SCREAMING MEDIA COM INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2001 OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO

COMMISSION FILE NUMBER 000-30309
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SCREAMING MEDIA INC.

(Exact name of registrant as specified in its charter)

DELAWARE 13-4042678
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

601 WEST 26TH ST., 13TH FLOOR
NEW YORK, NY 10001
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 691-7900
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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

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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 the 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. Yes / / No / /

The aggregate market value of the shares of Common Stock held by
non-affiliates was approximately $55,927,255 based on the closing price on the
NASDAQ for such shares on March 28, 2002.

The number of the Registrant's shares of Common Stock, par value $.01 per
share, outstanding was 42,474,676 as of March 28, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Shareholder's
Meeting to be held on June 11, 2002 are incorporated by reference into
Part III.

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TABLE OF CONTENTS

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PART I

ITEM I. BUSINESS

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 that involve risks and uncertainties, including statements
regarding our capital needs, business strategy, expectations and intentions.
Statements that use the terms "believe," "do not believe," "anticipate,"
"expect," "plan," "estimate," "intend" and similar expressions are intended to
identify forward-looking statements. These statements reflect our current views
with respect to future events and because our business is subject to numerous
risks, uncertainties and other factors, our actual results could differ
materially from those anticipated in the forward-looking statements, including
those set forth below under "Item 1. Business," "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this report. Actual results will most likely differ from those reflected in
these statements, and the differences could be substantial. We disclaim any
obligation to publicly update these statements, or disclose any difference
between our actual results and those reflected in these statements. The
information constitutes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The factors set forth below
under "Item 1. Business," "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other cautionary statements
made in this report should be read and understood as being applicable to all
related forward-looking statements wherever they appear in this report.

OVERVIEW

ScreamingMedia provides information management solutions to the enterprise.
The Company provides turnkey solutions to customers in target segments where
information is mission-critical, such as in the financial services industry, on
corporate websites and intranets and for Internet access providers.
ScreamingMedia's solutions encompass technology for integrating third party
information and internal information into business systems as well as
applications to present and analyze that information. We also provide a range of
licensed information and services to enable customization and integration of
this information into any platform including websites, intranets, wireless
solutions and interactive television services.

Examples of applications that ScreamingMedia can provide to customers
include: Portfolio Tracker, which enables financial institutions to drive
investment decisions within their customer base; Business Tracker, which allows
corporations to publish critical business information and provides research
tools on their intranet; and an outsourced portal homepage that allows an
Internet Service Provider to drive usage and revenue from its subscribers. These
applications leverage the same set of core assets, which include expertise in
information integration, personalization and a range of licensed information
covering financial data such as stock prices and fundamental data, business
information such as news and trade publications, and consumer information such
as local directories and weather.

We currently provide our information management solutions predominantly as
an application service provider (ASP). This means that we aggregate information
at our data centers and then standardize, categorize, summarize and filter it on
our own servers. This information is either used in applications that we host
for customers, or is delivered to clients as a customized feed that is
integrated into their own systems using our Actrellis Integration Server
software, formerly known as SiteWare. In response to customer needs to integrate
internal data as well as to make use of existing third party data sources, we
launched the Actrellis Suite of enterprise software in February 2002. This
software is installed at customers' own data centers and allows them to
integrate and display information that has not come through ScreamingMedia.

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We believe that our ability to offer solutions on a software-only or an ASP
basis differentiates us from our competitors. We also differentiate on our
ability to provide easily customizable solutions and our ability to integrate
our solutions into our customers' existing technology platforms.

Through internal development and the acquisition in August 2001 of
Stockpoint Inc., a provider of global online and wireless investment tools and
financial market information, we have evolved from delivery of customized news
feeds for corporate websites to provision of comprehensive information
management solutions across multiple platforms. Our customers are leaders in
their industries and our solutions play an important role in helping them to
build revenue, reduce costs and improve business efficiency. As our solutions
have become increasingly strategic to our customers, the average size and length
of our contracts have grown substantially. In 2001, we signed contracts with
companies such as AT&T, Bank One, Barclays Global Investors, BP p.l.c., Citrix
Systems, Brown & Company, a division of J.P. Morgan Chase, The Boeing Company,
Credit Suisse Asset Management, The Principal Financial Group, The Washington
Post Company, Tribune Media Services, a subsidiary of Tribune Company, Verizon
Wireless and Volkswagen.

ScreamingMedia is headquartered in New York City and has offices in San
Francisco, Coralville, IA and London. We were incorporated in 1993 as The
Interactive Connection, Inc. Until 1997, our primary business focus was Web site
design, development and consulting. By the end of 1997 we had designed and
developed the first version of our proprietary software. In late 1998, our
business focus evolved into the aggregation and distribution of digital
information over the Internet. In August of 2001, we acquired Stockpoint, Inc.
to increase our penetration in the financial services market and to enhance our
financial services product offering.

SCREAMINGMEDIA TARGET MARKETS

We focus our product development, sales and marketing efforts on delivering
information management solutions to target markets where the provision of high
quality information and applications is mission-critical, enabling them to
attract, engage, and influence customers, partners and employees. The benefit
derived from providing information in each of our target markets is described
below. Although we have summarized below our key target markets and provided
examples of clients in each market, the identity of these clients should not be
relied on in evaluating ScreamingMedia. None of these clients is expected to
individually account for more than 10% of our revenues in 2002 and our contracts
with most of these clients expire during the next two years.

FINANCIAL SERVICES

The demand for online financial applications and information has grown
rapidly as the ownership of financial assets has become increasingly widespread,
acceptance of and confidence in the Internet as a reliable, secure and
cost-effective medium for financial transactions has grown and investors have
shown increased willingness to take greater control over their investment
decisions. At the same time, financial institutions are increasingly leveraging
the Internet as an effective way to sell and deliver their products and services
to individual and institutional investors as well as to their sales channels.
Volatility in the financial markets in 2000 and 2001 has brought into even
sharper focus the need for accurate, timely information and for tools that allow
investors and their advisors to collaborate to optimize financial decisions. We
believe that the quality and breadth of the financial information applications
that is offered both to employees and customers is a key differentiator among
financial services providers and that the financial industry has therefore
become a substantial consumer of Internet technology. Our Financial Services
Product Suite was developed to address this market need.

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Operating under the Stockpoint brand, ScreamingMedia services the following
key financial services segments:

- TRADITIONAL BROKERAGE FIRMS. Traditional brokerage firms are seeking to
prevent erosion of their share of the online brokerage marketplace as well
as deepen their relationships with customers by providing web-based tools
that allow brokers to collaborate with their customers in an advisory
role. While sites were originally targeted at retail investors,
traditional brokerages are increasingly looking to complement these tools
with functionality targeted at strengthening their service offering to
high net worth customers and institutional investors. Our customers in
this area include Robert W Baird & Co., U.S. Bancorp Piper Jaffray Inc.
and WR Hambrecht & Co.

- ONLINE BROKERAGE FIRMS. Online brokerages must continue to offer
innovative products and applications to differentiate their offerings from
those of other online brokerages, while keeping costs low. Examples of
online brokerage clients served by us include A.B. Watley, Ameritrade and
Brown & Company, a division of J.P. Morgan Chase.

- COMMERCIAL BANKS. Many commercial banks are beginning to offer full scope
financial portals and brokerage services. We believe that many of these
banks intend to develop a more comprehensive financial solution for their
consumers and will expand their offerings to include financial information
and analytical tools. Examples of commercial banks served by us include
M&T Bank Corp., Union Bank of California N.A. and Wells Fargo.

- MUTUAL FUNDS & ASSET MANAGERS. Mutual Funds and Asset Managers use the
Internet to sell their funds and services, to report on performance of
their investments relative to benchmarks, as well as to efficiently manage
existing customers by providing information on their individual holdings.
Some companies in this segment are expanding to provide broader brokerage
services. Our clients in this area include Barclays Global Investors and
Credit Suisse Asset Management.

- INSURANCE COMPANIES. Insurance companies not only sell and promote their
insurance products online, but are also diversifying into the provision of
brokerage and mutual fund services as well as long-term financial
planning. Our clients in this area include Lincoln Financial Group, The
Principal Financial Group and USAA Investment Management Co.

ScreamingMedia also services other companies in the financial services
segment including investment banks, credit card companies, real estate financing
companies and financial technology companies.

CORPORATE WEBSITES & INTRANETS

According to Forrester Research, large & medium-sized enterprises in the US
will operate over 175,000 web sites and extranets and over 80,000 intranets by
2004. The ability of companies to attract, engage, and influence users through
these sites is based in a large part on their ability to provide users with
valuable, relevant information.

- CORPORATE WEBSITES. Major corporations have launched websites for a
variety of reasons ranging from direct revenue generation to effective
communication. These websites generally publish news or financial data
specific to the corporation's industry to establish credibility and
generate return traffic, customized information intended to drive
transactions, or company performance data for shareholders. Examples of
customers that are using ScreamingMedia's services on external sites are
Schlumberger and Volkswagen.

- CORPORATE INTRANETS. Many corporations are installing Enterprise
Information Portals, which provide employees with a personalized view of
relevant internal and external information in order to increase
productivity and reduce time browsing on the web. We believe that budgets
are migrating towards these projects and away from external sites and
expensive information services

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targeted at a few individuals. International Data Corporation or IDC,
expects that revenue for the Enterprise Information Portal software market
will grow at a compounded annual growth rate of 44.9%, from $455 million
in 2001 to $2.0 billion in 2005. We therefore believe that this is the
area with the strongest potential for growth within our corporate segment,
and have launched the "Business Tracker" product to target this
opportunity. Examples of customers that are using ScreamingMedia's
services on corporate intranets are Jones Day and McKinsey & Company.

ACCESS PROVIDERS

Access providers generate revenue by providing end-users access to the
Internet or other information services on PCs and other devices. Access
providers are seeking to win new customers for their services, reduce customer
churn, and increase average revenue per user by driving usage, transactions and
advertising and by cross-selling additional services. As part of this strategy,
access providers offer unique and compelling information services that are
customized geographically and demographically. We have developed a Consumer
Product Suite to address this market need.

Within the Access Provider Segment, ScreamingMedia services the following
segments:

- INTERNET SERVICE PROVIDERS. A personalized homepage that is rich with
convenience content such as news, financial information, weather and local
information is key to reducing churn and growing revenue. As providers aim
to migrate customers to more expensive broadband services, the ability to
provide rich media content including photos, audio and video information
are becoming increasingly important. ScreamingMedia's customers in this
sub-segment include leading wireline telecommunications providers such as
AT&T (for their AT&T WorldNet -Registered Trademark- service), cable
operators such as Cablevision (for their Optimum Online service) and
pure-play ISPs such as Earthlink.

- WIRELESS CARRIERS. Wireless carriers are aggressively launching wireless
data services based on the Wireless Application Protocol (WAP) and Short
Message Services (SMS). Due to the restrictive interface of cell-phones,
wireless information services must be highly targeted and information must
be short and easy to read (for example, SMS messages are generally limited
to under 160 characters in length). Verizon Wireless and Rogers AT&T are
examples of customers in this sub-segment.

- INTERACTIVE TELEVISION PROVIDERS. Cable operators are also beginning to
offer access to information services and the Internet on televisions.
These services, which usually cover frequently accessed information such
as news, sports scores, financial information and weather, must be
optimized for viewing and navigation on the television. An example of a
customer using ScreamingMedia's information as part of interactive TV
information services is Knology, Inc.

- "ALTERNATIVE ACCESS" PROVIDERS. A range of companies are seeking to
generate revenue or enhance their overall services by providing access to
the internet and information services in non-traditional locations such as
airplanes, automobiles, gas pumps, hotel rooms, kiosks and elevators. The
Boeing Company and BP p.l.c. are examples of "alternative access"
customers.

CUSTOMER CHALLENGES

Companies in our target markets face technical and business challenges
obtaining, integrating, managing, and delivering relevant information in a
timely manner. The range of skills required to overcome these challenges is
often difficult or costly to find internally or from a single third party.

On the technology side, specialized applications software is required to
provide powerful searching capabilities, personalized information presentation
and alerting, sophisticated graphing and analysis tools and access to data
across multiple devices. Sophisticated information analysis software is required

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to categorize, filter and summarize information. Specialized database software
is required to manage large volumes of quote and financial information, news and
other data types. These applications utilize information from multiple sources
including third party information vendors and business partners that provide
data in a variety of different formats and from internal data repositories that
can range from file systems to legacy databases. This information must be
reliably extracted from various sources and transformed into a standard format
for use in the applications. Finally, a robust hardware and communications
infrastructure is required to handle the storage and transmission of this
information. Where off-the-shelf software is available for any particular
element of functionality, such as charting, this software is often inflexible,
cannot be customized to the company's existing site, or requires extensive
programming and customization to integrate with the other applications that will
be used on the site.

Furthermore, in order to remain competitive, a company must constantly
monitor and revise the software and hardware tools that manage frequently
updated information. As a result, any company that is considering an information
management solution that is internally developed or that is custom-developed
from scratch by a third party faces a considerable and on-going expenditure of
time, effort and expense.

Even if the company is able cost-effectively to build, maintain and develop
these applications and infrastructure, there is an additional business challenge
in contracting for third-party information from multiple sources. The
negotiation of multiple provider contracts can be a difficult and time-consuming
process and companies can have no assurance that they will be able to secure the
information they desire at a reasonable cost.

THE SCREAMINGMEDIA SOLUTION

ScreamingMedia provides information management solutions, enabling the
aggregation, integration, distribution and presentation of mission-critical
information to internal and external audiences. Our solutions encompass:

- Technology for integrating third party and proprietary information into
business systems;

- Applications to present and analyze that information;

- A range of licensed information from various sources that can be
integrated into our applications or delivered as customized data feeds;

- Services to enable customization and integration of this information into
any platform including websites, intranets, wireless solutions, and
interactive television services.

We provide customers with the means to launch customized information
services, quickly and cost-effectively. Using our products and services,
customers are relieved of the burden of building and maintaining sophisticated,
information-intensive applications, of contracting and maintaining relationships
with multiple information vendors, and, if desired, of developing and supporting
an infrastructure capable of hosting these applications. Clients can integrate
proprietary data alongside licensed information and can customize the
functionality as well as the "look-and-feel" of the solution. Our solutions
integrate with existing technology investments and environments via web services
or software integrations.

Our suite of products and services provides our customers with the following
key benefits:

- EFFICIENT, COST-EFFECTIVE INFORMATION MANAGEMENT SOLUTION. We provide
customers with a single-source, turnkey solution. Our applications use
sophisticated programming to enable personalization, alerting, real-time
data access, powerful data-visualization tools and advanced analytics. By
using ScreamingMedia, our customers can avoid the time and expense
associated

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with building and maintaining their own information management solutions,
enabling them to focus their resources on other critical aspects of their
business.

- FLEXIBLE SOLUTIONS FOR A BROAD RANGE OF CUSTOMER NEEDS. ScreamingMedia's
services are scalable and adaptable to meet customers' changing needs. We
can provide a full suite of applications or selected targeted
applications. Our solutions can aggregate information of any type or
format, including a client's own data and data from third-party sources,
and deliver that information both internally within the customer or
externally to customers, prospects and partners. Information can be
filtered for our customers by publication, by category, by geography, by
keyword or by a number of other criteria. Information can be delivered in
any format required by customers, including current standard Internet
formats such as HTML and evolving formats such as XML and WML. Information
can be summarized or formatted so that it is optimized for viewing on
different devices such as cell-phones or interactive television. Our
applications can be hosted by ScreamingMedia or, since the launch in 2002
of Actrellis, can be bought as enterprise software without leveraging our
hosting services or our information sources.

- SEAMLESS INTEGRATION INTO CUSTOMER'S SITES AND TECHNOLOGY ENVIRONMENTS.
Our solutions deliver and integrate information directly into our
customers' sites in a manner consistent with the look and feel of the
site, enabling our customers to maintain and enhance their brand identity.
Furthermore, by supporting existing and emerging standards in Internet
technology, and through a proactive partnership program, we aim to ensure
that our solutions are compatible with our customers existing and
prospective technology investments.

- DEEP CUSTOMIZATION CAPABILITIES. We believe that our ability to customize
our solutions differentiates us from our competitors. We designed our
software to create customized solutions for clients by changing
configuration parameters, which enables us to service customer needs at a
reduced cost and with a faster delivery time than would be possible by
modifying the underlying software code.

- EXTENSIVE DATABASES OF FINANCIAL, BUSINESS AND CONSUMER INFORMATION. We
provide customers with access to databases of multiple different
information types ranging from equity pricing data to news to yellow pages
listings. We provide coverage for multiple geographies and contract with
the information providers most demanded by our customers. We continually
add information types and sources both as a result of product development
and client requests.

GROWTH STRATEGY

Our objective is to be a leading provider of information management
solutions. The following are the key elements of our strategy:

- PROVIDE MISSION-CRITICAL SERVICES TO INFORMATION-INTENSIVE ENTERPRISES. We
intend to sell to leading companies and focus our product development
efforts around their areas of greatest need in information management. We
will also strengthen our relationships with our existing customers by
offering additional value-added products and services that we develop or
obtain through partnership or acquisition.

- INCREASE PENETRATION IN THE FINANCIAL SERVICES SEGMENT. We aim to grow our
penetration in the financial market, through the development of new
products such as our Actrellis Financial Applications which are described
in the section below entitled "Products and Services", as well as through
the continued targeting of our salesforce and the expansion of our
alliance program to specialized financial technology and services vendors.

- PROVIDE COMPREHENSIVE SOLUTIONS WITH INCREASING AVERAGE CONTRACT SIZE. We
will develop solutions that allow us to meet a broader set of customer
needs, including needs for software-based

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information management solutions. As our solutions become more
comprehensive, we expect to develop deeper relationships with our
customers that result in increased average contract sizes.

- INVEST IN RESEARCH AND DEVELOPMENT TO DEVELOP NEW PRODUCTS IN KEY GROWTH
MARKETS. We will continue to invest heavily in research and development to
create innovative products and services. We will continually monitor and
integrate emerging Internet, intranet, wireless and other technologies
into our platform. We will focus our development on growth opportunities
such as the market for collaborative financial planning tools.

- DIFFERENTIATE OUR SOLUTIONS ON STRENGTH OF FUNCTIONALITY, CUSTOMIZATION
AND INTEGRATION. We will continue to develop products with differentiated
functionality and design our products to allow easy customization. We will
continue to ensure that our technology is optimized to work within our
customers' existing or planned technology environments.

- CONTINUE TO EXPAND AND DEEPEN OUR ALLIANCE RELATIONSHIPS. We will
strengthen our alliance partner relationships with technology and services
vendors in order to generate leads. We will also aim to grow revenue
directly from our alliance partners through development, reseller or OEM
agreements, as we have done with Citrix and Tribune Media Services.

- CONSIDER ACQUISITIONS THAT ARE ACCRETIVE TO EARNINGS, ENHANCE OUR PRODUCT
OFFERING, AND INCREASE OUR ADDRESSABLE MARKET SIZE. During 2001, we
purchased Stockpoint Inc, a provider of financial technology. This
acquisition has broadened our technology base and supported our strategic
goal of becoming a leading provider of information management solutions.
We will continue to evaluate potential acquisitions that broaden our
product suite, support our business strategy and meet our financial
criteria.

PRODUCTS & SERVICES

We have packaged our products and services into solution suites that will
appeal most directly to our target markets. However, customers can also purchase
ScreamingMedia's products and services on an a-la-carte basis. Therefore a
number of the products and services listed below can be and have been purchased
individually and not as part of the suites of services described below.

FINANCIAL SERVICES PRODUCT SUITE

ScreamingMedia, operating under the Stockpoint brand, has developed a suite
of licensable applications that help financial institutions sell and deliver
their services to investors, ranging from retail investors and high net worth
private clients to sophisticated institutional investors. Many of these
applications are available across a variety of financial instruments, including
equities, options, initial public offerings shares, fixed income securities,
funds, currencies & commodities, as well as across a number of geographies
including the USA, Canada and other financial centers across Europe, Asia &
Latin America. A number of these applications can be accessed by investors using
wireless devices as well as on the PC. Several of these applications are
available as enterprise software as well as in our standard Application Service
Provider model--see below under "Actrellis Enterprise Software Suite". Our
applications are designed to guide the investor through the full investment
decision-making lifecycle, including research, portfolio tracking and analysis,
financial planning and investment selection.

RESEARCH. This suite of tools allows investors to conduct detailed research
on a potential investment in a particular financial instrument.

- QUOTATIONS: We license real-time and delayed price quote information data
for securities traded on exchanges across the United States and Canada as
well as in Europe and Asia.

- CHARTING & ANALYTICS: Our Stockpoint charting and analytics applications
provide charting and analytics of equities, funds, currencies, or other
financial instruments. The "Interactive" version

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of this application offers the end user the ability to perform significant
analysis on their desktop, including rapidly zooming in and out, adding
trend lines, and viewing details on corporate actions. The "Quick" version
of this application offers faster loading times with less interactive
capabilities. Both versions offer multiple time resolutions and chart
types, technical indicators, performance comparisons and data downloads.
Many features can be customized by clients using over 150 configuration
parameters, and the application can chart not only third-party data but
also clients' proprietary data, such as the performance of a mutual fund.
This application is available in either an ASP model or an enterprise
software model (see Actrellis Enterprise Software Suite description
below).

- NEWS & COMMENTARY: Through relationships with numerous media companies,
ScreamingMedia provides a broad range of full-text news, features and
market commentary. Our news service tracks news stories by source, type,
subject category, geography and keyword, and can automatically display
charts and quotes for companies referenced in each story. End users can
search for relevant news or sign up for news alerts pertaining to stocks
they are following.

- DETAILED PROFILES: ScreamingMedia provides several categories of detailed
information that are fundamental to making well-informed investment
decisions. For public companies, we provide business descriptions and
summaries of key ratios & statistics. We also provide standardized
financials that include income statements, balance sheets and cash flow
statements on a quarterly and annual basis. We provide shareholder
information, including institutional holdings and insider trades,
corporate event data such as earnings announcements, conference calls and
web casts and real-time SEC filings. We also provide analyst information
including summaries of earnings estimates, revisions and surprises, as
well as analysts' recommendations. For IPOs, information is automatically
extracted from documents filed with the SEC and includes a business
description, financials and an overview of the offering. For mutual funds,
information provided includes top holdings, sector distribution, fund
performance, administration information and management overview.

- COMPETITION ANALYSIS: This application allows users to benchmark a company
against others in the same industry and the market. A competitor list is
automatically generated based on data mined from SEC filings, and users
can add other companies of interest to this list. The application then
compares and ranks the company against its competitors, the industry
sector, and the market on a number of key financial variables.

PORTFOLIO TRACKING. This suite of tools allows an investor to track all
current and potential investments in a unified view and to receive real-time
updates on significant events relating to these investments.

- PORTFOLIO PRO: Our personal portfolio manager is a web and wireless tool
that allows users to track the performance of their investment portfolios.
Users can create and edit multiple portfolios, customize their views and
link to detailed research information. Portfolio Pro can integrate
multiple financial instruments such as stocks, funds and cash, and can
handle multi-currency transactions. The application calculates current
profit and loss for individual and combined portfolios and can calculate
scheduled transactions such as dividend deposits and regular monthly
investment. End-of day summaries can be emailed to users and data can be
exported to Excel for further analysis. This application is available as
an ASP application, hosted by ScreamingMedia, or as an enterprise software
application since the launch of our Actrellis software in 2002.

- ALERTS SERVER: Users can choose to be alerted online, via email or via SMS
on cell-phones to significant events relating to stocks, funds or indices
they are watching. The Alerts Server is available as an ASP application
and as an enterprise software application since the launch of our
Actrellis Alerts Server software in 2002.

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- SCROLLING TICKER: This application displays updated pricing information
for stocks, funds and market indices, as well as news headlines. The
Scrolling Ticker is available as an ASP application and as an enterprise
software application since the launch of our Actrellis software in 2002.

- PERSONAL EVENT CALENDAR: This application integrates data related to U.S.
economic events, earnings dates, conference calls data, US holidays and
market open/close data. The event calendar can be personalized to show
events relating to users' portfolio holdings. Clients can integrate their
own or other third-party data into the calendar.

PORTFOLIO EVALUTION & FINANCIAL PLANNING. This suite of applications allows
investors to understand the composition and past performance of their investment
portfolio, and to compare that with an optimal portfolio based on their
financial goals and risk profile.

- PORTFOLIO EVALUATOR: This application breaks down the holdings in an
investment portfolio into important classifications such as asset type
(e.g., stocks, funds, bonds, cash), industry sector, exchange and size.
This tool graphically displays the allocation of a portfolio according to
these classifications and displays the forecast future return of that
portfolio based on past investment performance of these asset classes.

- HYPOTHETICAL INVESTMENT CALCULATOR: This application offers the ability to
look at investment scenarios and calculate hypothetical returns over a
number of different time periods. ScreamingMedia can create custom tools
for clients by integrating proprietary client data such as, in the case of
mutual funds, net asset value, dividends, capital gain distributions and
splits.

- FINANCIAL PLANNING TOOLS: The Financial Planning Tool suite combines
calculators and investor education programs that allow investors to
compare their current status with their financial goals, and to determine
an appropriate investment strategy based on their investment profile. The
401k Calculator recommends an asset allocation and contribution level that
maximizes the benefits of a user's 401K. The Retirement Age Calculator is
based on current age, wealth, and monthly savings. The Income Calculator
determines a recommended monthly savings and optimal portfolio allocation
across different asset classes.

- ALLOCATION CALCULATOR: This application is designed for financial advisors
to use with sophisticated clients, both individual and institutional, to
build a portfolio of investments with an appropriate mix of sector, size
and style.

INVESTMENT SELECTION. We offer the following applications to help investors
find suitable investments.

- STOCK & FUND SCREENERS: We provide powerful screening tools that search
databases of fundamental financial information, performance data and
technical analysis data (such as measures of a company or fund's risk
profile) to find investment opportunities that meet the user's financial
objectives. Users can build their own searches or use existing search
criteria that we or our customers have determined are applicable to a
broad range of investment objectives. Personal search queries can be saved
for re-use. Results can be sorted and downloaded.

- BEST/WORST PERFORMERS: This application locates the best and worst
performing investments within a sector, industry or Exchange. Performance
can be measured over multiple time periods and data can be sorted by
absolute or percentage change.

- MARKET AERIAL VIEW: The Market Aerial View is an application that provides
a visual representation of market sectors, industries, and companies. Size
is represented by area and performance by color. Investors can view
performance over multiple time periods and can find detailed quotes,
industry comparisons, news, charting and analytics for an investment
option they select. This visualization tool has already been implemented
for US equities and funds, and can be applied to any other data set
specified by a customer.

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BUSINESS INFORMATION PRODUCT SUITE

For corporate websites and intranets, ScreamingMedia has developed a
comprehensive suite of applications and technologies that enable customers to
present valuable business information to current and prospective customers,
business partners and employees. These solutions can be grouped as follows:

BUSINESS TRACKER. ScreamingMedia's Business Tracker provides personalized
tools that help employees research and track information about competitors,
customers and industries. Business Tracker consists of modular components that
can be presented seamlessly within a customer's intranet, integrating
information directly into employees' workflow. Business Tracker includes the
following four primary modules:

- SEARCH. Users can search news archives, public and private company
profiles and financials, or screen companies based on a range of criteria,
and can save searches for later re-use.

- MONITOR. Users can build multiple personalized pages to monitor topics of
interest. Pages are built from a variety of portlets, each of which is an
item of information. Portlets that can be integrated into Monitor pages
include saved news searches, news topics, company watch-lists and
financial market data

- NEWS. Users can browse news by topic, industry, or publication.

- ALERTS. Users can create custom alerts for companies they are tracking.

CUSTOMIZED NEWS CATEGORIES. ScreamingMedia provides customized news
categories for customers to publish on external websites or corporate intranets.
A customer may choose to receive all news from a particular source or
publication, or to receive news related to a particular topic which we identify
using our advanced categorization and filtering processes. News can be
integrated into a customer's site via our hosting services, or we can deliver
customized feeds to our clients for them to host. Feeds are delivered to
customers using the Actrellis Integration Server, which is installed behind the
customer's firewall and pulls the relevant information from ScreamingMedia's
databases. Actrellis Integration Server customizes the information format and
integrates the information into the customer's systems. Customers can allow
relevant news to flow onto their site without intervention, or can exercise
complete control using the Editor's Desk, which allows the customer to preview
and select relevant information, create summaries, illustrate with photos and
edit metadata. The Writer's Desk enables the customer to create and integrate
proprietary information alongside information from other sources. These
publishing tools are part of the Actrellis Integration Server software.

PORTLET INTEGRATIONS. All of the business information and applications
listed above can be offered as portlets that integrate seamlessly into corporate
portal software. Many companies are implementing corporate portal software as
the foundation of their corporate intranets providing the ability to integrate
third-party information alongside internal corporate data. ScreamingMedia offers
a number of pre-integrated portlets for leading technology platforms, such as an
industry news portlet for the Plumtree corporate portal. Where we have not built
a pre-integrated portlet for a particular application or for a particular
software platform, we can build this integration as part of our professional
services offerings.

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CONSUMER PRODUCT SUITE

For customers in the Access Provider segment that are looking to drive usage
among consumers, ScreamingMedia provides a suite of solutions that combines
compelling information with a flexible technology platform that can power
services across multiple devices. Customers can leverage our licensed
information, or, where they have their own relationships with information
providers, can leverage our technology platform to optimize the management of
that information.

INFORMATION INTEGRATION. We provide customers with immediate access to a
comprehensive set of news sources covering multiple areas of interest, financial
information, sports data, and international weather, as well as location-based
information such as local directories, entertainment guides and city guides.
ScreamingMedia helps broadband information providers meet their need for
multimedia information by providing photos, audio and video.

MULTI-DEVICE CAPABILITIES. ScreamingMedia provides a range of products and
services targeted at optimizing information services for clients whose customers
view information on devices other than a PC. These include summarization to make
information easier to view on wireless devices, transformation into formats
required by non-PC devices, such as Wireless Markup Language, and our My Portal
application, which is a fully outsourced portal application that can be viewed
on PCs, wireless devices and interactive TV.

SYNDICATION!CONNECT

Syndication!Connect is a fully outsourced solution that enables media
companies to extend their brand through syndication, without building and
maintaining a complex real-time information management infrastructure. Media
companies can utilize ScreamingMedia's technology platform to aggregate,
process, filter and distribute their textual information to their licensees, who
then integrate that information into their digital platforms via our Actrellis
Integration Server. For example, we provide these services to FluentMedia, a
unit of Tribune Media Services.

ACTRELLIS ENTERPRISE SOFTWARE SUITE

Actrellis Enterprise Software is a suite of enterprise software that allows
companies to aggregate information from internal sources, from third parties
such as information vendors and business partners, and from ScreamingMedia, all
behind the security of their firewalls. This information can be integrated into
existing business systems or into a suite of applications targeted at the needs
of users of financial and business information. This product suite comprises:

- ACTRELLIS INTEGRATION SERVER. This is the successor technology to our
SiteWare product, and pulls information from internal and external
sources, normalizes data into consistent formats and delivers the filtered
information to any destination. Actrellis Integration Server combines
powerful integration, transformation and syndication tools with reporting
and monitoring capabilities, and provides publishing tools such as the
Editor's Desk and Writer's Desk. Built on industry standard technologies
such as J2EE, XML and XSLT, Actrellis Integration Server integrates with
leading software including content management systems, application servers
and corporate portals.

- ACTRELLIS FINANCIAL APPLICATIONS. Actrellis Financial Applications
comprises Portfolio Pro, Charting and Analytics and Scrolling Ticker
applications which are described in the Financial Services Product Suite
section. Using this software, financial firms can bring together market
data from any source, package it with powerful functionality and deploy it
to audiences across the web and wireless networks.

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- ACTRELLIS ALERTS SERVER. Actrellis Alerts Server identifies and extracts
timely, relevant information--for example, changes in a stock's price,
news on a competitor's product release or sports scores--from multiple
sources and delivers it in the form of alerts to web and wireless
environments.

PROFESSIONAL SERVICES

ScreamingMedia's solutions are supported and differentiated by our ability
to provide the following services:

CUSTOMIZATION. ScreamingMedia provides Parser Engineering, Knowledge
Engineering, Content Engineering and other professional services to provide
customized solutions to clients. Parser Engineers implement custom feeds of
information on behalf of customers. Knowledge Engineers build custom information
filters that ensure our clients receive precisely the information they require.
Content Engineers create custom information transformation schemas to deliver
information to customers in the particular format they require. Other
customization work includes modification of and development of applications at a
customer's request.

INTEGRATION. ScreamingMedia provides services for the integration of our
information management solutions into customers' existing technology
environments. This includes the development of integration kits that enhance the
compatability of our solutions with leading content management systems,
publishing systems and other technology platforms.

EDITORIAL SERVICES. ScreamingMedia provides customers with a complete
outsourced solution for publishing customized information on their sites. Our
in-house editorial team reviews, hand-selects and publishes relevant information
tailored to a customer's need.

RELATIONSHIPS WITH INFORMATION PROVIDERS

We do not generate any original content but instead rely on contractual
relationships with major vendors of electronically available information. We
employ a specialized team to build and maintain relationships with our network
of information providers. We target information providers in three main areas,
and a selection of our information providers is listed below:

- FINANCIAL DATA. Briefing.com, Computershare Analytics, Iverson Financial
Systems, FT Interactive Data, Lipper Inc., a Reuters Company, MarketGuide,
Morningstar, S&P Comstock, Telekurs, Vickers Stock Research Corp.,
Worldvest Base, Inc. and Zacks Investment Research.

- BUSINESS INFORMATION. Agence France Presse (AFP), BusinessWeek Online,
Comtex News Network, EFE News Services, Gale, a business unit of the
Thomson Learning division of The Thomson Corporation, Knight
Ridder/Tribune Business News, Proquest Information & Learning, HealthScout
News Service, a product of ScoutNews LLC and Reed Business Information
(formerly Cahners), a division of Reed Elsevier, Inc.

- CONSUMER CONTENT. Accuweather.com, The Associated Press, AScribe Newswire,
Astrology.com, Mojam Media, Inc., Red Herring Communications, The Sports
Network and USA TODAY.

These relationships vary in term but are usually one or two year contracts,
and include both variable and fixed price payment provisions. Generally, the
contracts may not be assigned by either party without the consent of the other
party. We believe that we are not solely reliant on any one content provider and
that there are alternative sources for any single type of information. However,
the need to replace any key vendors could render all or a portion of our
services unavailable for a period of time, resulting in a significant negative
impact on our client relationships and harm to our reputation. See "Risk
Factors--Losing Major Information Providers May Leave Us With Insufficient
Information to Retain and Attract Customers."

13

SALES, BUSINESS DEVELOPMENT & MARKETING

We market our services primarily through our direct sales force, and also
indirectly through our business development group which develops indirect
distribution channels. Our sales staff is currently located in New York, San
Francisco and London and is divided into teams organized around our target
markets, and within this around geographic location and/or business segment.

To accelerate the adoption of our products and services by large enterprise
customers and to enter new markets, our business development group has created a
variety of strategic relationships through an alliance program. Under this
program we have entered into contractual relationships with a wide range of
world-class technology providers and systems integrators. Our alliance members
include ATG, Broadvision, BEA Systems, Citrix, Documentum, Interwoven, Oracle,
Plumtree, Scientific Atlanta and Sun Microsystems, Inc. These companies promote
our products and services to their customers alongside their own offerings. In
some cases, our alliance members bundle our solutions with their technology
offerings, often involving the development of adapters that integrate our
technology with their software. This bundling increases awareness and trial of
our services among likely customers, generating incremental revenues. Certain of
our alliance members pay us directly for these integrations. We anticipate that
these strategic alliances will continue to generate a significant percentage of
leads through which we are introduced to potential customers.

Our sales and business development activities are supported by our marketing
organization, which provides corporate and product marketing services, designs
and produces our collateral and website, creates support tools and runs a
proactive public relations, advertising and direct marketing program.

CUSTOMER SERVICE AND SUPPORT

We believe that a high level of customer support is critical to our success.
We provide our customers with 24 hours a day, seven days a week support. We
provide full life-cycle support, beginning with assistance in configuring,
installing and customizing the solutions purchased by our clients, and extending
to ongoing technical support and account management.

RESEARCH AND DEVELOPMENT

The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
incorporation of new technologies into our products, continued enhancement of
our current product suite and the introduction of new products to meet the
increasingly sophisticated needs of our customers are essential to our future
success. See "Risk factors--If We Do Not Continue to Develop Our Technology, Our
Services May Quickly Become Obsolete."

This department includes project managers, product managers, quality
assurance professionals, client customization teams, adapter and integration
specialists, and software engineers. Our engineers have expertise in fields such
as computer science, information processing, advanced mathematics, financial
theory and artificial intelligence. Certain of our solutions combine internal
development and the deployment of technology from third parties. Although we
plan to continue to evaluate externally developed technologies for integration
into our product lines, we expect that most enhancements to existing and new
products will be developed internally.

Our research and development expenditures, for fiscal 2001, 2000 and 1999
were $7.9 million, $6.4 million and $1.0 million respectively. We expect that we
will continue to commit significant resources to research and development in the
future. Research and development expenses have been expensed as incurred. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

14

TECHNOLOGY ARCHITECTURE & NETWORK INFRASTRUCTURE

ScreamingMedia's proprietary software platform is designed for flexibility,
scalability and reliability. The primary elements are our hosting platform and
our Actrellis suite of enterprise software, which is installed within customers'
own data centers. Key features of our technology include:

- PLATFORM-INDEPENDENCE & COMPATIBILITY WITH EVOLVING TECHNOLOGIES. Both our
hosted technology and our Actrellis suite of enterprise software are
designed to be compatible with the broad range of technology environments
that our customers have implemented to run their business systems. As
such, we have adopted industry standard programming codes and data formats
wherever possible. The Actrellis suite of enterprise software is written
entirely in Java according to the Java 2 Enterprise Edition (J2EE)
specification, which allows the software to function on all major
operating systems and to integrate effectively with a variety of other
software written to the J2EE specification, such as certain application
servers and content management systems. ScreamingMedia supports the use of
Extensible Markup Language (XML), a flexible and standardized information
format, and Extensible Style-sheet Language Transformation technology
(XSL-T) to transform XML into customized formats required by our clients.
Via our web services platform, our applications are also able to
communicate with customer and partner applications via standard,
well-defined Application Programming Interfaces (APIs) using standard
communication protocols such as Simple Object Access Protocol (SOAP). We
intend to continue to build modular, standards-based software and to
incorporate evolving technologies into our software.

- ROBUST INFORMATION PROCESSING AND ANALYSIS TECHNOLOGY. The algorithms
employed in our proprietary technology allow real-time processing, concept
extraction, filtering and delivery of information. Our aggregation system
receives large volumes of information through a variety of channels,
including satellite, leased lines and the Internet. Value-added
information analysis software produces a uniform metadata layer and allows
filtering and searching of information. Our filtering and searching
capability incorporates our technology combined with software licensed
from Verity Inc. and Autonomy Corporation. As a result, information can be
retrieved using a combination of keywords, contextual patterns of words,
metadata constraints, and a business rules layer, which enables us to
provide targeted, and filtered information solutions to our customers.

- SCALABLE, RELIABLE NETWORK INFRASTRUCTURE. Our hosting infrastructure
consists of multiple servers, mass storage devices and sophisticated
routers and switching systems to accommodate high capacity system usage.
We use database technology from Microsoft and Oracle as well as our own
proprietary database applications to optimize performance for real-time
market data. These servers and the applications that run on them implement
a scalable, redundant design whereby the functions they perform are
distributed across multiple machines. If one of these machines or
applications stops functioning, either through failure or for maintenance
and upgrading, we are still able to provide our services. We operate three
data centers, one in Coralville, Iowa which we operate ourselves and two
in New York City which are operated by third parties. All our data centers
come equipped with power conditioning and battery back-up, have generator
systems capable of providing emergency power to the entire facility, and
are secured by 24-hour card-key access. We have implemented detailed,
automated monitoring systems and data is regularly backed up and stored
off-site. Following the acquisition of Stockpoint, we have been working
towards full replication of all our technology in at least two data
centers in order to provide continuity of all our services even if one
data center were to be rendered totally unusable. Once completed, this
effort will significantly improve our disaster recovery capabilities.

15

COMPETITION

The market for information management solutions using Internet technologies
is new, highly competitive and rapidly evolving. We expect continued strong
competition in the future as current competitors improve their offerings and as
new participants enter the market. ScreamingMedia encounters competition in four
main areas:

- FINANCIAL INFORMATION PROVIDERS AND MEDIA COMPANIES. Companies such as the
Reuters Group, The Thomson Corporation, Standard and Poors and the
Associated Press often sell their own information direct to customers.
Currently, these companies do not generally offer technology targeted at
meeting the same information management needs as ScreamingMedia's
technology, and do not integrate other third-party data or customers'
proprietary data into their solutions. In the future, these companies may
add functionality and services that would enable them to compete more
directly with us.

- APPLICATION SERVICE PROVIDERS AND INFORMATION AGGREGATORS. We face
competition from other companies that aggregate information and either
host private-label applications that use that data or deliver that data in
the form of feeds to customers. These companies include Marketwatch.com,
which targets the financial services segment, Factiva, which targets the
intranet segment, and Infospace, which targets the access provider
segment. Many of these companies currently offer their services directly
to individuals as well as on a private-label basis to business customers.
We believe that ScreamingMedia's exclusive focus on providing services to
other businesses as opposed to direct to consumers provides us an
advantage in terms of the ease of integration and customization of our
solutions. Nevertheless, this advantage may not be sustainable, and
furthermore, while ScreamingMedia is able to leverage the same
functionality and information across multiple segments, customers may
prefer the solutions of a vendor focused on a single market segment.

- FINANCIAL AND OTHER ENTERPRISE SOFTWARE VENDORS. We believe that our
Actrellis suite of enterprise software, which is focused on the
integration and presentation of external information, is an excellent
complement to software such as a portfolio accounting system that is
focused on tracking user transactions, a content management system that is
largely focused on the management of internal information, or a corporate
portal application that is largely focused on integration with legacy
databases and end-user personalization. However, certain of these software
vendors such as Advent Software, Interwoven or Broadvision have already or
may in the future develop extensions to their software capabilities to be
able to manage external information as effectively as internal
information.

- IN-HOUSE DEVELOPMENT. Major enterprises, particularly in the financial
services segment, may choose custom-developed solutions because they
believe it is critical to control the technology they use or because they
believe their needs are unique. These companies therefore develop
technology solutions, often in conjunction with consulting and systems
integration firms such as EDS, Accenture and Dimension Data.

We believe that the principal competitive factors in our market are:
cost-effectiveness and return on investment; completeness of solution; ease of
integration and customization; breadth, depth and timeliness of information;
reliability of the vendor's applications and hosting services; and the vendor's
financial strength. We believe that we presently compete favorably with respect
to these factors, particularly completeness of solution, cost-effectiveness and
ease of integration and customization. Furthermore, while barriers to entry in
our market are relatively low, we believe that once our online information
management solutions are embedded in our clients' sites and systems, those
clients will find the difficulties inherent in replacing our products with those
provided by another vendor to be a disincentive to changing providers.

16

However, a number of our current and potential competitors are larger than
we are, have established relationships with our current and prospective
customers, focus on specific segments of our target markets, provide more robust
backup service capabilities and have distribution rights for information which
we are unable to offer our customers. These differences could prove attractive
to our existing and potential customers. Furthermore, some competitors may adopt
aggressive pricing strategies to build market share or may choose to bundle our
solutions with other software, hardware or information services in a manner that
may discourage customers from purchasing products offered by us. See "Risk
factors--We Face Intense Competition That Could Impair Our Ability To Grow and
Achieve Profitability."

INTELLECTUAL PROPERTY

Our success will depend in part on our ability to protect our intellectual
property and other proprietary rights in our software and other technology. To
protect our proprietary rights, we rely on a combination of patent, trademark,
copyright, and trade secret laws, confidentiality and license agreements with
our employees, customers, partners, and others, and security features we have
built into our technology. See "Risk factor--Protection of Our Intellectual
Property is Limited and Efforts to Protect Our Intellectual Property May Be
Inadequate, Time-consuming and Expensive."

We have four pending U.S. patent applications and three pending foreign
patent applications, but presently we do not have any issued patents. Unless and
until patents are issued, no patent rights can be enforced. We have three
registered U.S. trademarks and twelve pending domestic applications and we have
applied for registration of the mark "Screaming Media" in ten foreign
jurisdictions.

Despite these protections, others still might be able to use our
intellectual property without our authorization. In addition, the laws of some
foreign countries do not protect proprietary rights to the same extent as do
U.S. laws. Moreover, potential competitors might be able to develop technologies
or services similar to ours without infringing our patents. In addition, if our
agreements with employees, consultants and others who participate in product and
service development activities are breached, we may not have adequate remedies,
and our trade secrets may become known or independently developed by
competitors. If we are unable to protect our intellectual property adequately,
it could materially affect our financial performance.

There can also be no assurance that other parties will not assert claims
that our products or names infringe on their proprietary rights. A third-party
infringement claim could be time-consuming to defend, result in costly
litigation, divert management's attention and resources, cause product and
service delays or require us to enter into royalty or licensing agreements.

GOVERNMENT REGULATION

We are subject, both directly and indirectly, to various laws and
governmental regulations relating to our business. It is possible that a number
of laws and regulations may be adopted with respect to our business and the
business of our customers. These laws and regulations may impede our ability to
offer our products and services to our customers, and they may dissuade our
customers from purchasing our products and services. Any new legislation or
regulation or the application of existing laws and regulations could have a
material and adverse effect on our business, results of operations and financial
condition.

As our services are available anywhere in the world, and as we intend to
offer services specifically aimed at jurisdictions outside the United States,
multiple jurisdictions may claim that we are required to qualify to do business
as a foreign corporation in each of those jurisdictions. Failure by us to
qualify as a foreign corporation in a jurisdiction where we are required to do
so could subject us to taxes and penalties for the failure to qualify. It is
possible that state and foreign governments might also attempt to regulate our
transmissions of content on our Web sites or prosecute us for violations of
their laws.

17

There can be no assurance that violations of local laws will not be alleged or
charged by state or foreign governments, that we might not unintentionally
violate these laws or that these laws will not be modified, or new laws enacted,
in the future.

EMPLOYEES

As of December 31, 2001, we had 215 full-time employees with 65 employees in
sales, business development and marketing, 19 in customer service and support,
98 in research and development, network infrastructure and network operations
and 33 in finance, human resources, information systems and other general and
administrative functions.

Screaming Media terminated 149 full-time employee positions throughout 2001
as a result of the difficult economic environment and duplicative positions and
other synergies as a result of the Stockpoint, Inc. acquisition in August 2001.
Employees affected by the downsizing received severance pay and other benefits
commensurate with their position and tenure at ScreamingMedia and/or Stockpoint.

None of our employees is represented by a union, nor are they subject to a
collective bargaining agreement. We have never experienced a work stoppage and
believe that our relations with our employees are good.

RISK FACTORS

An investment in our common stock involves a high degree of risk. The risks
and uncertainties described below are not the only ones we face. Additional
risks and uncertainties not presently known to us may also impair our operations
and business. If we do not successfully address any of the risks described
below, there could be a material adverse effect on our financial condition,
operating results and business. We cannot assure you that we will successfully
address these risks.

You should carefully consider the risks described below before deciding to
invest in shares of our common stock. The trading price of our common stock
could decline due to any of these risks, in which case you could lose all or
part of your investment. In assessing these risks, you should also refer to the
other information in this and our other public filings, including our financial
statements and the related notes.

RISKS RELATED TO OUR BUSINESS

BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT WILL BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS.

It is difficult to value our business and evaluate our prospects because of
our limited operating history. We began our current line of business at the end
of 1998 and expanded our line of business with the acquisition of
Stockpoint, Inc. in August of 2001. Accordingly, we have limited financial and
operating data for evaluating our business.

OUR MANAGEMENT TEAM HAS LIMITED EXPERIENCE IN WORKING TOGETHER AND IF THEY FAIL
TO FUNCTION EFFECTIVELY AS A UNIT, OUR OPERATING PERFORMANCE MAY BE ADVERSELY
AFFECTED.

Our Chief Executive Officer has only been employed by us since January,
2002. Moreover, with the acquisition of Stockpoint, Inc., the management team
from both companies has been recently integrated and has only been working
together as one unit since August, 2001. Therefore, there has been little
opportunity to evaluate the effectiveness of our senior management team as a
unit. The failure of our senior management to function effectively as a team may
have an adverse effect on our ability to maintain a cohesive culture and compete
effectively.

18

WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES.

We have incurred operating losses in every quarter since we began our
current line of business in 1998. We expect to incur additional losses in 2002.
Our ability to achieve profitability will depend on our ability to generate and
sustain higher net sales while maintaining reasonable expense levels. We cannot
be certain that if we were to achieve profitability, we would be able to sustain
or increase that profitability.

OUR QUARTERLY FINANCIAL RESULTS MAY BE VOLATILE AND COULD CAUSE OUR STOCK PRICE
TO FLUCTUATE.

Our revenues and operating results may vary significantly from quarter to
quarter. Because of these fluctuations, our results in any quarter may not be
indicative of future performance and it may be difficult for investors to
properly evaluate our results. It is possible that in some future periods our
revenues or earnings may fall below the expectations of investors and result in
the market price of our common stock declining. The factors that may cause our
financial results to vary from quarter to quarter include:

- the demand for our services;

- the value, timing and renewal of contracts with customers;

- the amount and timing of operating costs and capital expenditures;

- the performance of our technology;

- actions taken by our competitors, including new product introductions and
enhancements; and

- adverse changes in the financial markets.

These factors, some of which are beyond our control, make it difficult to
forecast our future revenues or results of operations accurately. A portion of
our operating expenses are related to costs which cannot be adjusted quickly.
Our operating expense levels reflect, in part, our expectations of future
revenues. If actual revenues on a quarterly basis are below management's
expectations, or if our expenses exceed increased revenues, results of
operations would be materially adversely affected.

IF WE DO NOT CONTINUE TO DEVELOP OUR TECHNOLOGY, OUR SERVICES MAY QUICKLY BECOME
OBSOLETE.

The market we compete in is characterized by rapidly changing technology,
evolving industry standards and customer demands and frequent new product
introductions and enhancements. To be successful, we will have to continually
improve the performance, features and reliability of our products and services.
We cannot assure you that our technological development will advance at the pace
necessary to sustain our growth.

Additionally, new technologies may require us to alter our technology and
products to avoid becoming obsolete. Improving our current products and
developing and introducing new products will require significant research and
development.

WE DO NOT HAVE A PROVEN TRACK RECORD OF SELLING OUR NEW TECHNOLOGY OFFERINGS.

We have developed and introduced new products and services that have a very
limited track record. We cannot assure you whether there will be a significant
demand for our new products and services by either our current clients or
prospective clients. If the investment we have made in producing and selling
these new products and services does not result in significant sales, our
business may be materially adversely affected.

19

INTERNAL OR THIRD-PARTY SYSTEM OR EQUIPMENT FAILURES COULD ADVERSELY AFFECT OUR
BUSINESS.

Our systems and operations are vulnerable to damage or interruption from a
variety of factors, including human error, natural disasters, power loss,
telecommunication failures, break-ins, sabotage (physical or electronic),
computer viruses, vandalism and similar unexpected adverse events. Moreover,
while we presently have multiple data centers and have implemented internal
redundancy measures, we presently do not have all functionality of all data
centers available in multiple sites. We presently have a computer center at our
Iowa facilities, and in addition, some of our computer operations are located in
facilities owned by third parties (known as "co-location facilities"). Any
failure of the computer equipment we use or the third-party telecommunications
networks and data centers on which we rely for distribution could interrupt or
delay our service. This could lead to customers canceling contracts and could
damage our reputation, which could limit our ability to attract additional
customers, decrease our revenue and lead to a drop in the value of our common
stock.

WE FACE INTENSE COMPETITION THAT COULD IMPAIR OUR ABILITY TO GROW AND ACHIEVE
PROFITABILITY.

We face significant competition in our markets. We may experience greater
competition in the future as we address a wider range of market segments,
additional entrants join the market and existing competitors offer new or
upgraded products. Barriers to new entrants are relatively low. If we fail to
compete successfully, we could lose market share, or be forced to lower our
prices or spend more on marketing, which would reduce our margins.

We compete with:

- Financial Information Providers and Media Companies, who often sell their
own information directly to customers;

- Application Service Providers and Information Aggregators, who aggregate
information and either host private-label applications that use that data
or deliver that data in the form of feeds to customers;

- Financial and other Enterprise Software Vendors, who have already or may
in the future develop extensions to their software capabilities to be able
to manage external information as efficiently as internal information;

- The in-house development staffs of many of our clients, who develop
technology solutions often in conjunction with consulting and systems
integration firms.

We expect all of these forms of competition to continue to intensify. Some
of our existing competitors, as well as a number of potential new competitors,
have longer operating histories, greater name recognition, larger client bases
and significantly greater financial, technical and marketing resources than we
do. These factors may provide them with significant advantages over us. In
addition, larger, well-established and well-financed entities may acquire,
invest in or form joint ventures with our competitors. Increased competition
from these or other competitors could adversely affect our business.

SOME OF OUR CUSTOMERS ARE INTERNET COMPANIES WHO POSE CREDIT RISKS. THE FAILURE
OF THESE CUSTOMERS TO PAY THEIR BILLS HAS LED TO A LOSS OF REVENUE, A TREND
WHICH MAY CONTINUE.

While our strategy is to attract large and mid-sized enterprise customers, a
number of our customers are smaller Internet companies. Many of these companies
have limited operating histories, operate at a loss and have limited cash
reserves and limited access to additional capital. With some of these customers,
we have experienced difficulties collecting accounts receivable. As a result,
our

20

allowance for doubtful accounts as of December 31, 2001 was approximately
$1.1 million. We may continue to encounter these difficulties in the future. If
any significant part of our customer base is unable or unwilling to pay our fees
for any reason, our business will suffer.

FAILURE TO RETAIN EXISTING CUSTOMERS AND ATTRACT NEW CUSTOMERS COULD ADVERSELY
AFFECT OUR BUSINESS AND OPERATING RESULTS.

Many of the customers we lost were emerging Internet companies with limited
operating histories, limited cash reserves and operating at a loss. While our
strategy is to continue to target large and mid-sized enterprise customers, a
significant number of our customers continue to comprise smaller Internet
companies similar to those that we lost in 2001. We cannot assure you that we
will be able to continue to attract new customers at the same rate as we have
done in the past, or that we will be able to retain existing customers.

LOSING MAJOR INFORMATION PROVIDERS MAY LEAVE US WITH INSUFFICIENT INFORMATION TO
RETAIN AND ATTRACT CUSTOMERS.

We do not generate original content or data and are therefore highly
dependent upon third-party information providers. If we were to lose several of
our major information providers and were not able to obtain similar content or
data from other sources, our services would be less attractive to customers. In
addition, we cannot be certain that we will be able to license content or data
from our current or new providers on favorable terms in the future, if at all.

PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED AND EFFORTS TO PROTECT OUR
INTELLECTUAL PROPERTY MAY BE INADEQUATE, TIME-CONSUMING AND EXPENSIVE.

We regard our trademarks, service marks, copyrights, trade secrets and
similar intellectual property as critical to our success. The unauthorized
reproduction or other misappropriation of our trademarks or other intellectual
property could diminish the value of our proprietary rights or reputation. In
addition, the laws of some foreign countries do not protect proprietary rights
to the same extent as do U.S. laws. Moreover, potential competitors might be
able to develop technologies or services similar to ours without infringing our
patents. In addition, if our agreements with employees, consultants and others
who participate in product and service development activities are breached, we
may not have adequate remedies, and our trade secrets may become known or
independently developed by competitors. If this were to occur, our business
could be materially and adversely affected.

We rely upon a combination of trademark and copyright law, patent law, trade
secret protection and confidentiality and license agreements with our employees,
customers and others to protect our proprietary rights. We have received and
have filed a number of trademarks and service marks, and have filed several
patent applications with the United States Patent and Trademark Office. However,
registrations and patents may only be granted in selected cases, and there can
be no assurance that we will be able to secure these or additional registrations
or patents. Furthermore, policing and enforcement against the unauthorized use
of our intellectual property rights could entail significant expenses and could
prove difficult or impossible.

21

THIRD PARTIES MAY CLAIM THAT WE HAVE BREACHED THEIR INTELLECTUAL PROPERTY
RIGHTS, WHICH COULD DIVERT MANAGEMENT'S ATTENTION AND RESULT IN EXPENSE TO
DEFEND OR SETTLE CLAIMS.

Third parties may bring claims of copyright or trademark infringement,
patent violation or misappropriation of creative ideas or formats against us
with respect to information that we distribute or our technology or marketing
techniques and terminology. These claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management attention,
require us to enter into costly royalty or licensing arrangements or limit our
ability to distribute information or prevent us from utilizing important
technologies, ideas or formats.

IF THE INFORMATION WE DISTRIBUTE IS UNLAWFUL OR CAUSES INJURY, WE MAY HAVE TO
PAY FINES OR DAMAGES.

The publication or dissemination of information that we have distributed may
give rise to liability for defamation, negligence, breach of copyright, patent,
trade secret or trademark infringement or other claims or charges based on the
nature of the information. As a distributor of this information, we may be
directly or indirectly liable to claims or charges of this nature. In addition,
we could be exposed to liability arising from the activities of our customers or
their users with respect to the unauthorized duplication of, or insertion of
inappropriate material into, the information we supply. Although we carry
general liability insurance, our insurance may not cover claims of these types
or may be inadequate to indemnify us for all liability that may be imposed on
us.

IF WE DISTRIBUTE INFORMATION TO UNAUTHORIZED RECIPIENTS, WE MAY HAVE TO PAY
DAMAGES TO OUR INFORMATION PROVIDERS.

Our proprietary software technologies enable us to deliver information we
receive from participating information providers only to customers who have been
authorized to access that information. We might inadvertently distribute
information to a customer who is not authorized to receive it, which could
subject us to a claim for damages from the information provider or harm our
reputation in the marketplace.

ACQUISITIONS AND STRATEGIC INVESTMENTS MAY RESULT IN INCREASED EXPENSES,
DIFFICULTIES IN INTEGRATING TARGET COMPANIES AND DIVERSION OF MANAGEMENT'S
ATTENTION.

We anticipate that from time to time we may be reviewing one or more
acquisitions or strategic investments or other opportunities to expand our range
of technology and products and to gain access to new markets. Growth through
acquisitions or strategic investments entails many risks, including the
following:

- our management's attention may be diverted during the acquisition and
integration process;

- we may face costs, delays and difficulties of integrating the acquired
company's operations, technologies and personnel into our existing
operations, organization and culture;

- we may issue new equity securities to pay for acquisitions, which would
dilute the holdings of existing stockholders;

- the timing of an acquisition or our failure to meet operating expectations
for acquired businesses may impact adversely on our financial condition;
and

- we may be adversely affected by expenses of any undisclosed or potential
legal liabilities of the acquired company, including intellectual
property, employment and warranty and product liability-related problems.

If realized, any of these risks could have a material adverse effect on our
business, financial condition and operating results. Any of these risks and our
limited experience in integrating

22

acquisitions could affect our recent acquisition and integration of Stockpoint
and any possible future acquisitions.

LEGAL UNCERTAINTIES AND GOVERNMENT REGULATION OF THE INTERNET COULD INHIBIT
GROWTH OF THE INTERNET.

Many legal questions relating to the Internet remain unclear and these areas
of uncertainty may be resolved in ways that damage our business. It may take
years to determine whether and how existing laws governing matters such as
intellectual property, privacy, libel and taxation apply to the Internet. In
addition, new laws and regulations that apply directly to Internet
communications, commerce and advertising are becoming more prevalent. For
example, the U.S. Congress has recently passed Internet-related legislation
concerning copyrights, taxation, and the online privacy of children. As the use
of the Internet grows, there may be calls for further regulation, such as more
stringent consumer protection laws. Finally, our distribution arrangements and
customer contracts could subject us to the laws of foreign jurisdictions in
unpredictable ways.

These possibilities could affect us adversely in a number of ways. New
regulations could make the Internet less attractive to users, resulting in
slower growth in its use and acceptance than we expect. Complying with new
regulations could result in additional cost to us, which could reduce our
margins, or it could leave us at risk of potentially costly legal action. We may
be affected indirectly by legislation that fundamentally alters the practicality
or cost-effectiveness of utilizing the Internet, including the cost of
transmitting over various forms of network architecture, such as telephone
networks or cable systems, or the imposition of various forms of taxation on
Internet-related activities. Regulators continue to evaluate the best
telecommunications policy regarding the transmission of Internet traffic.

RISKS RELATED TO OUR SECURITIES

VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT STOCKHOLDERS.

The stock market in general, the market for technology or Internet-related
stocks in particular, has experienced extreme price fluctuations. At times,
technology or Internet-related stocks have traded at prices and multiples that
are substantially above the historical levels of the stock market in general.
Since estimates of the value of technology or Internet-related companies have
little historical basis and often vary widely, fluctuations in our stock price
may not be correlated in a predictable way to our performance or operating
results. Our stock price may also fluctuate as a result of factors that are
beyond our control or unrelated to our operating results. We expect our stock
price to fluctuate as a result of factors such as:

- variations in our actual or anticipated quarterly operating results or
those of our competitors;

- announcements by us or our competitors of technological innovations;

- introduction of new products or services by us or our competitors;

- conditions or trends in the technology or Internet industry;

- changes in the market valuations of other technology or Internet
companies;

- announcements by us or our competitors of significant acquisitions; and

- our entry into strategic partnerships or joint ventures.

WE DO NOT INTEND TO PAY DIVIDENDS.

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any cash dividends in the foreseeable future.

23

WE ARE EFFECTIVELY CONTROLLED BY OUR EXECUTIVE OFFICERS AND DIRECTORS AND THE
INTERESTS OF THESE STOCKHOLDERS COULD CONFLICT WITH YOUR INTERESTS.

Our executive officers and directors, in the aggregate, beneficially own
approximately 39.6% of our outstanding common stock on a fully diluted basis. As
a result, these stockholders, if acting together, would be able to exert
considerable influence on any matters requiring approval by our stockholders,
including the election of directors, amendments to our charter and by-laws and
the approval of mergers or other business combination transactions. The
ownership position of these stockholders could delay, deter or prevent a change
in control of ScreamingMedia and could adversely affect the price that investors
might be willing to pay in the future for shares of our common stock.

IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, WHICH COULD
DEPRESS OUR STOCK PRICE.

Delaware corporate law and our certificate of incorporation and by-laws
contain provisions that could have the effect of delaying, deferring, or
preventing a change in control of ScreamingMedia that stockholders may consider
favorable or beneficial. These provisions could discourage proxy contests and
make it more difficult for you and other stockholders to elect directors and
take other corporate actions. These provisions could also limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions include:

- a staggered board of directors, so that it would take three successive
annual meetings to replace all directors;

- prohibition of stockholder action by written consent; and

- advance notice requirements for the submission by stockholders of
nominations for election to the board of directors and for proposing
matters that can be acted upon by stockholders at a meeting.

In addition, we have entered into a stockholder rights agreement that makes
it more difficult for a third party to acquire us without the support of our
board of directors and principal stockholders.

ITEM 2. PROPERTIES

Our corporate headquarters is located in New York, New York, and occupies
approximately 26,197 square feet of leased space. The lease expires in
March 2009 with a lease termination option in March 2005 for a payment of
$70,000.00. As of November 2001, we vacated 17,100 square feet in New York. The
future obligations of this lease were recorded in our restructuring charge
during the third quarter of 2001. We continue to pay rent on this lease and
charge this amount against accrued restructuring expenses. Our office in
Coralville, Iowa, occupies approximately 25,600 square feet of leased space,
with a lease that expires in September 2004. As of October 2001 we vacated the
premises that we were leasing in San Francisco, California and moved our
facilities to the San Francisco premises of Stockpoint, Inc. We have no future
obligations to the landlord of the vacated space. As of October 2001,
Stockpoint Inc. vacated the premises it was leasing in London, England and moved
its facilities into the London premises that we are leasing. We have no future
obligations to the landlord of the vacated space. We believe that our facilities
are suitable and adequate to meet our needs.

ITEM 3. LEGAL PROCEEDINGS

We are not presently a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS

We did not submit any matters to a vote of security holders during the
fourth quarter of fiscal year ending December 31, 2001.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the NASDAQ National Market under the symbol
"SCRM". Public trading of the common stock commenced on August 3, 2000. Prior to
that, there was no public market for the common stock. The following table sets
forth, for the periods indicated, the high and low sale price per share of the
common stock on the NASDAQ National Market:

From the date of receipt of funds from our initial public offering through
December 31, 2001, the net proceeds of the offering have been used to support
our domestic sales and marketing activities, the expansion of our operations,
product development, general corporate purposes and the acquisition of
complimentary business and technologies. None of the net proceeds from the
offering have, to date, been paid directly or indirectly to any director,
officer, general partner or their associates, or to any persons owning 10% or
more of any class of equity securities. Instead, the net proceeds have been
invested in interest bearing, investment-grade securities.

We have never declared or paid any cash dividends on our common or preferred
stock. We do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain future earnings, if any, to finance operations and
the expansion of our business. Any future determination to pay cash dividends
will be at the discretion of the board of directors and will be dependent upon
our financial condition, operating results, capital requirements, general
business conditions, restrictions imposed by financing arrangements, if any,
legal or regulatory restrictions on the payment of dividends and other factors
that our board of directors deems relevant.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data should be read in conjunction with,
and are qualified by reference to, the financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The statements of operations data for the
years ended December 31, 2001, 2000, 1999 and 1998 and the balance sheet data at
December 31, 2001, 2000, 1999 and 1998 are derived from our financial
statements, which have been audited by Deloitte & Touche LLP, independent
auditors. The statement of operations data for the year ended December 31, 1997,
and the balance sheet data as of December 31, 1997 are derived from our
financial statements, which have been audited by David Tarlow & Co., C.P.A.,
P.C., independent auditors.

25

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000, 1999, 1998 AND 1997

26

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of our financial condition and results
of operations should be read together with our consolidated financial statements
and the related notes included elsewhere in this annual report on Form 10-K.
This discussion and analysis contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
indicated in the forward-looking statements as a result of a variety of factors
as discussed in "Risk Factors" and elsewhere in this Annual Report.

THE COMPANY

ScreamingMedia provides information management solutions to the enterprise.
The Company provides turnkey solutions to customers in target segments where
information is mission-critical, namely Financial Services, Corporate
Websites & Intranets and Access Providers. ScreamingMedia's solutions encompass
technology for integrating third party information and internal information into
business systems, applications to present and analyze that information, a range
of licensed information from various sources, and services to enable
customization and integration of this information into any platform including
websites, intranets, wireless solutions and interactive television services.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission ("SEC") recently issued disclosure
guidance for "critical accounting policies". The SEC defines "critical
accounting policies" as those that require application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

The following listing is not intended to be a comprehensive list of all of
our accounting policies. The Company's significant accounting policies are more
fully described in Note 2 of the Notes to the Consolidated Financial Statements
included in this Annual Report on Form 10K. In many cases, the accounting
treatment of a particular transaction is specifically dictated by generally
accepted accounting principles, with no need for management's judgment in their
application. There are also areas in which management's judgment in selecting
any available alternative would not produce a materially different result.

We have identified revenue recognition, software capitalization, goodwill
and our use of estimates as critical accounting policies to our Company:

REVENUE RECOGNITION: Our revenue recognition policy is significant as our
revenue is a key component of our results of operations. For the fiscal years
ended 2001, 2000, and 1999, the Company recognized revenue over the life of the
applicable contracts. Beginning in Fiscal 2002 we will sell our software and,
under certain circumstances, will recognize revenue in accordance with the
provisions of the American Institute of Certified Public Accountants' Statement
of Position 97-2, "Software Revenue Recognition" (SOP 97-2). All other software
sales will be recognized over the life of the applicable contracts in accordance
with the provisions of the American Institute of Certified Public Accountants'
Statement of Position 81-1, "Accounting for Performance of Construction Type
Contracts" (SOP 81-1).

SOFTWARE CAPITALIZATION: Until 2002, we did not sell software as a
standalone product. During 2001, we made a decision to modify certain existing
internal use software and attempt to sell it as "Actrellis". At the time this
decision was made, we determined that we would need to modify our existing
software capitalization policy, such that in the future, we would now follow the
guidance of SFAS 86,"Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed" for software to be sold externally. The internal
use software predecessor to Actrellis was developed prior to

27

the issuance of SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 requires certain costs
attributable to internally developed software to be capitalized in the
application development stage. Since the application development of Actrellis'
predecessor occurred prior to the issuance of SOP 98-1, no amounts related to
Actrellis' development were capitalized at December 31, 2001.

Under SFAS No. 86, research and development costs are expensed as incurred.
Additionally, software development costs are subject to capitalization beginning
when a product's technological feasibility has been established and ending when
a product is available for release to customers. The Company's Actrellis
software was released soon after technological feasibility was established in
2002. As a result, costs subsequent to achieving technological feasibility under
SFAS No. 86 have not been incurred before 2002 and all software development
costs have been expensed through December 31, 2001.

GOODWILL: The Company's intangibles consist primarily of goodwill from our
acquisition of Stockpoint accounted for under the purchase method. The Company
is in the process of obtaining an independent valuation of the assets and
liabilities it has acquired as well as identifying the intangible assets it has
acquired in order to finalize its allocation of the purchase price of the
transaction. The Company will finalize its valuation as soon as possible or
within one year of the acquisition date. The Company's preliminary allocation of
the purchase price is subject to refinement based on the final determination of
fair value. Under the transition provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill and
long lived intangible assets related to the Company's Stockpoint acquisition
have not been periodically amortized in fiscal 2001.

USE OF ESTIMATES: The Company's preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.

REVENUE

We derive our revenue from the sale of hosted applications, software,
customized data, processing and delivery of information as well as set up and
professional services.

HOSTED APPLICATIONS: We sell and host end user applications that enable
customers to present information. We sell individual applications such as stock
quotes or charts and bundle our applications into business solutions which
include the Financial Services Product Suite, the Business Information Product
Suite and the Consumer Product Suite. We recognize the revenue from hosted
applications on a subscription basis once the product has been implemented.

SOFTWARE: ScreamingMedia sells the Actrellis Integration Server Software,
formerly known as Siteware, which customers install behind their firewall in
order to receive information from ScreamingMedia. The revenue from this product
is recognized ratably over the contract term. In 2002, we began selling our
Actrellis Enterprise Software Suite which customers can use to integrate and
present information without receiving any data or recurring services from
ScreamingMedia.

This stand-alone software is sold as a perpetual or annual license fee and
the fees vary according to the version and functionality of software selected.
In accordance with the provisions of the American Institute of Certified Public
Accountants' Statement of Position 97-2, "Software Revenue Recognition" (SOP
97-2), software license revenue is generally recognized when, the contracted is
executed, all delivery obligations have been met, the fee is fixed and
determinable, collectibility is probable and vendor specific objective evidence
is determinable. For some arrangements, we may provide services

28

that are essential to the functionality of the software selected. For these
arrangements both the license revenue and services revenue will be recognized in
accordance with the provisions of the American Institute of Certified Public
Accountants' Statement of Position 81-1, "Accounting for Performance of
Construction Type Contracts" (SOP 81-1). We will account for these arrangements
under the percentage of completion contract method pursuant to SOP 81-1.

Maintenance revenue for technical product support is recognized ratably over
the term of the contract.

CUSTOMIZED DATA: We provide clients with information, which is either
delivered as a customized data feed or presented in our hosted applications. We
charge clients based on the type and volume of information, and recognize this
revenue on a subscription basis.

PROCESSING AND DELIVERY: For clients that have direct relationships with
information providers and for our Syndication!Connect product, we provide a
technology platform for the delivery and integration of information. We charge a
processing and delivery fee based on the amount of data delivered. This revenue
is recognized on a subscription basis.

SET-UP FEES: Most of our products require a one-time set-up fee which
include charges for building custom filters that enable the customer to receive
customized information, and integration kits that enable deeper integration of
our information management solutions with third party software such as content
management systems and enterprise information portals that customers use to
operate their site. Set-up revenue is recognized ratably over the term of the
contract.

PROFESSIONAL SERVICES: We offer professional services which include
customization of products, systems integration services and other special
projects including editorial services and consulting. This revenue is generally
recognized as the service is performed.

We record billed amounts due from clients in excess of revenue recognized as
deferred revenue on our balance sheet. Our contracts typically have lengths of
one or two years. We report our revenue net of allowances and rebates.

COST OF SERVICES

Cost of services consist of royalties to information providers as well as
costs for bandwidth, storage of our servers in third-party network data centers
and certain costs associated with the maintenance of our infrastructure. We also
include certain payroll and related expenses pertaining to staff associated with
client implementation, developing custom applications, performing editorial and
quality assurance services and maintaining our network operations.

We have several different arrangements with information providers. The
majority of our contracts are based on royalty fees that are calculated monthly,
based on the volume of a provider's information relayed to our customers. In
certain cases, the contractual agreement is based on fixed fees or subject to a
minimum charge. Certain of these fixed fee arrangements include additional fees
at a variable rate once our clients exceed a specified usage volume. In other
cases, we license information based on a per client basis.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist primarily of salaries and related
personnel costs associated with the research, design and development of software
applications and services supporting our business. These include engineers that
are developing and maintaining our software and infrastructure and our product
managers. Research and development costs are expensed as incurred until
technological feasibility is established for software to be sold. We believe
under our current software engineering processes that the establishment of
technological feasibility and general release

29

substantially coincide. As a result, no software development costs have been
capitalized to date for software developed for external sales. For software
developed for internal use, expenses are capitalized while in the application
development stage and expensed while in the preliminary and post implementation
stages.

SALES AND MARKETING EXPENSES

Sales and marketing expenses include costs of sales and marketing personnel,
as well as business development and customer support personnel, related
overhead, commissions, advertising and promotion expenses, travel and
entertainment expenses and other selling and marketing costs.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses consist primarily of personnel and
related costs for general corporate functions including accounting, finance,
human resources, legal and other administrative functions, as well as provisions
for doubtful accounts and bad debt expense.

STOCK BASED COMPENSATION

We recorded a charge for the amortization of deferred stock-based
compensation of approximately $881,000 and $17.6 million for the years ended
December 31, 2001 and 2000, respectively. Stock-based compensation is a result
of the issuance of stock options to employees, directors and affiliated parties
with exercise prices per share determined for financial reporting purposes to be
below the fair market value per share of our common stock at the date of the
applicable grant. This difference is recorded as a reduction of stockholders'
equity and amortized as non-cash compensation expense on an accelerated basis
over the vesting period of the related options. In connection with the grant of
stock options to employees, we recorded deferred stock compensation of $0 and
$17.5 million for the years ended December 31, 2001 and 2000, respectively.
Deferred stock-based compensation that will be subsequently amortized as expense
for each of the next four fiscal years, including options granted through
December 31, 2001, is estimated to be as follows:

30

RESULTS OF OPERATIONS

The following table sets forth our results of operations as a percentage of
revenue for the periods indicated.