<PAGE>
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, 1999
--------------
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
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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, 1999
- ------------------- -----------------------------
Common Stock, par value $.01 17,348,807
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NEWSEDGE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C>
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998....................... 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998 ........ 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998......... 5
Notes to the Condensed Consolidated Financial Statements............ 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.......... 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 20
Item 2. Changes in Securities and Use of Proceeds...................... 20
Item 6(a) Exhibits....................................................... 20
Item 6(b) Reports on Form 8-K............................................ 20
Signature.................................................................... 21
Exhibit Index................................................................ 22
Exhibit...................................................................... 23
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1
NEWSEDGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,754 $ 37,808
Short-term investments 2,000 3,782
Accounts receivable 15,705 13,112
Prepaid expenses and deposits 4,882 5,037
--------- ---------
Total current assets 60,341 59,739
--------- ---------
Property and equipment, net 9,387 9,138
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Other assets 826 277
--------- ---------
Total assets $ 70,554 $ 69,154
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,794 $ 2,864
Accrued expenses 16,172 17,853
Deferred revenue, current 32,913 27,837
Current portion of long-term obligations 789 891
--------- ---------
Total current liabilities 52,668 49,445
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Long-term obligations, less current portion 164 303
--------- ---------
Deferred revenue, noncurrent 28 157
--------- ---------
Stockholders' equity:
Common stock 177 175
Additional paid-in capital 126,562 124,890
Cumulative translation adjustment 19 63
Accumulated deficit (107,013) (103,828)
Treasury stock, at cost (345,000 shares) (2,051) (2,051)
--------- ---------
Total stockholders' equity 17,694 19,249
--------- ---------
Total liabilities and stockholders' equity $ 70,554 $ 69,154
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
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NEWSEDGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
<S> <S> <C>
Total revenues $ 19,379 $ 19,749
Costs and expenses:
Cost of revenues 8,399 8,018
Customer support expenses 1,400 1,667
Development expenses 3,093 3,406
Sales and marketing expenses 9,131 8,480
General and administrative expenses 940 1,529
Merger, disposition and other charges -- 11,093
-------- --------
Total costs and expenses 22,963 34,193
-------- --------
Loss from operations (3,584) (14,444)
Interest income and other, net 432 628
-------- --------
Net loss before provision for income taxes (3,152) (13,816)
Provision for income taxes 33 33
-------- --------
Net loss $ (3,185) $(13,849)
======== ========
Basic and diluted net loss per share $ (0.18) $ (0.82)
======== ========
Weighted average common shares outstanding 17,305 16,985
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
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NEWSEDGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,185) $(13,849)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 986 1,306
Gain on disposal of property and equipment -- (142)
Changes in assets and liabilities:
Accounts receivable (2,594) 1,757
Prepaid expenses and deposits 155 1,741
Accounts payable and accrued expenses (1,751) 3,527
Deferred revenue 5,076 1,672
-------- --------
Net cash used in operating activities (1,313) (3,988)
-------- --------
Cash flows from investing activities:
Decrease (increase) in investments, net 1,781 (10,323)
Purchases of property and equipment (1,184) (899)
Contingent purchase price payment -- (3,918)
Decrease in other assets 2 1
-------- --------
Net cash provided by (used in) investing activities 599 (15,139)
-------- --------
Cash flows from financing activities:
Proceeds from issuances related to stock plans,
including tax benefits 1,074 1,290
Decrease in long-term obligations (268) (324)
Principal payments under capital leases (102) (12)
-------- --------
Net cash provided by financing activities 704 954
-------- --------
Effect of exchange rate on cash (44) 42
-------- --------
Decrease in cash and cash equivalents (54) (18,131)
Cash and cash equivalents, beginning of period 37,808 45,854
-------- --------
Cash and cash equivalents, end of period $ 37,754 $ 27,723
======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 25 $ 25
======== ========
Cash paid for interest $ 24 $ 73
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
NEWSEDGE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of the Business
NewsEdge Corporation (the "Company") is the leading independent provider of
global news and current awareness solutions for business. The Company's mission
is to make news 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. The Company was formed as Desktop Data, Inc. in 1988,
acquired Investment Software Systems, Inc. ("ISS") from ADP Financial Services,
Inc. in January 1998, and upon the closing of the February 1998 merger (the
"Merger") with Individual, Inc. ("Individual") changed its name to NewsEdge
Corporation.
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, 1998 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.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents and Investments
The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, the Company's investments are classified as held-to-maturity and
are recorded at amortized cost. Cash equivalents consist of highly-liquid
investments purchased with an original maturity of three months or less. Those
securities with maturities of three months to twelve months as of the balance
sheet date are classified as short-term investments and securities with
maturities of greater than twelve months are classified as long-term
investments.
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3. 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 operations in three product segments: Enterprise,
NewsPage and Other.
The market for news and current awareness is pursued by the Company through two
primary lines of business: the Enterprise business and the NewsPage business.
The Enterprise business uses a direct selling effort and targets large
organizations. The Enterprise services deliver news and information to large
numbers of users within organizations through their corporate Intranet or local
area networks. As of March 31, 1999, the Company had over 1,325 enterprise
customers, up 20% from the previous year, with approximately 625,000 users. The
NewsPage business operates NewsPage.com, an Internet site that offers
customized, business-oriented news and information free on the Internet and
through several tiers of paid subscription services. NewsPage.com is supported
in part by targeted advertising and electronic commerce. As of March 31, 1999,
NewsPage had over 925,000 paid or registered users, up 30% from the previous
year.
In addition to the Enterprise business and the NewsPage business, the Company
also reports a segment of "other" revenue, which consists of services which are
being phased out by the Company, and which the Company expects to be immaterial
beyond 1999.
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, dispositions and other charges. Non-cash expenses included
in the segment profitability measure have been detailed separately in the table
below. The Company does not evaluate the assets of each operating segment
separately as the majority of such assets are commingled and transferable among
the different segments.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Enterprise $ 17,719 $ 16,077
NewsPage 1,019 1,423
Other 641 2,249
-------- --------
Total revenues $ 19,379 $ 19,749
Profit (loss) before income taxes, interest and
merger, disposition and other charges:
Enterprise $ (1,704) $ (2,036)
NewsPage (1,928) (1,008)
Other 48 (307)
Non-cash expenses by segment:
Enterprise $ 766 $ 600
NewsPage 193 208
Other 27 184
</TABLE>
4. Contingent Purchase Price Payment
In connection with the acquisition of FreeLoader, Inc. ("FreeLoader") in
June 1996 by Individual, Individual guaranteed the value of certain shares
issued to the two founders of FreeLoader, which was to be measured during the
period February 1998 through April 1998. If the fair value of the stock was less
than the guaranteed value, then the
7
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Company was obligated to pay the difference in cash. In February 1998, the two
founders of FreeLoader exercised their rights under the value guarantee and
received a payment from the Company of approximately $3.9 million. The
contingent purchase price payment was recorded as a reduction to stockholders'
equity.
5. Other Contingencies
On November 13, 1996, a class action shareholder suit was filed against
Individual (now the Company), certain of its directors and officers and the
underwriters of its initial public offering claiming that the defendants made
misstatements, or failed to make statements, to the investing public in
Individual's Prospectus and Registration Statement in connection with its
initial public offering relating to the alleged existence of disputes between
Joseph A. Amram, Individual's former Chief Executive Officer, and Individual.
Plaintiffs seek unspecified damages plus interest, costs and fees. On May 27,
1998, the U.S. District Court for the District of Massachusetts dismissed the
class action in its entirety. Plaintiffs appealed the dismissal to the U.S.
Court of Appeals for the First Circuit. Oral arguments were heard on December
10, 1998. On March 22, 1999, the United States Court of Appeals for the First
Circuit entered judgment affirming the District Court's dismissal of the class
action.
6. Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. SFAS No. 130 requires that items defined as other comprehensive
income, such as foreign currency translation adjustments, be separately
classified in the financial statements and that the accumulated balance of other
comprehensive income be reported separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The
components of comprehensive income for the three months ended March 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Three months ended
(in thousands) March 31,
----------------------------
1999 1998
------------- --------------
<S> <C> <C>
Comprehensive income:
Net loss $ (3,185) $ (13,849)
Other comprehensive income (loss):
Foreign currency adjustment (44) 42
------------- --------------
Comprehensive loss $ (3,229) $ (13,807)
============= ==============
</TABLE>
7. 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 1999 and 1998.
Diluted earnings per share excludes shares issuable from the assumed exercise of
stock options, as their effect would be antidilutive.
8
<PAGE>
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction and Overview
NewsEdge Corporation (the "Company") is the leading independent provider of
global news and current awareness solutions for business. The Company's mission
is to make news valuable for business. NewsEdge services provide access to value
added news over the Internet or customer Intranets. The Company aggregates and
adds value to news and information from over 2,000 sources published by over one
hundred global content providers. This information is customized and filtered so
that users can readily find the most important, relevant stories from the
overwhelming volume of daily news that is available.
The market for news and current awareness is pursued by the Company through
two primary lines of business: the Enterprise business and the NewsPage
business. The Enterprise business uses a direct selling effort and targets large
organizations. The Enterprise services deliver news and information to large
numbers of users within organizations through their corporate Intranet or local
area networks. As of March 31, 1999, the Company had over 1,325 Enterprise
customers, up 20% from the previous year, with approximately 625,000 authorized
users.
The NewsPage business operates NewsPage.com, an Internet web site that
offers customized, business-oriented news and information. Through a series of
strategic relationships, the NewsPage business also provides news and
information for a number of other Internet web sites. These relationships
include Netscape Business Journal and Yahoo! Small Business. The NewsPage
service is supported in part by targeted advertising and electronic commerce,
and is offered to end users as either a free service for a basic package or as a
subscription service for premium packages. As of March 31, 1999, NewsPage had
over 925,000 paid or registered users, up 30% from the previous year. In an
effort to gain market share, significant investment will be made in the NewsPage
business over the next year.
In addition to the Enterprise business and the NewsPage business, the
Company also reports a segment of "other" revenue, which consists of services
which are being phased out by the Company, and which the Company expects to be
immaterial beyond 1999.
The Company's Enterprise revenues consist primarily of subscription fees
related to the various 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. The Company's Newspage revenues consist
primarily of subscription fees generated from the premium NewsPage service
offering, advertising sales and electronic commerce. The Company's "other"
revenues consist primarily of subscription fees generated from sales of services
being phased out by the Company.
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 the Company's revenues is recorded as
deferred revenue.
Certain newswires offered by the Company for use within its services are
purchased by the customer directly from the news provider and payments are made
directly from the NewsEdge customer to the provider. For some of these
newswires, the Company receives royalty revenue based on payments made by the
customer to the news provider. For other newswires that are resold by the
Company to the NewsEdge customer, the Company bills the customer for the
newswire directly and then pays a royalty to the news provider. Such royalty
expenses are included in the Company's cost of revenues.
The Company is headquartered in Burlington, Massachusetts, with sales
offices and distributors throughout North America, South America, Europe, Asia
and the Middle East. The Company was formed as Desktop Data, Inc. in 1988,
acquired Investment Software Systems, Inc. ("ISS") from ADP Financial Services,
Inc. in January 1998, and upon the closing of the February 1998 merger (the
"Merger") with Individual, Inc. ("Individual") changed its name to NewsEdge
Corporation.
9
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Results of Operations for the Three Months Ended March 31, 1999 as Compared to
the Three Months Ended March 31, 1998
Revenues
Total revenues for the three months ended March 31, 1999 decreased 1.9% to $19.4
million as compared to $19.7 million for the same period in 1998. The decrease
was due primarily to a reduction in other revenues, which consist of revenues
from product lines being phased out by the Company.
Enterprise revenue for the three months ended March 31, 1999 increased 10.2% to
$17.7 million as compared to $16.1 million for the same period in 1998. The
increase in Enterprise revenue was due primarily to an increase in subscription
revenues from new customers and the retention and growth of revenues from
existing customers.
NewsPage revenue for the three months ended March 31, 1999 decreased 28.4% to
$1.0 million as compared to $1.4 million for the same period in 1998. The
decrease in NewsPage revenue resulted primarily from lower advertising and
subscription revenue generated from the NewsPage service offering.
Other revenues for the three months ended March 31, 1999 decreased 71.5% to
$641,000 as compared to $2.2 million for the same period in 1998. The decrease
in other revenues was due primarily to the spin out of the Clarinet business
unit effective March 31, 1998, the phase out of the Hoover product line and an
overall reduced sales effort directed at other business lines that are being
terminated or de-emphasized by the Company. The Company expects that revenue
from terminated or harvested product lines will continue to decline.
Cost of revenues
Cost of revenues consists primarily of royalties paid to information providers,
payroll and related expenses for the editorial and news operations staff, as
well as data transmission and computer related costs for the support and
delivery of the Company's services. Cost of revenues as a percentage of total
revenues for the three months ended March 31, 1999 increased to 43.3% as
compared to 40.6% for the same period in 1998. The percentage increase in cost
of revenues was due primarily to increased royalties paid to third-party
information providers.
Customer support expenses
Customer support expenses consist primarily of costs associated with technical
support of the Company's installed base of customers. Customer support expenses
for the three months ended March 31, 1999 decreased 16.0% to $1.4 million as
compared to $1.7 million for the same period in 1998. The decrease resulted
primarily from lower staffing levels. As a percentage of total revenues,
customer support expenses for the three months ended March 31, 1999 decreased to
7.2% from 8.4% for the same period in 1998.
Development expenses
Development expenses consist primarily of costs associated with the design,
programming, and testing of the Company's software and services. Development
expenses for the three months ended March 31, 1999 decreased 9.2% to $3.1
million as compared to $3.4 million for the same period in 1998. The decrease
resulted primarily from the spin out of the Clarinet business unit effective
March 31, 1998. As a percentage of total revenues, development expenses for the
three months ended March 31, 1999 decreased to 16.0% from 17.2% for the same
period in 1998.
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 months ended March 31, 1999
increased 7.7% to $9.1 million as compared to $8.5 million for the same period
in 1998. The increase resulted primarily from increases in headcount and related
expenses. As a percentage of total revenues, sales and marketing expenses for
the three months ended March 31, 1999 increased to 47.1% from 42.9% for the same
period in 1998.
10
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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 months ended March 31, 1999 decreased 38.5% to $940,000
as compared to $1.5 million for the same period in 1998. The decrease was due
primarily to the fact that general and administrative costs for the Clarinet
business unit were included as part of total general and administrative costs
for the three months ended March 31, 1998, but not included in the current
quarter. Additionally, there was a reduction in professional fees associated
with special business development efforts. As a percentage of total revenues,
general and administrative expenses for the three months ended March 31, 1999
decreased to 4.9% from 7.7% for the same period in 1998.
Merger, disposition and other charges
Merger, disposition and other charges consist primarily of the nonrecurring
costs related to the Company's recent business combinations. In the current
quarter, there were no additions to merger, disposition and other charges. For
the three months ended March 31, 1998, these costs, totaling $11.1 million,
related primarily to costs associated with the Merger with Individual and the
purchase of ISS, the termination of the Clarinet business unit, severance and
benefits for terminated employees and the cost of terminating and settling
certain contractual obligations of the combined companies.
Interest income (expense), net
Interest income (expense), net during the three months ended March 31, 1999,
decreased to $432,000 as compared to $628,000 for the same period in 1998, due
to the interest earned on lower cash and investment balances.
Provision for income taxes
The provision for income taxes for the three months ended March 31, 1999
remained constant at $33,000. Components of the provision include state taxes
due on investments held in the NewsEdge Securities Corporation and foreign tax
liabilities. The Company has not recorded a deferred tax benefit in the periods
presented for the potential future benefit of its tax loss carry-forwards as the
Company has concluded that it is not likely such deferred tax asset would be
realized.
Liquidity and Capital Resources
The Company's cash, cash equivalents and investments totaled $39.8 million
at March 31, 1999, as compared to $41.6 million at December 31, 1998, a decrease
of $1.8 million. Net cash of approximately $1.3 million was used in operations
for the three months ended March 31, 1999 primarily resulting from the Company's
net loss for the period. Net cash provided by investing activities for the three
months ended March 31, 1999 was approximately $599,000, resulting from a net
decrease in short-term investments of $1.8 million offset by purchases of $1.2
million in property and equipment. Net cash provided by financing activities for
the three months ended March 31, 1999 was $704,000, resulting from proceeds of
$1.1 million from stock issuances made pursuant to the Company's employee stock
plans, offset by approximately $400,000 in payments related to reducing current
and long-term obligations.
The Company continues to investigate the possibility of investments in or
acquisitions of complementary businesses, products or technologies, although the
Company has not entered into any commitments or negotiations with respect to any
such transactions.
The Company believes that its current cash and cash equivalents, investment
balances and funds anticipated to be generated from operations will be
sufficient to satisfy working capital and capital expenditure requirements for
at least the next twelve months.
Year 2000 Readiness Disclosure Statement
The Company has established a Year 2000 compliance program. The Company has
been performing Year 2000 tests for the past three years and a formal
organization structure of senior management and quality assurance personnel for
support of Year 2000 initiatives has been in place since April 1997. While the
Company anticipates that its
11
<PAGE>
services and internal systems should operate correctly at the turn of the
century, unforeseen "bugs" or "glitches" with respect to the Company's services
or services of its vendors may arise.
Compliance Program: The scope of the Company's compliance program focuses
on four key areas: service offerings, third-party information providers,
business partners' applications, and internal systems. The Company's compliance
program has a three-step process to evaluate each of the key areas which
includes (i) inventory review, (ii) assessment/testing, and (iii) resolution and
contingency planning.
. Service offerings. Since the Merger in February 1998, the Company has taken
an inventory of existing services from its predecessor companies to review
its overall compliance status. The Company is testing certain released
services offered by the Company, but has decided not to test those services
that will be discontinued before the Year 2000. As of March 31, 1999, the
Company had completed testing on approximately 80% of its supported
services and estimates completion of this test process by September 30,
1999. When testing services for Year 2000 compliance, the Company attempts
to confirm that (i) news can be collected over the boundary from 12/31/1999
to 1/1/2000, (ii) date fields with either two or four digit year formats
will function correctly for years in the new millennium, (iii) date fields
in both server and client log files will be displayed correctly, (iv) the
services will be able to conduct searches for date ranges that overlap the
new millennium, and (v) the Year 2000 will be recognized as a leap year.
New services under development for this year and next have Year 2000
qualification as part of their standard test plans. None of these
development projects have been impacted by the Company's Year 2000
readiness efforts.
. Third-party information providers. The Company relies on content provided
by third-party information providers. Communication with the Company's
information providers with respect to their Year 2000 compliance status was
60% complete as of March 31, 1999. The Company's goal is to have all
information providers' compliance responses complete by June 30, 1999.
Also, the Company is trying to minimize its dependence on third party
information provider's external date formats by internally generating
timestamps on its server. While the Company is committed to taking every
reasonable action to obtain assurances from such third-party information
providers that their software is Year 2000 compliant, it can not guarantee
the performance of such providers or predict whether the assurances
provided by them may be accurate and realistic.
. Business Partners' Applications. The Company's customers invest in
third-party software, some of which is supplied by the Company's business
partners for the purpose of integrating news into the customer's
applications. The Company has identified such business partners and has
requested from them the status of their Year 2000 compliance efforts. These
communications were 50% complete as of March 31, 1999. The Company's goal
is to have all business partners' compliance responses received by June 30,
1999. Additionally, the Company has an arrangement with WavePhore, a common
carrier communications vendor, for the delivery of news and information
from third party news providers who do not have their own broadcast
communications capability. WavePhore has stated that the replacement or
remediation of its critical IT and Business Systems will be substantially
completed by June 30, 1999. While the Company is committed to taking every
reasonable action to obtain assurances from such business partners that
their software is Year 2000 compliant, it can not guarantee the performance
of such business partners or predict whether any of the assurances provided
by them may be accurate and realistic.
. Internal Systems. The Company has completed its inventory of its internal
systems and its assessment of such systems' compliance status is 75%
complete, with an anticipated completion date of June 30, 1999. The scope
of these systems ranges from accounting, payroll, communications, network
hardware and applications, internet access, internal information systems,
hosted customer servers, and production news refinery systems. The majority
of the Company's internal systems and equipment are currently Year 2000
compliant.
Costs: To date the Company has not relied on outside consulting expertise
for assessing its services or testing for Year 2000 related issues. The Company
is utilizing internal personnel to identify Year 2000 readiness in its supported
services, network hardware/applications, internal business and information
systems. The Company estimates that the total direct cost of the Company's Year
2000 compliance efforts will be approximately $1,000,000. The total time
estimated for the project for internal employees would equate to approximately
nine person years. As of March 31, 1999, the Company had spent approximately
$225,000. These costs do not include estimates of indirect costs associated with
time spent by the Company's management or staff discussing Year 2000 issues
internally or with third
12
<PAGE>
parties. Such discussions are handled by existing employees through the ordinary
course of business. The Company has not identified the need to hire additional
staff specifically to address third party questions or concerns.
Risks: With regard to third party information suppliers, the Company is
addressing, through normal operating procedures, two categories of possible
issues: (i) a small percentage of wires may exhibit presentation issues with the
new millennium and (ii) some third party information providers may have delivery
problems associated with Year 2000 issues. The Company is identifying
presentation issues by internal quality assurance or editorial reviewers. When
identified, presentation issues are being handled by contacting the information
provider who may correct the problem at the source or by having the Company
develop a workaround in the software. The risks associated with delivery
problems present more serious issues for the Company as the Company would be
without certain news content. The Company will seek to obtain substitute news
sources if specific news providers experience technical difficulties delivering
their content as a result of a Year 2000 problem, but the Company cannot
guarantee the availability of such substitute content.
In connection with the Company's business partners' applications, the
Company has developed alternative delivery solutions, such as the internet or
leased line transmission, to be used if WavePhore experiences similar delivery
difficulties as discussed above. The Company estimates that in the worst case
scenario, it would take approximately eight weeks for it to remedy such a
delivery problem. While the Company does not anticipate a failure in its ability
to deliver news, and has established contingency plans as discussed above, such
a failure may (i) have a material adverse effect upon the Company's business,
results of operations and financial condition, (ii) require the Company to incur
unanticipated material expenses to remedy any problem and (iii) result in
litigation due to the Company's inability to fulfill its contractual
obligations. In such cases the Company would likely suffer a disruption in its
revenue stream and operations could be materially impacted. For an additional
discussion of the risks associated with the Company's dependence on news
transmission sources, see the Risk Factor section of this filing regarding
Dependence on News Transmissions Sources.
Contingency Plans: At this time, the Company's contingency plans relating
to the above discussed Year 2000 issues include (i) having additional support
staff and programmers on call for January 1, 2000, in the event of a disruption
of the Company's services, (ii) seeking alternative news sources and (iii)
preparing alternative news delivery mechanisms. The Company's assessment of its
services and internal systems for Year 2000 compliance will be an ongoing effort
throughout the remainder of this year. The information contained herein is the
product of conclusions made from the information and test results available to
the Company at this time.
Certain Factors Affecting Future Operating Results
Certain of the above statements in this report are forward-looking
statements that involve risks and uncertainties. The Company operates in a
rapidly changing environment that involves a number of risks, some of which are
beyond the Company's control. Actual results could differ materially as a result
of a variety of factors. The discussion below and in the Company's other SEC
reports highlights some of the risks which may affect future operating results.
Management of Growth and Hiring of Additional Personnel
The Company has experienced growth in revenues and expansion of its
operations, which have placed significant demands on the Company's management,
development, sales and customer support staff. Continued growth will require the
Company to hire and retain more development, selling and customer support
personnel. The Company has at times experienced difficulty in recruiting and
retaining qualified personnel. Recruiting and retaining qualified personnel is
an intensely competitive and time-consuming process. There can be no assurance
that the Company will be able to attract and retain the necessary personnel to
accomplish its growth strategies. Continued difficulties with the recruiting and
retention of personnel could adversely affect the Company's ability to satisfy
customer demand in a timely fashion or to support satisfactorily its customers
and operations, which could in turn, materially adversely affect its business,
operating results and financial condition. Edward R. Siegfried officially
retired from his full time position as Vice President-Finance and Chief
Financial Officer effective March 31, 1999, but is continuing such position
until the earlier of June 30, 1999 or the hiring of his successor. Mr. Siegfried
has served as Vice President of Finance since March 1989. At the time of this
filing, the Company had not identified a successor for Mr. Siegfried.
13
<PAGE>
Fluctuations in Quarterly Results
The Company's quarterly operating results may fluctuate significantly in
the future depending on factors such as demand for its services, changes in
service mix, the size and timing of new and renewal subscriptions from corporate
customers, advertising revenue levels, the effects of new service announcements
by the Company and its competitors, the ability of the Company to develop,
market and introduce new and enhanced versions of its services on a timely basis
and the level of product and price competition. A substantial portion of the
Company's cost of revenue, which consists principally of fees payable to
information providers, communications costs and personnel expenses, is
relatively fixed in nature. The operating expense levels of the Company are
based, in significant part, on their expectations of future revenue. If
quarterly revenues are below management's expectations, results of operations
would be adversely affected because a relatively small amount of the Company's
costs and expenses will vary with its revenues.
Future Operating Results Uncertain
The Company's ability to increase its revenues will depend upon its ability
to expand its sales force, to increase sales to new customers as well as
increase penetration into existing customers. In addition, as of March 31, 1999,
the Company had an accumulated deficit of approximately $107 million. The time
required for the Company to reach profitability is highly uncertain and there
can be no assurance that the Company will be able to achieve profitability on a
sustained basis, if at all. As a result, it is possible that in some future
quarter the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially adversely affected. Although the Company
experienced growth in revenues in recent years, there can be no assurance that,
in the future, the Company will sustain revenue growth or be profitable on a
quarterly or annual basis.
Dependence on Continued Growth in Use of the Internet
The Company distributes certain services across multiple delivery
platforms, including facsimile, electronic mail, and private networks based on
Lotus Notes and other groupware products. Sales of certain of the Company's
services depend upon the adoption of the Internet as a widely used medium for
commerce and communication. Rapid growth in the use of and interest in the
Internet is a recent phenomenon. There can be no assurance that communication or
commerce over the Internet will become widespread or that extensive content will
continue to be provided over the Internet. The Internet may not prove to be a
viable commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary infrastructure, such as a reliable
network backbone, or timely development and commercialization of performance
improvements, including high speed modems. In addition, to the extent that the
Internet continues to experience significant growth in the number of users and
level of use, there can be no assurance that the Internet infrastructure will
continue to be able to support the demands placed upon it by such potential
growth or that the performance or reliability of the Web will not be adversely
affected by this continued growth. The Internet could lose its viability due to
delays in the development or adoption of new standards and protocols required to
handle increased levels of Internet activity, or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet also could result in slower response times and
adversely affect usage of the Web and the Company's online services. If the
necessary infrastructure or complementary services necessary to make the
Internet a viable commercial marketplace are not developed, or if the Internet
does not become a viable commercial marketplace, the Company's business, results
of operations, and financial condition could be materially adversely affected.
Reliance on Advertising Revenues and Uncertainty of the Web as an Advertising
Medium
The Internet is an unproven medium for paid advertising sponsorship of
Web-based services such as the Company's NewsPage product. Subscriptions to the
Web-based service are partially subsidized by revenues from the sale of
advertisements on the Web pages of such services. Most of the Company's
advertising customers have only limited experience with the Web as an
advertising medium, have not devoted a significant portion of their advertising
expenditures to Web-based advertising and may not find such advertising to be
effective for promoting their services relative to traditional print and
broadcast media. The Company's ability to generate significant advertising
revenues to subsidize subscriptions to its Web-based services will depend upon,
among other things, advertisers' acceptance of the Web as an effective and
sustainable advertising medium, the development of a large base of users of the
Company's services possessing demographic characteristics attractive to
advertisers, and the ability of the Company to develop
14
<PAGE>
and update effective advertising delivery and measurement systems. No standards
have yet been widely accepted for the measurement of the effectiveness of
Web-based advertising, and there can be no assurance that such standards will
develop sufficiently to support Web-based advertising as a significant
advertising medium. In addition, there is intense competition in the sale of
advertising on the Internet, which has resulted in a wide range of rates quoted
by different vendors for a variety of advertising services, which makes it
difficult to project future levels of Internet advertising revenues that will be
realized generally or by any specific company. Competition among current and
future Web sites, as well as competition with other traditional media for
advertising placements, could result in significant price competition and
reductions in advertising revenues. As a result of these factors, there can be
no assurance that the Company will sustain or increase current advertising sales
levels. Failure to do so could have a material adverse effect on the Company's
business, results of operations and financial condition.
Competition
The business information services industry is intensely competitive and is
characterized by rapid technological change and entry into the field by
extremely large and well-capitalized companies as well as smaller competitors.
Enterprise Business
The Company's Enterprise business competes or may compete directly or
indirectly with the following categories of companies:
. large, well-established news and information providers such as Dow
Jones, Lexis/Nexis, Pearson, Reuters and Thomson;
. 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 World Wide Web sites on the Internet;
. large providers of LAN-based software systems such as Lotus/IBM and
Microsoft, which could, in the future, ally with competing news and
information providers; and
. to a lesser degree, consumer-oriented, advertising-subsidized
Web-based services and Internet access providers.
Many of the market participants named above have substantially greater
financial, technical and marketing resources than the Company.
Increased competition, on the basis of price or otherwise, may require
price reductions or increased spending on marketing or software
development, which could have a material adverse effect on the Company's
business and results of operations.
NewsPage Business
The Company's NewsPage business competes directly with many other Web-based
news and information services. The market for Internet services is
relatively new, intensely competitive and rapidly changing. The number of
Web sites on the Internet competing for consumers' attention and spending
has proliferated and it is expected that competition will continue to
intensify. NewsPage competes, directly and indirectly, for advertisers,
viewers, members and content providers with the following categories of
companies:
. publishers and distributors of traditional off-line media, such as
television, radio and print, including those targeted to business,
finance and investing needs, many of which have established or may
establish Web sites, such as The Wall Street Journal, CNN and CNBC;
15
<PAGE>
. general purpose consumer online services such as America Online and
Microsoft Network, each of which provides access to financial and
business-related content and services;
. online services or Web sites targeted to business, finance and
investing needs, such as TheStreet.com and Motley Fool; and
. Web search and retrieval and other online services, such as Excite,
Inc., InfoSeek Corporation, Lycos, Inc., Yahoo! Inc., and other
high-traffic Web sites, such as those operated by Netscape
Communications Corporation, which offer quotes, financial news and
other programming and links to other business and finance related
Web sites.
It is anticipated that the number of direct and indirect competitors will
increase in the future. This could result in price reductions for
advertising, reduced margins, greater operating losses or loss of market
share, any of which would materially adversely affect the business of the
Company, results of operations and financial condition.
Risks Relating to Acquisitions
Management may from time to time consider acquisitions of assets or
businesses that it believes may enable the Company to obtain complementary
skills and capabilities, offer new services, expand its customer base or obtain
other competitive advantages. Such acquisitions involve potential risks,
including difficulties in assimilating the acquired company's operations,
technology, services and personnel, completing and integrating acquired
in-process technology, diverting management's resources, uncertainties
associated with operating in new markets and working with new employees and
customers, and the potential loss of the acquired company's key employees.
Dependence on Cooperative Marketing Arrangements
The Company has entered into certain cooperative marketing agreements and
informal arrangements with software vendors, Web site sponsors and operators of
online services, including Microsoft, Netscape, Yahoo! and Dow Jones. These
companies presently market services that compete directly with those of the
Company. If the Company's marketing activities with such companies were
terminated, reduced, curtailed, or otherwise modified, the Company may not be
able to replace or supplement such efforts alone or with others. If these
companies were to develop and market their own business information services or
those of the Company's competitors, the Company's business and results of
operations and financial condition may be materially and adversely affected.
Litigation Risks
On November 13, 1996, a class action shareholder suit was filed against
Individual (now the Company), certain of its directors and officers and the
underwriters of its initial public offering claiming that the defendants made
misstatements, or failed to make statements, to the investing public in
Individual's Prospectus and Registration Statement in connection with its
initial public offering relating to the alleged existence of disputes between
Joseph A. Amram, Individual's former Chief Executive Officer, and Individual.
Plaintiffs seek unspecified damages plus interest, costs and fees. On May 27,
1998, the U.S. District Court for the District of Massachusetts dismissed the
class action in its entirety. Plaintiffs appealed the dismissal to the U.S.
Court of Appeals for the First Circuit. Oral arguments were heard on December
10, 1998. On March 22, 1999, the United States Court of Appeals for the First
Circuit entered judgment affirming the District Court's dismissal of the class
action.
Dependence on News Providers
A significant percentage of the Company's customers subscribe to services
provided by one or more of Press Association Inc., a subsidiary of The
Associated Press, Dow Jones, The Financial Times, Reuters and Thompson. The
Company's agreements with news providers are generally for terms of one to three
years, with automatic renewal unless notice of termination is provided before
the end of the term by either party. These agreements may also be terminated by
the provider if the Company fails to fulfill its obligations under the
agreement. Many of these news and information providers compete with one another
and, to some extent, with the Company. Termination of one or more significant
news provider agreements would decrease the news and information which the
Company can offer its
16
<PAGE>
customers and could have a material adverse effect on the Company's business,
results of operations and financial condition.
Also, an increase in the fees required to be paid by the Company to its
information providers would have an adverse effect on the Company's gross
margins and results of operations. Because the Company licenses the
informational content included in its services from third parties, the Company's
exposure to copyright infringement actions may increase. Although the Company
generally obtains representations as to the origins and ownership of such
licensed content and generally obtains indemnification for any breach thereof,
there can be no assurance that such representations will be accurate or that
indemnification will adequately compensate the Company for any breach.
Dependence on News Transmission Sources
The Company's news and information for certain of the NewsEdge services is
transmitted using one or more of four methods: leased telephone lines,
satellites, FM radio transmission or the Internet. None of these methods of news
transmission is within the control of the Company, and the loss or significant
disruption of any of them could have a material adverse effect on the Company's
business. Many newswire providers have established their own broadcast
communications networks using one or more of these three vehicles. In these
cases, the Company's role is to arrange communications between the news provider
and the NewsEdge customer's server. For sources which do not have their own
broadcast communications capability, news and information is delivered to the
Company news consolidation facility, where it is reformatted for broadcast to
NewsEdge servers and retransmitted to customers through an arrangement between
the Company and WavePhore, a common carrier communications vendor. WavePhore
presently markets services that compete directly with those of the Company.
WavePhore is also the communications provider for many newswires offered by the
Company through NewsEdge services. The Company's agreement with WavePhore
expires on December 31, 1999. This agreement can be terminated earlier in the
event of a material breach by the Company of the agreement. If the agreement
with WavePhore were terminated on short notice, or if WavePhore were to
encounter technical or financial difficulties adversely affecting its ability to
continue to perform under the agreement or otherwise, the Company's business
could be materially and adversely affected. The Company believes that if
WavePhore were unable to fulfill its obligations, other sources of
retransmission would be available to the Company, although the transition from
WavePhore to those sources could result in delays or interruptions of service
that could have a material adverse affect on the Company's business, results of
operations and financial condition. Wavephore did experience technical
difficulties in May 1998 due to the disablement of the PanAmSat Galaxy IV
satellite. This disablement caused an interruption in the delivery of news
services to between one-third and one-half of the Company's customers. The
interruption was resolved in approximately ten days and did not have a material
impact on the Company's financial results.
Risk of System Failure or Inadequacy
The Company's operations are dependent on its ability to maintain its
computer and telecommunications systems in effective working order and to
protect its systems against damage from fire, natural disaster, power loss,
telecommunications failure or similar events. Although the Company has limited
back-up capability, this measure does not eliminate the significant risk to the
Company's operations from a natural disaster or system failure at its principal
site. In addition, any failure or delay in the timely transmission or receipt of
news feeds and computer downloads from its information providers, due to system
failure of the information providers, the public network or otherwise, could
disrupt the Company's operations.
Risks Relating to Year 2000 Issues
The Company believes that its software and services are substantially Year
2000 compliant and currently does not anticipate material expenditures to remedy
any year 2000 problems. However, many computer systems were not designed to
handle any dates beyond the year 1999, and therefore, many companies will be
required to modify their computer hardware and software prior to the year 2000
in order to remain functional. The Company utilizes third-party computer and
telecommunications equipment to produce and distribute its services as well as
to operate other aspects of its business, and while the Company is currently
testing all such systems, there can be no assurances that such equipment is Year
2000 compliant. The Company also is addressing two categories of possible issues
relating to its third party information suppliers: (i) a small percentage of
wires may exhibit presentation issues with the new millennium and (ii) some
third party information providers may have delivery problems associated with
Year 2000 issues. The Company is identifying presentation issues and when
identified, they are being handled by contacting the
17
<PAGE>
information provider who may correct the problem at the source or by having the
Company develop a workaround in the software. The risks associated with delivery
problems present more serious issues for the Company as the Company would be
without certain news content. The Company will seek to obtain substitute news
sources if specific news providers experience technical difficulties delivering
their content as a result of a Year 2000 problem, but the Company cannot
guarantee the availability of such substitute content. Also, the Company has
developed alternative delivery solutions, such as the internet or leased line
transmission, to be used if WavePhore, a common carrier communications vendor
that delivers news and information from certain third party news providers,
experiences delivery difficulties due to the Year 2000 problem. The Company
estimates that in the worst case scenario it would take approximately eight
weeks for it to remedy such a delivery problem. While the Company is committed
to taking every reasonable action to obtain assurances from such business
partners that their software and services are Year 2000 compliant, it can not
guarantee the performance of such business partners or predict whether any of
the assurances provided by them may be accurate and realistic. Although the
Company does not anticipate a failure in its ability to delivers news, and has
established contingency plans, such a failure may (i) have a material adverse
effect upon the Company's business, results of operations and financial
condition, (ii) require the Company to incur unanticipated material expenses to
remedy any problem and (iii) result in litigation due to the Company's inability
to fulfill its contractual obligations. In such cases the Company would likely
suffer a disruption in its revenue stream and operations could be materially
impacted.
Rapid Technological Change
The business information services, software and communications industries
are subject to rapid technological change, which may render existing services
obsolete or require significant unanticipated investments in research and
development. The Company's future success will depend, in part, upon its ability
to enhance its service offerings and keep pace with technological developments.
The Company's future success will depend on its ability to enhance its existing
services, to develop new services that address the needs of its customers and to
respond to technological advances and emerging industry standards and practices,
each on a timely basis. Services as complex as those offered by the Company
entail significant technical risks, often encounter development delays and may
result in service failures when first introduced or as new versions are
released. Any such delays in development or failures that occur after commercial
introduction of new or enhanced services may result in loss of or delay in
market acceptance, which could have a material adverse effect upon the Company's
business, results of operations and financial condition.
Proprietary Rights and Intellectual Property
The Company is heavily dependent upon proprietary technology. In addition,
the Company relies on a combination of trade secret, copyright and trademark
laws and non-disclosure agreements to protect its proprietary rights in its
software and technology. There can be no assurance that such measures are or
will be adequate to protect the Company's proprietary technology. In addition,
there can be no assurance that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies or services. The Company licensed the proprietary SMART
filtering software, which is used as the filtering engine within the Company's
news Refinery, from Cornell Research Foundation, Inc. ("Cornell University").
Under the terms of the license agreement with Cornell University, the Company
had exclusive worldwide rights until February 1999 to design, develop, market,
and sell systems and services based on the SMART software for the retrieval and
dissemination of data from recent and continually changing data sources. Since
February 1999, the Company has retained a continuing worldwide, non-exclusive,
perpetual royalty-free right to use the SMART software; and in addition, the
Company owns, and will continue to own, all enhancements to the SMART software
that it has developed. There can be no assurance, however, that Cornell
University has not or will not license the SMART software to a third-party,
including a competitor of the Company. In addition, Cornell University may
terminate the license agreement if the Company has materially breached the
agreement and such breach remains uncured for 60 days after written notice of
such breach has been given. If the license agreement for the SMART technology
were to terminate, there can be no assurance that a replacement solution could
be developed or acquired, on a timely basis or at all, and on favorable terms to
the Company. Consequently, any termination of the Company's license agreement
with Cornell University would have a material adverse effect on the Company's
business, results of operations, and financial condition.
There has been substantial litigation in the information services industry
involving intellectual property rights. Although the Company believes that it is
not infringing the intellectual property rights of others, there can be no
assurance that such claims, if asserted, would not have a material adverse
effect on the Company's business, results of
18
<PAGE>
operations, and financial condition. In addition, inasmuch as the Company
licenses the informational content that is included in its services from third
parties, its exposure to copyright infringement actions may increase because the
Company must rely upon such third parties for information as to the origin and
ownership of such licensed content. Although the Company generally obtains
representations as to the origins and ownership of such licensed informational
content and generally obtains indemnification to cover any breach of any such
representations, there can be no assurance that such representations will be
accurate or that such indemnification will provide adequate compensation for any
breach of such representations. In the future, litigation may be necessary to
enforce and protect trade secrets, copyrights and other intellectual property
rights of the Company. The Company may also be subject to litigation to defend
against claimed infringement of the rights of others or to determine the scope
and validity of the intellectual property rights of others. Any such litigation
would be costly and divert management's attention, either of which would have a
material adverse effect on the Company's business, results of operations, and
financial condition. Adverse determinations in such litigation could result in
the loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties, and
prevent the Company from selling its services, any one of which could have a
material adverse effect on the Company's business, results of operations, and
financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign currency exchange
rates. As of March 31, 1999, the Company did not use derivative financial
instruments for speculative or trading purposes.
Interest Rate Risk
The Company maintains 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. The Company has the ability to hold its
fixed income investments until maturity, and therefore the Company would not
expect its operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates on its
securities portfolio.
Foreign Currency Exchange Risk
As a global concern, the Company faces exposure to adverse movements in
foreign currency exchange rates. These exposures may change over time as
business practices evolve and could have a material adverse impact on the
Company's financial results. Historically, the Company's primary exposures have
been related to nondollar-denominated operating expenses in Canada. The majority
of Company sales are denominated in U.S. dollars. The Company has not determined
what impact, if any, the introduction of the Euro will have on its foreign
exchange exposure. The Company is prepared to hedge against fluctuations in the
Euro if this exposure becomes material. As of March 31, 1999, the assets and
liabilities of the Company related to nondollar-denominated currencies was not
material.
19
<PAGE>
NEWSEDGE CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On November 13, 1996, a class action shareholder suit was filed against
Individual (now the Company), certain of its directors and officers and the
underwriters of its initial public offering claiming that the defendants made
misstatements, or failed to make statements, to the investing public in
Individual's Prospectus and Registration Statement in connection with its
initial public offering relating to the alleged existence of disputes between
Joseph A. Amram, Individual's former Chief Executive Officer, and Individual.
Plaintiffs seek unspecified damages plus interest, costs and fees. On May 27,
1998, the U.S. District Court for the District of Massachusetts dismissed the
class action in its entirety. Plaintiffs appealed the dismissal to the U.S.
Court of Appeals for the First Circuit. Oral arguments were heard on December
10, 1998. On March 22, 1999, the United States Court of Appeals for the First
Circuit entered judgment affirming the District Court's dismissal of the class
action.
Item 2. Changes in Securities and Use of Proceeds
As previously disclosed in the Company's Annual Report on Form 10-K for the
period ended December 31, 1998, on November 6, 1998, the Company issued a
warrant (the "Warrant") for 200,000 shares of Company Common Stock, $.01 par
value, at an exercise price of $8.50 per share to one of the Company's vendors
as part of an agreement for services. The Warrant was issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act. At the
time of grant, the fair market value of the Company Common Stock was $7.25.
Vesting will occur over a three-year period beginning on January 1, 1999.
Typically, the Warrant should expire on November 6, 2003, but may be subject to
an earlier expiration based upon the occurrence of certain events discussed in
the terms of the Warrant. Based on an estimated value of $2.96 per share, an
aggregate expense of approximately $592,000 will be charged to the Company's
consolidated statements of operations over the three-year vesting period
beginning on January 1, 1999.
Item 6. Exhibits and Reports Filed on Form 8-K.
6(a) Exhibits.
27.1 - Financial Data Schedule for the three months ended March 31,
1999
6(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
20
<PAGE>
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 12, 1999 /s/ Edward R. Siegfried
---------------------------------
Edward R. Siegfried
Vice President - Finance and CFO,
Treasurer and Assistant Secretary
21
<PAGE>
NEWSEDGE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27.1 -- Financial Data Schedule for March 31, 1999 23
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<PAGE>
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<MULTIPLIER> 1,000
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<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 37,754
<SECURITIES> 2,000
<RECEIVABLES> 15,705
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,341
<PP&E> 21,529
<DEPRECIATION> 12,142
<TOTAL-ASSETS> 70,554
<CURRENT-LIABILITIES> 52,668
<BONDS> 0
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<COMMON> 177
<OTHER-SE> 17,517
<TOTAL-LIABILITY-AND-EQUITY> 70,554
<SALES> 19,379
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