<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 2000
------------------------------------------------
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: 000-23384
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INSO CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 04-3216243
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
299 Promenade Street, Providence, RI 02908
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(Address of principal executive offices) (Zip Code)
(401) 752 - 4400
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(Registrant's telephone number, including area code)
31 St James Avenue, Boston, MA 02116
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(Former name, former address and former fiscal year,
if changed since last report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 7, 2000
------------------------------------------ -------------------------------
Common Stock (par value $.01 per share) 16,877,085
INSO CORPORATION
FORM 10-Q INDEX
<PAGE>
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
April 30, 2000 and January 31, 2000 3
Condensed Consolidated Statements of Operations
Three Months Ended April 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended April 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17-18
Item 4. Submission of Matters to a Vote of Security Holders 18-19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
<PAGE>
INSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30, 2000 AND JANUARY 31, 2000
Unaudited
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 30, January 31,
2000 2000
---- ----
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 28,541 $ 31,408
Marketable securities 3,858 4,602
Accounts receivable, net of allowances of $3,335 and $3,139,
respectively 13,554 14,469
Receivables from asset sales 5,723 5,723
Prepaid expenses and other current assets 1,439 2,719
--------- ---------
Total current assets 53,115 58,921
Property and equipment, net 4,631 5,034
Product development costs, net of accumulated amortization of $12,401,
and $11,375, respectively 9,981 10,402
Excess of costs over net assets acquired, net of accumulated amortization of
$4,948 and $4,628, respectively 1,798 2,055
Other intangible assets, net of accumulated amortization of $1,935 and
$1,860, respectively 865 1,005
Long-term accounts receivable 810 877
Licensed technology and advances, net 2,096 2,295
--------- ---------
TOTAL ASSETS $ 73,296 $ 80,589
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 552 $ 1,295
Accrued liabilities 8,537 8,910
Accrued salaries, commissions and bonuses 6,381 4,924
Unearned revenue 7,319 8,205
Royalties payable and other current liabilities 117 131
--------- ---------
Total current liabilities 22,906 23,465
Other liabilities, long term 1,216 1,235
Unearned revenue, non-current portion 458 517
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued
Common stock, $.01 par value; 50,000,000 shares authorized; 16,766,423 and
16,588,773 shares issued at April 30, 2000 and January 31, 2000, respectively 168 165
Capital in excess of par value 156,801 156,098
Accumulated deficit (107,405) (100,633)
--------- ---------
49,564 55,630
Unamortized value of restricted shares (590) --
Notes receivable from stock purchase agreements (200) (200)
Treasury stock, at cost, 5,075 shares at April 30, 2000 and January 31, 2000 (58) (58)
--------- ---------
Total stockholders' equity 48,716 55,372
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,296 $ 80,589
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
INSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 2000 and 1999
Unaudited
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
April 30, April 30,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Product licenses $7,825 $6,169
Services 2,465 5,325
----------- ---------
Total revenues 10,290 11,494
Cost of revenues:
Product licenses 1,378 3,110
Services 1,533 3,197
----------- ---------
Total cost of revenues 2,911 6,307
----------- ---------
Gross profit 7,379 5,187
Operating expenses:
Sales and marketing 5,168 8,599
Product development 3,809 7,954
General and administrative 3,683 6,245
Amortization of intangible assets 321 1,361
Restructuring expenses 1,835 481
Special charges - 2,973
----------- ---------
Total operating expenses 14,816 27,613
----------- ---------
Operating loss (7,437) (22,426)
Non-operating income (expense):
Net investment and other income 665 441
----------- ---------
Loss before provision for income taxes (6,772) (21,985)
Provision (benefit) for income taxes - -
----------- ---------
Net loss* $(6,772) $(21,985)
=========== =========
Loss per share $(0.41) $(1.42)
======= =======
Weighted average shares outstanding 16,596 15,509
</TABLE>
* Net loss approximates comprehensive loss for both periods presented.
See accompanying notes to unaudited condensed consolidated financial statements.
4
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INSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2000 AND 1999
Unaudited
(In thousands of dollars)
<TABLE>
<CAPTION>
April 30, April 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss $(6,772) $(21,985)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 517 1,053
Amortization 1,683 3,688
Non-cash stock compensation expense 10 -
Other non-cash expenses, net (75) -
---------- ----------
(4,637) (17,244)
Changes in operating assets and liabilities:
Accounts receivable 982 5,463
Prepaid expenses and other current assets 1,553 433
Accounts payable and accrued liabilities (1,116) 1,832
Accrued salaries, commissions and bonuses 1,457 3,222
Other assets and liabilities (959) 1,623
---------- ---------
Net cash used in operating activities (2,720) (4,671)
Cash flows provided by (used in) investing activities:
Property and equipment expenditures (299) (487)
Capitalized product development costs (683) (1,026)
Acquisitions, net of cash acquired - (1,498)
Net proceeds from sales of marketable securities 744 3,778
---------- ---------
Net cash provided by (used in) investing activities (238) 767
Cash flows provided by financing activities:
Net proceeds from exercise of stock options 106 -
Proceeds from the payment of notes receivable underlying
Stock Purchase Agreements - 146
Payments under capital lease obligations (15) (255)
------ ----------
Net cash provided by (used in) financing activities 91 (109)
Net decrease in cash and cash equivalents (2,867) (4,013)
Cash and cash equivalents at beginning of period 31,408 9,517
-------- ------
Cash and cash equivalents at end of period $28,541 $5,504
======= =========
Supplemental disclosure of non-cash financing activities:
Issuance of restricted stock as employee compensation $(600) $ -
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
INSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 30, 2000
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. All normal and recurring adjustments that
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods have been included. Operating results for the
three-month period ended April 30, 2000 are not necessarily indicative of the
results that may be expected for any other interim period, or for the fiscal
year ending January 31, 2001.
The balance sheet at January 31, 2000 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by GAAP for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the fiscal year ended January
31, 2000.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current year presentation.
Note 2. Recent Accounting Pronouncements
In 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-9 (SOP
98-9) "Modification of SOP 97-2, Software Revenue Recognition with respect to
Certain Transactions" effective for fiscal years beginning after March 15, 1999.
SOP 98-9 defines vendor-specific objective evidence of fair value in connection
with software revenue recognition. The adoption of SOP 98-9 did not have a
material impact on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities" effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. In June 1999, the Financial Accounting Standards Board
issued Statement of Accounting Standards No. 137 (SFAS 137), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 amended the effective date of SFAS No. 133
for all fiscal quarters of fiscal years beginning after June 15, 2000. The
adoption of this standard is not anticipated to have a material impact on the
Company's financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101.
"Revenue Recognition in Financial Statements," which is effective no later than
the quarter ending June 30, 2000. SAB 101 clarifies the SEC's views related to
revenue recognition and disclosure. The Company does not believe that the
adoption of SAB 101 will have a material effect on the Company's financial
position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the
6
<PAGE>
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
Note 3. Earnings Per Share
Basic earnings per share is calculated based on the weighted average
number of common shares outstanding. Options to purchase shares of common stock,
for the three months ended April 30, 2000 and 1999 were not included in the
computation of diluted earnings per share because the effect would be
antidilutive.
Note 4. Commitments and Contingencies
During February 1999, certain shareholders of Inso filed seven putative
class action lawsuits against Inso and certain of Inso's officers and employees
in the United States District Court for the District of Massachusetts. These
lawsuits were filed following our announcement on February 1, 1999 that we
planned to restate our revenues for the first three quarters of 1998. Each of
the complaints asserted claims for violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission,
as well as a claim for violation of Section 20(a) of the Exchange Act. On April
5, 1999, the seven class action lawsuits that were filed against us were
consolidated into one lawsuit entitled In Re Inso Corporation, Civil Action No.
99-10193-WGY.
The plaintiffs allege that the defendants prepared and issued deceptive
and materially false and misleading statements to the investing public. They
seek unspecified damages. We believe the claims are subject to meritorious
defenses, which we plan to assert during the lawsuit. On September 29, 1999, we
entered into an insurance agreement with a major AAA-rated insurance carrier
pursuant to which the insurance carrier assumed complete financial responsibly
for the defense and ultimate resolution of the lawsuit. A net charge to our
fiscal year 2000 consolidated results of $13,451,000 was recorded in connection
with the insurance agreement.
On May 26, 2000, the Company announced that it had entered into an
agreement to settle the consolidated securities class action. The settlement
provides that all claims against INSO and its former Chief Executive Officer,
Chief Financial Officer and Controller will be dismissed. In agreeing to the
proposed settlement, the Company and the individual defendants specifically deny
any wrongdoing. The settlement is subject to certain customary conditions,
including preliminary and final approval by the United States District Court for
the District of Massachusetts and notice to the class.
As soon as we discovered that it could be necessary to restate certain
of our financial results for the first three quarters of 1998, we immediately
and voluntarily provided this information to the U.S. Securities and Exchange
Commission. On June 2, 1999, we were informed that the U.S. Securities and
Exchange Commission had issued a Formal Order of Private Investigation in
connection with matters relating to Inso's previously announced restatement of
its 1998 financial results. We cannot predict the ultimate resolution of this
action at this time, and there can be no assurance that the Formal Order of
Private Investigation will not have a material adverse impact on our financial
condition and results of operations.
On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and
Microlytics Technology Co., Inc. (together "Microlytics") filed a complaint
against Inso in the United States Bankruptcy Court for the Western District of
New York. The lawsuit is captioned Microlytics, Inc. and Microlytics Technology
Co., Inc. v. Inso Corporation, Adversary Proceeding No. 99-2177. The complaint
seeks turnover of purported property of the estates and damages for Inso's
alleged breaches of a license from Microlytics relating to certain computer
7
<PAGE>
software databases and other information. The complaint seeks damages of at
least $11,750,000. On August 19, 1999, we filed our Answer and Demand for Jury
Trial. Also, on August 19, 1999, we filed a motion to withdraw the case from the
Bankruptcy Court to the United States District Court for the Western District of
New York. On December 15, 1999, the United States District Court granted our
motion for the purposes of dispositive motions and trial. We believe that the
claims are subject to meritorious defenses, which we plan to assert during the
lawsuit. We cannot predict the ultimate resolution of this action at this time,
and there can be no assurance that the litigation will not have a material
adverse impact on our financial condition and results of operations.
During February 2000, certain shareholders of Inso filed two putative
class action lawsuits against Inso and certain of Inso's officers and employees
in the United States District Court for the District of Massachusetts. These
lawsuits were filed following our preliminary disclosure of revenues for the
fiscal year 2000 fourth quarter on February 1, 2000. Both complaints assert
claims for violations of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 of the Securities and Exchange Commission, as well as a claim for
violation of Section 20(a) of the Exchange Act. The plaintiffs allege that the
defendants prepared and issued deceptive and materially false and misleading
statements to the investing public. They seek unspecified damages. We believe
that the claims are subject to meritorious defenses, which we plan to assert
during the lawsuit. We cannot predict the ultimate resolution of these actions
at this time, and there can be no assurance that the litigation will not have a
material adverse impact on our financial condition and results of operations.
Note 5. Divestitures
Sale of DynaText
On October 29, 1999, the Company sold its DynaText/DynaWeb stand-alone
technical document-publishing component of its Product Data Management ("PDM")
Division, along with its ViewPort browser technology assets, for $14,750,000.
The sale was in the form of a stock purchase by Enigma Information System Ltd.
and its subsidiary, Enigma Information Retrieval Systems, Inc., (collectively
"Enigma") of all of the outstanding stock of two wholly owned subsidiaries of
the Company, Inso Providence Corporation and ViewPort Development AB. In
connection with the disposition, the Company retained the accounts receivable
directly associated with the DynaText/DynaWeb and ViewPort browser technologies.
The proceeds of the sale were $9,000,000 in cash and $5,750,000 in the form of a
promissory note, due and payable by April 30, 2000. The promissory note was
secured by a Stock Pledge Agreement of the stock of Inso Providence Corporation.
In connection with this transaction, the Company recorded direct transaction
costs and other accruals for costs directly associated with the sale. As a
result, the Company reported a gain of $14,549,000. The transaction created a
capital loss for federal tax purposes, which will be carried forward to future
periods.
On January 27, 2000 the Company and Enigma amended the terms of the
agreement and related promissory note. Enigma paid $4,500,000 in cash to the
Company and deposited $1,200,000 into an interest bearing escrow account. In
return, the Company released the security for the promissory note. The Company
anticipates receiving approximately $1,000,000 of the escrow, after certain
adjustments, in the second quarter of fiscal 2001.
Sale of PDM Division
On January 5, 2000, the Company sold the remaining interest in its PDM
Division to Structural Dynamics Research Corporation ("SDRC") for $6,000,000 in
cash plus assumption of liabilities. The transaction was in the form of a stock
purchase of all of the outstanding stock of the Company's subsidiaries Sherpa
Systems Corporation, and Inso France Development S.A. (formerly AIS Software,
S.A.). The proceeds received from the sale totaled $5,000,000 in cash at the
time of the closing, and $1,000,000 was placed in a supplemental closing fund to
be paid no later than 90 days after the first anniversary of the closing date.
The selling price is subject to adjustment based on the net worth of the
business at closing. The net worth of the business on the closing balance sheet,
as agreed to by SDRC and the Company, is expected to result in an additional
payment of approximately $3,200,000, which is anticipated to be received in the
second quarter of fiscal 2001. After direct transaction costs, the loss on the
sale of PDM was $2,337,000. The transaction created a capital loss for federal
tax purposes, which will be carried forward to future periods.
8
<PAGE>
Note 6. Restructuring Expenses
On April 11, 2000, the Company adopted a restructuring plan under which
the Company would focus its energies on its eBusiness Technologies' ("eBT") Web
Content Management and Workflow product line, and pursue divestiture of certain
assets, including the Information Exchange Division. The plan included the
consolidation of the Company's Boston headquarters into the Providence, Rhode
Island offices of its eBusiness Technologies ("eBT") division. In connection
with this reorganization, approximately 18 administrative employees, and four
executive officers, were terminated or resigned in May 2000. As a result of this
plan, the Company recorded a charge of $1,930,000 for severance costs in the
first quarter of fiscal 2001. The charge was reduced by net proceeds to be
received on the disposal of certain fixed assets located at the Boston
headquarters in connection with the move. As of April 30, 2000, accrued
liabilities of approximately $1,930,000 remain relating to this restructuring
charge.
The Company incurred $481,000 in restructuring expenses in the first
quarter of the fiscal year ended January 31, 2000 ("fiscal 2000") relating to
the closure of the Company's Kansas City location, primarily for severance for
11 terminated employees. The entire balance was paid in full during fiscal 2000.
As of April 30, 2000, the Company had an accrual of approximately
$259,000 related to its July 1999 restructuring plan which was aimed at reducing
then-current operating costs, as well as supporting the Company's new divisional
structure. This restructuring plan included a work force reduction of 105
employees, including 10 executives or managers, the closure and/or combination
of domestic and international sales and administrative facilities and the
abandonment of leasehold improvements and support assets associated with these
locations, as well as a change in focus away from certain products. As a result
of the restructuring plan, the Company recorded an initial charge of $6,234,000
to the fiscal 2000 second quarter results, which was subsequently adjusted in
the fourth quarter, increasing the total charge to $6,390,000. Approximately
$3,093,000 of this charge represented non-cash write-downs of capitalized
product development costs and intangibles for discontinued products and support
assets located at closed facilities. The activity impacting the accrual related
to restructuring charges during the three months ended April 30, 2000 is
summarized in the following table:
<TABLE>
<CAPTION>
Accrual Balance Payments Accrual Balance
January 31, 2000 Made April 30, 2000
---------------- ---- --------------
(In thousands of dollars)
<S> <C> <C> <C>
Cash charges:
-------------
Severance for administrative, sales and development positions..... $214 $35 $179
Closure/combination of domestic and international administrative
and sales facilities........................................... 192 112 80
--- --- --
Total............................................................. $406 $147 $259
==== ==== ====
</TABLE>
As of April 30, 2000, the Company had an accrual of approximately
$267,000 related to its October 1999 plan of restructuring, which was aimed at
reducing then-current operating costs at the Company's PDM division. The
restructuring plan included a PDM workforce reduction of 51 employees, including
9 executives or managers, the consolidation of the PDM division's sales, service
and support organizations, the consolidation of PDM development facilities and
the abandonment of leasehold improvements and support assets associated with
these locations. The plan also called for a change in focus away from certain
development activities. As a result of the restructuring plan, the Company
recorded an initial charge of $4,290,000 to the fiscal 2000 third quarter
results, which was subsequently adjusted in the fourth quarter, decreasing the
total charge to $4,198,000. Approximately $2,570,000 of this charge represented
non-cash write-downs of licensed technology for discontinued products and
support assets located at closed facilities. The activity impacting the accrual
related to restructuring charges during the three months ended April 30, 2000 is
summarized in the following table:
<TABLE>
<CAPTION>
Accrual Balance Payments Accrual Balance
January 31, 2000 Made April 30, 2000
---------------- ---- --------------
(In thousands of dollars)
<S> <C> <C> <C>
Cash charges:
------------
Severance for administrative, sales and development
positions................................................ $630 $363 $267
</TABLE>
Note 7. Special Charges
<PAGE>
As of April 30, 2000, the Company had an accrual of approximately
$2,192,000 related to the special charges incurred during fiscal 2000. For the
fiscal year ended January 31, 2000, the Company incurred $28,103,000 of special
charges, $2,973,000 of which was recorded in the three months ended April 30,
1999. Of the total amount incurred during the first quarter of fiscal 2000,
approximately $1,000,000 related to professional fees incurred in connection
with the Company's investigation of errors and irregularities and restatement of
its 1998 financial results and approximately $2,000,000 related to severance and
other costs incurred for certain executive, management, and other staff
terminations or resignations.
Included in the special charges in fiscal 2000 were $1,527,000 in
professional fees, $13,451,000 for net premium costs and related professional
advisory fees for a major insurance carrier to assume financial risk associated
with the class action litigation initiated against the Company in February 1999,
as well as $2,320,000 for severance costs of certain employees who were
terminated or resigned. Additionally, approximately $10,805,000 of the special
charges related to the write-down of intangible assets and capitalized software
costs, substantially all attributable to the Company's PDM division, to their
estimated fair values. The activity impacting the accrual related to this charge
during the three months ended April 30, 2000 is summarized in the following
table:
<TABLE>
<CAPTION>
Accrual Balance Payments Accrual Balance
January 31, 2000 Made April 30, 2000
---------------- ---- --------------
(In thousands of dollars)
<S> <C> <C> <C>
Cash charges:
------------
Professional fees associated with restatement of 1998 results,
lawsuits and SEC investigation.................................. $500 $127 $373
Net insurance premiums and other costs related to class action
litigation initiated against the Company in February 1999 ...... 1,000 - 1,000
Severance for certain executive, management and other staff........ 1,072 253 819
----- --- ---
Total.............................................................. $2,572 $380 $2,192
====== ==== ======
</TABLE>
Note 8. Operations by Industry Segment
In the second quarter of fiscal 2000, the Company announced the
implementation of a new divisional structure, which resulted in the
decentralization of certain administrative and sales functions to improve the
customer focus of the Company. This action was implemented in the second quarter
of fiscal 2000. As a result, the Company was restructured into the following
operating segments: Product Data Management ("PDM"), eBusiness Technologies
("eBT"), and Information Exchange ("IED"). As such, the prior period segment
data has been recast to reflect the new divisional structure. Each of the
identified operating segments disclosed represents the divisions for which the
Company manages. The Company evaluates performance and allocates resources based
on profit and loss before special charges, income taxes, certain administrative
expenses, and interest earned on the Company's investments. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies in the Company's Annual Report on
Form 10-K.
The PDM segment information below for the prior year period includes
the operations of the DynaText/DynaWeb and ViewPort browser technologies sold to
Enigma on October 29, 1999 (see Note 5). The balance of the PDM division was
sold effective January 5, 2000 (see Note 5).
Each segment's profit and loss for the three months ended April 30,
2000 and 1999, reflects all income and losses, except for the items shown in the
reconciliation information below.
<PAGE>
Segment Disclosure
<TABLE>
<CAPTION>
Three Months Ended April 30, 2000
---------------------------------
eBT IED Totals
--- --- ------
(In thousands of dollars)
<S> <C> <C> <C>
Revenues from external customers........................................ $4,420 $5,870 $10,290
Depreciation and amortization expense................................... 1,022 878 1,900
Segment profit (loss)................................................... (4,185) 757 (3,428)
Segment assets.......................................................... 14,502 19,063 33,565
<CAPTION>
Three Months Ended April 30, 1999
---------------------------------
eBT IED PDM Totals
--- --- --- ------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Revenues from external customers.................................... $713 $5,366 $5,415 $11,494
Depreciation and amortization expense............................... 1,268 948 2,074 4,290
Segment profit (loss)............................................... (6,715) 379 (6,942) (13,278)
Segment assets...................................................... 16,436 19,632 45,858 81,926
<CAPTION>
Reconciliation Information
Profit or loss
2000 1999
---- ----
(In thousands of dollars)
<S> <C> <C>
Total external loss for reportable segments............................................ $(3,428) $(13,278)
Restructuring expenses................................................................. (1,835) (481)
Special charges........................................................................ - (2,973)
Net investment income.................................................................. 665 441
Unallocated corporate and other expenses............................................... (2,174) (5,694)
------------- -----------
Consolidated loss before provision for income taxes.................................... $(6,772) $(21,985)
============= ===========
</TABLE>
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended April 30, 2000 Compared to Three Months Ended April 30, 1999
-------------------------------------------------------------------------------
Revenues for the three months ended April 30, 2000 totaled $10,290,000, a
decrease of $1,204,000, or 10%, from the $11,494,000 reported for the three
months ended April 30, 1999. Total revenues for the fiscal quarter ended April
30, 1999 included revenues of $5,415,000 from our former Product Data Management
("PDM") division, which was sold in two separate transactions in October 1999
and January 2000. Excluding the revenues associated with the PDM division, net
revenues increased by approximately $4,211,000, or 69%, for the three months
ended April 30, 2000 compared to the three months ended April 30, 1999.
Excluding PDM revenues, product revenues increased $2,854,000, or 57%, and
service revenues increased $1,357,000, or 122%.
Revenues from the Information Exchange division ("IED") increased by
approximately $504,000, or 9%, from $5,366,000 for the three months ended April
30, 1999 to $5,870,000 for the three months ended April 30, 2000. The increase
was primarily due to growth in product sales of HTML Export to OEM customers.
Revenues from the eBT division increased by approximately $3,707,000, or 520%,
from $713,000 for the three months ended April 30, 1999 to $4,420,000 for the
three months ended April 30, 2000. The increase was due to both increased
product sales and increased delivery of services over the comparable prior year
quarter. eBT's fiscal 2001 first quarter sales results are not comparable to the
fiscal 2000 first quarter results, as restatement issues significantly
negatively impacted eBT's performance during the prior year quarter.
Gross profit increased $2,192,000, or 42%, from $5,187,000 for the three months
ended April 30, 1999 to $7,379,000 for the three months ended April 30, 2000.
Excluding the gross profit associated with the PDM division, gross profit
increased $3,405,000, or 86%, from $3,974,000 for the three months ended April
30, 1999. Gross profit, as a percentage of revenues, excluding the gross profit
associated with the PDM division, was 72% for the three months ended April 30,
2000, compared to 65% for the three months ended April 30, 1999. The increase in
gross profit percentage in the first quarter of fiscal 2001 was largely due to
the increase in eBT sales, which increased at a greater rate than associated
costs, and thereby resulted in improved gross margins on both product and
service revenues for the first quarter of fiscal 2001. IED gross margins for
both product and service revenues for the quarter ended April 30, 2000 remained
even with the prior year period. Amortization expense for capitalized software
and acquired license technology, excluding the PDM segment results, was also
relatively constant.
Total operating expenses decreased $12,797,000, or 46%, to $14,816,000 for the
three months ended April 30, 2000, from $27,613,000 for the three months ended
April 30, 1999. Included in total operating expenses for the three months ended
April 30, 2000 were net restructuring charges of $1,835,000 for costs associated
with the consolidation and closure of our Boston headquarters. Included in total
operating expenses for the three months ended April 30, 1999 were restructuring
charges of $481,000 for the closure of our Kansas City office, and special
charges of $2,973,000, for costs relating to the restatement of our financial
results for the first three quarters of 1998 and for the termination or
resignation of certain employees. Excluding the aforementioned charges and the
operating expenses associated with the PDM division, operating expenses
decreased $3,024,000, or 19%, to $12,981,000 for the three months ended April
30, 2000 as compared to $16,005,000 for the three months ended April 30, 1999.
The decrease relates primarily to the savings generated at the corporate level
from the actions taken in the first and second quarters of fiscal 2000 (see
Notes 6 and 7).
Sales and marketing expenses decreased $3,431,000, or 40%, to $5,168,000 for the
three months ended April 30, 2000 from $8,599,000 for the three months ended
April 30, 1999. Excluding the sales and marketing expenses associated with the
PDM division, sales and marketing expenses decreased $952,000, or 16%, for the
three months ended April 30, 2000 as compared to the three months ended April
30, 1999. Increased sales and marketing expenses in both the eBT and IED
divisions were more than offset by savings from the fiscal 2000 first and second
quarter restructuring actions. Sales and marketing expenses were 50% of revenues
for the three months ended April 30, 2000 compared to 101% for the three months
ended April 30, 1999, excluding the sales and marketing expenses and revenues
associated with the PDM division. The increase in eBT sales and marketing
expenses reflects our continued investment in growing the eBT business.
12
<PAGE>
Product development expenses decreased $4,145,000, or 52%, from $7,954,000 for
the three months ended April 30, 1999 to $3,809,000 for the three months ended
April 30, 2000. Excluding the product development expenses associated with the
PDM division, product development expenses decreased by $1,008,000, or 21%, for
the three months ended April 30, 2000 compared to the three months ended April
30, 1999. The decrease was again due primarily to cost savings from our fiscal
2000 restructuring actions. Product development expenses, excluding the product
development expenses and revenues associated with the PDM division, were 37% of
revenues for the three months ended April 30, 2000 compared to 79% of revenues
for the three months ended April 30, 1999. The decrease in product development
expenses as a percentage of revenues was due primarily to the increased sales
generated by the eBT division, combined with the decrease in costs.
General and administrative expenses decreased $2,562,000, or 41%, to $3,683,000
for the three months ended April 30, 2000 compared to $6,245,000 for the three
months ended April 30, 1999. Excluding the administrative expenses associated
with the PDM division, general and administrative expenses decreased $994,000,
or 21%, for the three months ended April 30, 2000 compared to the three months
ended April 30, 1999. The decrease in general and administrative expenses was
primarily due to cost savings related to reductions in personnel and facilities
following the fiscal 2000 restructuring actions. General and administrative
expenses, excluding the expenses and revenues associated with the PDM division,
were 36% of revenues for the three months ended April 30, 2000 and 77% of
revenues for the three months ended April 30, 1999.
On April 11, 2000, we adopted a restructuring plan under which we would focus
our energies on eBT's Web Content Management and Workflow product line, and
pursue divestiture of certain assets, including the Information Exchange
Division. The plan included the consolidation of our Boston headquarters into
the Providence, Rhode Island offices of the eBT division. In connection with
this reorganization, approximately 18 administrative employees and four
executive officers were terminated or resigned in May 2000. As a result of this
plan, we recorded a net charge of $1,835,000 in the first quarter of fiscal year
ending January 31, 2001 ("fiscal 2001"). The charge was comprised primarily of
severance for those employees. We anticipate that this restructuring action will
generate annualized cost savings of approximately $4 million.
As a result of net operating losses incurred in fiscal 2000 and for the first
quarter of fiscal 2001, and after evaluating the Company's anticipated
performance over its normal planning horizon, we have provided a full valuation
allowance for our net operating loss carryforwards and other net deferred tax
assets as of April 30, 2000. In the first quarter of fiscal 2000, the net
operating loss carryforwards and other net deferred tax assets were also fully
reserved through a valuation allowance.
Net loss and loss per share were $6,772,000 and $0.41 per share, respectively,
for the three months ended April 30, 2000 as compared to $21,985,000, and $1.42
per share, respectively, for the three months ended April 30, 1999. Excluding
the restructuring and special charges for both the fiscal 2001 and 2000 first
quarters, as well as the results of the PDM division in the fiscal 2000 first
quarter, net loss and net loss per share would have been $4,937,000 or $0.30 per
share, respectively, for the quarter ended April 30, 2000 and $11,589,000 or
$0.75 per share, respectively, for the quarter ended April 30, 1999.
Liquidity and Capital Resources
-------------------------------
Our operating activities used cash of $2,720,000 for the three months ended
April 30, 2000 compared to $4,671,000 for the three months ended April 30, 1999.
The improvement in cash results from operating activities of $1,951,000 was due
principally to the reduction in losses incurred in the three months ended April
30, 2000, resulting from the divestiture of the PDM division and the cost
savings realized from the fiscal 2000 restructuring actions.
Our investing activities used cash of $238,000 for the three months ended April
30, 2000 compared to providing cash of $767,000 for the three months ended April
30, 1999. The decrease of $1,005,000 was due primarily to a decline in net
proceeds from sales of marketable securities, also related to the cost savings
from the fiscal 2000 restructuring actions and the divestiture of PDM. Since
cash used from operations was lower, we were able to preserve this source of
funds for the future.
Our financing activities provided cash of $91,000 for the three months ended
April 30, 2000 compared to using cash of $109,000 for the three months ended
April 30, 1999. In the fiscal 2001 first quarter, payments on capital lease
13
<PAGE>
obligations were substantially lower than in the comparable prior year period,
due to the divestiture of the PDM division.
As of April 30, 2000, we had working capital of $30,209,000. Total cash, cash
equivalents and marketable securities at April 30, 2000 were $32,399,000. Due to
the restructuring actions taken in both fiscal 2000 and fiscal 2001, and the
divestiture of the PDM division, we believe that funds available, together with
funds receivable from the fiscal 2000 divestiture of the PDM division, will be
sufficient to finance our operations through the foreseeable future.
On April 11, 2000, we announced that as part of our review of strategic
alternatives, which began in February 2000, the Board of Directors determined
that the most appropriate means to enhance shareholder value is for us to remain
independent and to focus our energies on eBT's Web Content Management and
Workflow product line. As a result, we are pursuing the divestiture of certain
assets, including the Information Exchange Division. Proceeds from the potential
sale of the IED division are expected to exceed the forecasted operating cash
flows of this division in fiscal 2001. Also in connection with this strategic
evaluation, we consolidated our Boston headquarters into the Providence, Rhode
Island offices of the eBT division. In connection with this reorganization,
approximately 18 administrative employees and four executive officers were
terminated or resigned in May 2000. As a result of this plan, we will pay out
approximately $1,930,000 in severance related costs over the course of the next
24 months, beginning in May 2000. We anticipate that this restructuring action
will generate annualized cost savings of approximately $4 million.
On February 1, 1999, we announced that we would restate our financial results
for the quarters ended March 31, June 30, and September 30, 1998. Subsequent to
the announcement of our intention to restate these financial results, certain
putative class action lawsuits were filed in the U.S. District Court for the
District of Massachusetts, against the Company and certain of its officers and
employees by purported representatives of a class of the Company's current and
former stockholders. On September 29, 1999, we entered into an insurance
agreement with a major AAA-rated insurance carrier pursuant to which the
insurance carrier assumed financial responsibility for the defense and ultimate
resolution of these securities class action suits. On May 26, 2000, we announced
that we have entered into an agreement to settle the consolidated securities
class action. The settlement provides that all claims against Inso and its
former Chief Executive Officer, Chief Financial Officer and Controller will be
dismissed. In agreeing to the proposed settlement, Inso and the individual
defendants specifically deny any wrongdoing. A cash payment will be made by our
insurance carrier, pursuant to the insurance agreement described above. The
settlement is subject to certain customary conditions, including preliminary and
final approval by the United States District Court for the District of
Massachusetts and notice to the class.
On June 2, 1999, we were informed that the United States Securities and Exchange
Commission has issued a Formal Order of Private Investigation in connection with
matters relating to our previously announced restatement of its 1998 financial
results. We are cooperating with the Securities and Exchange Commission. We
cannot predict the ultimate resolution of this action at this time, and there
can be no assurance that the investigation will not have a material adverse
impact on our financial condition and results of operations. Additionally, while
it is not feasible to predict the total costs, we expect to continue to incur
further professional fees with respect to the SEC Investigation.
On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and Microlytics
Technology Co., Inc. (together "Microlytics") filed a complaint against Inso in
the United States Bankruptcy Court for the Western District of New York. The
lawsuit is captioned Microlytics, Inc. and Microlytics Technology Co., Inc. v.
Inso Corporation, Adversary Proceeding No. 99-2177. The complaint seeks turnover
of purported property of the estates and damages for Inso's alleged breaches of
a license from Microlytics relating to certain computer software databases and
other information. The complaint seeks damages of at least $11,750,000. On
August 19, 1999, we filed our Answer and Demand for Jury Trial. Also, on August
19, 1999, we filed a motion to withdraw the case from the Bankruptcy Court to
the United States District Court for the Western District of New York. On
December 15, 1999, the United States District Court granted our motion for the
purposes of dispositive motions and trial. We believe that the claims are
subject to meritorious defenses, which we plan to assert during the lawsuit. We
cannot predict the ultimate resolution of this action at this time, and there
can be no assurance that the litigation will not have a material adverse impact
on our financial condition and results of operations.
14
<PAGE>
During February 2000, certain shareholders of Inso filed two putative class
action lawsuits against Inso and certain of Inso's officers and employees in the
United States District Court for the District of Massachusetts. The lawsuits are
captioned as follows: Liz Lindawati, et al. v. Inso Corp., et al., Civil Action
No. 00-CV-10305GAO; Group One Limited, et al. v. Inso Corp., et al., Civil
Action No. 00-CV-10318GAO. These lawsuits were filed following our preliminary
disclosure of revenues for the fiscal 2000 fourth quarter on February 1, 2000.
Both complaints assert claims for violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission,
as well as a claim for violation of Section 20(a) of the Exchange Act. The
plaintiffs allege that the defendants prepared and issued deceptive and
materially false and misleading statements to the investing public. They seek
unspecified damages. We believe that the claims are subject to meritorious
defenses, which we plan to assert during the lawsuit. We cannot predict the
ultimate resolution of these actions at this time, and there can be no assurance
that the litigation will not have a material adverse impact on our financial
condition and results of operations.
In 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-9 (SOP
98-9) "Modification of SOP 97-2, Software Revenue Recognition with respect to
Certain Transactions" effective for fiscal years beginning after March 15, 1999.
SOP 98-9 defines vendor-specific objective evidence of fair value in connection
with software revenue recognition. The adoption of SOP 98-9 did not have a
material impact on our financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities" effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. In June 1999, the Financial Accounting Standards Board
issued Statement of Accounting Standards No. 137 (SFAS 137), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 amended the effective date of SFAS No. 133
for all fiscal quarters of fiscal years beginning after June 15, 2000. We do not
believe that the adoption of SFAS 133 will have a material effect on our
financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101.
"Revenue Recognition in Financial Statements," which is effective no later than
the quarter ending June 30, 2000. SAB 101 clarifies the SEC's views related to
revenue recognition and disclosure. We do not believe that the adoption of SAB
101 will have a material effect on our financial position or results of
operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. We do not
expect the application of FIN 44 to have a material impact on the Company's
financial position or results of operations.
Factors that May Affect Future Operating Results
------------------------------------------------
This report, and other reports, proxy statements and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements with respect to, among other
things, the Company's future revenues, operating income, earnings per share or
cash flows. Please refer to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 2000 for a description of certain factors which
may cause the Company's actual results to vary materially from those forecasted
or projected in any such forward-looking statements. Among the factors which may
cause the Company's actual results to differ
15
<PAGE>
materially from historical results are the following: competitive pressures
including price pressures; increased reliance on indirect and distribution
channels which may result in lower operating margins; increased reliance on the
highly competitive web content management business; the inability to divest of
certain assets; the inability to leverage and grow relationships with systems
integrators and other channel partners; increased personnel costs and
competition for experienced personnel; market acceptance of products based on
eXtensible Markup Language; unexpected restructuring costs; inability to expand
a sales organization for enterprise-level solution selling; consolidation in the
OEM business and potential competition from OEM customers; adverse economic
changes in the markets in which the Company does business.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in its fiscal 2000 Annual Report
filed on Form 10-K has not changed significantly.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During February 1999, certain shareholders of Inso filed seven putative class
action lawsuits against Inso and certain of Inso's officers and employees in the
United States District Court for the District of Massachusetts. The lawsuits
were captioned as follows: Michael Abramsky v. Inso Corporation, et al., Civ.
Action No. 99-10193; Richard B. Dannenberg v. Inso Corporation, et al., Civ.
Action No. 99-10195; Jack Smith v. Inso Corporation et al., Civ. Action No.
99-10208; Chavy Weisz v. Inso Corporation, et al., Civ. Action No. 99-10200;
Robert C. Krauser v. Inso Corporation, et al., Civ. Action No. 99-10366;
Jean-Marie Larcheveque v. Inso Corporation, et al., Civ. Action No. 99-10299;
and Thomas C. McGrath v. Inso Corporation, et al., Civ. Action No. 99-10389.
These lawsuits were filed following our announcement on February 1, 1999 that we
planned to restate our revenues for the first three quarters of 1998. Each of
the complaints asserted claims for violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission,
as well as a claim for violation of Section 20(a) of the Exchange Act. On April
5, 1999, the seven class action lawsuits that were filed against us were
consolidated into one lawsuit entitled In Re Inso Corporation, Civil Action No.
99-10193-WGY.
The plaintiffs allege that the defendants prepared and issued deceptive and
materially false and misleading statements to the investing public. They seek
unspecified damages. We believe the claims are subject to meritorious defenses,
which we plan to assert during the lawsuit. On September 29, 1999, we entered
into an insurance agreement with a major AAA-rated insurance carrier pursuant to
which the insurance carrier assumed complete financial responsibly for the
defense and ultimate resolution of the lawsuit. A net charge to our fiscal year
2000 consolidated results of $13,451,000 was taken in connection with the
insurance agreement.
On May 26, 2000, we announced that we have entered into an agreement to settle
the consolidated securities class action. The settlement provides that all
claims against Inso and its former Chief Executive Officer, Chief Financial
Officer and Controller will be dismissed. In agreeing to the proposed
settlement, Inso and the individual defendants specifically deny any wrongdoing.
The settlement is subject to certain customary conditions, including preliminary
and final approval by the United States District Court for the District of
Massachusetts and notice to the class.
As soon as we discovered that it could be necessary to restate certain of our
financial results for the first three quarters of 1998, we immediately and
voluntarily provided this information to the U.S. Securities and Exchange
Commission. On June 2, 1999, we were informed that the U.S. Securities and
Exchange Commission had issued a Formal Order of Private Investigation in
connection with matters relating to Inso's previously announced restatement of
its 1998 financial results. We cannot predict the ultimate resolution of this
action at this time, and there can be no assurance that the Formal Order of
Private Investigation will not have a material adverse impact on our financial
condition and results of operations.
On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and Microlytics
Technology Co., Inc. (together "Microlytics") filed a complaint against Inso in
the United States Bankruptcy Court for the Western District of New York. The
lawsuit is captioned Microlytics, Inc. and Microlytics Technology Co., Inc. v.
Inso Corporation, Adversary Proceeding No. 99-2177. The complaint seeks turnover
of purported property of the estates and damages for Inso's alleged breaches of
a license from Microlytics relating to certain computer software databases and
other information. The complaint seeks damages of at least $11,750,000. On
August 19, 1999, we filed our Answer and Demand for Jury Trial. Also, on August
19, 1999, we filed a motion to withdraw the case from the Bankruptcy Court to
the United States District Court for the Western District of New York. On
December 15, 1999, the United States District Court granted our motion for the
purposes of dispositive motions and trial. We believe that the claims are
subject to meritorious defenses, which we plan to assert during the lawsuit. We
cannot predict the ultimate resolution of this action at this time, and there
can be no assurance that the litigation will not have a material adverse impact
on our financial condition and results of operations.
During February 2000, certain shareholders of Inso filed two putative class
action lawsuits against Inso and certain of Inso's officers and employees in the
United States District Court for the District of Massachusetts. The lawsuits are
captioned as follows: Liz Lindawati, et al. v. Inso Corp., et al., Civil Action
No. 00-CV-10305GAO; Group One Limited, et al. v. Inso Corp., et al., Civil
Action No. 00-CV-10318GAO. These lawsuits were filed following our
17
<PAGE>
preliminary disclosure of revenues for the fiscal year 2000 fourth quarter on
February 1, 2000. Both complaints assert claims for violations of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and
Exchange Commission, as well as a claim for violation of Section 20(a) of the
Exchange Act. The plaintiffs allege that the defendants prepared and issued
deceptive and materially false and misleading statements to the investing
public. They seek unspecified damages. We believe that the claims are subject to
meritorious defenses, which we plan to assert during the lawsuit. We cannot
predict the ultimate resolution of these actions at this time, and there can be
no assurance that the litigation will not have a material adverse impact on our
financial condition and results of operations.
We are also subject to various legal proceedings and claims that arise in the
ordinary course of business. We currently believe that resolving these matters
will not have a material adverse impact on our financial condition or our
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
On June 1, 2000, the Company held its annual stockholders meeting, at which the
following matters were submitted to and approved by a vote of security holders:
(a) Election of two Class I directors to serve until the Company's annual
meeting of stockholders to be held in 2003 and until their successors
are elected and qualified:
Nominee For Against
------- --- -------
Edward Terino 14,957,456 0
Samuel H. Fuller 14,980,579 0
The remaining directors, Stephen O. Jaeger and Joanna T. Lau,
continue to serve under their terms, which expire at the annual
stockholders meetings to be held in 2001 and 2002, respectively.
(b) Amendment to the Company's 1993 Stock Purchase Plan (the "1993
Purchase Plan ") that would increase the number of shares of the
Company's common stock, par value $.01 per share ("Common Stock"),
which are authorized to be issued by the Company under the 1993 Stock
Purchase Plan from 450,000 to 700,000.
For Against Abstain
--- ------- -------
Approved 14,750,556 388,847 20,253
(c) Amendments to the Company's 1996 Non-employee Director Plan (the
"1996 Director Plan") that would (i) eliminate the annual grant of
1,000 shares of Common Stock; (ii) reduce the initial option grant to
new directors to 7,500, but to have such initial grant vest
immediately, (iii) increase the number of options to be granted
annually (the "Annual Option Grant") to non-employee directors to
7,500 and to have such options vest immediately, and (iv) set the
date of January 27 as the date upon which the Annual Option Grant
will be made.
For Against Abstain
--- ------- -------
Approved 14,377,768 751,669 30,219
18
<PAGE>
(d) Selection of Ernst & Young LLP as the independent auditors of the
Company for the fiscal year ending January 31, 2001
For Against Abstain
--- ------- -------
Approved 15,063,482 75,727 20,447
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following are filed as exhibits to this Form 10-Q
Exhibit 10-1 Agreement and Release between Kirby Mansfield and the
Company dated April 11, 2000
Exhibit 10.2 Letter Agreement between Stephen O. Jaeger and the
Company dated February 15, 2000
Exhibit 10.3 Amendment to Employment Agreement between Stephen O.
Jaeger and the Company, dated April 13, 2000
Exhibit 10.4 Amendment to Letter Agreement between Stephen O.
Jaeger and the Company, dated April 13, 2000
Exhibit 10.5 Lease Agreement between OMV Associates Limited
Partnership and the Company, dated March 3, 2000
Exhibit 10.6 Lease Termination Agreement between OMV Associates
Limited Partnership and the Company, dated
March 3, 2000
Exhibit 10-7 Inso Corporation 1993 Stock Purchase Plan, as amended
through June 1, 2000
Exhibit 10-8 Inso Corporation Amended and Restated 1996
Non-Employee Director Plan
Exhibit 27-1 Financial Data Schedule for the quarter ended
April 30, 2000
(b) Reports on Form 8-K
Registrant filed one (1) report on Form 8-K during the quarter ended
April 30, 2000.
(i) Current Report on Form 8-K dated April 13, 2000 reporting
under Item 5 (Other Events), the Company's press release
announcement of the relocation of its Boston headquarters
to Providence, Rhode Island, and the related separation of
certain executives and other Boston employees.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Inso Corporation
----------------
Registrant
Date: June 14, 2000 /s/ James M. Ringrose
----------------------
James M. Ringrose
Chief Executive Officer
Date: June 14, 2000 /s/ Christopher M. Burns
------------------------
Christopher M. Burns
Chief Financial Officer
(Chief Accounting Officer)
20
