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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-26540
NEWSEDGE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-3016142
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
80 Blanchard Road, Burlington, Massachusetts 01803
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (781) 229-3000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 20, 2000, was approximately $77.0 million (based upon
the closing bid price of the Registrant's Common Stock on March 20, 2000, of
$4.25 per share).
The number of shares outstanding of the Registrant's $.01 par value Common
Shares as of March 20, 2000 was 18,127,493.
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DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1999. Portions of such proxy statement are incorporated by reference into Part
III of this report.
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PART I
Item 1. Business
NewsEdge Corporation (the "Company") (Nasdaq: NEWZ) 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 Company is headquartered in Burlington, Massachusetts, with sales
offices and distributors throughout North America, South America, Europe, Japan
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.
In fiscal 1999 the Company addressed the market for news and current
awareness through two primary lines of business: the Enterprise business and the
Individual.com (formerly NewsPage) business. The Enterprise business involves
selling the Company's services directly to large organizations. The Company's
Enterprise services deliver news and information to large numbers of users
within organizations through corporate Intranets or local area networks (LAN).
As of December 31, 1999, the Company had over 1,400 Enterprise customers, an
increase of 8% from the previous year-end, with approximately 700,000 users.
These organizations included 81 of Business Week's 100 largest global companies
(based upon market capitalization).
The Company's Individual.com business operated Individual.com, an Internet
web site that offers customized, business-oriented news and information. Through
a series of strategic relationships, the Individual.com business also provided
news and information for a number of other Internet web sites. During 1999,
these relationships included Netscape Business Journal and Yahoo! Small
Business. The Individual.com service was supported in part by targeted
advertising and electronic commerce, and was offered to end users as either a
free service for a basic package or as a subscription service for premium
packages. On February 18, 2000, the Company, Office.com Inc. and Individual.com
entered into a Stock Purchase Agreement, providing for the sale by the Company
of all the issued and outstanding capital stock of Individual.com, Inc. to
Office.com, Inc. The initial closing of the purchase and sale for 80% of the
outstanding shares of Individual.com, Inc.'s common stock, $.01 par value (the
"Shares") occurred on February 18, 2000. The closing of the remaining 20% of
Individual.com's common stock shall occur no later than February 28, 2001. The
aggregate purchase price for all of the outstanding shares of Individual.com's
stock was $10,000,000 in cash, payable in installments on February 18, 2000,
May 1, 2000, December 31, 2000 and February 28, 2001.
In addition to the Enterprise business and the Individual.com 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 2000. The Company now reports the Individual.com
business as discontinued operations.
Industry Background and Target Market
Increasingly, businesspeople are turning to Internet technology for the
news they need to be competitive and effective in their jobs. Analysts estimate
that the number of users of Internet technology at work reached a worldwide
total of 50 million in 1999. The analysts project that the number of business
web users will grow at a rate of 25% per year through the year 2001, about
doubling the number of workers using the Internet over the next three years.
At the same time some businesspeople consider the Internet a free-form and
undisciplined resource for business information. Single workers and their
employers are often frustrated by information overload (too much information)
and information overlook (missing the right information). Additionally, they are
concerned about the authority of content retrieved, the lack of personalization
in information alerting and monitoring and the amount of time it takes to find
the information needed to be successful in their jobs. Business people who use
the Internet at work are becoming more value conscious, particularly about the
use of their time, while enterprises continue to seek efficient ways to leverage
the large investments in computer networks, Internet connectivity and
information access that they have made in recent years.
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The NewsEdge Solution
The Company's services are designed to meet the needs of businesspeople for
authoritative news and current information that is delivered in a personalized,
easy-to-use format that solves the twin problems of information overload and
information overlook.
The Company's Enterprise business has services which provide users with a
concentrated briefing at the beginning of each day, distilled from the previous
day's business news and customized to meet their personal interests. These
services also offer periodic updates of the news during the day for monitoring
specific topics of interest. For workers who are on the front lines of
information analysis and decision making such as CEOs, corporate communications
personnel, reporters and securities traders, the Enterprise business offers
services which scroll news stories in real-time and automatically alert the user
to relevant stories that meet their personal interests immediately as they
break. In addition to briefing, monitoring and alerting, many of the Company's
services offer a search and retrieval function to help research historical
information needs.
Some Company services have direct Internet links from stories of interest
to certain partner information services for reference information such as
company descriptions, summary financial statistics, SEC filings, stock
quotations and charts and in many cases direct connections to the web sites of
companies mentioned in the story.
All interactive news service offerings within the Company's business line
are available through common Internet browsers. Enterprise customers have the
choice of accessing their news service by installing dedicated NewsEdge servers
inside their firewalls on their own LAN or accessing their news service by
connecting to similar servers maintained at the Company's headquarters via
private connections or the public Internet itself.
Three key components of the Company's competitive advantage are the
NewsEdge Refinery (TM) (the "Refinery"), the Company's editorial and review
staff and the Company's contractual relationships with news and information
providers. These competitive advantages are leveraged across the Enterprise
business line, providing end-users various levels of customized, filtered news
from authoritative sources.
The NewsEdge Refinery(TM)
The NewsEdge Refinery(TM) filters news stories from more than 500 global
news sources, eliminating redundancies while prioritizing and summarizing
only the relevant stories into targeted NewsEdge Review(TM) topics ("Review
Topics"). As stories are received into the Refinery from various content
providers around the world in their native format, an automated software
editor program is used to consistently format, tag and code the stories to
allow for enhanced indexing throughout the remainder of the process. The
stories are then fed from the software editor through refined filtering
software (see discussion on SMART technology in "Certain Factors Affecting
Future Operating Results" - Dependence on Proprietary Technology) to
eliminate obvious redundancies and categorize the remaining stories into a
first draft of the 1,400 Review Topics maintained by the Company. A staff
of professional editors and reviewers then work with the results generated
from the filtering software to further eliminate redundancies incapable of
detection through the filtering software, while continuing to enhance the
summarization and prioritization of the stories contained within the final
delivered Review Topics. Finally, a proprietary software application
distributes the resulting Review Topics to various servers for ultimate
consumption by the end user of any topical news service offered by the
Company.
Updated stories released throughout the day are delivered to these same
servers to be distributed to customers in real-time, through once a day
briefings or both. These updates provide users with the ability to monitor
and to be alerted to breaking news of personalized interest all day long.
The portion of the Refinery that delivers continuous news operates
twenty-four hours a day, seven days a week, every day of the year.
NewsEdge Review Topics, Editors and Reviewers
Using the automated capabilities of the Refinery plus an experienced
professional editorial staff, the Company produces a news service called
NewsEdge Review topics. Each night, a staff of more than two dozen business
and industry experts personally reviews the news that has been
electronically filtered, categorized, ranked and assembled from more than
500 global news sources into approximately 1,400 business topics and over
30,000 companies. The reviewers pick the top new stories, discarding
duplicates and stories covered on previous days, and then prioritize the
stories into a briefing for each of the 1,400 business topics. In the early
morning hours of every business day, the Review Topics are transmitted to
servers at NewsEdge and customer sites. The knowledge sets that define the
Review Topics have been honed by an aggregate of more than 200 person-years
of experience in news selection and review. In addition, the editors
consult with customers on paid knowledge management assignments to help
such customer's users make better use of their services.
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News and Information Providers
The Company has contracted with over 100 global content providers to make
available through its services news and information from over 2,000
sources. News and information sources currently available on NewsEdge
include newswires from AFX News Limited, The Associated Press, Inc.,
Bloomberg, Bridge, Dow Jones & Company, Inc., Knight-Ridder/Tribune
Information Services, L.P. and Nihon Shimbun America, Inc. , as well as the
text of stories in The Financial Post (Toronto), The Financial Times
(London), The New York Times, London Daily Telegraph/Telegraph Group
Limited and The Wall Street Journal. Also available for use within select
NewsEdge services are the business sections of over 100 North American
newspapers, over 30 major metropolitan business journals, periodicals such
as Business Week, Forbes, Fortune, InfoWorld, MacWeek and PCWeek,
newsletters such as those distributed by American Banker and Phillips
Business Information Services, Inc. and international wire services and
publications such as Agence France Presse, Deutsche Press-Agentur GmbH, Het
Financieele Dagblad B.V. and the Economist.
The majority of these news services are received by the Refinery. Stories
processed through the Refinery receive the benefit of enhanced tagging and
coding procedures which improve the relative ease with which customers are
able to create custom profiles to capture only the stories relevant to
their interests. Of the thousands of sources available for use with select
Company services, approximately 500 global sources are used to create the
Review Topics. Customers may purchase access to individual sources or
packages of sources including individual newswires and select Review
Topics. Access to individual news sources and select Review Topics may be
controlled by the customer at the individual user level.
Certain of the Company's news source offerings are written and distributed
in their native languages such as English, Dutch, German and French.
Contracts with information providers require the Company to remit royalties
to information providers on a revenue share basis or related to the
Company's sale of their content on a per customer or per user basis. The
Company has negotiated fixed fee arrangements with certain news providers
and is pursuing additional arrangements of this type with other information
providers.
NewsEdge Service Offerings
During 1999, the Company defined and provided three categories of service
offerings for news users. All three of these service offerings are Internet
browser enabled.
o NewsEdge Live(TM) provides and processes an up-to-the-second news broadcast
for immediate scrolling news views and user alerting. NewsEdge Live version
5.1 was released to customers in October 1999.
o NewsEdge Insight(TM), offered in both a web interface and a Lotus Notes
environment, combines the monitoring of real-time news with briefings from
NewsEdge Review topics. NewsEdge released both a notes version and a web
version in the second half of 1999.
o NewsEdge NewsObjects(R) is a set of news components used by customers to
build their own applications; by the NewsEdge partner companies to
news-enable off-the-shelf products to make them even more valuable; and by
the NewsEdge Solutions Team to customize services for customers.
NewsObjects is available as both ActiveX and HTML toolkits. The most recent
release of NewsObjects, NewsEdge NewsObjects - ActiveX Toolkit 2.1, was
made available in October 1999.
In connection with the NewsEdge Live and NewsEdge Insight service
offerings, a telecommunications service known as the NewsEdge Network(TM)
provides a high availability frame-relay network that synchronizes the delivery
of news stories to certain customer-based servers from the Company's
headquarters. NewsEdge Network has sufficient bandwidth to deliver news stories
with minimal delay. One of the primary advantages of this enhanced service
offering is the automatic monitoring of stories received by the customer's
systems and automatic retransmission of any missed stories which may have
resulted from a business interruption at the customer's site.
In addition to the news service offerings, the Company builds news
processing software for servers to be located at both customer sites and
NewsEdge hosted facilities. NewsEdge Server(TM) version 5.0 was released to
customers in October 1999.
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The Enterprise Business
Strategy
The Enterprise business model focuses on providing high quality service to
its customers. Management believes that the personal attention of the
Company's sales and support professionals is an essential ingredient to
servicing the demands and varied news requirements of the largest and most
sophisticated news users in the world. The Enterprise business will
concentrate on the steady, predictable, accountable characteristics that
give organizations confidence in NewsEdge as their business partner. It is
management's goal to have the Enterprise business reach profitability and
to grow it steadily and profitably, gaining share in the Enterprise market.
Business Detail
The Company sells Enterprise services directly to corporations, financial
institutions, non-profit organizations and government agencies via its own
Enterprise sales organization that included over 100 employees at the end
of 1999. The Company maintains sales offices and distributors in North
America, South America, Europe, Asia and the Middle East to be close to its
customers and to provide regional field engineering support.
To further increase the value of the Company's Enterprise services to
customers, the Company offers application consulting through a professional
services group. Furthermore, the Company offers knowledge management
services to assist customers in defining their business information needs
and then structuring their NewsEdge news service to achieve the highest
level of satisfaction.
At the end of 1999, the Company counted more than 1,400 enterprises as
customers. This represents a 8% increase over the last year. Included in
this group of NewsEdge customers are 81 of the 100 largest global companies
listed by Business Week, ranked by market capitalization. By December 31,
1999, these Enterprise customers had authorized more than 700,000 NewsEdge
users within their organizations, representing almost a 20% growth over
December 31, 1998.
There was a continued shift towards the Company's Internet
technology-enabled services during 1999. It is management's belief that the
Internet enablement was a significant ingredient in achieving increased
numbers of users per customer. Management estimates that while
approximately 75% of enterprise users of NewsEdge services were Internet
enabled at the end of 1998, by the end of 1999 the Internet enabled
percentage was approximately 100%.
The Individual.com Business
During 1999 the Individual.com business was targeted at single workers. It
operated Individual.com, an Internet web site that offered customized,
business-oriented news and information. Through a series of strategic
relations, the Individual.com business also provided news and information
for a number of other Internet web sites. During 1999, these relationships
included Netscape Business Journal and Yahoo! Small Business. Pursuant to
that certain Stock Purchase Agreement, the Company sold Individual.com to
Office.com Inc. on February 18, 2000.
News Operations and Support
The NewsEdge Refinery(TM) is staffed around the clock every day of the
year. This staff includes operators, technicians and systems engineers who
monitor, maintain and repair NewsEdge capabilities and contact news providers
and telecommunication vendors when services need attention. The goal is
continuous, real-time news services for customers.
The Company provides several layers of customer support. While every
Enterprise customer has a dedicated account executive and account manager, the
Company's multi-tiered customer support organization also provides additional
help for system administrators with questions and problems that are more
technical in nature. The Company not only provides specialist help via 1-800
telephone support, but also has field engineers available for travel to customer
locations for situations that require on-site support. Finally, in special
circumstances, high-attention teams are assembled for customer problems that are
particularly complex.
There were approximately 102 employees involved in news operations and
support at the end of 1999.
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Development
The Company recognizes that the continued enhancement of its services and
the extension of its content offerings are critical to obtaining new customers
and to maintaining and growing sales from existing customers. Since its
inception, the Company has made substantial investments in research and
development, issuing frequent new releases of its various product offerings. The
NewsEdge software has been developed by the Company's internal development and
quality assurance staff. Product upgrades are included as part of the annual
subscription fees paid by customers.
Development efforts have also been focused on supporting additional desktop
operating platforms and LAN configurations, expanding the scalability of the
NewsEdge server, managing the increasing number of news sources, increasing
storage for news history, advancing the ease of programmatic access through
support for ActiveX, Java and HTML components, and providing enhanced precision
and functionality for user searches and profiles. The Company's development
expenses were $8.5 million, $10.7 million and $10.7 million in 1999, 1998 and
1997, respectively. The NewsEdge server is developed in modules according to the
primary NewsEdge functions: a news collection and alerting module; a news
database module for storing and retrieving the full text of the news stories; a
network module adaptable to the network protocols installed at customer sites;
and a module which allows customer administrators to configure newswire access
and monitor NewsEdge activity. The Company believes its decision to manage its
own software development internally creates a competitive advantage for the
Company by improving speed and flexibility in meeting market and technology
changes.
An important goal of the NewsEdge development staff is the continuing
enhancement of the Refinery, particularly, its coding and tagging capabilities
and its ability to manage an increasing number of newswires offered by the
Company. The Company's marketing personnel identify newswires to be added to the
NewsEdge offerings based on customer feedback and negotiate contracts with news
providers. The newswires are then integrated with NewsEdge services by
development and support personnel. The Company is currently seeking to expand
its content offerings with additional industry-specific information to increase
sales to customers in new vertical markets and with additional international
news sources to increase the availability of global, 24 -hours a day news
coverage.
Sales and Marketing
The Company's Enterprise business employs over 100 sales and sales
management professionals who are experts at helping large organizations derive
value from the Company's services. Enterprise salespeople, who are located in
offices in major cities created with the intention of being closer to customers,
call directly on knowledge managers, information technology professionals as
well as other senior management of customer and target companies.
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.
The Company competes or may compete directly or indirectly with the
following categories of companies:
o large, well-established news and information providers such as Dow Jones,
Lexis/Nexis, Pearson and Thomson;
o market data services companies such as Bloomberg and Bridge;
o traditional print media companies that are increasingly searching for
opportunities for on-line provision of news, including through the
establishment of web sites on the Internet;
o large providers of LAN-based software systems such as Lotus/IBM, Netscape
and Microsoft, which could, in the future, ally with competing news and
information providers; and
o 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.
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The Company believes that its services are differentiated from the news and
system services offered by large news and systems providers because of the
Company's ability to deliver news from many different, competing providers.
These services are delivered on an enterprise-wide basis directly to
LAN-connected personal computers, and customized to meet the needs of each
individual user at a relatively low cost per user. Although they may compete
with the Company in some respects, the Company attempts to establish
cooperative, mutually beneficial relationships with large information or systems
providers, many of whom are information providers enjoying significant revenue
streams from distribution through the Company's services, customers, or current
and potential joint marketing partners.
Intellectual Property
The Company relies upon a combination of copyright, trademark and trade
secret laws and license agreements to establish and protect proprietary rights
in its technology. The NewsEdge software is licensed to customers on a
non-exclusive basis pursuant to license agreements containing provisions
prohibiting unauthorized use, copying and transfer of the licensed program. The
source code for the Company's software is protected both as a trade secret and
as an unpublished copyrighted work. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
software or technology without authorization or to develop similar technology
independently. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries.
The proprietary SMART filtering software, which is used as the filtering
engine within the Refinery, is licensed from Cornell Research Foundations, Inc.
("Cornell") under the terms of such license. The Company had exclusive worldwide
rights in the SMART software until February 1999, at which point the license
continued but the Company's exclusivity to the technology terminated. There can
be no assurance that Cornell has not or will not license the SMART technology to
a third-party, or terminate the license upon any material breach of the
agreement which remains uncured for 60 days after notice of such breach.
Because the software development industry is characterized by rapid
technological change, the Company believes that factors such as the
technological and creative skills of its personnel, new software developments,
frequent software enhancements, name recognition and reliable maintenance are
more important to establishing and maintaining a technology leadership position
than the various legal protections of its technology.
The Company believes that its software, trademarks and other proprietary
rights do not infringe the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert such infringement by the
Company with respect to current or future software or services. Any such claims,
with or without merit, could be time-consuming, result in costly litigation,
cause software release delays or might require the Company to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company.
Employees
As of December 31, 1999, the Company had 350 full-time employees within its
continuing operations, consisting of 154 employees in sales and marketing, 102
employees in editorial and news operations (the costs of which are included in
cost of revenues) and customer support, 63 employees in development and 31
employees in general administration. The Company's employees are not represented
by any collective bargaining organization. The Company has never experienced a
work stoppage and considers its relations with employees to be good.
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Recent Developments
On December 7, 1999, the Company, RoweCom Inc., ("RoweCom"), and RoweCom
Merger Corporation, a wholly-owned subsidiary of RoweCom ("Merger Sub") entered
into an Agreement and Plan of Merger and Reorganization (the "Merger
Agreement"), providing for the merger of Merger Sub with and into the Company,
after which the separate corporate existence of Merger Sub would cease and the
Company would continue as the surviving corporation and a wholly-owned
subsidiary of RoweCom.
On March 6, 2000 the Company, RoweCom and Merger Sub agreed to terminate
the Merger Agreement, by mutual consent. At the same time, the Company and
RoweCom entered into an agreement to combine and jointly market to business
customers the companies' respective catalog. As a result of this joint marketing
agreement, the Company will provide all on-line news and current awareness
services ordered by either parties' business clients and RoweCom will provide
all magazine, journal, books and newspaper subscriptions ordered by either
parties' business clients. Users may access the Company's and RoweCom's catalogs
by means of links found in either of their web sites.
On March 15, 2000, the Company further announced the resignation of Donald
L. McLagan as Chief Executive Officer of the Company and its subsidiaries,
NewsEdge Canada Corporation, NewsEdge Securities Corporation and NewsEdge, K.K.,
effective on March 14, 2000. In addition, Mr. McLagan resigned as a director of
the Company, effective on March 14, 2000. The Board of Directors of the Company
the appointed Clifford M. Pollan, previously the Company's President and Chief
Operating Officer, as Chief Executive Officer and member of the Board of
Directors.
The Company also announced that it had received resignations dated March
14, 2000 from two members of the Board of Directors, Ms. Ellen Carnahan and Ms.
June Rokoff, each effective immediately. Mr. Rory Cowan, a current member of the
Board of Directors, was appointed Chairman of the Board. Basil Regan and Peter
Woodward, each of the investment firm Regan Fund Management Ltd., a stockholder
of the Company, were concurrently appointed members of the Board of Directors. A
third member of the Board of Directors representing Regan Fund Management Ltd.
will be nominated to an expanded Board of Directors at the next annual meeting
of the stockholders of the Company.
Item 2. Properties
The Company's corporate headquarters are located in Burlington,
Massachusetts. As of December 31, 1999, the Company leased approximately 40,000
square feet under a lease expiring in May 2003 and an additional 42,000 square
feet in a separate office building under a lease expiring in January 2001. The
Company also leases additional facilities and offices for sales and customer
service and support in New York, New Jersey, Washington D.C., Illinois,
California, Toronto, Canada, London, England, Geneva, Switzerland and Tokyo. The
Company believes that its existing facilities and offices, along with additional
alternative space available to it, are adequate to meet its requirements for the
foreseeable future.
Item 3. Legal Proceedings
The Company is not currently a party to any other legal proceedings, the
adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on the Company's results of operations or financial
position. From time to time, the Company may be involved in litigation relating
to claims arising out of its operations in the normal course of business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company effected its initial public offering of its Common Stock on
August 11, 1995 at a price to the public of $15.00 per share. As of March 20,
2000, there were approximately 172 holders of record of the Company's Common
Stock. The Company's Common Stock is listed for quotation on the Nasdaq National
Market under the symbol "NEWZ."
Based on the Nasdaq National Market daily closing price, the high and low
bid prices of shares of Company Common Stock for each quarter for the past two
years are shown below. The quotations represent interdealer quotations, without
adjustments for retail markups, markdowns, or commissions, and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Nasdaq National Market Daily Closing Price:
Quarter Ended High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
March 31, 1998 $14.13 $7.84
June 30, 1998 17.13 8.75
September 30, 1998 12.25 6.38
December 31, 1998 11.63 4.63
March 31, 1999 14.25 8.00
June 30, 1999 11.50 6.63
September 30, 1999 9.50 6.50
December 31, 1999 12.88 8.31
</TABLE>
The Company has not paid any cash dividends on its Common Stock and
currently intends to retain any future earnings for use in its business.
Accordingly, the Company does not anticipate that any cash dividends will be
declared or paid on the common stock in the foreseeable future.
On November 4, 1999, the Company issued a warrant ("the Warrant") for
50,000 shares of the Company's Common Stock at an exercise price of $7.125 per
share to one of the Company's investment advisors 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 of 1933, as amended. The Warrant was
fully vested at the time of issuance and shall be void on November 4, 2001. The
estimated fair value of the Warrant totaled $303,000, and has been recorded as
a charge to general and administrative expenses in 1999.
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Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
Statement of Operations Data: 1999 1998 1997 1996 1995
------------- ------------ ------------ ----------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total revenues $ 74,247 $ 73,180 $ 71,669 $ 58,969 $ 41,757
--------- --------- --------- --------- ---------
Cost of revenues 29,838 29,830 27,785 21,158 15,065
Customer support expenses 4,903 5,383 4,832 2,901 2,315
Development expenses 8,541 10,673 10,666 7,888 5,558
Sales and marketing expenses 30,761 28,611 26,741 20,881 17,759
General and administrative expenses 2,812 4,024 5,018 6,128 4,274
Mergers, dispositions and other charges - 11,094 5,084 39,422 -
--------- --------- --------- --------- ---------
Total costs and expenses 76,855 89,615 80,126 98,378 44,971
--------- --------- --------- --------- ---------
Loss from continuing operations (2,608) (16,435) (8,457) (39,409) (3,214)
Interest income and other, net 1,541 2,308 2,983 1,672 653
--------- --------- --------- --------- ---------
Loss from continuing operations
before provision for income taxes (1,067) (14,127) (5,474) (37,737) (2,561)
Provision for income taxes 83 166 1,297 614 183
--------- --------- --------- --------- ---------
Loss from continuing operations (1,150) (14,293) (6,771) (38,351) (2,744)
Accretion of dividends on preferred
stock -- -- -- (463) (1,743)
Discount on redemption of preferred
stock -- -- -- -- 1,232
--------- --------- --------- --------- ---------
Loss from continuing operations to
common stockholders (1,150) (14,293) (6,771) (38,814) (3,255)
--------- --------- --------- --------- ---------
Loss from discontinued operations (15,843) (2,935) (9,090) (7,505) (1,321)
--------- --------- --------- --------- ---------
Net loss $ (16,993) $ (17,228) $ (15,861) $ (46,319) $ (4,576)
========= ========= ========= ========= =========
Basis and diluted net loss per common
share: (1)
Continuing operations $ (0.07) $ (0.83) $ (0.41) $ (2.61) $ (0.38)
Discontinued operations (0.91) (0.17) (0.54) (0.51) (0.15)
--------- --------- --------- --------- ---------
Total basic and diluted net loss
per share $ (0.98) $ (1.00) $ (0.95) $ (3.12) $ (0.53)
========= ========= ========= ========= =========
As of December 31,
---------------------------------------------------------------
Balance Sheet Data: 1999 1998 1997 1996 1995
------------- ------------ ------------- ---------- -----------
Cash and cash equivalents $ 20,278 $ 37,808 $ 35,175 $ 10,735 $ 19,301
Working capital (deficit) (4,632) 10,294 29,530 35,303 32,815
Total assets 47,854 69,154 92,246 97,644 67,239
Senior subordinated notes -- -- -- -- 10,000
Redeemable preferred stock -- -- -- -- 23,999
Total stockholders' equity (deficit) 6,711 19,249 38,445 51,531 3,394
</TABLE>
- --------------------------------------------------------------------------------
(1) Calculated on the basis described in Note 4 of Notes to Consolidated
Financial Statements.
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for the historical information contained herein, this Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding, among other items, (i) the Company's growth strategies;
(ii) anticipated trends in the Company's business; (iii) the Company's ability
to expand its service offerings; and (iv) the Company's ability to satisfy
working capital requirements. These forward-looking statements are based largely
on the Company's expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of a
number of factors including, but not limited to, those factors described in
"Certain Factors Affecting Future Operating Results" contained in the Company's
Annual Report on Form 10-K for the fiscal year ended 1999.
Introduction and Overview
NewsEdge Corporation 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
its Enterprise business, which 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 December 31, 1999, the Company had over 1,400 Enterprise
customers, up 8% from the previous year-end, with approximately 700,000 users.
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.
Individual.com, Inc. operated the Company's single-worker news service
business unit, which derived its revenues from targeted advertising and
electronic commerce. On February 18, 2000, the Company, Office.com, Inc. and
Individual.com, Inc. entered into the Stock Purchase Agreement providing for the
sale by the Company of all the issued and outstanding capital stock of
Individual.com, Inc. to Office.com. An initial purchase and sale of 4,000,000 of
the shares occurred on February 18, 2000. The purchase and sale of the remaining
1,000,000 shares shall occur no later than February 28, 2001. Pursuant to the
Stock Purchase Agreement, the aggregate purchase price for the total 5,000,000
shares was $10,000,000 in cash, payable in installments on February 18, 2000,
May 1, 2000, December 31, 2000 and February 28, 2000.
The Company estimates a gain on the sale of Individual.com, Inc. totaling
approximately $7,600,000 before applicable income taxes. The Company will record
$5,600,000 of the gain in February 2000 and the remainder in February 2001, as
each of the two closings occur.
In addition to the Enterprise business, the Company also reports a segment
of "other" revenue, which consists of services that are being phased out by the
Company, and that the Company expects to be immaterial beyond 1999. The
Company's "other" revenues consist primarily of subscription fees generated from
sales of services.
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.
12
<PAGE>
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
Individual changed its name to NewsEdge Corporation.
Results of Operations
The following table sets forth certain consolidated financial data as a
percentage of total revenues:
<TABLE>
<CAPTION>
Percentage of Total Revenues
Year Ended
December 31,
-----------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Enterprise 98.2% 92.1% 82.2%
Other 1.8 7.9 17.8
------------- ------------- -------------
Total revenues 100.0 100.0 100.0
Cost of revenues 40.2 40.8 38.8
Customer support expenses 6.6 7.4 6.7
Development expenses 11.5 14.6 14.9
Sales and marketing expenses 41.4 39.1 37.3
General and administrative expenses 3.8 5.5 7.0
Mergers, dispositions and other expenses -- 15.1 7.1
------------- ------------- -------------
Total costs and expenses 103.5 122.5 111.8
------------- ------------- -------------
Loss from continuing operations (3.5) (22.5) (11.8)
Interest income and other, net 2.1 3.2 4.2
------------- ------------- -------------
Loss from continuing operations before
provision for income taxes (1.4) (19.3) (7.6)
Provision for income taxes 0.1 0.2 1.8
------------- ------------- -------------
Net loss from continuing operations (1.5) (19.5) (9.4)
Loss from discontinued operations of Individual.com Inc.,
net of taxes (21.3) (4.0) (12.7)
------------- ------------- -------------
Net loss (22.9)% (23.5)% (22.1)%
============= ============= =============
</TABLE>
Year Ended December 31, 1999, as Compared to the Year Ended December 31, 1998
Revenues
Total revenues for the year ended December 31, 1999 increased 1.5% to $74.2
million compared to $73.2 million for the same period in 1998. This increase was
due to growth in revenues from the Company's enterprise product line offset by a
decline in other revenues. Other revenues consist of revenues from product lines
being terminated or de-emphasized by the Company.
Enterprise revenue for the year ended December 31, 1999 increased 8.2% to
$72.9 million as compared to $67.4 million 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.
Other revenues decreased 77.3% to $1.3 million as compared to $5.8 million
in 1998. The decrease in other revenues was due primarily to the spin off of the
Clarinet business unit effective March 31, 1998 and the continued overall
reduced sales effort directed at business lines that have been terminated or
de-emphasized by the Company.
13
<PAGE>
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. While cost of revenues for both periods
remained flat at $29.8 million, a $1.8 million decline from terminated product
lines was offset by a similar dollar increase within Enterprise, commensurate
with increased revenue. Cost of revenues as a percentage of total revenues for
the year ended December 31, 1999 decreased to 40.2% from 40.8%, for the same
period in 1998. The percentage decrease in cost of revenues was due primarily to
an initiative started by the Company in 1999 to negotiate reduced royalty costs
with several 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 year ended December 31, 1999 decreased 8.9% to $4.9 million as
compared to $5.4 million for the same period in 1998. This $500,000 decrease
was attributable to the terminated product lines business and was primarily due
to reductions in headcount and related payroll expenses. As a percentage of
total revenues, customer support expenses for the year ended December 31, 1999
decreased to 6.6% from 7.4% 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 year ended December 31, 1999 decreased $2.2 million, or 20.0%,
to $8.5 million as compared to $10.7 million for the same period in 1998. The
decrease was primarily due to $800,000 saved from the terminated product
lines and approximately $900,000 from a decrease in Enterprise business
development efforts in 1999 versus 1998. As a percentage of total revenues,
development expenses for the year ended December 31, 1999 decreased to 11.5%
from 14.6% 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 year ended December 31,
1999 increased $2.2 million, or 7.5%, to $30.8 million as compared to $28.6
million for the same period in 1998. The $2.2 million increase resulted
primarily from higher sales force and sales management headcount and related
payroll expenses. As a percentage of total revenues, sales and marketing
expenses for the year ended December 31, 1999 increased to 41.4% from 39.1% for
the same period in 1998.
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 year ended December 31, 1999 decreased $1.2
million, or 30.2%, to $2.8 million as compared to $4.0 million for the same
period in 1998. The $1.2 million decrease in expenses was due primarily to a
$500,000 in savings associated with the terminated product lines as well as
reductions in headcount and related payroll expenses. As a percentage of total
revenues, general and administrative expenses for the year ended December 31,
1999 decreased to 3.8% from 5.5% 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 business combinations and dispositions. For the
year ended December 31, 1998, these costs, totaling $11.1 million, related
primarily to costs associated with the Merger with Individual, the purchase of
ISS, the spin off of the Clarinet business unit, the 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 for the year ended December 31, 1999,
decreased to $1.5 million from $2.3 million in 1998, due to a reduction in
interest income associated with lower cash and investment balances.
14
<PAGE>
Provision for income taxes
The provision for income taxes for the year ended December 31, 1999
decreased to $83,000 from $166,000 in 1998. Components of the provisions include
state taxes due in states that do not have net operating loss carry-forwards
available, foreign tax liabilities and the alternative minimum tax due under the
Internal Revenue Code. 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.
Discontinued operations
The Company has reported the historical operating results of its
Individual.com business segment as discontinued operations. Revenues from
discontinued operations were $4.1 million in 1999 and $6.4 million in 1998.
Revenues decreased as a result of the decision by new management to convert from
a mix of subscription fees and advertising revenue model to a advertising
revenue only model. Expenses from discontinued operations were $19.9 million in
1999 and $9.3 million in 1998. The increase in expenses represented the
Company's significant accelerated investment to evaluate the viability and
market value of the Individual.com business. Due to the lack of growth in
revenue, increase in expenses and ongoing funding, the Company's board of
directors decided to sell its ownership interest in Individual.com, Inc. in
February 2000. See Note 3 in the accompanying Notes to Consolidated Financial
Statements.
Year Ended December 31, 1998, as Compared to the Year Ended December 31, 1997
Revenues
Total revenues for the year ended December 31, 1998 increased 2.1% to $73.2
million compared to $71.7 million in 1997. This increase was due primarily to
growth in revenues from the Company's enterprise product lines offset by a
decline in other revenues. Other revenues consist of revenues from product lines
being terminated or de-emphasized by the Company.
Enterprise revenue for the year ended December 31, 1998 increased 14.3% to
$67.4 million as compared to $58.9 million in 1997. 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.
Other revenues decreased 54.4% to $5.8 million as compared to $12.7 million
in 1997. The decrease in other revenues was due primarily to the spin off of the
Clarinet business unit effective March 31, 1998 and an overall reduced sales
effort directed at business lines that have been terminated or are being
de-emphasized by the Company.
Cost of revenues
Cost of revenues as a percentage of total revenues for the year ended
December 31, 1998 increased to 40.8% from 38.8% in 1997. 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 for the year ended December 31, 1998 increased
11.4% to $5.4 million as compared to $4.8 million in 1997. This $600,000
increase resulted primarily from higher payroll costs needed to attract and
retain qualified personnel to support the Company's growing customer base. As a
percentage of total revenues, customer support expenses for the year ended
December 31, 1998 increased to 7.4% from 6.7% in 1997.
Development expenses
Development expenses for the years ended December 31, 1998 and 1997 were
$10.7 million. A decrease of approximately $870,000 in development expenses
resulted from reductions in headcount and related expenses associated with the
spin off of the Clarinet business unit effective March 31, 1998 and the
discontinuation of other development efforts previously maintained by
Individual. Offsetting this decline was higher payroll costs related to
increases in headcount associated with ongoing development efforts. As a
percentage of total revenues, development expenses for the year ended December
31, 1998 decreased to 14.6% from 14.9% in 1997.
15
<PAGE>
Sales and marketing expenses
Sales and marketing expenses for the year ended December 31, 1998 increased
7.0% to $28.6 million as compared to $26.7 million in 1997. The $1.9 million
increase is due primarily to increases in payroll and commission costs
associated with increased headcount and sales in the enterprise business.
Additionally, twelve months of sales and marketing costs for the Clarinet
business unit were included as part of total sales and marketing costs for 1997,
but only three months were included in 1998 as a result of the spin off of the
Clarinet business unit effective March 31, 1998. As a percentage of total
revenues, sales and marketing expenses for the year ended December 31, 1998
increased to 39.1% from 37.3% in 1997.
General and administrative expenses
General and administrative expenses for the year ended December 31, 1998
decreased 19.8% to $4.0 million as compared to $5.0 million in 1997. The
decrease in general and administrative expenses was due primarily to a reduction
in professional fees associated with special business development efforts and a
reduction in senior management following the Merger. Additionally, twelve months
of general and administrative costs for the Clarinet business unit were included
as part of total general and administrative costs for 1997, but only three
months were included in 1998 as a result of the spin out of the Clarinet
business unit effective March 31, 1998. As a percentage of total revenues,
general and administrative expenses for the year ended December 31, 1998
decreased to 5.5% from 7.0% in 1997.
Merger, disposition and other charges
Merger, disposition and other charges consist primarily of the nonrecurring
costs related to the Company's business combinations. For the year ended
December 31, 1998, these costs, totaling $11.1 million, related primarily to
costs associated with the Merger with Individual, the purchase of ISS, the spin
off of the Clarinet business unit, the severance and benefits for terminated
employees and the cost of terminating and settling certain contractual
obligations of the combined companies. For the year ended December 31, 1997,
merger, disposition and other charges, totaling $5.1 million related primarily
to product development expenses, goodwill amortization and other charges
associated with companies previously acquired by Individual.
Interest income (expense), net
Interest income (expense), net for the year ended December 31, 1998,
decreased to $2.3 million from $3.0 million for the same period in 1997, due to
a reduction in interest income associated with lower cash and investment
balances.
Provision for income taxes
The provision for income taxes for the year ended December 31, 1998
decreased to $166,000 from $1.3 million in 1997. The higher tax provision for
the year ended December 31, 1997, related to the tax provision generated from
the profitable operations of Desktop Data when operating as a separate entity.
Components of the provisions include state taxes due in states that do not have
net operating loss carry-forwards available, foreign tax liabilities and the
alternative minimum tax due under the Internal Revenue Code. 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.
Discontinued operations
Revenues from the discontinued operations of Individual.com, Inc. were
$6.4 million in 1998 and $5.8 million in 1997. The increase in revenue resulted
primarily from higher advertising revenue offset by a decline in subscription
revenue. Expenses from the discontinued operations of Individual.com, Inc. were
$9.3 million in 1998 and $14.9 million in 1997. The decrease in expenses
represented significantly lower sales and marketing costs.
16
<PAGE>
Liquidity and Capital Resources
The Company's cash, cash equivalents and investments totaled $20.3 million
at December 31, 1999, as compared to $41.6 million at December 31, 1998, a
decrease of $21.3 million.
The Company's operations used $19.0 million, $8.5 million, and $5.7 million
of cash in 1999, 1998, and 1997, respectively. The use of cash in operations
during 1999 primarily resulted from the Company's operating losses, of which
$15.8 million in operating losses were from the Individual.com, Inc.
discontinued business. The continuing Enterprise core business of the Company
accounted for only $2.2 million of the Company's consolidated operating loss and
generated a positive $1.1 million in operating earnings before depreciation,
amortization and interest in 1999.
The Company's investing activities used $473,000 and $404,000 in 1999 and
1998, respectively, and provided $17.1 million in 1997. The net use of cash in
1999 resulted primarily from $4.1 million of capital expenditures partially
offset by $3.8 million in proceeds resulting from the decrease in short-term
investment balances caused by the reinvestment of cash from maturing investments
into new investments with an original maturity of less than three months (i.e.
cash equivalents).
The Company's financing activities provided $2.1 million, $798,000 and $1.6
million in 1999, 1998, and 1997, respectively. Cash from financing activities
was derived primarily from employee stock option exercises (including tax
benefits) and purchases under the employee stock purchase plan. In 1999, the
Company used $700,000 of its proceeds received from employee stock purchases to
re-acquire 87,000 shares of its own stock in the open market.
In addition to the December 31, 1999 year ending cash balance of
$20.3 million, the Company expects to receive in 2000 $8.0 million of the
$10.0 million sale proceeds from Individual.com, Inc. divestiture, $2.5 million
of which was received in February 2000 and the remainder to be received no later
than December 31, 2000.
The Company continues to investigate the possibility of investments in or
acquisitions of complementary businesses, services 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 primarily as a result of the divestiture of the
Individual.com, Inc. business which lost $15.8 million in 1999.
Certain Factors Affecting Future Operating Results
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
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.
17
<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 December 31,
1999, the Company had an accumulated deficit of approximately $120.8 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.
18
<PAGE>
Dependence on Continued Growth in Use of the Internet
The Company distributes certain services across multiple delivery
platforms, including the Internet, private networks based on Lotus Notes and
other groupware products, electronic mail, and facsimile. 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. As a result, there can be no assurance
that communication or commerce over the Internet will continue to develop at
historical rates 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, or timely development and commercialization of performance
improvements. 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. Laws and regulations may be adopted in the future that address
issues such as user privacy, pricing and characteristics of and quality of
products or services. 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.
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.
The Company competes or may compete directly or indirectly with the
following categories of companies:
o large, well-established news and information providers such as Dow
Jones, Lexis/Nexis, Pearson, and Thomson;
o market data services companies such as ADP, Bloomberg and Bridge;
o traditional print media companies that are increasingly searching for
opportunities for on-line provision of news, including through the
establishment of web sites on the Internet;
o 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
o 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.
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.
19
<PAGE>
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.
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 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 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 one of two methods: 1)
an arrangement between the Company and WAVO Corporation, a common carrier
communications vendor, or 2) the Company's own NewsEdge Network, a proprietary
entitlement and delivery system launched in the fall of 1998 that takes
advantage of both leased line and Internet delivery. WAVO presently also markets
services that compete directly with those of the Company. WAVO is also the
communications provider for many newswires offered by the Company through
NewsEdge services. The Company's agreement with WAVO expires on December 31,
2000. This agreement can be terminated earlier in the event of a material breach
by the Company of the agreement. If the agreement with WAVO were terminated on
short notice, or if WAVO 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 WAVO were unable to fulfill its obligations, other
sources of retransmission would be available to the Company including NewsEdge
Network, although the transition from WAVO 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. WAVO 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.
20
<PAGE>
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. These
systems and operations are vulnerable to damage or interruption from human
error, natural disasters, telecommunication failures, break-ins, sabotage,
computer viruses, intentional acts of vandalism and similar events. Similarly,
the Company's ability to track, measure, and report the delivery of
advertisements on its web site depends on the efficient and uninterrupted
operation of a third-party system. 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. The Company's insurance policies may not
adequately compensate for any losses that it may incur because of any failures
in its system or interruptions in delivery content. The Company's business,
results of operations and financial condition could be materially adversely
affected by any event, damage or failure that interrupts or delays operations.
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.
Provided that the Company does not default on the license agreement, the Company
will retain 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.
21
<PAGE>
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 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.
Recent Accounting Pronouncements
In June 1998, the Financial Standards Board, or FASB, issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for heding activities. SFAS No. 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS NO. 133 is not expected to have a material impact on
the Company's consolidated financial statements.
Potential Liability For Information Transmitted
The Company may be subject to claims for defamation, libel, copyright or
trademark infringement or based on other theories relating to the information it
publishes through its services. These types of claims have been brought,
sometimes successfully, against online services as well as print publications in
the past. The Company's insurance may not adequately protect it against these
claims.
22
<PAGE>
Item 7a. 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 December 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 December 31, 1999, the assets and
liabilities of the Company related to nondollar-denominated currencies was not
material.
23
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NewsEdge Corporation:
We have audited the accompanying consolidated balance sheets of NewsEdge
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1999. 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 did not audit the 1997 financial
statements of Individual, Inc., a company acquired during 1998 in a transaction
accounted for as a pooling of interests, as discussed in Note 6. Such statements
are included in the consolidated financial statements of NewsEdge Corporation
and reflect total revenues of approximately 46 percent in 1997 of the related
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to
amounts included for Individual, Inc., is based solely upon the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of NewsEdge Corporation and subsidiaries as of
December 31, 1999 and 1998 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 18, 2000 (except with respect to the matter
discussed in Note 1, as to which the date is March 7, 2000)
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Individual, Inc:
We have audited the statements of operations, stockholders' equity (deficit) and
cash flows of Individual, Inc. for the year ended December 31, 1997, not
presented separately herein. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of Individual, Inc.'s
operations and its cash flows for the year ended December 31, 1997 in conformity
with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 30, 1998 (except as to the information in
Note 15, for which the date is February 27, 1998)
25
<PAGE>
NEWSEDGE CORPORATION and subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 20,278 $ 37,808
Short-term investments ......................... -- 3,782
Accounts receivable, net of allowance
for doubtful accounts of $306
at 1999 and 1998 ............................. 11,280 13,112
Prepaid expenses and deposits .................. 5,132 5,037
--------- ---------
Total current assets .................... 36,690 59,739
--------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment ............................. 21,418 17,534
Furniture and fixtures ......................... 1,273 1,116
Leasehold improvements ......................... 1,107 842
Equipment under capital leases ................. 612 852
--------- ---------
24,410 20,344
Accumulated depreciation ...................... (15,012) (11,206)
--------- ---------
9,398 9,138
--------- ---------
OTHER ASSETS ..................................... 1,766 277
--------- ---------
$ 47,854 $ 69,154
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................... $ 2,869 $ 2,864
Accrued expenses ............................... 14,837 17,853
Deferred revenue, current ...................... 23,010 27,837
Current portion of long-term obligations ....... 303 891
--------- ---------
Total current liabilities ............... 41,019 49,445
--------- ---------
LONG-TERM OBLIGATIONS, LESS CURRENT PORTION ...... -- 303
--------- ---------
DEFERRED REVENUE, LESS CURRENT PORTION ........... 124 157
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value--
Authorized - 35,000 shares;
Issued--18.107 shares at 1999
and 17,522 shares at 1998,
Outstanding--17,625 shares at 1999
and 17,177 shares at 1998 ..................... 181 175
Additional paid-in capital ....................... 130,136 124,890
Cumulative translation adjustment ................ (58) 63
Accumulated deficit .............................. (120,822) (103,828)
Treasury stock, at cost;
432 shares in 1999 and
345 shares in 1998 ............................ (2,726) (2,051)
--------- ---------
Total stockholders' equity .............. 6,711 19,249
--------- ---------
$ 47,854 $ 69,154
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
26
<PAGE>
NEWSEDGE CORPORATION and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES $ 74,247 $ 73,180 $ 71,669
COSTS AND EXPENSES:
Cost of revenues 29,838 29,830 27,785
Customer support expenses 4,903 5,383 4,832
Development expenses 8,541 10,673 10,666
Sales and marketing expenses 30,761 28,611 26,741
General and administrative expenses 2,812 4,024 5,018
Mergers, dispositions and other charges -- 11,094 5,084
-------- -------- --------
Total costs and expenses 76,855 89,615 80,126
-------- -------- --------
Loss from continuing operations (2,608) (16,435) (8,457)
INTEREST INCOME AND OTHER, NET 1,541 2,308 2,983
-------- -------- --------
Loss from continuing operations
before provision for income taxes (1,067) (14,127) (5,474)
PROVISION FOR INCOME TAXES 83 166 1,297
-------- -------- --------
Net loss from continuing operations (1,150) (14,293) (6,771)
DISCONTINUED OPERATIONS (NOTE 3):
Loss from discontinued operations of
Individual.com, Inc., net of taxes (15,843) (2,935) (9,090)
-------- -------- --------
Net loss $(16,993) $(17,228) $(15,861)
======== ======== ========
LOSS PER SHARE (NOTE 4):
Basic and diluted net loss per common share:
Continuing operations $ (0.07) $ (0.83) $ (0.41)
Discontinued operations (0.91) (0.17) (0.54)
-------- -------- --------
Total basic and diluted loss per share $ (0.98) $ (1.00) $ (0.95)
======== ======== ========
Weighted average common shares outstanding 17,362 17,194 16,729
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
27
<PAGE>
NEWSEDGE CORPORATION and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
NewsEdge Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------- Additonal Cumulative
Number of Par Paid-In Translation Accumulated
shares Value Capital Adjustment Deficit
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 16,488 $ 165 $ 121,763 $ 70 $ (70,436)
Stock issued related to options, warrants and ESPP,
including tax benefits 303 3 1,827 -- --
Warrants issued in acquisition of CompanyLink -- -- 117 -- --
Common stock for consulting services 109 1 1,149 -- --
Dissenter shares -- -- (2) -- (79)
Cummulative translation adjustment -- -- -- (47) --
Net loss -- -- -- -- (15,861)
Decrease in retained earnings from changing -- -- -- -- --
fiscal year of combining enterprise -- -- -- -- (225)
Comprehensive net loss for the year ended December 31, 1997
--------------------------------------------------------------
Balance at December 31, 1997 16,900 169 124,854 23 (86,601)
Stock issued related to options, warrants and ESPP, -- -- -- -- --
including tax benefits 622 6 3,955 -- --
Purchase of treasury stock -- -- -- -- --
Contingent purchase price payment -- -- (3,918) -- --
Cummulative translation adjustment -- -- -- 40 --
Net loss -- -- -- -- (17,228)
Comprehensive net loss for the year ended December 31, 1998 -- -- -- -- --
--------------------------------------------------------------
Balance at December 31, 1998 17,522 175 124,890 63 (103,828)
Stock issued related to options, warrants and ESPP, -- -- -- -- --
including tax benefits 585 6 5,245 -- --
Purchase of treasury stock -- -- -- -- --
Cummulative translation adjustment -- -- -- (121) --
Net loss -- -- -- -- (16,993)
Comprehensive net loss for the year ended December 31, 1999 -- -- -- -- --
--------------------------------------------------------------
Balance at December 31, 1999 18,107 $ 181 $ 130,135 $ (58) $(120,821)
==============================================================
</TABLE>
NewsEdge Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (Continued)
(in thousands)
<TABLE>
<CAPTION>
Treasury Stock
----------------------------- Total
Number of Stockholder's Comprehensive
Shares Cost Equity Loss
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 16 $ (31) $ 51,531
Stock issued related to options, warrants and ESPP,
including tax benefits (16) 31 1,861
Warrants issued in acquisition of CompanyLink -- -- 117
Common stock for consulting services -- -- 1,150
Dissenter shares -- -- (81)
Cummulative translation adjustment -- -- (47) $ (47)
Net loss -- -- (15,861) (15,861)
-------------
Decrease in retained earnings from changing -- -- --
fiscal year of combining enterprise -- -- (225)
Comprehensive net loss for the year ended December 31, 1997 $(15,908)
-------------------------------------------------=============
Balance at December 31, 1997 -- -- 38,445
Stock issued related to options, warrants and ESPP, -- --
including tax benefits -- -- 3,961
Purchase of treasury stock 345 (2,051) (2,051)
Contingent purchase price payment -- -- (3,918)
Cummulative translation adjustment -- -- 40 $ 40
Net loss -- -- (17,228) (17,228)
-------------
Comprehensive net loss for the year ended December 31, 1998 -- -- -- $(17,188)
-------------------------------------------------=============
Balance at December 31, 1998 345 (2,051) 19,249
Stock issued related to options, warrants and ESPP, -- --
including tax benefits -- -- 5,251
Purchase of treasury stock 87 (675) (675)
Cummulative translation adjustment -- -- (121) $ (121)
Net loss -- -- (16,993) (16,993)
-------------
Comprehensive net loss for the year ended December 31, 1999 -- -- -- $(17,114)
-------------------------------------------------=============
Balance at December 31, 1999 432 $(2,726) $ 6,711
==============================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
28
<PAGE>
NEWSEDGE CORPORATION and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(16,993) $(17,228) $(15,861)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 4,109 5,707 4,042
(Gain) loss on disposal of property and equipment -- (139) 487
Common stock issued for consulting services -- -- 1,150
Decrease in retained earnings from changing fiscal year of
combining enterprise -- -- (225)
Changes in assets and liabilities-
Accounts receivable 1,831 4,423 (1,005)
Prepaid expenses and deposits (95) 639 (2,265)
Accounts payable 4 (2,724) (134)
Accrued expenses (3,021) 4,862 4,181
Deferred revenue (4,827) (4,021) 3,898
---------------------------------------------
Net cash used in operating activities (18,992) (8,481) (5,732)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investments, net 3,782 8,902 21,661
Purchases of property and equipment (4,061) (3,812) (4,681)
Contingent purchase price payment -- (3,918) --
Cash paid for acquisition -- (1,544) (280)
(Increase) decrease in other assets (194) (32) 439
---------------------------------------------
Net cash (used in) provided by investing activities (473) (404) 17,139
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances related to stock plans, including tax
benefits 3,655 3,961 1,896
Purchase of treasury stock (675) (2,051) --
Decrease in long-term obligations (336) (711) (150)
Principal payments under capital leases (588) (401) (105)
---------------------------------------------
Net cash provided by financing activities 2,056 798 1,641
EFFECT OF EXCHANGE RATE ON CASH (121) 41 (47)
---------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (17,530) (8,046) 13,001
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 37,808 45,854 32,853
---------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 20,278 $ 37,808 $ 45,854
=============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 67 $ 148 $ 352
=============================================
Cash paid for income taxes $ 79 $ 191 $ 629
=============================================
NONCASH FINANCING ACTIVITY:
Issuance of stock warrants to vendors $ 1,597 $ -- $ --
=============================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
29
<PAGE>
NEWSEDGE CORPORATION and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) NATURE OF 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.
On December 7, 1999, the Company entered into a purchase and sale agreement
with RoweCom, Inc., whereby RoweCom would purchase all of the outstanding
shares of common stock of the Company for approximately $227 million. The
acquisition was subject to the approval of the stockholders of both
companies. On March 7, 2000, the agreement was mutually terminated by both
parties. The Company estimates costs of approximately $1.9 million,
comprised of legal, retention and acquisition related expenses will be
charged to operations during the first quarter of 2000.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying 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.
(b) Cash and Cash Equivalents
Cash and cash equivalents, which have original maturities of less than
three months, consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------------------
(in thousands)
<S> <C> <C>
Cash $ 2,221 $ 4,308
Money market accounts 1,403 1,320
U.S. Government agencies obligations 16,654 32,180
---------------------
$20,278 $37,808
=====================
</TABLE>
30
<PAGE>
(c) Investments
As of December 31, 1998, the Company's investments consisted entirely
of U.S. Treasury notes and we classified and accounted for as held-to-
maturity and reported at amortized cost. There were no investments as
of December 31, 1999. Any security that experienced a decline in value
that management believed was other than temporary was reduced to its
net realizable value by a charge to operations. Realized gains and
losses from the sale of investment securities were recorded on the
trade date by specific identification of the security sold. Realized
gains and losses were not material during any year presented.
(d) 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.
(e) Depreciation and Amortization
The Company provides for depreciation using the straight-line method
by charges to operations in amounts that allocate the cost of assets
over their estimated useful lives of three to seven years, except for
leasehold improvements, which are depreciated over the shorter of the
lease term or life of the asset. Depreciation expense was
approximately $3,053,000 in 1999, $3,174,000 in 1998 and $3,068,000 in
1997, respectively.
(f) Research and Development and Software Development Costs
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs
of Computer Software To Be Sold, Leased or Otherwise Marketed,
requires the capitalization of certain computer software development
costs incurred after technological feasibility is established. The
Company has not capitalized software development costs to date, as the
costs incurred after technological feasibility of a software product
has been established have not been significant.
(g) Revenue Recognition
The majority of the Company's services are sold on a subscription
basis. Subscription revenues are recognized ratably over the term of
the agreement, generally 12 months, beginning upon installation. The
unearned portion of revenue is shown as deferred revenue in the
accompanying consolidated balance sheets. Royalty revenues are
recognized as they are earned under agreements with certain
information providers. Advertising revenue is recognized ratably based
on contractual terms, which are typically over the advertising period
or as advertisements are delivered. Revenues generated from hardware
sales or professional consulting services are recognized at the time
of shipment or when services are rendered.
(h) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This statement requires the Company to
recognize deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities and net operating loss carryforwards available for tax
reporting purposes, using the applicable tax rates for the years in
which the differences are expected to reverse. A valuation allowance
is recorded on deferred tax assets unless realization is more likely
than not.
31
<PAGE>
(i) Foreign Currency Translation
Revenues and expenses are translated using an average of exchange
rates in effect during the year. The majority of asset and liability
accounts of foreign consolidating entities are translated using the
year-end exchange rates. Cumulative translation adjustments related to
the Company's operations in the United Kingdom, Japan and Switzerland
are reflected separately as a component of stockholders' equity in the
accompanying consolidated balance sheets. Gains or losses from foreign
currency transactions are expensed as incurred. There were no
significant gains or losses from foreign currency transactions during
any year presented.
(j) Postretirement Benefits
The Company has no obligations for postretirement benefits.
(k) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. The Company has no
significant off-balance-sheet. Risks or credit risk concentrations
such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash,
cash equivalent and investment balances with one financial institution
and its accounts receivable balances are primarily domestic.
(l) Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
all components of comprehensive income on an annual and interim basis.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources. For all years presented, the
only difference between net loss and comprehensive net loss relates to
the cumulative translation adjustment.
(m) Reclassifications
Certain prior-year amounts have been reclassified to conform with
current year's presentation.
(n) Long-Lived Assets
The Company has adopted SFAS No. 121, Accounting for Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. SFAS No. 121 requires
that long-lived assets be evaluated for impairment by comparing the
fair value of the assets with their carrying amount. Any write-downs
are to be treated as permanent reductions in the carrying amount of
the assets. The Company's evaluation considers nonfinancial data such
as changes in the operating environment and business strategy,
competitive information market trends and operating performance. As a
result of its evaluation, the Company does not believe that any
impairment currently exists related to its long-lived assets.
(o) Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of employee and director stock options
or warrants to be included in the consolidated statement of operations
or disclosed in the notes to consolidated financial statements. The
Company has determined that it will continue to account for stock-
based compensation for employees and directors under the Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and elect the disclosure-only alternative under SFAS No.
123. The Company accounts for options and warrants granted to
nonemployees using the fair-value method prescribed by SFAS No. 123
and Emerging Issues Task Force, (EITF) No. 96-18, Accounting for
Equity Instruments that are Issued to other than Employees for
Acquiring, or in Conjunction with Selling, Goods, or Services.
(p) New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board, or FASB,
issued Statement of Financial Accounting Standards, or SFAS, No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in
other contracts, and for hedging activities. SFAS No. 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 is not expected to have a
material impact on the Company's consolidated financial statements.
32
<PAGE>
(3) DISCONTINUED OPERATIONS
On February 18, 2000, the Company entered into an agreement to sell its
ownership interest in its wholly owned subsidiary, Individual.com, Inc.
Upon the initial closing of the purchase and sale agreement, the Company
sold 80% of its interest in its Individual.com, Inc. for a purchase price
of $8,000,000 payable by $2,500,000 in cash and $5,500,000 in installment
receivables payable through December 2000 on February 18, 2000. Upon the
second closing in February 2001, the Company will receive an additional
$2,000,000 in consideration for the remaining 20% ownership interest.
Individual.com, Inc. operated the Company's single-worker news service
business unit, which derives its revenues from targeted advertising and
electronic commerce.
The Company estimates a gain on the sale of Individual.com, Inc. totaling
approximately $7,600,000 before applicable income taxes. The Company will
record $5,600,000 of the gain in February 2000 and the remainder in
February 2001, as each of the two closings occur. The Company also made
payments to retain the Individual.com, Inc. workforce, which will be
included as a reduction in the estimated gain on the sale.
Revenues from the Individual.com business were approximately $4,120,000 in
1999, $6,352,000 in 1998, and $5,802,000 in 1997.
The Company has presented the operating results of Individual.com as
discontinued operations for all periods presented. The Company has not
restated the consolidated balance sheet for the net assets of
Individual.com. The components of the net assets of discontinued operations
of Individual.com as of December 31, 1999 are as follows.
<TABLE>
<CAPTION>
Amount
(in thousands)
<S> <C>
Accounts receivable, net $ 1,265
Equipment, net 938
Accounts payable (83)
Accrued expenses (784)
Deferred revenue (101)
-------
$ 1,235
=======
</TABLE>
(4) BASIC AND DILUTED NET LOSS PER COMMON SHARE
In accordance with SFAS No. 128, Earnings per Share, basic and diluted net
loss per common share is calculated by dividing the net loss to common
stockholders by the weighted average number of common shares outstanding
for all periods presented.
The following potential common stock financial instruments are excluded
from the calculation of dilutive earnings per share because their inclusion
would be antidilutive to net loss per share.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
---------------------------
(in thousands)
<S> <C> <C> <C>
Options to purchase common stock 4,432 3,506 2,859
Warrants to purchase common stock 335 1,164 970
---------------------------
4,767 4,670 3,829
===========================
</TABLE>
33
<PAGE>
(5) INCOME TAXES
The provision for income taxes for each of the years in the period ended
December 31, 1999 consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------
(in thousands)
<S> <C> <C> <C>
Current-
Federal $ -- $ -- $1,098
State 83 76 122
International -- 90 45
---------------------------
83 166 1,265
Deferred-
Federal -- -- 29
State -- -- 3
---------------------------
-- -- 32
---------------------------
Total $ 83 $ 166 $1,297
===========================
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective
tax rate for each of the three years in the period ended December 31, 1999
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Income tax provision at federal statutory rate (34.0)% (34.0)% (34.0)%
Increase (decrease) in tax resulting from-
State tax provision, net of federal benefit 0.5 0.4 0.8
Research and development credits -- -- (0.6)
Change in valuation allowance 34.0 38.9 43.5
Other (--) (4.3) (0.8)
--------------------------------------------
Effective tax rate 0.5% 1.0% 8.9%
============================================
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards $ 28,609 * $ 21,774
Financial reserves not yet deductible 4,183 3,871
Research and development and alternative minimum
tax credit carryforwards 1,382 903
Deferred revenue 663 481
Depreciation (870) (730)
Valuation allowance (33,967) (26,299)
---------------------------------
$ -- * $ --
=================================
</TABLE>
As of December 31, 1999, the Company had net operating loss carryforwards
(NOLs) of approximately $72 million and other credit carryforwards related
to research and development and alternative minimum tax, totaling
approximately $1,382,000 available to offset future taxable income, if any.
These carryforwards expire through 2019 and are subject to review and
possible adjustment by the Internal Revenue Service. Additionally, the
Company's historical mergers raise additional doubt as to the realizability
of the deferred tax assets, as the acquired companies have considerable
NOLs. As a result, management believes that it is more likely than not that
the net deferred tax asset will not be realized.
34
<PAGE>
In 1997, a tax benefit related to disqualifying dispositions from stock
option exercises of approximately $970,000 was realized and credited to
additional paid-in capital. No tax benefit was realized in 1998 and 1999
due to the uncertainty related to the future realizability of the NOLs
generated from disqualifying dispositions from stock option exercises.
(6) MERGERS AND DISPOSITIONS
Merger, disposition and other charges totaled $11,094,000 and $5,084,000 in
1998 and in 1997. In 1998, these costs related primarily to costs
associated with the merger with Individual, the purchase of ISS, the
termination of the Clarinet business unit, the severance and benefits for
terminated employees and the cost of terminating and settling certain
contractual obligations of the combined companies. In 1997, these costs
related primarily to product development expenses, goodwill amortization
and other charges associated with companies previously acquired by
Individual. Accrued but unpaid amounts associated with the above-mentioned
merger costs totaled $450,000 at December 31, 1999 and $2,300,000 at
December 31, 1998.
A description of the Company's acquisitions and dispositions are as
follows:
(a) Freeloader, Inc.
In 1996, the Company acquired FreeLoader, Inc. ("FreeLoader") in a
combination accounted for as a purchase. As of May 31, 1997, the
Company ceased operations of FreeLoader. Certain expenses related to
FreeLoader, primarily terminated product development projects of
approximately $2,000,000, have been included in mergers, dispositions
and other charges in 1997. In addition, the Company made payments of
$1,300,000 to the FreeLoader founders as settlement of a $2,000,000
balloon payment required in the merger agreement. The Company also
guaranteed the value of certain shares issued to the two founders in
the transaction. In February 1998, the two founders of Freeloader
exercised their value guarantee, resulting in a payment by the Company
of $3,918,000. The Company has no future contingency payments due
related to this acquisition.
(b) Hoover
In 1996, the Company acquired certain assets and liabilities of the
Hoover Business Intelligence Services unit from the Information Access
Company (IAC), a unit of The Thomson Corporation (Toronto, Canada).
Hoover is an intelligent software agent that provides real-time and
archival electronic news and information services. The acquisition,
financed through cash and installment payments, was accounted for as a
purchase. The purchase price was $1,650,000, including $500,000 in
acquisition related costs, of which $1,085,000 was paid in cash and
$565,000 in notes payable over 36 months. Approximately $672,000 of
the purchase price was allocated to the net identifiable assets
acquired and approximately $978,000 of the purchase price was
allocated to goodwill. At December 31, 1997 there was no remaining
goodwill due to amortization of $187,000 and adjustments resulting
from the realization of net asset value in excess of net identifiable
assets acquired.
(c) CompanyLink
In June 1997, the Company acquired certain assets and liabilities of
the CompanyLink service from Knowledge Factory Partners, L.L.C., a
subsidiary of Delphi Internet Services Corporation. The purchase price
for the acquisition included $280,000 in cash, a warrant to purchase
25,000 shares of the Company's common stock at an exercise price of
$10.50 per share and certain monthly contingent payments payable for a
period of 12 months after the closing of the acquisition. The
acquisition was accounted for as a purchase transaction. The total
estimated purchase price of $447,000 was originally recorded as an
intangible asset. Amortization expense of $273,000 in 1998 and
$174,000 in 1997 is included in mergers, dispositions and other
charges.
35
<PAGE>
(d) Clarinet Communications Corp.
In June 1997, the Company purchased the stock of ClariNet Communications
Corp. ("ClariNet") whereby a wholly owned subsidiary of the Company was
merged with and into ClariNet, with ClariNet continuing as the surviving
corporation and a wholly owned subsidiary of the Company. ClariNet
published a global electronic newspaper on the Internet called ClariNews,
which was distributed through internet service providers and to
corporations, educational institutions and individual subscribers. Under
the terms of the ClariNet merger agreement, each share of ClariNet common
stock was exchanged for 0.10977437 shares of the Company's common stock.
Approximately 737,500 shares of the Company's common stock were issued in
exchange for all of the outstanding common stock of ClariNet (including
approximately 69,256 shares reserved for issuance upon exercise of
outstanding ClariNet stock options assumed by the Company in the merger).
The transaction was accounted for as a pooling of interests and all prior-
period financial statements presented herein have been restated as if the
merger took place at the beginning of such periods.
Effective March 31, 1998, the Company sold the Clarinet business unit
to its management and received 750,000 shares of Series A Preferred Stock
in the newly formed corporation, NaviLinks, Inc. The investment was
accounted for using the equity method of accounting. The carrying value of
the investment as of December 31, 1999 and 1998 was zero.
(e) ISS
On January 6, 1998, the Company acquired the assets, customers, and
personnel of ISS, a former business unit of ADP Financial Services, Inc.,
for approximately $1,500,000 in cash. The acquisition has been recorded
using the purchase method of accounting. The management and staff of ISS
joined the Company to form the nucleus of the Company's professional
services group.
(f) Individual, Inc.
On February 24, 1998, the Company completed its merger with Individual,
Inc. Under the terms of the merger agreement, each share of Individual,
Inc. common stock was exchanged for 0.5 shares of the Company's common
stock. Approximately 8,230,000 shares of the Company's common stock were
issued in exchange for all of the outstanding common stock of Individual.
Approximately 2,873,000 shares were reserved for issuance upon exercise of
outstanding Individual stock options and warrants assumed by the Company in
the merger. The transaction was accounted for as a pooling of interests.
All prior-period financial statements presented herein have been restated
as if the merger took place at the beginning of such periods.
In accordance with APB No. 16, the following pro forma financial data are
presented for the Company and Individual:
<TABLE>
<CAPTION>
Year ended Three Months ended
December 31, 1997 March 31, 1998
----------------- --------------
(in thousands) (unaudited)
<S> <C> <C>
NewsEdge Corporation:
Revenues $ 42,182 $ 11,787
Net income (loss) 2,693 (8,487)
Individual, Inc.
Revenues $ 35,289 $ 7,962
Net loss (18,544) (5,362)
</TABLE>
(7) STOCKHOLDERS' EQUITY
(a) Preferred Stock
On June 26, 1995, the Company's stockholders authorized 1,000,000
shares of undesignated preferred stock. At December 31, 1999, no
shares of preferred stock were issued or outstanding.
(b) Stock Repurchase Program
In September 1998, the Board of Directors authorized a program to
repurchase up to 1,500,000 shares of the Company's common stock in the
open market. As of December 31, 1999 and 1998, 432,000 shares and
345,000 shares, respectively had been repurchased at a cost of
approximately $2,726,000 and $2,051,000, respectively. The Company is
currently no longer purchasing stock in the open market.
36
<PAGE>
(8) WARRANTS
In connection with the acquisition of Individual, the Company assumed
warrants to purchase 963,516 shares of common stock at a weighted average
exercise price of $16.28 per share. These warrants had 10-year terms and
were issued principally to employees of Individual in 1989 and 1991. As of
December 31, 1999, options to purchase a total of 85,188 shares of common
stock, with a weighted average exercise price of $19.12 per share remained
outstanding.
On November 6, 1998, the Board of Directors approved the issuance of
warrants to purchase 200,000 shares of common stock at an exercise price of
$8.50 per share to a vendor as part of an agreement for services. Vesting
occurs monthly over a three-year period beginning on January 1, 1999. These
warrants expire on November 6, 2003, but may be subject to earlier
expiration. Upon a change in control of the Company, the unvested warrants
would be fully vested, provided the vendor does not terminate its service
agreement with the Company. If the vendor terminates its service agreement
upon a change in control of the Company, all vested and unvested warrants
held by the vendor would expire. The estimated fair value of these warrants
totaled $592,000 at the time of the grant, using the Black-Scholes option
pricing model and the assumptions described in Note 9(g). In accordance
with EITF 96-18, the fair value of these warrants must be marked to-market
over the vesting period. As of December 31, 1999, the fair value of these
warrants totaled $1,294,000, of which $308,000 has been recorded as a cost
of revenue in 1999 and $986,000 of unamortized warrant value has been
included in other assets. The Company will be required to record a charge
for the unamortized warrant in the period during which a change in control
occurs provided the vendor continues services, as described above.
In November 1999, the board of directors of the Company approved the
issuance of warrants to purchase 50,000 shares of common stock at an
exercise price of $7.125 per share to an investment advisor. The warrant is
fully vested and is excercisable over a two-year period. The estimated fair
value of the warrants totaled $303,000 and has been recorded as a charge to
general and administrative expenses in 1999.
(9) STOCK PLANS
(a) 1989 Stock Option Plan
The Company has a stock option plan (the 1989 Plan) pursuant to which
622,222 shares of common stock are reserved for issuance. The 1989
Plan is administered by the Board of Directors and provides for the
granting of incentive stock options, nonqualified stock options, stock
awards and direct stock purchases. During 1995, the Board of Directors
terminated the 1989 Plan, such that no further options may be granted
under the 1989 Plan.
(b) 1995 Stock Plan
On June 26, 1995, the Company's stockholders approved the 1995 Stock
Plan (the 1995 Plan). The 1995 Plan is administered by the Board of
Directors and provides for stock awards, direct purchases and the
grant of options to purchase shares of the Company's common stock. A
maximum of 4,125,000 shares may be issued under this plan. Options
granted under the 1995 Plan expire 10 years from the date of grant.
(c) 1995 Nonemployee Director Stock Option Plan
On June 26, 1995, the Company's stockholders also approved the 1995
Non Employee Director Stock Option Plan (the 1995 Director Plan), for
which 100,000 shares of the Company's common stock have been reserved.
The purpose of the 1995 Director Plan is to attract and retain
qualified persons who are not also officers or employees of the
Company (the Eligible Directors) to serve as directors of the Company.
Under the 1995 Director Plan, any eligible Director shall
automatically be granted an option to purchase 20,000 shares of common
stock on the effective date of election at an option price equal to
the fair market value on the date of grant and an option to purchase
2,500 shares of the common stock on the date of each successive annual
meeting of the stockholders, if such director has attended at least
75% of the meetings of the Board of Directors during the past fiscal
year. Options granted under this plan expire 10 years from the date of
grant.
37
<PAGE>
(d) Stock Option Plan Activity
The following schedule summarizes all stock option activity for the
three years ended December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year 3,506 $ 8.56 2,859 $ 7.63 2,366 $ 12.29
Granted 1,605 9.62 1,955 9.37 2,113 9.71
Exercised (479) 6.93 (574) 6.48 (260) 1.49
Terminated (768) 9.04 (734) 8.42 (1,360) 16.01
----------------------------------------------------------------------------------------
Outstanding, end of year 3,863 $ 9.12 3,506 $ 8.56 2,859 $ 7.63
========================================================================================
Exercisable, end of year 1,757 1,323 835
============== ============== =============
Weighted average fair
value of options granted
during the year $ 5.30 $ 5.20 $ 5.36
============== ============== =============
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------
Weighted
Number Average Number
Exercise Price/ Outstanding as Remaining Weighted Exercisable Weighted
Range of Exercise of December 31, Contractual Average at December 31, Average
Prices 1999 Life (Years) Exercise Price 1999 Exercise Price
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.01-$ 6.50 609 6.52 $ 6.25 603 $ 6.25
6.63- 8.13 914 8.98 7.42 220 6.87
8.56- 10.44 1,135 7.95 9.37 555 9.39
10.50- 12.00 1,174 8.99 11.39 348 11.02
12.50- 34.00 31 6.03 19.85 31 19.86
---------------------------------------------------------------------------------
3,863 8.27 $ 9.12 1,757 $ 8.50
=================================================================================
</TABLE>
In February and June of 1997, the Company's Board of Directors
authorized the repricing of certain of its stock options to $14.13
and $8.63, respectively. Each price was equal to or greater than
the closing price of the Company's common stock on the date of the
repricing.
During 1997, Individual repriced certain of its stock options to
$12.50 and $6.50. The new price was equal to or greater than the
market value of the Company's common stock on the date of the
repricing.
38
<PAGE>
(e) 1995 Employee Stock Purchase Plan
On June 26, 1995, the Company's stockholders approved the 1995
Employee Stock Purchase Plan (the 1995 Purchase Plan). This plan
permits eligible employees to purchase up to 500 shares of the
Company's common stock at 85% of the fair market value of the stock on
the first or last date of each semiannual plan period, whichever is
lower. The 1995 Purchase Plan covers substantially all employees,
subject to certain limitations. An eligible employee may elect to have
up to 10% of his or her total compensation, as defined, withheld and
applied toward the purchase of shares in such a plan period (not to
exceed the $25,000 annual IRS limit). At December 31, 1999, 388,529
shares of common stock were reserved for purchases under the 1995
Purchase Plan. During 1999, 1998 and 1997, 56,719, 23,408 and 15,085
shares of common stock were purchased under the 1995 Purchase Plan.
(f) Fair Value of Stock Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of stock options granted to employees to
be included in the statement of operations or disclosed in the notes
to financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123. The Company has
computed the pro forma disclosures required under SFAS No. 123 for
options granted in 1999, 1998 and 1997 using the Black-Scholes option
pricing model prescribed by SFAS No. 123. The weighted average
assumptions used are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 4.60%-6.38% 4.19%-5.95% 5.59%-6.80%
Expected dividend yield None None None
Expected lives 5 years 2-5 years 3-6 years
Expected volatility 70% 63% 65%
Expected volatility (options assumed in
Individual merger) -- 80% 80%
</TABLE>
Had compensation cost for the Company's stock plans been determined
consistent with SFAS No. 123, the Company's net loss to common
stockholders and basic and diluted net loss per common share would
have resulted in the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net loss to common stockholders-
As reported $ (16,993) $ (17,228) $ (15,861)
Pro forma (22,229) (22,326) (22,624)
Basic and diluted net loss per common
share-
As reported $ (0.98) $ (1.00) $ (0.95)
===================================================
Pro forma $ (1.28) $ (1.30) $ (1.35)
===================================================
</TABLE>
39
<PAGE>
(10) 401K PLAN
The Company maintains a 401(k) retirement savings plan (the "Plan"). All
employees of the Company are eligible to participate in the Plan after
completing at least three consecutive months of service with the Company as
defined in the plan agreement. The Plan provides that each participant may
make voluntary contributions up to 15% of their eligible compensation,
limited to the maximum amount allowable by the IRS. The Company may elect
to make discretionary matching contributions and/or profit sharing
contributions. For the plan years ended December 31, 1999, 1998 and 1997,
the employer matching contribution was 20% of the first 6% of the
participant contributions. Accordingly, $232,461, $185,054 and $95,155 of
expense, are included in the accompanying consolidated statements of
operations for the years ended December 31, 1999, 1998 and 1997,
respectively. No profit sharing contributions have been made to the Plan
since inception. Participants are fully vested in the current value of
their employee contributions and all earnings on such contributions.
Participants become vested in employer contributions and earnings thereon
after completion of one year of service.
(11) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company conducts its operations in facilities under operating
leases expiring through 2005. The Company's future minimum lease
payments, net of a sub-lease agreement of $301,000 to be received
during 2000 related to the sale and disposition of Individual.com,
under these leases as of December 31, 1999 are approximately as
follows:
<TABLE>
<CAPTION>
Amount
(in thousands)
<S> <C>
For the years ending December 31,
2000 $ 2,349
2001 1,959
2002 1,454
2003 999
2004 728
Thereafter 87
--------------------
$ 7,576
====================
</TABLE>
Rent expense charged to operations was approximately $2,718,000 in
1999, $2,633,000 in 1998 and $2,411,000 in 1997.
(12) LONG-TERM OBLIGATIONS
At December 31, 1999, the Company had two lines of credit for equipment
purchases of up to $3,000,000. The lines of credit bear interest at prime
plus 1.0% to 1.5%. As of December 31, 1999, the prime rate was 8.50%. Both
lines-of-credit expire on December 1, 2000. As of December 31, 1999, the
outstanding balance of borrowings under the lines totaled $303,000, at an
effective interest rate of 9.50%. The Company may not make any additional
borrowings under these lines of credit.
Borrowings under these lines are secured by substantially all the assets of
the Company. The line-of-credit arrangements contain financial covenants
relating to minimum tangible net worth, debt to cash flow, minimum earned
revenue and certain financial ratios. At December 31, 1999, the Company was
in compliance with these arrangements.
40
<PAGE>
(13) ACCRUED EXPENSES
Accrued expenses in the accompanying consolidated balance sheets consist of
the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
----------------------------------
(in thousands)
<S> <C> <C>
Payroll and payroll-related $ 2,988 $ 3,658
Royalties 3,703 5,040
Other 8,146 9,155
----------------------------------
$ 14,837 $ 17,853
==================================
</TABLE>
(14) SEGMENT REPORTING
On December 31, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This pronouncement
established standards for public companies relating to the reporting of
financial and descriptive information about their operating segments in
financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by management in deciding how to allocate resources and
in assessing performance of the business.
The Company evaluates its continuing operations in two product segments:
Enterprise and Other.
The Company pursues the market for news and current awareness through one
primary line of business: the Enterprise 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 December 31, 1999, the Company had over 1,400 enterprise
customers, up 8% from the previous year-end, with approximately 700,000
users.
In addition to the Enterprise business, the Company also reports a segment
of Other, which consists of services which are being phased out by the
Company and which the Company expects to be immaterial beyond 1999.
Segment data excludes information pertaining to the discontinued operations
of Individual.com, Inc. (see Note 3).
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance of its segments based on revenues and segment profitability.
Segment profitability is defined by the Company as profit or loss from
continuing operations before income taxes, interest and merger,
dispositions and other charges. Noncash 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.
41
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
-------------------- ------------------ ------------------
(in thousands)
<S> <C> <C> <C>
Revenues:
Enterprise $ 72,931 $ 67,374 $ 58,938
Other 1,316 5,807 12,731
-------------------- ------------------ ------------------
Total revenues $ 74,247 $ 73,181 $ 71,669
==================== ================== ==================
Loss from continuing operations before mergers,
dispositions and other charges,
interest and income taxes:
Enterprise $ (2,203) $ (5,195) $ (1,805)
Other (406) (146) (1,569)
-------------------- ------------------ ------------------
$ (2,609) $ (5,341) $ (3,374)
==================== ================== ==================
Noncash expenses by segment:
Enterprise $ 3,283 $ 2,731 $ 2,552
Other 78 514 516
</TABLE>
(15) VALUATION AND QUALIFYING ACCOUNTS
A summary of the valuation and qualifying accounts of the Company related
to reserve for doubtful accounts and accrued merger, dispositions and other
charges for each of the three years in the period ended December 31, 1999
is as follows:
<TABLE>
<CAPTION>
Reserve
for
Doubtful
Accounts Other
-------- -----
<S> <C> <C>
Reserve Balance at December 31, 1996 $ 571 $ --
Additions to reserves -- 6,565
Reductions in reserves (64) 6,565
--------- ---------
Reserve Balance at December 31, 1997 507 --
Additions to reserves -- 11,094
Reductions in reserves (202) (8,809)
--------- ---------
Reserve Balance at December 31, 1998 306 (2,285)
Additions to reserves -- --
Reductions in reserves -- (1,832)
--------- ---------
Reserve Balance at December 31, 1999 $ 306 $ 453
========== =========
</TABLE>
42
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
43
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors
The information concerning directors of the Company required under this
item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1999.
Executive Officers
The information concerning officers of the Company required under this item
is incorporated herein by reference to the Company's definitive proxy statement
pursuant to Regulation 14A, to be filed with the Commission not later than 120
days after the close of the Company's fiscal year ended December 31, 1999.
Item 11. Executive Compensation and Other Information
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1999.
Item 13. Certain Relationships and Related Transactions.
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission within 120 days after the close of the
Company's fiscal year ended December 31, 1999.
44
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) List of documents filed as part of this report
(1) Financial Statements
Financial Statements (Listed Under Part II, Item 8 and included herein
by reference).
(2) Financial Statement Schedules
Schedules to the Financial Statements have been omitted because the
information required to be set forth therein is not applicable or is
shown in the accompanying Financial Statements or notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization by and among
the Company, and Individual, Inc. dated as of November 2,
1997 (attached as Annex A to the Prospectus/Joint Proxy
Statement contained in the Company's Registration Statement
on Form S-4, No. 333-44887)
2.2 Stock Purchase Agreement dated February 18, 2000 by and
among the Company, Office.com Inc. and Individual.com, Inc.
(filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K dated March 6, 2000 and incorporated therein by
reference)
3.1 Amended and Restated Certificate of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the year-ended December 31, 1997 and
incorporated herein by reference)
3.2 Amended and Restated By-laws of the Company (filed as
Exhibit 3.4 to the Company's Registration Statement on Form
S-1, No. 33-94054 and incorporated herein by reference)
4.1 Specimen certificate representing the Common Stock (filed as
Exhibit 4.1 to the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997 and incorporated herein by
reference)
10.1 1995 Stock Plan, as amended (filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-4, No. 333-44887
and incorporated herein by reference)
10.2 1995 Non-Employee Director Stock Option Plan, as amended
(filed as Annex A to the Company's Proxy Statement filed on
April 29, 1996 and incorporated herein by reference)
10.3 1989 Stock Plan (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1, No. 33-94054 and
incorporated herein by reference)
10.4 1995 Employee Stock Purchase Plan, as amended (filed as
Exhibit 10.4 to the Company's Registration Statement on Form
S-4, No. 333-44887 and incorporated herein by reference)
10.5 Amended and Restated 1989 Stock Option Plan (filed as
Exhibit 99.1 to the Company's Registration Statement on Form
S-8, No. 333-46863)
10.6 1995 Incentive Stock Option Plan (filed as Exhibit 99.2 to
the Company's
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
Registration Statement on Form S-8, No. 333-46863)
10.7 1996 Non-Employee Director Stock Option Plan (filed as
Exhibit 99.3 to the Company's Registration Statement on Form
S-8, No. 333-46863)
10.8 1996 Stock Option Plan (filed as Exhibit 99.4 to the
Company's Registration Statement on Form S-8, No. 333-46863)
10.9 1996 Amended and Restated Stock Plan (filed as Exhibit 99.5
to the Company's Registration Statement on Form S-8, No.
333-46863)
10.10 Amended and Restated Registration Agreement dated as of
October 20, 1992 by and among the Company and certain
stockholders named herein (filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-1, No. 33-94054
and incorporated herein by reference)
10.11 Lease for 80 Blanchard Road (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 and incorporated herein by
reference)
10.12 Data Transmission Agreement between the Company and
Mainstream Data, Inc. dated as of November 24, 1993, as
amended (filed as Exhibit 10.9 to the Company's Registration
Statement on Form S-1, No. 33-94054 and incorporated herein
by reference)
10.13 Software Development and Marketing Agreement between the
Company and Reuters America Inc. dated as of November 1,
1993, as amended (filed as Exhibit 10.10 to the Company's
Registration Statement on Form S-1, No. 33-94054 and
incorporated herein by reference)
10.14 Letter Agreement between the Company and Teknekron Software
Systems, Inc. dated as of June 13, 1994 (filed as Exhibit
10.11 to the Company's Registration Statement on Form S-1,
No. 33-94054 and incorporated herein by reference)
10.15 Database License, Development and Delivery Agreement between
the Company and NBC Desktop, Inc. dated as of October 17,
1994 (filed as Exhibit 10.12 to the Company's Registration
Statement on Form S-1, No. 33-94054 and incorporated herein
by reference)
**10.16 Employment Agreement dated as of February 24, 1998 between
Michael E. Kolowich and the Company (filed as Exhibit 10.16
to the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997 and incorporated herein by
reference)
10.17 Form of Common Stock Purchase Warrant (filed as Exhibit 10.4
to Individual, Inc.'s Registration Statement on Form S-1,
No. 333-00792, and incorporated herein by reference).
10.18 Second Amended and Restated Investors' Rights Agreement
dated as of October 3, 1995 (filed as Exhibit 10.13 to
Individual, Inc.'s Registration Statement on Form S-1, No.
333-00792, and incorporated herein by reference).
10.19 Licensing Agreement with Cornell Research Foundation, Inc.
dated as of March 22, 1989 (filed as Exhibit 10.14 to
Individual, Inc.'s Registration Statement on Form S-1, No.
333-00792, and incorporated herein by reference).
10.20 Letter Agreement dated as of July 2, 1992 between
Individual, Inc. and Fleet
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
Bank of Massachusetts, N.A. (filed as Exhibit 10.15 to
Individual, Inc.'s Registration Statement on Form S-1, No.
333-00792, and incorporated herein by reference).
10.21 Letter Agreement dated as of September 22, 1994 between
Individual, Inc. and Fleet Bank of Massachusetts, N.A.
(filed as Exhibit 10.16 to Individual, Inc.'s Registration
Statement on Form S-1, No. 333-00792, and incorporated
herein by reference).
10.22 Consent and Loan Modification Agreement dated as of November
29, 1995 between Individual, Inc. and Fleet Bank of
Massachusetts, N.A. (filed as Exhibit 10.17 to Individual,
Inc.'s Registration Statement on Form S-1, No. 333-00792,
and incorporated herein by reference).
10.23 Second Loan Modification Agreement dated as of December 29,
1995 between Individual, Inc. and Fleet Bank of
Massachusetts, N.A. (filed as Exhibit 10.18 to Individual,
Inc.'s Registration Statement on Form S-1, No. 333-00792,
and incorporated herein by reference).
10.24 Lease dated as of August 25, 1994 between Individual, Inc.
and Trustees of New England Executive Park Trust, 40
Spaulding Investment Company, Inc. (filed as Exhibit 10.19
to the Individual Inc. Registration Statement on Form S-1,
No. 333-00792, and incorporated herein by reference).
10.25 Third Loan Modification Agreement dated as of December 31,
1996 between Individual, Inc. and Fleet National Bank (filed
as Exhibit 10.24 to Individual, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1996).
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of PricewaterhouseCoopers LLP
*24.0 Power of Attorney (included on page 53)
*27.1 Financial Data Schedule for fiscal year ended 1999
</TABLE>
- ------------------------
* Filed herewith.
** Indicates a management contract or a compensatory plan, contract or
arrangement
47
<PAGE>
(b) Reports on Form 8-K.
On December 17, 1999 the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, disclosing under Item 5 that the Company had
entered into an Agreement and Plan of Merger and Reorganization, by and between
the Company, RoweCom Inc. and RoweCom Merger Corporation dated as of December 7,
1999 (the "Merger Agreement") pursuant to which RoweCom Merger Corporation was
to be merged with and into the Company. The Merger Agreement was termination by
mutual consent of the parties on March 6, 2000. No financial statements were
required to be filed as part of this report.
(c) The exhibits required by this Item are listed under Item 14(a).
(d) The financial statement schedules required by this Item are listed under
Item 14(a).
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NEWSEDGE CORPORATION
(Registrant)
Date: March 30, 2000 /s/ Clifford Pollan
-------------------------------
Clifford Pollan
Chairman, President and
Chief Executive Officer
We, the undersigned officers and directors of NewsEdge Corporation, hereby
severally constitute and appoint Clifford Pollan and Ronald Benanto, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them singly, to sign for us in our names in the capacities to do all things in
our names and on our behalf in such capacities to enable NewsEdge Corporation to
comply with the provisions of the Securities Exchange Act of 1934, as amended,
and all requirements of the Securities Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title(s) Date
/s/ Clifford Pollan President, Chief March 30, 2000
- ----------------------- Executive Officer and
Clifford Pollan Director (Principal
Executive Officer)
/s/ Ronald Benanto Vice President--Finance March 30, 2000
- ----------------------- and Operations,
Ronald Benanto Treasurer and Assistant
Secretary (Principal
Financial and Accounting
Officer)
/s/ Michael E. Kolowich Director March 30, 2000
- -----------------------
Michael E. Kolowich
/s/ Basil Regan Director March 30, 2000
- -----------------------
Basil Regan
/s/ Peter Woodward Director March 30, 2000
- -----------------------
Peter Woodward
/s/ Rory J. Cowan Chairman and Director March 30, 2000
- -----------------------
Rory J. Cowan
/s/ William A. Devereaux Director March 30, 2000
- -----------------------
William A. Devereaux
/s/ James D. Daniell Director March 30, 2000
- -----------------------
James D. Daniell
49
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
- ---------------------------
1. NewsEdge Canada Corporation, Toronto, Ontario, Canada
2. NewsEdge Securities Corporation, Massachusetts, United States of America
3. NewsEdge, K.K., Tokyo, Japan
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 File Nos. 33-98786, 333-46863 and 333-46899.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 28, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
NewsEdge Corporation on Forms S-8 (File Nos. 33-98786, 333-46863, and 333-46899)
of our report dated January 30, 1998, except as to the information in Note 15,
for which the date is February 27, 1998, on our audit of the consolidated
financial statements of Individual, Inc. for the year ended December 31, 1997
which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 20,278 37,808
<SECURITIES> 0 3,782
<RECEIVABLES> 11,586 13,418
<ALLOWANCES> 306 306
<INVENTORY> 0 0
<CURRENT-ASSETS> 36,690 59,739
<PP&E> 24,410 20,344
<DEPRECIATION> 15,012 11,206
<TOTAL-ASSETS> 47,854 69,154
<CURRENT-LIABILITIES> 41,019 49,445
<BONDS> 0 0
0 0
0 0
<COMMON> 181 175
<OTHER-SE> 6,530 19,074
<TOTAL-LIABILITY-AND-EQUITY> 47,854 47,854
<SALES> 74,247 73,180
<TOTAL-REVENUES> 74,247 73,180
<CGS> 29,838 29,830
<TOTAL-COSTS> 76,855 89,615
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,067) (14,127)
<INCOME-TAX> 83 166
<INCOME-CONTINUING> (1,150) (14,293)
<DISCONTINUED> (15,843) (2,935)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,993) (17,228)
<EPS-BASIC> (0.98) (1.00)
<EPS-DILUTED> (0.98) (1.00)
</TABLE>
