial, Bloomberg,
Bridge Information Services, ILX and Track Data.
Content Partners
The contracts with COMTEX' content partners include the right
to license re-sellers and other information distributors. This
negotiated right is a significant asset and competitive advantage
since it allows COMTEX to generate revenue based on the end-user
reach and business models of the Company's distributor partners.
In addition, it leverages marketing expenditures and investments
made by COMTEX' distributor partners. Costs associated with these
licenses include fixed fees, monthly minimums and/or royalties
based on COMTEX' information services revenue and the content
partners' participation in the distributed products.
Current providers include publishers such as: The Associated
Press, Business Wire, CMP Media, EDGAR Online, Knight-Ridder,
Nelson Information, Newsbytes News Network, ON24, Phillips
Publishing Inc., PR Newswire, The Sports Network, Theatre.com and
United Press International. COMTEX also has agreements with a
significant number of internationally based news agencies
including AllAfrica, Inc., Asia Pulse, Canada Newswire, ITAR/TASS
News Agency, Kyodo News International (through Associated Press),
M2 Communications, South American Business Information and Xinhua.
Technology
COMTEX' real-time processing system is an integration of
proprietary technology and industry proven technology. Utilizing
COMTEX' experience in managing and processing real-time news
feeds, the Company has designed proprietary processes to maximize
the content value-adds, reliability, packaging and flexibility.
COMTEX' systems can manage more than 100,000 stories per day from
real-time information sources, categorize each story, index by
ticker symbol and other keywords, and deliver only the stories
licensed to each distributor. In addition, the processing system
provides for the creation of new products and value-adds without
significant additional production or processing resources or
expense. Thus, the Company can create new products from existing
content sources for minimal additional investment or cost.
<PAGE>
The method for processing and converting the real-time news
feeds into COMTEX' value-added format relies heavily on computer
technology and data management software, in which COMTEX has
invested and will continue to invest to upgrade and enhance. As
electronic submissions of news and information are received,
COMTEX' computers convert each story into a common data format,
apply standardized document coding, 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. While COMTEX' editorial and product development
staffs monitor and edit the electronic processing and
categorization systems, content is processed and distributed
automatically without human intervention.
COMTEX delivers its information products primarily via the
Internet.
Business Model
COMTEX' revenue is primarily derived from charges to
distributors for the licensing of content, including CustomWires,
Newsroom products, and/or the publishers' full wire. The
distributor licenses are typically multi-year and 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 COMTEX.
The Company also derives data communications revenue for charges
to distributors for the actual delivery of the Company's 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 COMTEX process their proprietary content for them so that it
is in the COMTEX format. Processing fees may include initial
implementation fees, monthly minimums and a percentage of the
royalties earned by the licensor of the content. Likewise several
content providers have contracted to deliver their content through
COMTEX' processing system to take advantage of COMTEX' 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.
Customers, Sales and Marketing
COMTEX' customers consist of online and internet services and
information distributors who create products and services in
conjunction with COMTEX' products and in turn sell to their
customers: end-user markets and corporations, who use the combined
services for market research, business intelligence, investment
analysis and entertainment. Electronic news and information
distributors 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.
<PAGE>
COMTEX' marketing strategy is to provide the content
infrastructure to information services, who in turn spend
marketing dollars to attract end-users to their services and
product offerings. In this way, COMTEX leverages the marketing
investment of its customers to attract and assemble a broad user
base for the Company's content offerings. The Company's licensing
agreements provide for fees and minimum royalties as well as
variable royalties based on the success of its distribution
customers' individual business models.
COMTEX' sales force is organized around 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. The Company's total
compensation plan is consistent with industry compensation
practices.
Product and Service Offerings
The core products currently supported by COMTEX' technical
and customer service departments include a series of topic-defined
news products marketed under the brand name "CustomWires". COMTEX
also supports production of original news products under the brand
name "COMTEX Newsroom".
CustomWires are topic-defined newswires that contain only the
topic-relevant stories from more than 10,000 global news sources
distributed by COMTEX representing more than 50 publishing
alliances. Stories are selected by automated editorial software
according to the significance of the story's content relative to
specific CustomWires topics. COMTEX offers fourteen topics under
the CustomWires brand name: Business, Community, Energy,
Environment, Finance, Foreign Business, Government, Healthcare,
High Technology, International, Public Companies, Sports, Wall
Street and World Affairs and an additional eleven geographical
CustomWires focusing on specific international regions.
COMTEX Newsroom product line includes editorially enhanced
news products known as Top Headlines, Front Page, Financial Update
and Industry Update. Each of these products is delivered as
headlines, summaries, or full stories, depending on customer
requirements.
Top Headlines is an editorial service that selects up to ten
of the most significant news stories of the day in each of eleven
topic-based CustomWires and are delivered five times every
weekday. The Top Headlines categories are: Business, Community,
Energy, Entertainment, Environment, Finance, Government,
Healthcare, High Technology, International and Sports.
Front Page is designed to reflect the front page of major
U.S. national newspapers. COMTEX' editors select the day's top
ten news stories highlighting key global news and deliver five
times every weekday.
<PAGE>
Financial Update keeps businesses informed of the financial
market. COMTEX editors deliver the most relevant and pertinent
financial information from leading financial information sources
twice every weekday. COMTEX' editors provide the basic overview,
productivity and analysis for the International and US stock
markets and the global bond and fund market 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 Update affords leading decision makers timely and
competitive information needed to remain leaders within their
specific industry. A list of the top five to seven stories from
each industry category is generated and distributed to customers
once a day. These categories include vertical industries such as
Airlines, Automobile, Banking, Hardware, Insurance, Oil,
Publishing, Telecommunications and Utilities.
Utilizing the same automated editorial and format conversion
process, COMTEX also offers news processing services to large-
scale content distributors and information 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 that information
providers and distributors have on COMTEX and, at the same time,
attract additional customers to COMTEX.
COMTEX believes the rapid growth in the use of electronic
information by consumers, businesses and professional investors
will continue to create a significant market for the Company's
information products and outsourcing services.
COMTEX relies heavily on third-party information sources for
the content of its product offerings. Interruption in, or the
termination of, service from a significant number of its
information sources would affect the Company's ability to offer
products or maintain product quality. Accordingly, the failure or
inability to restore or replace such interrupted or terminated
services could have an adverse effect on revenues (see Item 7 -
Management's Discussion and Analysis of Financial Conditions and
Results of Operation).
COMTEX also relies heavily on third party providers for
telecommunications, electrical power, internet connectivity, and
related or similar services as well as system redundancy for the
development and delivery of its products. Failure of,
interruption in, or the termination of, these services would also
affect the Company's ability to create and deliver products.
Accordingly, the failure or inability to restore or replace such
interrupted or terminated services could have an adverse effect on
revenues (see Item 7 - Management's Discussion and Analysis of
Financial Conditions and Results of Operation).
<PAGE>
Competition
COMTEX' 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.
COMTEX' breadth and depth of real-time content offerings,
technology platform and capabilities, aggregation and integration
services as well as its unique relationships with content and
distribution partners have historically represented a significant
barrier to entry by potential competitors into COMTEX' markets.
However, the market for real-time content on the Internet has
expanded, and continues to expand, rapidly. The demand for and
use of information services has increased significantly. As a
result, COMTEX expects competition to increase in the future as
current competitors improve their offerings, as new competitors
attempt to enter the market for content aggregation, and as
traditional content providers seek new markets for their content
and direct relationships with distributors. The Company believes
its continued investment in content, new products, technology and
infrastructure, as well as the expansion of its distributor
partnerships will continue to favorably position it in the market.
Product Development
For the years ended June 30, 2000, 1999 and 1998 COMTEX'
product development costs were approximately $649,000, $270,000,
and $165,000 respectively. The increase in fiscal year 2000 costs
is due primarily to significant investments in product development
infrastructure and development of new products, as well as
additional quality assurance activities.
In addition, during fiscal year 1998, COMTEX commenced a
development effort to upgrade its software and computer hardware
system components to expand its product capabilities and to meet
future client requirements. In fiscal years 2000, 1999 and 1998
COMTEX incurred and capitalized approximately $751,000, $430,000
and $170,000 on this initiative. The project was substantially
completed in fiscal year 2000.
COMTEX has continued to offer distributors and information
providers outsourcing services for the processing and distribution
of their information. During the year ended June 30, 2000, COMTEX
added content from a significant number of important publisher
partners. COMTEX plans to continue to add quality publishers to
its content offerings with a continued commitment to serving its
markets with the highest quality content.
<PAGE>
Company History
The Company was incorporated in New York in 1980 and changed
its name from Comtex Scientific Corporation to COMTEX News
Network, Inc. in December 1999. As a result of a series of
transactions during COMTEX' fiscal year 1989, Infotechnology,
Inc., a Delaware business development corporation, then
principally engaged in the information and communications
business, acquired majority ownership of COMTEX.
During the 1980s and early 1990s, COMTEX incurred significant
losses and a resulting shareholder deficit due to the failure to
realize market penetration as a retail source of news and
information. In 1994, new management established a new direction
for COMTEX by focusing on the aggregation, value-add, repackaging
and distribution of content for resale to distributors in the
professional investor, individual investor, internet and corporate
information services markets. With the new focus, COMTEX has been
able to achieve significant growth in information services
revenues, as well as consistent profitability during the past four
years, while investing in management, sales, marketing, technical
resources and infrastructure.
Employees
At June 30, 2000, COMTEX had 69 full-time employees. The
employees are not members of a union and COMTEX believes employee
relations are generally good.
Other Information
AMASYS Corporation, ("AMASYS") (the successor corporation to
Infotechnology, Inc., "Infotech"), legally or beneficially
controls 4,693,940 (approximately 47%) of the issued and
outstanding shares of COMTEX. As disclosed in Note 1 of the Notes
to Financial Statements, 2,540,503 shares of COMTEX' common stock
owned by AMASYS 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
COMTEX' common stock.
Available Information
COMTEX files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange
Commission ("SEC"). You may read and copy any document it files
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.
The Company's SEC filings are also available to the public from
the SEC's Web site at "http://www.sec.gov."
<PAGE>
Item 2. Properties
The Company owns no real estate. The Company leases office
space at 4900 Seminary Road in Alexandria, Virginia. The Company
currently occupies approximately 22,700 square feet at an annual
rental of approximately $543,000. 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
The Company has been named a defendant in Pearson, et al v.
Internet Wire, Incorporated, et al, which was filed on August 30,
2000 in the United States District Court for the Northern District
of Alabama (CA No. CV-00-B-2371-NE). The plaintiff is seeking
actual damages of $120,000 in addition to punitive damages
relating to his sale of Emulex Corporation stock in response to an
allegedly false news release issued or disseminated by or on
behalf of various defendants, including the Company. The
complaint alleges that the defendants' conduct constituted
negligence, gross negligence, misrepresentation and/or fraud, and
claims that the defendants failed to take reasonably necessary
precautions to prevent the issuance of the press release. The
plaintiff seeks to maintain the lawsuit as a class action. The
Company has filed a motion to dismiss the complaint and believes
the suit has no merit.
The Company is 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 the
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock, par value $.01 per share ("Common
Stock"), is traded sporadically on the National Association of
Securities Dealers' ("NASD") Electronic OTC Bulletin Board, under
the symbol CMTX.
The range of high and low bid quotations for the Common
Stock, as obtained from Bloomberg Financial Services, for each
quarterly period during fiscal years 1999 and 2000 is shown below:
Fiscal Year Ended June 30, 1999 High Low
First Quarter
(7/1 to 9/30/98) 1/2 3/16
Second Quarter
(10/1 to 12/31/98) 7/16 1/5
Third Quarter
(1/1 to 3/31/99) 4 11/16 3/8
Fourth Quarter
(4/1 to 6/30/99) 2 7/8 1 3/4
Fiscal Year Ended June 30, 2000 High Low
First Quarter
(7/1 to 9/30/99) 2 5/8 1 5/16
Second Quarter
(10/1 to 12/31/99) 3 3/16 1 1/16
Third Quarter
(1/1 to 3/31/00) 8 1/2 3 3/16
Fourth Quarter
(4/1 to 6/30/00) 6 3/4 2 _
The approximate number of holders of record of the Company's
Common Stock as of September 25, 2000 was 548.
The Company has never declared or paid a cash dividend on its
Common Stock and does not anticipate the declaration or payment of
cash dividends to shareholders in the foreseeable future.
On December 3, 1999 the Company issued 1,300,000 shares of
restricted Common Stock ($0.01 par value) to accredited private
investors under Regulation D. These shares were sold at $1.00 per
share. The aggregate offering price was $1,300,000 with net
proceeds of $ 1,262,739 after payment of expenses. The Company
did not utilize an underwriter or broker nor were there
commissions earned or paid on the transaction.
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected financial data for
each of the last five fiscal years of the Company.
<TABLE>
Fiscal Year Ended June 30,
<CAPTION>
(amounts in thousands
except per share data) 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues $ 12,645 $ 7,557 $ 5,401 $ 4,592 $ 3,549
Income (Loss) from Operations $ 1,308 $ 542 $ 156 $ 228 $ (362)
Net Income (Loss) $ 1,241 $ 456 $ 64 $ 113 $ (472)
Basic Net Income(Loss) Per Share $ .14 $ .06 $ .01 $ .01 $ (.06)
Diluted Net Income (Loss) Per Share $ .10 $ .04 $ .01 $ .01 $ (.06)
Balance Sheet Data at Year End:
Total Assets $ 5,977 $ 2,407 $ 1,434 $ 1,531 $ 1,382
Long-term Obligations $ 987 $ 1,047 $ 833 $ 788 $ 1,083
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
RESULTS OF OPERATIONS
Comparison of the Fiscal Year ended June 30, 2000 to the Fiscal
Year ended June 30, 1999
The Company earned operating income of approximately $1.3
million during the year ended June 30, 2000, compared to
operating income of $542,000 during the year ended June 30, 1999.
The Company earned net income of approximately $1.2 million
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 is due primarily to a 67% growth in revenues and an
improved gross profit margin offset with only 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 include the resolution of royalties due for content usage
during fiscal year 2000 and prior periods, previously unreported
to COMTEX, 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.
<PAGE>
The Company's 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 the Company's products. During the year
ended June 30, 2000, the Company's total revenues were
approximately $12.6 million, or approximately $5.1 million (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.
The Company's cost of revenue consists primarily of content
license fees and royalties earned by the Company's information
providers for the distribution of content, as well as data
communication costs for the delivery of the Company's products to
customers. The cost of revenue for the year ended June 30, 2000
was approximately $3.8 million, or $1.0 million (36%) greater
than the cost of revenue 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 the Company's 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 $8.8 million, or a $4.1 million (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 $7.5 million, representing an approximately
$3.3 million (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 the
Company made investments in infrastructure. In addition, the
Company increased its marketing and public relations activities
and expenditures to promote the Company and its products and
services.
Technical operations and support expenses during the year
ended June 30, 2000 increased approximately $1.0 million (107%)
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.
<PAGE>
Product development expenses increased by approximately
$379,000 (140%) 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 as well as expenses
associated with the deployment of new products. Product
development activities include quality assurance, enhancements to
the Company's products, and the development of proprietary news
products.
Sales and marketing expenses increased by approximately $1.0
million, or approximately 78% for the year ended June 30, 2000
compared to the year ended June 30, 1999. This 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 its products and services.
General and administrative expenses for the year ended June
30, 2000 were approximately $805,000 (50%) greater than these
expenses during the year ended June 30, 1999. This increase was
due to additional headcount 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 (131%) higher than
these expenses during the prior year. The increase was due
primarily to the development and deployment of new platforms for
the Company's products and services as well as capital
expenditures to support additional headcount.
Other expense remained essentially unchanged and reflected
an increase in interest income earned on the Company's cash
balances 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, the Company did not record an income tax expense
due to the utilization of Net Operating Loss (NOL) and Investment
Tax Credit (ITC) carryforwards.
Comparison of the Fiscal Year ended June 30, 1999 to the Fiscal
Year ended June 30, 1998
The Company earned operating income of approximately
$542,000 during the year ended June 30, 1999, compared to
operating income of $156,000 during the year ended June 30, 1998.
The Company earned net income of approximately $456,000 during
the year ended June 30, 1999, compared to net income of
approximately $64,000 for the year ended June 30, 1998. As
discussed below, the improvement in operating income and net
income is due primarily to a 40% growth in revenues and an
improved gross profit margin, offset with only a 34%
corresponding increase in cost of revenues and operating expense.
<PAGE>
The Company's 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 the Company's products. During the year
ended June 30, 1999, the Company's total revenues were
approximately $7.6 million, or approximately $2.2 million (40%)
greater than the total revenues for the year ended June 30, 1998.
Of the increase in revenues, approximately 44% reflects revenues
from new customers obtained during the twelve months ended June
30, 1999, with the remaining 56% reflecting growth in revenues
from the existing customer base.
The Company's cost of revenue consists primarily of content
license fees and royalties to the Company's information providers
for the distribution of content, as well as data communication
costs for the delivery of the Company's products to customers.
The cost of revenue for the year ended June 30, 1999 was
approximately $2.8 million, or $538,000 (24%) greater than the
cost of revenue for the year ended June 30, 1998. The increase
in cost is primarily due to an increase in royalties and fees
related to the increase in revenues for the period. The increase
in data communications costs was due primarily to the increase in
the number of customers and data volume, partially offset by a
decrease resulting from the implementation of a more cost
effective method for delivery of the Company's products to
customers and the associated termination of an outdated method of
delivery.
The gross profit for the year ended June 30, 1999 was
approximately $4.7 million, or a $1.6 million (52%) improvement
in gross profit over the prior year. The gross margin
percentage improved for the year ended June 30, 1999 to
approximately 63% from approximately 58% 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, 1999
were approximately $4.2 million, representing an approximately
$1.2 million (42%) increase in operating expenses from the year
ended June 30, 1998. This increase in operating expenses is due
primarily to increases in expenses associated with increased
headcount and technology and general business consultants as the
Company made investments in infrastructure. In addition, the
Company increased its marketing and public relations activities
and expenditures to promote the Company and its products and
services.
Technical operations and support expenses during the year
ended June 30, 1999 increased approximately $219,000 (31%) over
these expenses in the year ended June 30, 1998. This increase
was due primarily to increased headcount and consulting costs
associated with technology projects and client support.
<PAGE>
Product development expenses increased by approximately
$105,000 (63%) for the year ended June 30, 1999 compared to the
year ended June 30, 1998. This increase is the result of
additional personnel in this department. Product development
activities include quality assurance, enhancements to the
Company's products, and the development of proprietary news
products.
Sales and marketing expenses increased by approximately
$402,000 or approximately 46% for the year ended June 30, 1999
compared to the year ended June 30, 1998. This 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 period, as well as marketing and public
relations expenses related to the promotion and branding of the
Company and its products and services.
General and administrative expenses for the year ended June
30, 1999 were approximately $506,000 (46%) greater than these
expenses during the year ended June 30, 1998. This increase was
due primarily to an increase in bad debt expense related
principally to the increase in the number of new customers,
increased rent expense associated with the Company's expanded
office space, and increased incentive compensation corresponding
to achieving revenue and net income goals.
Depreciation and amortization expenses for the year ended
June 30, 1999 were essentially unchanged compared to these
expenses during the prior year.
Other expense for the year ended June 30, 1999 was also
essentially unchanged compared to these expenses during the prior
year.
Income tax expense remained unchanged for the year ended
June 30, 1999 compared to the prior year. Except for nominal
franchise taxes, the company 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, 2000, the Company's operations
produced operating income of approximately $1.3 million and net
income of approximately $1.2 million. At June 30, 2000, the
Company had working capital of approximately $1.3 million as
compared with negative working capital of approximately $106,000
at June 30, 1999. The Company also had net stockholders' equity
of approximately $2.4 million at June 30, 2000, as compared to a
net stockholders' deficit at June 30, 1999, of approximately
$254,000. The increase in working capital and stockholders'
equity was due primarily to the proceeds from the issuance of
restricted common stock to accredited investors in a private
placement during December 1999, and the increase in net income.
<PAGE>
For the year ended June 30, 2000, the Company's operating
activities generated approximately $1.6 million in cash. The
Company had cash of approximately $1.7 million at June 30, 2000,
compared to approximately $95,000 at June 30, 1999. To date, the
Company's operations have generated cash flow sufficient to cover
its monthly expenses.
The Company has reinvested a significant portion of its
operating cash flows. This includes investments in
administrative, sales, marketing and technical staff, as well as
consulting; in expanding its contractual base with information
providers so as to improve the quality and flexibility of its
information products; and in expanding its contracts with
information distributor customers. All of these factors
contribute to improving the Company's ability to sell and deliver
quality products and services.
In addition, the Company made capital expenditures of
approximately $1.4 million in the year ended June 30, 2000,
primarily to upgrade its software and hardware platforms thus
expanding both its product capabilities and its ability meet
future content and client processing requirements. The Company
anticipates continued investment to expand its product
capabilities, technology platforms and infrastructure. The
Company expects to limit these investments to cash on hand and
cash flows from operations.
The Company anticipates continued investment in operations
and infrastructure including, but not limited to, investments in
additional human resources and consulting services, product
development, sales capability, marketing and branding, software
and hardware and facilities. While the Company anticipates
funding these investments with operating cash flows, it may
undertake additional borrowings or raise additional capital
through the issuance of equity as the need arises and to take
advantage of market conditions.
EBITDA, as defined below, increased 138% to $1.5 million for
the year ended June 30, 2000 compared to $647,000 for fiscal year
1999. The increase is primarily due to the increase in revenues
and the improvement in gross profit margin, offset partially by
higher operating expenses, excluding depreciation and
amortization.
EBITDA consists of earnings before interest expense,
interest and other income, income taxes, 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. This caption excludes components that are
significant in understanding and assessing the Company's results of
operations and cash flows. In addition, EBITDA is not a term
defined by generally accepted accounting principles and as a
result the Company's measure of EBITDA might not be comparable to
similarly titled measures used by other companies.
<PAGE>
However, the Company believes that EBITDA is relevant and
useful information which is often reported and widely used by
analysts, investors and other interested parties.
industry. Accordingly, the Company is disclosing this
information to permit a more comprehensive analysis of its
operating performance, as an additional meaningful measure of
performance and liquidity, and to provide additional information
with respect to its 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.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
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 the Company believes to be reasonable and are made in good
faith, are subject to certain risks and uncertainties that could
cause actual results to differ materially from those expressed in
any forward-looking statement made by, or on behalf of, the
Company.
Among such important external factors and risks are business
conditions and growth in the demand for real-time, aggregated
custom online news delivery services, and growth in the economy
in general; the impact of competitive products and pricing; the
proliferation of large, global information networks, and; the
evolution of the Internet and the availability and reliability of
power, telecommunications and internet services provided by third
parties. Among such important internal factors and risks are
continued success in the acquisition and growth of new
information re-distributor and corporate end-user client
accounts; the ability to continue the Company's program of
technical system upgrades; the timely creation and market
acceptance of new products; the Company's ability to continue to
increase the variety and quantity of sources of information
available to create its products; the Company's ability to
continue to recruit and retain highly skilled technical,
editorial, managerial and sales/marketing personnel; the
Company's ability to generate cash flow sufficient to cover its
current obligations while meeting its long-term debt obligations;
and the other risks detailed from time to time in the Company's
SEC reports that could cause results to differ materially from
those anticipated by the statements contained herein.
Item 7A. Quantitative and Qualitative Disclosure about Market
Risk.
The information required by this item has been omitted as
the Company's market risk exposure is not material.
<PAGE>
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 the
Company's 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, 2000 and 1999 F-2
Statements of Operations for the fiscal
years ended June 30, 2000, 1999, and 1998 F-3
Statements of Stockholders' Equity (Deficit)
for the fiscal years ended June 30, 2000,
1999 and 1998 F-4
Statements of Cash Flows for the fiscal
years ended June 30, 2000, 1999 and 1998 F-5
Notes to Financial Statements F-6
<PAGE>
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.
(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).
<PAGE>
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).
23 Consent of Independent Auditors.
27 Financial Data Schedule.
<PAGE>
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, there
unto duly authorized.
Date: September 27, 2000
COMTEX NEWS NETWORK, INC.
By: /s/ Charles W. Terry By: /s/ Aaron N. Daniels
Charles W. Terry Aaron N. Daniels
President and Chief Executive Chief Financial Officer
Officer (Principal Financial and
(Principal Executive Officer) 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 27, 2000
C.W. Gilluly, Ed.D. and Director
/s/ Erik Hendricks Director September 27, 2000
Erik Hendricks
/s/ Robert A. Nigro Director September 27, 2000
Robert A. Nigro
/s/ John D. Sanders, Ph.D. Director September 27, 2000
John D. Sanders, Ph.D.
/s/ Charles W. Terry Director, September 27, 2000
Charles W. Terry President and CEO
<PAGE>
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, 2000 and 1999 and the related
statements of operations, stockholders' equity (deficit), and
cash flows for each of the three years in the period ended June
30, 2000. 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, 2000 and 1999, and the
results of its operations and its cash flows for each of the
three years in the period ended June 30, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
McLean, Virginia
August 31, 2000
F-1
<PAGE>
<TABLE>
COMTEX NEWS NETWORK, INC.
BALANCE SHEETS AT JUNE 30,
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1,655,222 $ 95,283
Accounts Receivable, Net of Allowance of
approximately $314,000 and $351,000 at
June 30, 2000 and June 30, 1999, respectively 2,086,701 1,340,337
Prepaid Expenses and Other Current Assets 185,692 72,662
-------------- --------------
TOTAL CURRENT ASSETS 3,927,615 1,508,282
PROPERTY AND EQUIPMENT, NET 1,821,802 836,988
DEPOSITS AND OTHER ASSETS 227,236 62,255
-------------- --------------
TOTAL ASSETS $ 5,976,653 $ 2,407,525
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 570,817 $ 755,223
Accrued Expenses 1,980,958 819,381
Notes Payable 60,000 40,000
-------------- --------------
TOTAL CURRENT LIABILITIES 2,611,775 1,614,604
LONG-TERM LIABILITIES:
Long-Term Notes Payable - Affiliate 986,954 986,954
Other Long-Term Notes Payable - 60,000
-------------- --------------
TOTAL LONG-TERM LIABILITIES 986,954 1,046,954
-------------- --------------
TOTAL LIABILITIES 3,598,729 2,661,558
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $0.01 Par Value - Shares Authorized: 99,679 81,244
18,000,000; Shares issued and outstanding:
9,967,897 and 8,124,430, respectively
Additional Capital 11,403,826 10,031,801
Accumulated Deficit (9,125,581) (10,367,078)
-------------- --------------
2,377,924 (254,033)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,976,653 $ 2,407,525
============== ==============
The accompanying "Notes to Financial Statements" are an integral part of these financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
COMTEX NEWS NETWORK, INC.
STATEMENTS OF OPERATIONS
Fiscal Year Ended June 30,
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues $12,645,344 $ 7,557,397 $ 5,401,193
Cost of Revenues 3,822,385 2,813,841 2,276,380
-------------- -------------- --------------
Gross Profit 8,822,959 4,743,556 3,124,813
Operating Expenses
Technical Operations & Support 1,918,423 928,073 709,246
Product Development 649,254 270,070 165,187
Sales and Marketing 2,281,350 1,280,887 878,740
General and Administrative 2,422,394 1,617,136 1,110,933
Depreciation and Amortization 243,075 105,257 104,768
-------------- -------------- --------------
Total Operating Expenses 7,514,496 4,201,423 2,968,874
-------------- -------------- --------------
Operating Income 1,308,463 542,133 155,939
Other income/(expense)
Interest Expense (106,121) (86,680) (93,013)
Interest Income 52,586 1,009 1,798
Other Income/(Expense) (12,987) - -
-------------- -------------- --------------
Other Expense, net (66,522) (85,671) (91,215)
Income Before Income Taxes 1,241,941 456,462 64,724
Income Taxes 444 441 360
-------------- -------------- --------------
Net Income $ 1,241,497 $ 456,021 $ 64,364
============== ============== ==============
Basic Earnings Per Common Share $ .14 $ .06 $ .01
============== ============== ==============
Weighted Average Number of Common Shares 9,051,214 7,984,389 7,859,021
============== ============== ==============
Diluted Earnings Per Common Share $ .10 $ .04 $ .01
Weighted Average Number of Shares
Assuming Dilution 12,669,045 11,343,804 10,170,938
============== ============== ==============
The accompanying "Notes to Financial Statements" are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
COMTEX NEWS NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE FISCAL YEARS ENDED
JUNE 30, 2000, 1999 AND 1998
<CAPTION>
Common Shares Outstanding
------------------------------- Total
Number of Par Additional Accumulated Stockholders'
Shares Value Capital Deficit Equity/(Deficit)
---------- ------------ ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $7,858,417 $ 78,584 $ 9,980,536 $(10,887,463) $ (828,343)
Exercise of Stock Options 2,001 20 260 280
Issuance of Stock - ESPP 35,813 358 6,302 6,660
Net Income 64,364 64,364
---------- ----------- ------------ -------------- ----------------
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
========== =========== ============ ============= ================
The accompanying "Notes to Financial Statements" are an integral part of these financial statements
</TABLE>
F-4
<PAGE>
<TABLE>
COMTEX NEWS NETWORK, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Fiscal Year Ended
June 30,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,241,497 $456,021 $ 64,364
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization Expense 243,075 105,256 104,768
Bad Debt Expense 225,500 349,045 28,590
Loss on disposal of assets 166,238 - -
Changes in Assets and Liabilities:
Accounts Receivable (971,864) (807,380) 25,027
Prepaid Expenses and Other Current Assets (113,030) (53,150) 27,582
Deposits and Other Assets (165,786) 250 864
Accounts Payable (184,406) 154,878 70,733
Accrued Expenses 1,161,577 410,330 57,406
------------ ------------ ------------
Net Cash provided by Operating Activities 1,602,801 615,250 379,334
Cash Flows from Investing Activities:
Purchases of Property and Equipment (1,395,772) (642,708) (203,131)
Repayments of Advances to Affiliate - - 266,000
Proceeds from Disposal of Assets 2,450 - -
------------ ------------ ------------
Net Cash used in Investing Activities (1,393,322) (642,708) 62,869
Cash Flows from Financing Activities:
Proceeds from Notes Payable - - 140,000
Repayments on Notes Payable (40,000) (94,660) (23,232)
Repayments on Notes Payable to Related Parties - - (147,422)
Repayments on PrinCap Financing Agreement - - (266,000)
Issuance of Stock - Private Placement 1,262,739 - -
Issuance of Stock under Employee Stock Purchase Plan 47,431 26,445 6,660
Exercise of Stock Options 80,290 20,540 280
------------ ------------- ------------
Net Cash provided by (used in) Financing Acti 1,350,460 (47,675) (289,714)
Net Increase (decrease) in Cash and Cash Equivale 1,559,939 (75,133) 152,489
Cash and Cash Equivalents at Beginning of Period 95,283 170,416 17,927
------------ ------------- ------------
Cash and Cash Equivalents at End of Period $ 1,655,222 $ 95,283 $170,416
============ ============= ============
The accompanying "Notes to Financial Statements" are an integral part of these financial statements
</TABLE>
F-5
<PAGE>
COMTEX NEWS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
1. THE COMPANY
COMTEX News Network, Inc. (the "Company" or "COMTEX") is a
value-added real-time distributor of customized newswire
information products (CustomWires) aggregated on a real-time basis
from thousands of news stories drawn from hundreds of broad and
specialized news sources. CustomWires are marketed to information
distributors ranging from online services and World Wide Web sites
to proprietary networks utilized by financial traders and corporate
electronic news clipping services. 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 47%) 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 and 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.
<PAGE>
Revenues
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. 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 2000, 1999 and 1998
were approximately $649,000, $270,000 and $165,000, 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 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.
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.
Risks and Uncertainties
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable. The Company believes the credit risk associated with
accounts receivable is minimal due to the number of customers and
their dispersion over different industries and geographical
locations.
<PAGE>
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. The estimated fair value of
the Company's variable rate note payable approximates its carrying
value of $60,000. It is not practical to estimate the fair value
of the Company's Long-term Note Payable-Affiliate due to its unique
nature.
Recent Pronouncements
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements". SAB 101 summarizes certain of
the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. On June
26, 2000, the Commission deferred the effective date of SAB 101 to
require adoption of SAB 101 by the fourth quarter of the first
fiscal year beginning after December 15, 1999. Any required
adoption will be accounted for as a change in accounting principle
in accordance with APB Opinion No. 20, "Accounting Changes", by
cumulative catch-up adjustment in fiscal year 2001. COMTEX does not
expect the adoption of SAB 101 to have a material impact on the
Company's financial statements.
Reclassifications
Certain fiscal year 1999 and 1998 amounts have been
reclassified to conform to the fiscal year 2000 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 $986,954 at June 30, 2000, which was unchanged from the
balance at June 30, 1999. 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 $105,000, $28,000 and $6,000 in interest was
paid to AMASYS during the fiscal years ended June 30, 2000, 1999
and 1998, respectively.
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30:
<TABLE>
2000 1999
------------- -------------
<S> <C> <C>
Computer Equipment $ 1,361,937 $ 908,746
Furniture and Fixtures 178,679 78,038
Software and Software Development 1,291,898 624,480
Leasehold Improvements 38,722 34,472
Other Equipment 6,000 6,000
------------- -------------
2,877,236 1,651,736
Less Accum. Depreciation & Amort. (1,055,434) (814,748)
------------- -------------
Net $ 1,821,802 $ 836,988
============= =============
</TABLE>
Depreciation and amortization expense for the fiscal years ended
June 30, 2000, 1999 and 1998 was $242,000, $105,000 and $104,000,
respectively.
5. NOTES PAYABLE
Notes payable consisted of the following at June 30:
<TABLE>
2000 1999
---------- ----------
<S> <C> <C>
Note Payable to Century National Bank $ 60,000 $ 100,000
Less Current Portion 60,000 40,000
---------- ----------
Total Long-Term Notes Payable $ - $ 60,000
========== ==========
</TABLE>
Approximately $7,000, $18,000 and $11,000 in interest was paid to
Century National Bank during the fiscal years ended June 30, 2000,
1999 and 1998, respectively.
<PAGE>
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 are 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
bears interest at a rate of prime plus two percent annually.
6. NET INCOME PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
Fiscal Year ended June 30,
<CAPTION>
2000 1999 1998
----------- ------------ ------------
<S> <C> <C> <C>
Numerator:
Net Income $ 1,241,497 $ 456,021 $ 64,364
=========== ============ ============
Denominator:
Denominator for basic earnings
per share - weighted
average shares 9,051,214 7,984,389 7,859,021
Effect of dilutive securities:
Stock Options 3,617,831 3,359,415 2,311,917
----------- ------------ ------------
Denominator for diluted earnings per share
12,669,045 11,343,804 10,170,938
=========== ============ ============
Basic Earnings Per Share $ .14 $ .06 $ .01
Diluted Earnings Per Share $ .10 $ .04 $ .01
</TABLE>
<PAGE>
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:
<TABLE>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
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%
======= ======= =======
</TABLE>
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. Gross deferred
tax assets at June 30, 2000 and 1999, consist primarily of
temporary differences from net operating loss and business tax
credit carryforwards of approximately $1,200,000 and $1,500,000,
respectively, and are fully reserved. The Company has net
operating loss (NOL) and business tax credit carryforwards
available to offset future taxable income of approximately
$2,300,000 as of June 30, 2000. The net change in valuation
allowance during 2000 was a decrease of approximately $442,000.
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
3,400,000 shares reserved for issuance under the 1995 Plan. 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).
<PAGE>
Information with respect to stock options under the 1995 Plan
is as follows:
<TABLE>
2000 1999 1998
----------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 1,767,583 $ .25 1,554,412 $ .14 1,169,733 $ .11
Granted 548,500 2.17 398,000 .62 449,675 .22
Exercised ( 514,147) .15 ( 154,492) .13 (2,001) .14
Expired/
Forfeited (168,131) 1.02 (30,337) .26 (62,995) .15
--------- ---------- ----------
Outstanding at
end of year 1,633,805 .84 1,767,583 .25 1,554,412 .14
========= ========= ==========
Options
exercisable at
year-end 1,119,353 .30 1,417,718 .18 1,191,705 .12
Weighted
average fair
value of
options
granted $ 1.80 $ .62 $ .23
</TABLE>
The weighted average remaining contractual life of options
outstanding at June 30, 2000 was 4.61 years. The range of exercise
prices of options outstanding at June 30, 2000 was $ 0.10 to $4.88.
During fiscal year 1997, the Company 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 in fiscal years 2000, 1999 and 1998 would have been
approximately $1,052,000, $328,000 and $43,000, or $ .12, $ .04 and
$.01 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 1.56; expected life of
the option term of 5 years and risk-free interest rate of 6.14% to
6.22%.
<PAGE>
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:
<TABLE>
Fiscal Year Ended June 30,
2000 1999 1998
------------ ---------- -----------
<S> <C> <C> <C>
Amortization of Intangible Assets $ 806 $ 439 $ 753
Maintenance and Repairs 96,685 48,355 67,634
Advertising and Promotion Costs 241,437 74,033 32,025
Royalties 3,205,744 2,014,141 1,501,666
</TABLE>
Allowance for Doubtful Accounts
The following table summarizes activity in the allowance for
doubtful accounts:
<TABLE>
Fiscal Year Ended June 30,
--------------------------------------
2000 1999 1998
--------- --------- ---------
<CAPTION>
<S> <C> <C> <C>
Beginning Balance $350,868 $ 66,916 $ 77,139
Additions 225,500 349,045 28,590
Write-Offs (262,037) (65,093) (38,813)
--------- --------- ---------
Balance at End of Year $314,331 $350,868 $ 66,916
========= ========= =========
</TABLE>
<PAGE>
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 Minimum Rental
ending June 30, Commitments
--------------- ---------------
2001 544,851
2002 561,197
2003 234,306
2004 28,492
2005 -
---------------
$ 1,368,846
===============
Rent expense under all operating leases totaled approximately
$278,000, $192,000 and $162,000 for the fiscal years ended June 30,
2000, 1999 and 1998, respectively.
The Company has been named a defendant in Pearson, et al v.
Internet Wire, Incorporated, et al, which was filed on August 30,
2000 in the United States District Court for the Northern District
of Alabama (CA No. CV-00-B-2371-NE). The plaintiff is seeking
actual damages of $120,000 in addition to punitive damages relating
to his sale of Emulex Corporation stock in response to an allegedly
false news release issued or disseminated by or on behalf of
various defendants, including the Company. The complaint alleges
that the defendants' conduct constituted negligence, gross
negligence, misrepresentation and/or fraud, and claims that the
defendants failed to take reasonably necessary precautions to
prevent the issuance of the press release. The plaintiff seeks to
maintain the lawsuit as a class action. The Company has filed a
motion to dismiss the complaint and believes the suit has no merit.
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, 2000, 1999 and
1998.
<PAGE>
