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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 0-26071
EDGAR ONLINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 06-1447017
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
50 Washington Street, Norwalk CT 06854
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 852-5666
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant as required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO: ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 20, 2001, the aggregate market value of voting stock held
by non-affiliates of the registrant, based on the closing sales price for the
registrant's common stock, as reported by the Nasdaq National Market was
approximately $13,854,303 (calculated by excluding shares owned beneficially by
directors and officers).
As of March 20, 2001 there were 14,908,917 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
FORWARD LOOKING STATEMENTS
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. We urge you to
consider that 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 risk 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.
Although we believe that the expectations in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.
ITEM 1. BUSINESS
THE COMPANY
Overview
We are an Internet-based provider of business, financial and competitive
information about public companies. We also provide Internet-based information
and technology solutions to the financial services industry. We derive the
information we sell primarily from the SEC's EDGAR (Electronic Data Gathering
Analysis and Retrieval) filing system and provide it to corporations, Web sites
and individuals on a real-time basis. We enhance raw SEC filings by organizing
and processing them into an easily accessible and searchable format and use
proprietary software to extract specific information requested by our customers.
Our three primary sources of revenue are contracts with corporate customers for
customized data and related technology systems, subscribers to our Web site
services and advertising revenues.
EDGAR Trademark
EDGAR is a federally registered trademark of the U.S. Securities and Exchange
Commission (SEC). EDGAR Online is a product of EDGAR Online, Inc. and is
neither approved by, nor affiliated with, the SEC. The SEC has granted us a
non-exclusive, royalty-free license to use the name EDGAR in our logo and
corporate name initially through 2008. We have applied for and received from
the U.S. Patent and Trademark Office certified registration for our EDGAR
Online trademark.
Corporate Sales
Sales of data and information systems to corporate customers is the fastest
growing segment of our business. These customers purchase our data for use on
corporate intranets, private networks and Web sites. Our proprietary data mining
technology allows us to provide specific information to our corporate customers,
as well as the related technology systems which facilitate the use of such
information for their particular business purposes. Our corporate customers
include companies in a broad range of industries including financial service
organizations, such as The Nasdaq Stock
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Market, Merrill Lynch and Zurich Reinsurance, and news service providers, such
as Reuters and Standard & Poors. Within these organizations, we tailor our
services to various departments including marketing, sales, human resources,
financial and legal.
Subscriptions
We believe that EDGAR Online is the preeminent brand for EDGAR-based business,
financial and competitive information over the Internet. As of March 20, 2001,
we had more than 593,000 registered users, of which 16,000 were paying
subscribers. We offer these services through our Web sites, located at
www.edgar-online.com, www.ipo-express.com, www.insidertrader.com,
www.fd-express.com, www.compensation-express.com and www.freeedgar.com. Revenues
from these sites are generated through the sale of subscriptions and other
premium services.
Advertising
We also generate advertising revenues through the sale of advertising banners
and sponsorships on our six Web sites and sponsored email newsletters to our
registered users. In the first quarter of 2001, our six Web sites delivered in
excess of 82 million ad impressions. In addition to our Web sites, we have
contracts to deliver content to major portals including Yahoo!, Lycos and
America Online. These content distribution agreements increase traffic to our
Web sites and promote our brand name.
INDUSTRY BACKGROUND AND OPPORTUNITY
The EDGAR System
The SEC began to require electronic filings of compliance documents such as
prospectuses and annual and quarterly reports in 1994 and, since May 1996, all
U.S. public companies have been required to make their SEC filings in an
electronic format through the EDGAR system. Certain foreign issuers have also
chosen to make their filings with the SEC through the EDGAR system. The SEC
established this system to perform automated collection and acceptance of
submissions by companies and others who are required to file disclosure
documents with the SEC. Prior to the introduction of the EDGAR system, SEC
filings were only available on a delayed basis in costly paper or CD-ROM format
from a limited number of document providers or SEC public reference rooms.
Business Information
Today's business environment is characterized by a rapidly growing demand for
fast and easy access to corporate and financial information. As a result of the
rapid growth of the Internet, corporate and financial information can now be
delivered in a more efficient and less expensive manner. Businesses are using
their intranets, private networks and Web sites to deliver competitive and
financial information to employees, customers and shareholders. SEC filings are
a primary source of this information. Veronis Suhler reports that total U.S.
spending on Business Information Services is expected to grow at a compound
annual growth rate of 7.8% from 1999 through 2004 reaching approximately $65
billion. We believe that our proprietary data mining technology and brand name
recognition will enable us to take advantage of the growth in this market.
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STRATEGY
Our goal is to become the leading provider of EDGAR-based business, financial
and competitive information and related technology systems. We aim to meet the
increasing market demand for information on a real-time, value-added and
cost-effective basis, by providing our customers with sophisticated methods of
obtaining and using information derived from EDGAR filings and other sources. We
strive to maintain EDGAR Online as the most reliable and trusted source of
EDGAR-based information for corporate customers and users of our Web services.
Increase Corporate Sales
Our objective is to continue to increase the number of corporate customers
purchasing our services and the amount of revenue generated by each customer. We
will use our proprietary technology to extract information for our corporate
customers and tailor this information to their specific needs. We offer our
services to a broad range of business and professional customers who have a
variety of needs for the types of services we provide. We are continuing to
expand our sales force to target this market.
Expand Beyond the Internet to Reach New Customers
We believe that we have established EDGAR Online as a leading Internet provider
of EDGAR-based information. We intend to maintain this leadership position on
the Internet and are now beginning to target other existing and emerging
technologies to reach new customers. For example, we have developed products and
services for use in wireless network applications and are expanding our sales
efforts to news services and data vendors that are using proprietary private
networks.
Expand Internationally
Approximately eight percent of our current registered users are located outside
the United States. We intend to market our services more aggressively in
international markets. We intend to expand our database to include filings made
outside of the United States and provide our users with access to corporate and
financial information from these filings. This will enable us to meet both
foreign and domestic demand for information on non-U.S. based companies.
Expand Functionality and Content Offerings
We intend to introduce new value-added services to increase revenues from our
existing customer base and to attract new customers. We have sophisticated
search technology under development to further mine the data in EDGAR filings
and plan to market tailored products to specific end users. We are also
incorporating additional sources of business and financial information into the
services we offer to our clients.
Enhance Brand Recognition
We have established strong brand identity in the EDGAR-based retrieval market,
in large part due to the high quality of our services and the extensive
availability of our branded information on the Internet. We intend to continue
to encourage our brand recognition by marketing higher value
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services to registered users of our Web sites, by implementing aggressive sales
campaigns to corporate clients and by entering into additional strategic
distribution relationships.
Pursue Additional Strategic Alliances and Acquisitions
We will seek additional distribution relationships to ensure that we remain the
leading provider of EDGAR-based information and related information technology
solutions on the Internet. We will also seek additional strategic alliances or
acquisitions that will enable us to offer additional services, strengthen our
selling efforts, improve technology and gain access to complementary services or
information that will be of interest to our customer base.
PRODUCTS AND SERVICES
Corporate Sales
As of March 20, 2001, we had over 250 corporate customers representing a broad
range of industry sectors. These corporate customers pay for having the content
of SEC filings processed and delivered to them in ways that best meet their
internal needs. We believe that our corporate contract services are attractive
to professional firms and large corporations who benefit from using our services
to generate valuable business, financial and competitive information to help
them conduct their businesses more effectively. Through our corporate
contracts, we supply our information to customers for use on their corporate
intranets and extranets, subscription Web sites, corporate Web sites and
wireless and private networks.
Corporate intranets and extranets
We provide EDGAR content to corporate customers for their internal use,
including on their intranets and extranets. Each of these corporate customers
receives a tailored application for their internal use at a price based on
content and degree of customization. These services include real-time delivery
of selected types of filings or specific elements of filings that contain
information for such purposes as sales leads, tracking competitor activity or
comparing executive compensation levels. In addition, we offer bulk sales of
subscriptions to our Web site services to firms for use by their employees.
Subscription Web sites
We deliver EDGAR content to other subscription Web sites, such as Multex.com,
Newstraders, Scottrade Securities and StreetFusion, that bundle our content into
their service offerings to the business and investment community. These Web
sites either integrate our services into their comprehensive offerings or offer
our services as higher cost options.
Corporate Web sites
Many public companies maintain Web sites that contain information about their
businesses, management, press releases and other public information. For a
monthly fee, we supply a broad range of companies with their company-specific
EDGAR filings for display on their Web sites. This content is typically part of
the investor relations section of these companies' Web sites. For example, many
of these Web sites provide links to these companies' Form 10-K and Form 10-Q
filings, which
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we provide from our database of EDGAR filings. By contracting with us, these
companies are assured that their Web sites contain their most recent EDGAR
filings.
Private Networks
We deliver EDGAR content to other information vendors such as Reuters, ILX and
Perfect Information, who make EDGAR Online information available to their
private network customers. These information vendors either integrate our
service into their comprehensive offerings or offer our services for an
additional fee.
Our Web Sites
We operate six Web sites, each catering to the specific needs of a different
target audience. Together, these sites provide services that appeal to both
casual users of EDGAR information and to business professionals who require a
broader range of value-added services.
We seek to capture the fast-growing market of users of business and financial
information by offering low cost, value-added services to our paying
subscribers. We offer basic free content that encourages repetitive usage by
visitors to our Web sites. As of March 20, 2001, we had over 593,000 registered
users, of which approximately 16,000 were paying subscribers. Based on
information from @plan, Inc., an Internet-focused market research provider, we
believe our individual users represent a demographic group characterized by
levels of education and personal income that are well above the average profile
of an Internet user. According to the registration data we collect, these
individuals are typically executives, research analysts, bankers, journalists,
attorneys, accountants, sales representatives, recruiters, business development
and marketing professionals. We provide them with cost-effective and flexible
tools to obtain information about companies' financial performance, competitive
position, strategic plans, products, expenditure plans, management changes,
shareholder changes, capital raising and other information reported in SEC
filings.
The EDGAR Online Web site, located at www.edgar-online.com, is our premium
value-added content service site. This site features up-to-the-second listing of
new EDGAR filings received by the SEC which can be sorted by company name, form
type or filing date. Users to the site are offered advanced searching and
filtering capabilities that allow users to combine multiple criteria to search
EDGAR filings using a company's name, ticker symbol, central index key (CIK)
code, industry, city, state, SEC form type and filing date range. Our
proprietary software also adds navigation features which makes it easier to find
specific information within the EDGAR filings. The site also allows users to
search the EDGAR database for information about individuals named in SEC
filings. Individual users who wish to access these services pay a monthly fee
starting at $9.95. Our highest standard subscription rate of $99.95 per month
entitles a user to unlimited access to real-time filings and Form 144 filings.
Selected services are also available to non-paying registered and non-registered
users of our Web site. Our service also allows users to store queries and sends
e-mail or Web-based alerts immediately when new filings come in that match the
user's search criteria. Our software enables users the option of viewing filings
in either Hypertext Markup Language, Rich Text Format or on Excel Spreadsheet
Format. For an additional fee, users can obtain a hard copy of any filing by
overnight delivery.
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The FreeEDGAR Web site, located at www.freeedgar.com, is our value brand site.
This site offers free access to all EDGAR filings as well as limited navigation
tools to help users find specific sections of the EDGAR filing. The Web site
also offers certain searching, display and alerting features which are generally
less comprehensive then the features on our premium Web site. This Web site
appeals to users of EDGAR information who are willing to forego certain
value-added features in exchange for free access to the EDGAR filings. This site
is supported by advertising revenues and provides an opportunity to market the
value-added services of our premium Web sites.
The EDGAR Online IPO Express Web site, located at www.ipo-express.com, is a
specialized site which displays new public offerings as they are filed, priced,
postponed or withdrawn and provides daily and weekly summaries of all companies
filing IPO prospectuses with the SEC. Users can quickly and easily access key
sections of the prospectus, including competition, risk factors, management and
financial data, as well as key details such as underwriters and ticker symbols.
Users subscribing to our IPO Alert services can also obtain e-mail or web-based
alerts when IPO filings are made and when specific IPO stocks begin trading.
The EDGAR Online Compensation Express Web site, located at
www.compensation-express.com is a specialized site which displays compensation
information for the executives listed in IPO prospectuses and proxy statements.
Users can review salary levels, stock options and bonus levels for all listed
executives for a particular company or they can look at yearly figures for a
particular named executive in the company.
The EDGAR Online Insider Trader Web site, located at www.insidertrader.com is a
specialized site which displays the insider transactions and institutional
ownership data filed with the SEC on Forms 3, 4, 144 and 13F and schedules 13D
and 13G. The site has numerous value added features to assist investors in using
the data to research new investment ideas, and to follow present investments.
Insider Trader also presents original research reports by financial analysts who
combine the site's data with fundamental research to reach investment decisions.
The EDGAR Online Fair Disclosure Web site, located at www.fd-express.com is a
specialized site which displays filing and information concerning the SEC's new
Regulation FD - commonly referred to as Fair Disclosure. The site allows users
to view filings made for the purpose of complying with the new Fair Disclosure
requirements.
Advertising
We have a contract with DoubleClick, an Internet advertising services provider,
to sell advertising on our Web sites. In March 2001, DoubleClick sold
advertising on our sites to over 300 companies. Our advertisers represent a
broad cross section of industries that are attracted by the subject matter of
our Web sites and by the demographics of the users of our Web sites. These
advertisers include companies such as Datek Online Brokerage Services, Fidelity
Investments, Arthur Andersen and Harvard Business School Publishing.
KEY CONTENT DISTRIBUTION RELATIONSHIPS
In order to enhance our brand recognition and audience reach, we provide
selected EDGAR content to major portals including Yahoo!, Lycos and America
Online. For example, we provide the Yahoo! Finance Web site with headline
information about SEC filings and the extracted Management's
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Discussion and Analysis section of Forms 10-K and 10-Q on a real-time basis. In
return, EDGAR Online sites benefit from increased traffic and advertising
revenues, which occurs when users of these sites seek additional EDGAR-related
information.
MARKETING AND SALES
Historically, we have focused our business on building content distribution
relationships with major search engines and financially-oriented and general
information Web sites to build our brand recognition. These co-branded
relationships and our well-known presence on the Internet have allowed us to
attract individual subscribers and corporate customers.
As of March 20, 2001, we have a staff of 12 professionals dedicated to
supporting our sales and marketing efforts. The exclusive focus of our sales
staff is to market our services to corporate customers. We believe that
corporate customers will continue to represent an important source of revenue
growth in the next few years, as we continue to introduce value-added search and
extraction products and customized fee-based services to corporate purchasers of
sophisticated financial information. We intend to continue to increase the
number of sales professionals dedicated to marketing our services exclusively to
corporate accounts.
We promote our services through on-line advertising, direct mail, trade shows
and telemarketing. We also use free-trial offers on our Web sites to encourage
registered users and visitors to subscribe to our services and to encourage
existing subscribers to purchase additional value-added services.
PROPRIETARY DATA MINING SOFTWARE
Historically, we used database technology designed for us by iXL. The
acquisition of Financial Insight Systems ("FIS") in October 2000 has enabled us
to bring development and maintenance of our technology in-house. We are no
longer reliant on iXL personnel for design and support of our hardware and
software systems. The acquisition of FIS also brought us additional proprietary
database technology related to the extraction of data from EDGAR filings and the
creation, operation and maintenance of applications services used by our
clients. Our proprietary technology integrates software that was developed
exclusively for us with software systems obtained commercially. The software
developed exclusively for us includes our database of EDGAR filings, Web-based
customer interfaces, data mining capabilities and customer support and billing
systems. The software systems obtained commercially include the Great Plains
Accounting System, the Verity Search Engine and NetOwl Extractor. The nature of
our proprietary system allows us to enhance our service offerings by rapidly
integrating new technology developed by third parties.
Over the last five years we have accumulated a large set of unique software
programs that enable us to perform the many complex data mining functions
necessary to deliver our services on a real-time and cost-effective basis to
both our Web and corporate customers. We believe these proprietary programs, and
the way we integrate them into a scalable system, give us a significant
advantage over any competitors who might attempt to match our speed and accuracy
in extracting data from the EDGAR database and delivering that data to a large
number of customers in a variety of formats.
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INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
All of our development programming, as well as management of our Web sites, is
now performed in-house by our own employees. We own all the programs that run
our Web sites, including those developed in the past by iXL. The largest portion
of our development team is located in our Rockville, Maryland office. We also
have teams of development and IT professionals located in Kirkland, Washington,
Owings Mill, Maryland and Norwalk, Connecticut. The Web sites developed and
maintained for some of our largest corporate customers are hosted in our offices
in Rockville using predominately Microsoft NT Operating systems.
Our EDGAR Online and IPO Express Web sites are hosted at facilities located at
Globix Corporation in New York City. Globix maintains multiple Web servers owned
by us, which run Microsoft NT operating systems and use Microsoft Internet
Information Server. Our systems are maintained on a 24 hours-a-day, 7
days-a-week basis by our own technicians with the exception of our networking
communications for our New York City servers which are managed by Globix. Our
professionals in Kirkland, Washington are responsible for hosting the
FreeEDGAR.com and InsiderTrader.com Web sites and supporting the services being
provided to a number of our major corporate customers. They work closely with
our operations and development people in Norwalk, Connecticut and Rockville,
Maryland to create and support new service offerings which can be deployed on
each of our Web sites and offered to our business-to-business customers.
All our systems, including our accounting system, user database and database of
EDGAR filings, and all proprietary software are backed up on a daily basis and
stored offsite. Our software and database are replicated across multiple
servers, using the clustering facilities of Microsoft Windows NT Server,
Enterprise edition. This provides us with both resilience against hardware
failure and scalability to handle our increasing traffic loads.
The flow of information in and out of our Web sites operates as follows:
- - the live feed of EDGAR filings comes from the SEC's dissemination
agent, TRW, which sends this feed to Globix in New York City, our
office in Kirkland, Washington and our office in Rockville, Maryland
via private high speed T-1 connections; and
- - the raw EDGAR filings are processed independently by our proprietary
software, stored in databases in New York City, Rockville, and Kirkland
and posted to our Web sites and distributed to third parties with which
we have distribution contracts via our production servers located at
Globix's facilities and at Kirkland, Washington and at Rockville,
Maryland.
Our services are available to users 24 hours a day, 7 days a week. Customer
service is available weekdays 9:00 AM to 5:00 PM (ET). Inquiries come in through
our Web sites and via e-mail and telephone. As of March 20, 2001, we had 12
employees engaged in customer service and network support for our public Web
sites.
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COMPETITION
The market for Internet information services and products is relatively new, has
no substantial barriers to entry and is intensely competitive and rapidly
changing. The number of Web sites competing for consumers' and advertisers'
attention and spending has proliferated, and we expect that competition will
continue to intensify. We currently compete, directly and indirectly, for
corporate customers with vendors of financial information such as Bloomberg and
Disclosure and for subscribers, viewers and advertisers with Web-based providers
of free EDGAR information, such as 10KWizard.com and Global Security
Information's LIVEDGAR.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of their services. These competitors may
also engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, content
distribution partners and advertisers. Our competitors may offer EDGAR content
that achieves greater market acceptance than ours. It is also possible that new
competitors may emerge and rapidly acquire significant market share. While we
have good relationships with our growing list of customers, we may not be able
to retain these customers. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which could
materially adversely affect our business, results of operations and financial
condition.
We also compete with other Web sites, television, radio and print media for a
share of advertisers' total advertising budgets. If advertisers perceive the
Internet in general or our Web sites in particular to be a limited or an
ineffective advertising medium, they may be reluctant to devote a portion of
their advertising budget to Internet advertising or to advertising on our Web
sites.
INTELLECTUAL PROPERTY
Our success depends significantly upon our proprietary technology. We currently
rely on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect our proprietary
rights. All of our employees have executed confidentiality and non-use
agreements which provide that any rights they may have in copyrightable works or
patentable technologies belong to us. In addition, prior to entering into
discussions with third parties regarding our proprietary technologies, we
typically require that such parties enter into a confidentiality agreement. If
these discussions result in a license or other business relationship, we
typically also require that the agreement setting forth the parties' respective
rights and obligations include provisions for the protection of our intellectual
property rights.
The SEC has granted us a non-exclusive, royalty-free license to use the name
EDGAR in our logo and corporate name initially through 2008. We have applied for
and received from the U.S. Patent and Trademark Office certified registration
for our EDGAR Online trademark.
GOVERNMENT REGULATION
We are subject, both directly and indirectly, to various laws and governmental
regulations relating to our business. There are currently few laws or
regulations directly applicable to online services of the
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Internet. However, due to the increasing popularity and use of commercial online
services and the Internet, it is possible that a number of laws and regulations
relating to commercial online services and the Internet may be adopted. Such
laws and regulations may cover issues such as user privacy, pricing and
characteristics and quality of products and services. Moreover, the
applicability to commercial online services and the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain and could expose us to substantial liability. Any such new legislation
or regulation or the application of existing laws and regulations to the
Internet could have a material adverse effect on our business, results of
operations and financial condition.
Tax authorities in a number of states are currently reviewing the appropriate
tax treatment of companies engaged in Internet commerce. New state tax
regulations may subject us to additional state sales and income taxes. As our
service is available over the Internet anywhere in the world, multiple
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such jurisdiction. The 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 also
possible that state and foreign governments might attempt to regulate our
transmissions of content on our Web sites.
EMPLOYEES
As of March 20, 2001, we had 131 full-time employees. We believe that we have
good relations with our employees.
CORPORATE HISTORY
We are a Delaware corporation and were formed in November 1995 under the name
Cybernet Data Systems, Inc. In January 1999, we changed our name to EDGAR
Online, Inc. Our executive offices are located at 50 Washington Street, Norwalk,
Connecticut 06854 and our telephone number is (203) 852-5666.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The following risk factors and other information included in this Form 10-K
should be carefully considered. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occurs, our business,
financial condition and operating results could be materially adversely
affected.
WE HAVE A LIMITED OPERATING HISTORY AND OUR FUTURE SUCCESS WILL DEPEND ON OUR
ABILITY TO INCREASE REVENUES.
As an early stage company in the new and rapidly evolving market for the
delivery of financial and business information over the Internet, we face
numerous risks and uncertainties in achieving increased revenues. We were
incorporated in November 1995 and launched our EDGAR Online Web site in January
1996. Accordingly, we have a limited operating history on which you can evaluate
our business and prospects. During this period, we have invested heavily in our
proprietary technologies to enable us to carry out our business plan. These
expenditures, in advance of revenues, have resulted in operating losses in each
of the last three years. In order to be successful, we must increase our
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revenues from the sale of our services to corporate customers, individual
subscription fees and advertising sales. In order to increase our revenues, we
must successfully:
- implement our marketing plan to (1) increase corporate sales,
(2) attract more individual online users to our services and
(3) convert visitors to paying subscribers;
- continue to improve our market position as a commercial
provider of information services based on EDGAR filings;
- maintain our current, and develop new, content distribution
relationships with popular Web sites and providers of business
and financial information;
- maintain our current, and continue to increase, advertising
revenues by increasing traffic to our Web sites and by
increasing the number of advertisers;
- respond effectively to competitive pressures from other
Internet providers of EDGAR content;
- continue to develop and upgrade our technology;
- integrate our acquisition of Financial Information Systems,
Inc.; and
- attract, retain and motivate qualified personnel with Internet
experience to serve in various capacities, including sales and
marketing positions.
If we are not successful in addressing these uncertainties through the execution
of our business strategy, our business, results of operations and financial
condition will be materially adversely affected.
WE HAVE A HISTORY OF LOSSES AND CANNOT ASSURE THAT WE WILL ATTAIN PROFITABILITY.
We incurred net losses of $2,221,474 for the year ended December 31, 1998,
$4,162,861 for the year ended December 31, 1999 and $15,237,305 for the year
ended December 31, 2000. In addition, as of December 31, 2000, we had an
accumulated deficit of $24,146,626. We expect to continue to incur significant
operating costs and capital expenditures. As a result, we will need to generate
significant additional revenues to achieve and maintain profitability. Even if
we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or annual basis in the future. In
addition, if revenues grow slower than we anticipate, or if operating expenses
exceed our expectations or cannot be adjusted accordingly, our business, results
of operations and financial condition will be materially adversely affected. As
a result of these and other costs, we may incur operating losses in the future,
and we cannot assure you that we will attain profitability.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING.
We currently anticipate that our available cash resources combined with cash
generated from operations will be sufficient to meet our anticipated working
capital and capital expenditure requirements for at least the next 12 months. We
may need to raise additional funds, however, to fund potential acquisitions,
more rapid expansion, to develop new or enhance existing services, or to respond
to competitive pressures. We cannot assure you that additional financing will be
available on
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terms favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our expansion, take advantage
of unanticipated opportunities, develop or enhance services or products or
otherwise respond to competitive pressures would be significantly limited. Our
business, results of operations and financial condition could be materially
adversely affected by these financing limitations.
FUTURE ENHANCEMENTS TO THE SEC'S EDGAR SYSTEM MAY ERODE DEMAND FOR OUR SERVICES.
Our future success will depend on our ability to continue to provide value-added
services that distinguish our Web sites from the type of EDGAR-information
available from the SEC on its Web site. Through its Web site, the SEC provides
free access to EDGAR filings on a time-delayed basis of 24 to 72 hours. If the
SEC, which has announced that it intends to modernize the EDGAR system, were to
make changes to its Web site such as providing (1) free real-time access to
EDGAR filings or (2) value-added services comparable to those provided on our
Web sites, our business, results of operations and financial condition would be
materially adversely affected.
WE FACE INTENSE COMPETITION FROM OTHER PROVIDERS OF BUSINESS AND FINANCIAL
INFORMATION.
We compete with many providers of business and financial information, including
other Internet companies, for consumers' and advertisers' attention and
spending. Because our market poses no substantial barriers to entry, we expect
this competition to continue to intensify. The types of companies with which we
compete for users and advertisers include:
- traditional vendors of financial information, such as
Disclosure;
- proprietary information services and Web sites targeted to
business, finance and investing needs, including those
providing EDGAR content, such as Bloomberg, and LIVEDGAR; and
- Web-based providers of free EDGAR information such as 10K
Wizard.com.
Our future success will depend on our ability to maintain and enhance our market
position by: (1) using technology to add value to raw EDGAR information, (2)
keeping our pricing models below those of our competitors, (3) maintaining a
strong corporate sales presence in the marketplace and (4) signing high-traffic
Web sites to distribution contracts.
Our potential commercial competitors include entities that currently license our
content, but which may elect to purchase a real-time EDGAR database feed (called
a Level I EDGAR feed) directly from the SEC and use it to create value-added
services, similar to services provided by us, for their own use or for sale to
others. This risk is particularly serious in light of the fact that the cost of
Level I feed has fallen significantly since we started our business. The cost of
the feed is now approximately $45,000 per year.
Many of our existing competitors, as well as a number of potential competitors,
have longer operating histories, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than we
do. This may enable them to respond more quickly to new or emerging technologies
and changes in the types of services sought by users of EDGAR-based information,
or to devote greater resources to the development, promotion and sale of
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their services than we can. These competitors and potential competitors may be
able to undertake more extensive marketing campaigns, adopt more aggressive
pricing policies and make more attractive offers to potential employees,
subscribers and content distribution partners. Our competitors may also develop
services that are equal or superior to the services offered by us or that
achieve greater market acceptance than our services. In addition, current and
prospective competitors may establish cooperative relationships among themselves
or with third parties to improve their ability to address the needs of our
existing and prospective customers. If these events occur, they could have a
materially adverse effect on our revenue. Increased competition could also
result in price reductions, reduced margins or loss of market share, any of
which would adversely affect our business, results of operations and financial
condition.
WE RISK BEING DELISTED FROM NASDAQ WHICH COULD REDUCE OUR ABILITY TO RAISE FUNDS
If our stock price were to drop below $1.00 per share and remain below $1.00 per
share for an extended period of time, we would be in violation the continued
listing requirements of The Nasdaq Stock Market ("Nasdaq") and we risk the
delisting of our shares from Nasdaq. Delisting from Nasdaq and inclusion of our
common stock on the OTC Bulletin Board or similar quotation system could
adversely affect the liquidity and price of our common stock and make it more
difficult for us to raise additional capital on favorable terms, if at all.
Even if the minimum per share bid price of our common stock is maintained, the
Company must also satisfy other listing requirements of the Nasdaq National
Market ("NNM"), such as maintaining net tangible assets of at least $4 million.
Failure to satisfy any of the maintenance requirements could result in our
common stock being delisted from the NNM. Although in that event we could apply
to list our shares with the Nasdaq SmallCap Market, its delisting from the NNM
could adversely affect the liquidity of our common stock. In addition, delisting
from the NNM might negatively impact the Company's reputation and, as a
consequence, its business.
THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE.
The market price of our common stock has been, and is likely to continue to be,
volatile, experiencing wide fluctuations. In recent years, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many technology companies.
Some of these fluctuations appear to be unrelated or disproportionate to the
operating performance of such companies. Future market movements may materially
and adversely affect the market price of our common stock.
WE MAY NOT BE SUCCESSFUL IN INCREASING BRAND AWARENESS.
Our future success will depend, in part, on our ability to increase the brand
awareness of our Web-based customized corporate services. If our marketing
efforts are unsuccessful or if we cannot increase our brand awareness, our
business, financial condition and results of operations would be materially
adversely affected. In order to build our brand awareness, we must succeed in
our marketing efforts, provide high quality services and increase the number of
people who are aware of the services we offer. We have devoted significant funds
to expand our sales and marketing efforts as part of our brand-building efforts.
These efforts may not be successful.
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WE MAY NOT BE SUCCESSFUL IN DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES
FOR OUR WEB SITES.
Our market is characterized by rapidly changing technologies, evolving industry
standards, frequent new product and service introductions and changing customer
demands. To be successful, we must adapt to our rapidly changing market by
continually enhancing our existing services and adding new services to address
our customers' changing demands. We could incur substantial costs if we need to
modify our services or infrastructure to adapt to these changes. Our business
could be adversely affected if we were to incur significant costs without
generating related revenues or if we cannot adapt rapidly to these changes.
Our business could also be adversely affected if we experience difficulties in
introducing new or enhanced services or if these services are not favorably
received by users. We may experience technical or other difficulties that could
delay or prevent us from introducing new or enhanced services. Furthermore,
after these services are introduced, we may discover errors in these services
which may require us to significantly modify our software or hardware
infrastructure to correct these errors.
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF THE EMERGING MARKET FOR ONLINE
BUSINESS AND FINANCIAL INFORMATION.
The success of our business will depend on the growing use of the Internet for
the dissemination of business and financial information. The number of
individuals and institutions that use the Internet as a primary source of
business and financial information may not continue to grow. The market for the
distribution of business and financial information, including EDGAR-based
content, over the Internet has only recently begun to develop, is rapidly
evolving and is characterized by an increasing number of market entrants who
have introduced or developed electronic distribution services over the Internet
and private networks. As is typical of a rapidly evolving industry, demand and
market acceptance for new services are subject to a high level of uncertainty.
Because the market for our products and services is new and rapidly evolving, it
is difficult to predict with any certainty what the growth rate, if any, and the
ultimate size of this market will be. We cannot be certain that the market for
our services will continue to develop or that our services will ever achieve a
significant level of market acceptance. If the market fails to continue to
develop, develops more slowly than expected or becomes saturated with
competitors, or if our services do not achieve significant market acceptance, or
if pricing becomes subject to considerable competitive pressures, our business,
results of operations and financial condition would be materially adversely
affected.
MAINTAINING EXISTING AND ESTABLISHING NEW CONTENT DISTRIBUTION RELATIONSHIPS
WITH HIGH-TRAFFIC WEB SITES IS CRUCIAL TO OUR FUTURE SUCCESS.
Because our advertising revenues depend to a great extent on the traffic to our
Web sites, our business could be adversely affected if we do not maintain our
current, and establish additional, content distribution relationships on
commercially reasonable terms or if a significant number of our content
distribution relationships do not result in increased use of our Web sites. We
rely on establishing and maintaining content distribution relationships with
high-traffic Web sites for a significant portion of the traffic on our Web
sites. There is intense competition for placements on
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high-traffic Web sites, and we may not be able to maintain our present
contractual relationships or enter into any additional relationships on
commercially reasonable terms, if at all. Even if we maintain our existing
relationships or enter into new content distribution relationships with other
Web sites, they themselves may not continue to attract significant numbers of
users. Therefore, our Web sites may not continue to receive significant traffic
or receive additional new users from these relationships.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A DOWNTURN IN THE FINANCIAL SERVICES
INDUSTRY.
We are dependent upon the continued demand for the distribution of business and
financial information over the Internet, making our business susceptible to a
downturn in the financial services industry. For example, a decrease in the
expenditures that corporations and individuals are willing to make to purchase
these types of information could result in a decrease in the number of customers
purchasing our information services and subscribers utilizing our Web sites.
This downturn could have a material adverse effect on our business, results of
operations and financial condition.
SOME OF OUR CLIENTS MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL NEEDED TO RETAIN
OUR SERVICE OR PAY US FOR SERVICES PERFORMED.
Some of our current and potential clients need to raise additional funds in
order to continue their business and operations as planned. We cannot be certain
that these companies will be able to obtain additional financing on favorable
terms or at all. As a result of their inability to raise additional financing,
some clients may be unable to pay us for services we have already provided them
or they may terminate our services earlier than planned, either of which could
have a material adverse effect on our business, financial condition and
operating results.
WE DEPEND ON DOUBLECLICK FOR ADVERTISING REVENUES.
We anticipate that our results of operations in any given period will continue
to depend to a significant extent upon advertising revenues generated through
our relationship with DoubleClick, Inc., which has provided us with a full range
of advertising services for the last three years. DoubleClick's failure to enter
into a sufficient number of advertising contracts during a particular period
could have a material adverse effect on our business, financial condition and
results of operations. Historically, a limited number of customers, all
represented by DoubleClick, have accounted for a significant percentage of our
paid advertising revenues. For the twelve months ended December 31, 2000, our
DoubleClick-related paid advertising revenue was 17% of our total 2000 revenues.
Our existing agreement with DoubleClick can be canceled by either party on 90
days notice. In addition, this agreement does not prohibit DoubleClick from
selling the same type of service that we currently receive from them to Web
sites that compete with our Web sites. If DoubleClick is unable or unwilling to
provide these advertising services to us in the future, we would be required to
obtain them from another provider or perform them ourselves. We would likely
lose significant advertising revenues while we are in the process of replacing
DoubleClick's services.
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WE FACE INTENSE COMPETITION FOR ADVERTISING REVENUES AND THE VIABILITY OF THE
INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN.
We compete with both traditional advertising media, such as print, radio and
television, and other Web sites for a share of advertisers' total advertising
budgets. Paid advertising revenues represented 17% and 22% of our total revenues
for the years ended December 31, 2000 and December 31, 1999, respectively. If
advertisers do not perceive the Internet to be an effective advertising medium,
companies like ours will be unable to compete successfully with traditional
media for advertising revenues. In addition, if we are unable to generate
sufficient traffic on our Web sites, we could potentially lose advertising
revenues to other Web sites that generate higher user traffic. If advertising on
the Web shrinks due to a general business downturn, this could also cause us to
lose advertising revenue. Because advertising sales make up a significant
component of our revenues, any of these developments could have a significant
adverse impact on our business, results of operations or financial condition.
WE MAY NOT BE ABLE TO CREATE AND DEVELOP AN EFFECTIVE DIRECT SALES FORCE.
Because a significant component of our growth strategy relates to increasing our
revenues from sales of our corporate services, our business would be adversely
affected if we were unable to develop and maintain an effective sales force to
market our services to this customer group. Until mid-1999, we had not employed
any sales executives to sell our corporate services. Our sales force now
consists of 12 people. Six of these people were added during the period January
1, 2001 through March 20, 2001. Nine of our sales people have been hired from
outside the company. Three of our sales people have been reassigned from other
duties within the company. Our efforts to build an effective sales force may not
be successful.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH.
We have experienced and are currently experiencing a period of significant
growth. If we are unable to manage our growth effectively, our business will be
adversely affected. This growth has placed, and our anticipated future growth
will continue to place, a significant strain on our technical, financial and
managerial resources. As part of this growth, we may have to implement new
operational and financial systems and procedures and controls to expand, train
and manage our employees, especially in the areas of sales and product
development.
WE FACE RISKS IN CONNECTION WITH OUR RECENT ACQUISITION AND OTHER ACQUISITIONS
AND BUSINESS COMBINATIONS THAT WE MAY CONSUMMATE.
We plan to continue to expand our operations and market presence by making
acquisitions, such as the recent acquisition of Financial Insight Systems, Inc.
and entering into business combinations, investments, joint ventures or other
strategic alliances with other companies. These transactions create risks such
as:
- difficulty assimilating the operations, technology and
personnel of the combined companies;
- disruption of our ongoing business;
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- problems retaining key technical and managerial personnel;
- expenses associated with amortization of goodwill and other
purchased intangible assets;
- additional operating losses and expenses of acquired
businesses; and
- impairment of relationships with existing employees, customers
and business partners.
We may not succeed in addressing these risks. In addition, some of the
businesses we have acquired, and in the future may acquire, may continue to
incur operating losses.
WE DEPEND ON KEY PERSONNEL.
Our future success will depend to a significant extent on the continued services
of our senior management and other key personnel, particularly Susan Strausberg,
Chief Executive Officer, Marc Strausberg, Chairman and Chief Information
Officer, Albert E. Girod, Executive Vice President and Chief Technology Officer,
Tom Vos, President and Chief Operating Officer, Greg Adams, Chief Financial
Officer and Jay Sears, Senior Vice President, Strategy and Business Development,
each of whom are parties to written employment agreements. The loss of the
services of these, or certain other key employees, would likely have a material
adverse effect on our business. We do not maintain "key person" life insurance
for any of our personnel. Our future success will also depend on our continuing
to attract, retain and motivate other highly skilled employees. Competition for
personnel in our industry is intense. We may not be able to retain our key
employees or attract, assimilate or retain other highly qualified employees in
the future. If we do not succeed in attracting new personnel or retaining and
motivating our current personnel, our business will be adversely affected. In
addition, the employment agreements with our key employees contain restrictive
covenants that restrict their ability to compete against us or solicit our
customers. These restrictive covenants, or some portion of these restrictive
covenants, may be deemed to be against public policy and may not be fully
enforceable. If these provisions are not enforceable, these employees may be in
a position to leave us and work for our competitors or start their own competing
businesses.
WE MAY NOT ADEQUATELY PERFORM CERTAIN ASPECTS OF OUR BUSINESS WHICH WERE
PREVIOUSLY PROVIDED BY THIRD PARTIES.
Until February 2001, we depended on third parties to develop and maintain the
software and hardware we use to operate a number of our Web sites. Prior to this
date, iXL Enterprises, Inc., an Internet strategy consulting company, developed,
maintained and upgraded our proprietary software, including those features which
enable users to locate and retrieve data, as well as one of our databases of
EDGAR filings, Web-based customer interfaces and customer support and billing
systems. Beginning in December 2000, we started to assume full responsibility
from iXL for the development and maintenance of our own software and hardware
configurations. As of the end of February 2001, we have become solely
responsible for these functions. If we are unable to perform these services as
well as iXL did previously, this could materially adversely affect our business,
results of operations and financial condition.
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WE DEPEND ON THIRD PARTIES FOR IMPORTANT ASPECTS OF OUR BUSINESS OPERATIONS.
We have a hosting contract with Globix Corporation, a provider of Internet
services, pursuant to which Globix operates and maintains the Web servers owned
by us in their New York City data center. Our hosting contract with Globix
expires in July 2003. If Globix were unable or unwilling to provide these
services, we would have to find a suitable replacement. Our operations could be
disrupted while we were in the process of finding a replacement for Globix and
the failure to find a suitable replacement or to reach an agreement with an
alternate provider on terms acceptable to us could materially adversely affect
our business, results of operations and financial condition.
WE FACE A RISK OF SYSTEM FAILURE.
Our ability to provide EDGAR content on a real-time basis and technology-based
solutions to our corporate clients depends on the efficient and uninterrupted
operation of our computer and communications hardware and software systems.
Similarly, our ability to track, measure and report the delivery of
advertisements on our site depends on the efficient and uninterrupted operation
of a third-party system provided by DoubleClick. These systems and operations
are vulnerable to damage or interruption from human error, natural disasters,
telecommunication failures, break-ins, sabotage, computer viruses, intentional
acts of vandalism and similar events. Any system failure, including network,
software or hardware failure, that causes an interruption in our service or a
decrease in responsiveness of our Web sites could result in reduced traffic,
reduced revenue and harm to our reputation, brand and relations with
advertisers.
Our operations depend on Globix's ability to protect its and our systems in its
data center against damage from fire, power loss, water damage,
telecommunications failure, vandalism and similar unexpected adverse events.
Although Globix provides comprehensive facilities management services, including
human and technical monitoring of all production servers 24 hours-per-day, seven
days-per-week, Globix does not guarantee that our Internet access will be
uninterrupted, error-free or secure. Any disruption in the Internet access to
our Web sites provided by Globix could materially adversely affect our business,
results of operations and financial condition. Our insurance policies may not
adequately compensate us for any losses that we may incur because of any
failures in our system or interruptions in the delivery of our services. Our
business, results of operations and financial condition could be materially
adversely affected by any event, damage or failure that interrupts or delays our
operations.
THERE ARE RISKS OF INCREASED USERS STRAINING OUR SYSTEMS AND OTHER SYSTEM
MALFUNCTIONS.
In the past, our Web sites and the technology-based solutions we sell to our
corporate customers have experienced significant increases in traffic when there
have been important business or financial news stories and during the seasonal
periods of peak SEC filing activity. In addition, the number of users of our
information and technology-based solutions has continued to increase over time
and we are seeking to further increase the size of our user base and the
frequency with which they use our services. Therefore, our Web sites and
business solutions must accommodate an increasingly high volume of traffic and
deliver frequently updated information. Our Web sites and business solutions
have in the past, and may in the future, experience slower response times or
other problems for a variety of reasons, including hardware capacity restraints
and software failures. These strains on our system could cause customer
dissatisfaction and could discourage visitors from becoming paying subscribers.
We also depend on the Level I EDGAR feed we purchase in order to provide SEC
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filings on a real-time basis. Our Web sites could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information.
These types of occurrences could cause users to perceive our Web sites and
technology solutions as not functioning properly and cause them to use other
methods, including the SEC's Web site or services of our competitors, to obtain
EDGAR-based information and technology solutions.
WE LICENSE THE TERM EDGAR FROM THE SEC AND DEPEND ON OTHER INTELLECTUAL
PROPERTY.
Trademarks and other proprietary rights, principally our proprietary database
technology, are important to our success and our competitive position. The SEC
is the owner of a United States trademark registration covering the use of the
term EDGAR. We have obtained a non-exclusive, royalty-free license from the SEC
to use the term EDGAR in our trademarks, service marks and corporate name. This
license is due to expire in September 2008. Since we have built significant
brand recognition through the use of the term EDGAR in our service offerings,
company name and Web sites, our business, results of operations and financial
condition could be adversely affected if we were to lose the right to use the
term EDGAR in the conduct of our business.
We seek to protect our trademarks and other proprietary rights by entering into
confidentiality agreements with our employees, consultants and content
distribution partners, and attempting to control access to and distribution of
our proprietary information. Despite our efforts to protect our proprietary
rights from unauthorized use or disclosure, third parties may attempt to
disclose, obtain or use our proprietary information. The precautions we take may
not prevent this type of misappropriation. In addition, our proprietary rights
may not be viable or of value in the future since the validity, enforceability
and scope of protection of proprietary rights in Internet-related industries is
uncertain and still evolving.
Finally, third parties could claim that our database technology infringes their
proprietary rights. Although we have not been subjected to litigation relating
to these types of claims, such claims and any resultant litigation, should it
occur, could subject us to significant liability for damages and could result in
the invalidation of our proprietary rights. Even if we prevail, such litigation
could be time-consuming and expensive, and could result in the diversion of our
time and attention, any of which could materially adversely affect our business,
results of operations and financial condition. Any claims or litigation could
also result in limitations on our ability to use our trademarks and other
intellectual property unless we enter into license or royalty agreements, which
agreements may not be available on commercially reasonable terms, if at all.
WE ARE DEPENDENT ON THE INTERNET INFRASTRUCTURE.
Our future success will depend, in significant part, upon the maintenance of the
various components of the Internet infrastructure, such as a reliable backbone
network with the necessary speed, data capacity and security, and the timely
development of enabling products, such as high-speed modems, which provide
reliable and timely Internet access and services. To the extent that the
Internet continues to experience increased numbers of users, frequency of use or
increased user bandwidth requirements, we cannot be sure that the Internet
infrastructure will continue to be able to support the demands placed on it or
that the performance or reliability of the Internet will not be adversely
affected. Furthermore, the Internet has experienced a variety of outages and
other delays as a result of damage to portions of its infrastructure or
otherwise, and such outages or delays could adversely
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affect our Web sites and the Web sites of our co-branded partners, as well as
the Internet service providers and online service providers our customers use to
access our services. In addition, the Internet could lose its viability as a
commercial medium due to delays in the development or adoption of new standards
and protocols that can handle increased levels of activity. We cannot predict
whether the infrastructure and complementary products and services necessary to
maintain the Internet as a viable commercial medium will be developed or
maintained.
WE ARE SUBJECT TO UNCERTAIN GOVERNMENT REGULATION AND OTHER LEGAL UNCERTAINTIES
RELATING TO THE INTERNET.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Any new laws or regulations relating
to the Internet could adversely affect our business. In addition, current laws
and regulations may be applied and new laws and regulations may be adopted in
the future that address issues such as user privacy, pricing, taxation and the
characteristics and quality of products and services offered over the Internet.
For example, several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. This could increase the cost of
transmitting data over the Internet, which could increase our expenses and
discourage people from using the Internet to obtain business and financial
information. Moreover, it may take years to determine the extent to which
existing laws relating to issues such as property ownership, libel and personal
privacy are applicable to the Internet.
WE FACE WEB SECURITY CONCERNS THAT COULD HINDER INTERNET COMMERCE.
Any well-publicized compromise of Internet security could deter more people from
using the Internet or from using it to conduct transactions that involve
transmitting confidential information, such as stock trades or purchases of
goods or services. Because a portion of our revenue is based on individuals
using credit cards to purchase subscriptions over the Internet and a portion
from advertisers who seek to encourage people to use the Internet to purchase
goods or services, our business could be adversely affected by this type of
development. We may also incur significant costs to protect against the threat
of security breaches or to alleviate problems, including potential private and
governmental legal actions, caused by such breaches.
WE COULD FACE LIABILITY AND OTHER COSTS RELATING TO OUR STORAGE AND USE OF
PERSONAL INFORMATION ABOUT OUR USERS.
Our policy is not to willfully disclose any individually identifiable
information about any user to a third party without the user's consent. This
policy statement is available to users of our subscription services when they
initially register. We also alert and seek the consent of registered subscribers
and users to use some of the information that they provide to market them
additional services provided by EDGAR Online or third party providers. Despite
this policy and consent, however, if third persons were able to penetrate our
network security or otherwise misappropriate our users' personal or credit card
information, we could be subject to liability. These could include claims for
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. They could also include claims for other misuses of
personal information such as for unauthorized marketing purposes. These claims
could result in litigation. In addition, the Federal Trade Commission and
several states have been investigating certain Internet companies regarding
their use of personal
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information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced or if these regulators chose to
investigate our privacy practices.
WE MAY BE LIABLE FOR INFORMATION DISPLAYED ON OUR WEB SITES.
We may be subjected to claims for defamation, negligence, copyright or trademark
infringement, violation of the securities laws or other claims relating to the
information that we publish on our Web sites, which may materially adversely
affect our business. These types of claims have been brought, sometimes
successfully, against online services as well as other print publications in the
past. We could also be subjected to claims based upon the content that is
accessible from our Web sites through links to other Web sites. Our general
liability insurance may not cover these claims and may not be adequate to
protect us against all liabilities that may be imposed.
ITEM 2. PROPERTIES
Our principal executive offices are located in Norwalk, Connecticut, where we
lease 7,500 square feet of office space. The term of this lease expires June
2006.
We also lease approximately 4,900 square feet of office space at 122 East 42nd
Street, New York, New York. This facility houses sales and administrative
personnel. The term of this lease expires April 2007.
We also lease an aggregate of approximately 7,200 square feet of office in
Linbrook Office Park located at 10628 NE 37th Circle and 10635 NE 38th Place,
Kirkland, Washington, pursuant to two separate lease agreements. These
facilities house our West Coast development and operations personnel, the
computer and communications equipment needed to operate our FreeEDGAR.com Web
site and supports certain corporate offerings. The terms of these leases expire
in January 2003.
We also lease approximately 14,200 square feet of office space at 11200
Rockville Pike, Suite 310, Rockville, Maryland and approximately 2,900 square
feet of office space at 100 Painters Mill Road, Suite 208 Owings Mills,
Maryland. The term of these leases expire in October 2005 and March 2004,
respectively. The Company also leases approximately 8,800 square feet of office
space at 11200 Rockville Pike, Suite 340 on a month-to-month basis.
Collectively, these facilities house our FIS development and operations
personnel as well as the computer and communications equipment needed to operate
FIS.
We believe that, in general, our physical properties are well maintained, in
good operating condition and adequate for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders through the solicitation of
proxies or otherwise during the fourth quarter of our fiscal year ended December
31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE FOR COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the symbol
"EDGR" since our initial public offering on May 26, 1999. The following table
sets forth, for the periods indicated, the high and low sales prices per share
of common stock as reported on the Nasdaq National Market:
On March 20, 2001, the last reported sales price of the common stock on the
Nasdaq National Market was $1.50. As of March 20, 2001, there were approximately
122 holders of record of our common stock.
High Low
FISCAL YEAR ENDED DECEMBER 31, 1999
Second Quarter (from May 26, 1999) $ 8.8125 $ 6.2500
Third Quarter $ 19.0625 $ 7.3125
Fourth Quarter $ 9.5000 $ 6.7500
FISCAL YEAR ENDED DECEMBER 31, 2000
First Quarter $ 16.0000 $ 6.8750
Second Quarter $ 9.8130 $ 3.1250
Third Quarter $ 5.5000 $ 3.0000
Fourth Quarter $ 5.1250 $ 1.4380
FISCAL YEAR ENDED DECEMBER 31, 2001
First Quarter (through March 20, 2001) $ 2.7500 $ 1.3438
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
inception. We intend to retain any future earnings to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected data presented below for, and as of the end of, each of the years
in the five-year period ended December 31, 2000 are derived from our audited
consolidated financial statements. The financial statements for, and as of the
end of, each of the years in the three-year period ended December 31, 2000 have
been audited by KPMG LLP, independent certified public accountants, and those
financial
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statements and the report thereon are included elsewhere in this Form 10-K. The
data set forth below should be read in connection with, and are qualified by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and the related notes
included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:(1)
Revenues ............................... $ 169,822 $ 1,044,138 $ 1,822,555 $ 4,730,614 $ 9,741,669
Cost of revenues ....................... 226,514 448,890 619,475 1,489,585 3,021,615
------------ ------------ ------------ ------------ ------------
Gross profit ........................... (56,692) 595,248 1,203,080 3,241,029 6,720,054
Operating expenses:
Selling, general and administrative
and development ...................... 688,676 1,739,002 3,175,246 7,264,124 13,238,473
Amortization and depreciation .......... 17,688 55,334 116,767 893,614 3,484,491
Write-down of intangible assets ........ -- -- -- -- 6,151,074
------------ ------------ ------------ ------------ ------------
Loss from operations ................... (763,056) (1,199,088) (2,088,933) (4,916,709) (16,153,984)
Interest income (expense) and
other, net ........................... (72,547) (298,561) (132,291) 754,098 974,118
------------ ------------ ------------ ------------ ------------
Loss before income taxes ............... (835,603) (1,497,649) (2,221,224) (4,162,611) (15,179,866)
Income tax expense ..................... 250 250 250 250 57,439
------------ ------------ ------------ ------------ ------------
Net loss ............................... $ (835,853) $ (1,497,899) $ (2,221,474) $ (4,162,861) $(15,237,305)
============ ============ ============ ============ ============
Basic and diluted net loss per
share(2) ............................. $ (0.19) $ (0.26) $ (0.36) $ (0.42) $ (1.18)
============ ============ ============ ============ ============
Basic and diluted weighted average
shares outstanding(2) ................ 4,302,466 5,655,151 6,129,116 9,805,456 12,862,604
============ ============ ============ ============ ============
DECEMBER 31,
----------------------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents ................. $ 17,086 $ 16,809 $ 148,380 $10,051,473 $ 2,283,811
Available-for-sale investments ............ -- -- -- 14,534,836 1,497,930
Working capital (deficit) ................. (481,091) (1,339,280) (440,754) 23,529,849 3,703,935
Total assets .............................. 200,368 366,254 784,943 37,739,114 39,466,359
Long-term debt ............................ -- -- 1,473,858 -- 6,000,000
Stockholders' equity (deficit) ............ (356,837) (1,588,811) (2,220,946) 35,086,383 29,483,401
(1) During the third quarter of 1999, development expenses were
reclassified to operating expenses from cost of revenues. In addition,
during the first quarter of 2000, the Company began recording certain
advertising revenues net of the related commissions and amounts
previously recorded as stock compensation expense have been reported
within the functional expense category for which the employee worked.
Prior comparative amounts have been reclassified to conform to the
year 2000 presentation.
(2) Diluted loss per share has not been presented separately, as the
outstanding stock options, warrants and convertible debenture are
anti-dilutive for each of the periods presented. Anti-dilutive
potential common shares outstanding were 1,489,099, 829,545, 653,400,
1,047,207 and 523,293 for the period ended December 31, 1996, and the
years ended December 31, 1997, 1998, 1999, and 2000, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operations
should be read together with our consolidated financial statements and the
related notes thereto. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
those anticipated in those forward-looking statements.
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OVERVIEW
We are a global business-to-business and Web-based provider of business,
financial and competitive information derived from U.S. Securities and Exchange
Commission data and a developer of Internet-based financial and business system
solutions. We sell to the corporate market and Internet portals as well as
running six destination Web sites. We were founded in November 1995 as Cybernet
Data Systems, Inc. In January 1999, we changed our corporate name to EDGAR
Online, Inc.
We had no revenue in 1995. Our primary activities in 1995 related to beginning
development of our proprietary systems. In January 1996, we launched our Web
site and began selling our subscription services and establishing contractual
relationships with large Web portal and business and financial information sites
to supply EDGAR content for display on these sites. We started selling
advertising banners and sponsorships on our site in February 1997.
We derive revenues from three primary sources: corporate contracts, individual
subscriptions, and advertising. Revenue from corporate contracts consists of
sales of data and information systems to corporate customers and is recognized
over the term of the contract. Services related to corporate contracts are
typically billed either monthly or quarterly in advance. Revenue from individual
subscriptions is deferred and recognized as income over the subscription period.
Individual subscriptions are typically billed in advance to subscribers' credit
cards and are collected, net of credit card transaction fees deducted by the
credit card processing institution, within one week of the sale. Revenue from
advertising is recognized as the services are provided. Advertising revenue is
paid to us by DoubleClick, net of advertising placed and commission fees.
In addition, a portion of our revenues is derived from barter transactions.
Barter advertising revenue is a non-cash item and relates to advertising placed
on our Web sites by other Internet companies in exchange for our advertising
placed on their Web sites. Barter advertising revenue is recorded in the month
that banners are exchanged. The amount of barter advertising revenue and expense
is recorded at the fair market value of the services received or provided,
whichever is more objectively determinable. Other barter revenue is also
non-cash and relates to corporate contract sales for which we received computer
equipment or other non-cash consideration for services provided. The amount of
such revenues are recorded at the fair market value of the equipment or services
received or services provided, whichever is more objectively determinable.
Barter expenses reflect the expense offset to barter revenue.
We intend to increase our operating expenses to fund increased sales and
marketing, to enhance our Web sites and to continue to establish relationships
critical to our success.
In May 1999, we sold 3,600,000 shares of our common stock at a price of $9.50
per share resulting in net proceeds of approximately $30.4 million. After the
application of a portion of the proceeds as described in our prospectus, we
have continued to fund our sales, product development and general and
administrative expenses and in 1999 and 2000 we used approximately $14 million
in connection with the acquisitions of Financial Insight Systems, Inc., Partes
Corporation and various other strategic assets.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenues
Revenues increased 106% to $9.7 million for the year ended December 31, 2000,
from $4.7 million for the year ended December 31, 1999. The growth in revenues
is primarily attributable to a $3.6 million or 320% increase in corporate
contract revenues to $4.7 million in 2000 from $1.1 million in 1999, a $744,000
or 52% increase in individual subscription revenues to $2.2 million in 2000 from
$1.4 million in 1999, a $616,000 or 58% increase in advertising revenues to $1.7
million in 2000 from $1.1 million in 1999, and an increase of $76,000 or 7% in
barter revenues to $1.2 million in 2000 from $1.1 million in 1999. The increase
in corporate contract revenue resulted from the FIS acquisition and an increase
in the number of corporate contracts in excess of $500 per month to
approximately 110 at December 31, 2000 from approximately 47 at December 31,
1999. The number of individual subscriptions increased to approximately 16,000
subscriptions at December 31, 2000 from approximately 13,000 subscriptions at
December 31, 1999. The increase in advertising revenues is primarily due to the
increase in the number of advertisers and ads delivered, offset by a decrease in
advertising rates. Revenue increases were primarily due to increased marketing
efforts, which resulted in an expanded customer base of individual subscribers,
a larger number of corporate contracts and additional content distribution
agreements with other Web sites. All of these increases contributed to increased
traffic on our Web sites. The increase in barter advertising revenue is a result
of additional exchange of advertising with other Web sites, offset by the
decrease in advertising rates.
Cost of Revenues
Cost of revenues consist primarily of fees paid to acquire the Level I EDGAR
database feed from the SEC, Web site maintenance charges, salaries and benefits
of our employees and the costs associated with our computer equipment and
communications lines used in conjunction with our Web sites. In addition, for
each period, online barter advertising expense is recorded equal to the online
barter advertising revenue for that period. Total cost of revenues increased
$1.5 million or 103% to $3.0 million for the year ended December 31, 2000, from
$1.5 million for the year ended December 31, 1999. The increase in cost of
revenues is primarily attributable to the FIS acquisition and increases in
software and Web site maintenance, billed employees and communications lines
needed to handle increased traffic. Gross margins were consistent at 69% for the
year ended December 31, 2000 and for the year ended December 31, 1999.
Operating Expenses
Selling and Marketing. Sales and marketing expenses consist primarily of
salaries and benefits, advertising expenses, public relations, and costs of
marketing materials. Sales and marketing expenses increased $2.3 million or 97%
to $4.6 million for the year ended December 31, 2000 from $2.3 million for the
year ended December 31, 1999. As a percentage of revenues, sales and
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marketing expenses decreased to 47% for year ended December 31, 2000 from 49%
for the year ended December 31, 1999. The increase in sales and marketing
expenses in dollar terms was due to an expansion of our sales force and
increased marketing activities.
Development. Development expenses increased $1.5 million or 182% to $2.4 million
for the year ended December 31, 2000 from $842,000 for the year ended December
31, 1999. As a percentage of revenues, development expenses increased to 24% for
the year ended December 31, 2000 from 18% for the year ended December 31, 1999.
The increase in development is primarily due to the expansion of content on our
web site and the development of corporate products.
General and Administrative. General and administrative expenses consist
primarily of salaries and benefits, fees for professional services, general
corporate expenses and facility expenses. General and administrative expenses
increased $2.2 million or 53% to $6.3 million for the year ended December 31,
2000 from $4.1 million for the year ended December 31, 1999. As a percentage of
revenues, general and administrative expenses decreased to 64% for the year
ended December 31, 2000 from 87% for the year ended December 31, 1999. The
increase in general and administrative expenses in dollar terms was primarily
due to increased personnel, professional service fees and general corporate
expenses necessary to support our growth. We expect that general and
administrative expenses will continue to increase in future periods as we hire
additional personnel and incur additional costs related to the growth or our
business and our operations as a public company.
Depreciation and Amortization. Depreciation and amortization expenses include
the depreciation of property and equipment and the amortization of intangible
assets. Depreciation and amortization increased $2.6 million or 290% to $3.5
million for the year ended December 31, 2000 from $894,000 for the year ended
December 31, 1999. As a percentage of revenues, depreciation and amortization
increased to 36% for the year ended December 31, 2000 from 19% for the year
ended December 31, 1999. The increase is due to the additional amortization
expense related to the Partes and FIS acquisitions and the increase in property
and equipment.
During the fourth quarter of 2000, the Company performed a reassessment of the
recovery of the goodwill and other long-lived assets related to its acquisition
of Partes Corporation, owner of the FreeEDGAR.com Website. The revaluation was
triggered by the continued decline in Internet advertising throughout 2000,
which significantly impacted current and projected advertising revenue
generated from the FreeEDGAR Web site. Based on revised projections of Partes
Corporation's revenues and costs, the Company determined that the undiscounted
cash flows from the operation of the FreeEDGAR Web site, including its
estimated terminal value, were less than the remaining book value of recorded
goodwill and other long-lived assets and an other than temporary impairment had
occurred. The Company measured the amount of the impairment by comparing the
anticipated future discounted cash flow from the operation of the FreeEDGAR Web
site and terminal value to the remaining book value of recorded goodwill and
other long-lived assets and recorded an impairment charge of $5,673,000. The
methodology used to test for and measure the amount of the impairment charge
was based on the same methodology used during the Company's initial valuation
of Partes Corporation in 1999.
Also during the fourth quarter of 2000, the Company performed a reassessment of
the recovery of the goodwill and other long-lived assets related to its
acquisition of certain of the assets of Individual Investor Group including the
Web site InsiderTrader.com and related user data. The revaluation was triggered
by the lower than anticipated assimilation of historical users of the acquired
Web site which limited the future revenue potential to be generated from the
assets acquired. Based on revised projections of InsiderTrader.com's revenues
and costs, the Company determined that the undiscounted cash flows from the
operation of the InsiderTrader.com Web site and other assets were less than the
remaining book value of recorded goodwill and other long-lived assets and an
other than temporary impairment had occurred. The Company measured the amount of
the impairment by comparing the anticipated future discounted cash flow from the
operation of the InsiderTrader.com Web site to the remaining book value of
recorded goodwill and other long-lived assets and recorded an impairment charge
of $362,000. The methodology used to test for and measure the amount of the
impairment charge was based on the same methodology used during the Company's
initial acquisition valuation of InsiderTrader.com in 2000.
Lastly, during the fourth quarter of 2000, the Company discontinued the use of
the edgar.com URL which it acquired in 1999 for $150,000, and recorded an
impairment charge for the unamortized book value of $117,000.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
Revenues increased 160% to $4.7 million for the year ended December 31, 1999,
from $1.8 million for the year ended December 31, 1998. The growth in revenues
is primarily attributable to a $805,000 or 258% increase in corporate contract
revenues to $1.1 million in 1999 from $311,000 in 1998, a $552,000 or 63%
increase in individual subscription revenues to $1.4 million in 1999 from
$876,000 in 1998, a $768,000 or 263% increase in advertising revenues to $1.1
million in 1999 from $292,000 in 1998, and an increase of $783,000 or 229% in
barter revenues to $1.1 million in 1999 from $342,000 in 1998. The increase in
corporate contract revenue resulted from an increase in the number of corporate
contracts in excess of $500 per month to approximately 47 at December 31, 1999
from approximately 13 at December 31, 1998 and from the addition of corporate
contracts obtained in connection with the FreeEDGAR.com acquisition. The number
of individual
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subscriptions increased to approximately 13,000 subscriptions at December 31,
1999 from approximately 6,000 subscriptions at December 31, 1998, offset by a
decrease in average revenue per subscriber due to a larger percentage of new
subscribers joining at our lowest subscription rate of $9.95 per month. The
increase in advertising revenues is primarily due to the purchase of
FreeEDGAR.com, the increase in the number of advertisers and ad impressions
delivered, offset by a decrease in advertising rates. Revenue increases were
primarily due to increased marketing and corporate sales efforts, which resulted
in an expanded customer base of individual subscribers, a larger number of
corporate contracts and additional content distribution agreements with other
Web sites. All of these increases contributed to increased traffic on our Web
sites. The increase in barter advertising revenue is a result of additional
exchange of advertising with other Web sites, offset by the decrease in
advertising rates noted above.
Cost of Revenues
Cost of revenues consist primarily of fees paid to acquire the Level I EDGAR
database feed from the SEC, Web site maintenance charges and the costs
associated with our computer equipment and communications lines used in
conjunction with our Web sites. In addition, for each period, online barter
advertising expense is recorded equal to the online barter advertising revenue
for that period. Total cost of revenues increased $870,000 or 140% to $1.5
million for the year ended December 31, 1999, from $619,000 for the year ended
December 31, 1998. The increase in cost of revenues is primarily attributable to
increases in software and Web site maintenance and communications lines needed
to handle increased traffic. Gross margins increased to 69% for the year ended
December 31, 1999 from 66% for the year ended December 31, 1998. In connection
with the preparation of the 1999 financial statements, the Company reclassified
product development expenses from cost of revenues to operating expenses in
order to better conform with industry presentation.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and benefits, advertising expenses, public relations, and costs of marketing
materials. Sales and marketing expenses increased $1.9 million or 479% to $2.3
million for the year ended December 31, 1999 from $402,000 for the year ended
December 31, 1998. As a percentage of revenues, sales and marketing expenses
increased to 49% for year ended December 31, 1999 from 22% for the year ended
December 31, 1998. The increase in sales and marketing expenses in dollar terms
was due to an expansion of our sales force, increased marketing activities,
including the development of our marketing materials and expenditures to
increase the EDGAR brand awareness. Sales and marketing expenses included stock
compensation expense of $8,000 in the year ended December 31, 1999 and $215,000
in the year ended December 31, 1998.
Development. Development expenses increased $415,000 or 97% to $842,000 for the
year ended December 31, 1999 from $427,000 for the year ended December 31, 1998.
As a percentage of revenues, development expenses decreased to 18% for the year
ended December 31, 1999 from 23% for the year ended December 31, 1998. The
increase in development expenses in dollar terms is primarily due to the
expansion of content on our Web sites and development of corporate products.
General and Administrative. General and administrative expenses consist
primarily of salaries and benefits, fees for professional services, general
corporate expenses and facility expenses. General and administrative expenses
increased $1.7 million or 74% to $4.1 million for the year ended
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December 31, 1999 from $2.3 million for the year ended December 31, 1998. As a
percentage of revenues, general and administrative expenses decreased to 87% for
the year ended December 31, 1999 from 129% for the year ended December 31, 1998.
The increase in general and administrative expenses in dollar terms was
primarily due to increased personnel, professional service fees and general
corporate expenses necessary to support our growth. General and administrative
expenses include stock compensation expense of $918,000 in the year ended
December 31, 1998.
Depreciation and Amortization. Depreciation and amortization expenses include
the depreciation of property and equipment and the amortization of intangible
assets. Depreciation and amortization increased $777,000 or 665% to $894,000 for
the year ended December 31, 1999 from $117,000 for the year ended December 31,
1998. As a percentage of revenues, depreciation and amortization increased to
19% for the year ended December 31, 1999 from 6% for the year ended December 31,
1998. The increase is primarily due to the increase in property and equipment as
well as amortization expense related to the Partes acquisition in 1999.
SELECTED QUARTERLY REVENUE RESULTS
The following table sets forth unaudited revenue results for each of our last
eight fiscal quarters. In the opinion of management, this unaudited quarterly
information has been prepared on a basis consistent with our audited
consolidated financial statements and includes all adjustments (consisting of
normal and recurring adjustments) that management considers necessary for a fair
presentation of the data. These quarterly revenue results are not necessarily
indicative of future quarterly patterns or revenue results. This information
should be read in conjunction with our financial statements and the related
notes included elsewhere in this Form 10-K. Revenue for the first three quarters
of 2000 have been restated by reducing corporate contract revenue by $97,242,
$123,735 and $169,635, respectively, as compared to amounts previously reflected
in the Company's Form 10-Q's to reflect the retroactive application of SAB 101
as of January 1, 2000. The deferral relates to revenue associated with certain
up-front fees charged to customers to build customized applications to access
information contained in the Company's databases. At December 31, 2000, the
aggregate amount deferred is $306,711 and will be recognized over the future
estimated life of the customer relationship. The impact of the change for the
first three quarters of 2000 is to increase the net loss by $97,242, $123,735
and $169,635, respectively. The impact of the restatement was to increase basic
and diluted net loss per share for the first three quarters of 2000 by $(0.01),
$(0.01), and $(0.01), respectively. There were no such arrangements prior to
2000 and accordingly, there is no cumulative effect adjustment for prior
periods.
THREE MONTHS ENDED
(unaudited)
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999 2000 2000 2000 2000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
REVENUE SOURCES:
Corporate contracts ...... $ 151,844 $ 159,503 $ 271,652 $ 533,359 $ 639,209 $ 800,718 $ 923,015 2,328,709
Individual subscriptions.. 273,603 331,314 387,083 435,834 493,805 547,824 577,038 $ 553,181
Advertising .............. 54,079 171,095 323,423 512,105 407,309 577,962 323,961 367,362
Barter advertising ....... 96,775 242,875 346,350 297,611 319,445 469,104 227,852 166,307
Other barter ............. 35,501 34,500 32,999 39,109 18,868 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total .................... $ 611,802 $ 939,287 $1,361,507 $1,818,018 $1,878,636 $2,395,608 $2,051,866 $3,415,559
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
LIQUIDITY AND CAPITAL RESOURCES
In May 1999 we completed an IPO of 3,600,000 shares of our common stock
resulting in net proceeds of approximately $30.4 million.
On October 30, 2000, the Company acquired all the outstanding equity of
Financial Insight Systems, Inc. (FIS), pursuant to the terms and conditions of
an agreement and plan of merger dated October 18, 2000 for approximately $27.9
million. The purchase price included (1) the issuance of 2,450,000 restricted
shares of EDGAR Online common stock valued at approximately $9.6 million, (2)
the
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payment of $17,765,000 consisting of (i) a cash payment of $11,765,000 and (ii)
a series of two-year 7.5% senior subordinated secured promissory notes in the
total principal amount of $6,000,000 and (3) approximately $0.6 million in cash
for the payment of fees and acquisition related expenses.
Net cash used in operating activities was $6,990,024 and $4,270,437 for the
years ended December 31, 2000 and 1999, respectively. We have historically
financed these activities through private debt placements and the sale of equity
instruments to investors. In connection with our acquisition of FIS, our
continued focus on growing our corporate customer base, and recent expense
reductions, we expect to be cash flow positive by the third quarter of 2001. In
addition, we expect to receive approximately $1 million in tax refunds during
the third quarter of 2001 as a result of tax loss carrybacks available as a
result of our acquisition of FIS.
Capital expenditures, primarily for computers, office and communications
equipment, totaled $1,443,828 for the year ended December 31, 2000 and $
1,023,419 for the year ended December 31, 1999. The purchases were required to
support our expansion and increased infrastructure.
At December 31, 2000, we had cash and cash equivalents on hand of $2,283,811 and
available-for-sale investment of $1,497,930. We believe that our existing
capital resources, cash generated from operations and the tax refund referred to
above, will be sufficient to meet our anticipated cash needs for working capital
and capital expenditures for at least the next 12 months. Thereafter, if cash
generated from operations is insufficient to satisfy our liquidity requirements,
we may need to raise additional funds through public or private financings,
strategic relationships or other arrangements. There can be no assurance that
such additional funding, if needed, will be available on terms attractive to us,
or at all. The failure to raise capital when needed could materially adversely
affect our business, results of operations and financial condition. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders would be reduced.
In connection with our acquisition of FIS, we issued $6,000,000 in notes with
all principal due October 27, 2002. We expect that our cash generated from
operations will be sufficient to pay the debt upon maturity. If cash generated
from operations is insufficient to satisfy the debt redemption, we may need to
raise additional funds through public or private financings, strategic
relationships or other arrangements. There can be no assurance that such
additional funding, if needed, will be available on terms attractive to us, or
at all. The failure to raise capital when needed could materially adversely
effect our business, results of operations and financial condition. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders would be reduced.
YEAR 2000 ISSUE
We have not experienced any material problems with network infrastructure,
software, hardware and computer systems relating to the inability to recognize
appropriate dates related to the Year 2000. We are also not aware of any
material Year 2000 problems with customers, suppliers or vendors. Accordingly,
we do not anticipate incurring future material expenses or experiencing any
material operational disruptions as a result of Year 2000 issues.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE FLUCTUATIONS
We are exposed to market risk primarily through our investments in
available-for-sale investments. Our policy calls for investment in short-term,
low risk investments. As of December 31, 2000, available-for-sale investments
were $1.5 million. Due to the short-term maturity of these investments, any
decrease in interest rates would not have a material effect on our financial
statements.
CURRENCY RATE FLUCTUATIONS
Our results of operations, financial position and cash flows are not materially
affected by changes in the relative values of non-U.S. currencies to the U.S.
dollar. We do not use derivative financial instruments to limit our foreign
currency risk exposure.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this Item 8 are set forth in Item 14 of
this Form 10-K. All information which has been omitted is either inapplicable or
not required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During fiscal year 2000 there were no changes in or disagreements with our
independent accountant on accounting or financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
As of March 20, 2001, the directors and executive officers of EDGAR Online, Inc.
were as follows:
NAME AGE POSITION
- ---- --- --------
Susan Strausberg (1) .............................. 61 Chief Executive Officer, Secretary and Director
Marc Strausberg (1) ............................... 66 Chairman of the Board, Chief Information Officer and Director
Tom Vos (1) ....................................... 53 President, Chief Operating Officer and Director
Greg D. Adams ..................................... 39 Chief Financial Officer
Albert E. Girod ................................... 49 Chief Technology Officer, Executive Vice President and Director
Jay Sears ......................................... 34 Senior Vice President of Business Strategy and Development
Bruce Bezpa (3) ................................... 44 Director
Stefan Chopin (2) ................................. 41 Director
Mark Maged (2)(3) ................................. 66 Director
- -------------------------
(1) Member of the Outside Directors Compensation Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Susan Strausberg, a co-founder of EDGAR Online, has served as Chief Executive
Officer and Secretary since EDGAR Online was formed in November 1995. From
December 1994 until the formation of EDGAR Online, Ms. Strausberg was a
consultant to Internet Financial Network. In her capacity as Chief Executive
Officer, Ms. Strausberg oversees strategic planning and development and is
responsible for the production of the EDGAR Online Web site. Ms. Strausberg has
served on
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the Board of Directors of RKO Pictures since December 1998. Ms. Strausberg, the
wife of Mr. Strausberg, EDGAR Online's Chairman, has a B.A. degree from Sarah
Lawrence College.
Marc Strausberg, a co-founder of EDGAR Online, has served as Chairman of the
Board of Directors and President since EDGAR Online was formed in November 1995.
Mr. Strausberg resigned as President upon the election of Tom Vos to this
position in March 1999. In December 1994, Mr. Strausberg co-founded Internet
Financial Network, an EDGAR based financial information vendor and served as
IFN's co-chairman until founding EDGAR Online. From 1992 to 1994, Mr. Strausberg
was the publisher of the Livermore Report, a newsletter that focused on the
valuation of initial public offerings. From August 1987 to December 1994, Mr.
Strausberg served as Chairman and President of Sindex Inc., which provided
computer-based trading systems to hedge funds and brokerage firms. Mr.
Strausberg oversees product development for EDGAR Online. Mr. Strausberg, the
husband of Ms. Strausberg, EDGAR Online's Chief Executive Officer, has a B.A.
degree from Muhlenberg College.
Tom Vos joined EDGAR Online as a Director in August 1996 and was elected Chief
Operating Officer in March 1998. Mr. Vos was elected President in March 1999.
Mr. Vos is responsible for EDGAR Online's day-to-day operations. From September
1986 until March 1998, Mr. Vos was Vice President of Marketing at Bowne & Co.,
Inc. In that capacity, Mr. Vos was responsible for strategic planning,
acquisitions and new product development. While at Bowne, Mr. Vos was also
responsible for advertising and public relations and for the development of both
Bowne's Web site and its EDGAR services department. Mr. Vos has a B.S. degree in
Physics from Notre Dame University, an M.S. degree in Electrical Engineering
from Ohio State University and an M.B.A. degree from Pace University.
Greg D. Adams joined EDGAR Online as Chief Financial Officer in March 1999. Mr.
Adams is a Certified Public Accountant with diversified business experience in
both the public and private sectors. Prior to joining EDGAR Online, Mr. Adams
served as SVP - Finance and Administration of PRT Group Inc., a technology
solutions and services company. From 1994 to 1996, Mr. Adams was the Chief
Financial Officer of the Blenheim Group Inc., a publicly held UK information
technology exposition and conference management company. Prior to that, Mr.
Adams worked for 11 years as an accountant with KPMG Peat Marwick. He is a
member of the New York State Society of Certified Public Accountants and the
American Institute of Certified Public Accountants. Mr. Adams has a B.B.A.
degree in Accounting from the College of William & Mary.
Albert E. Girod joined EDGAR Online as a Director and Chief Technology Officer
following EDGAR Online's acquisition of Financial Insight Systems, Inc. ("FIS")
in October 2000. Mr. Girod founded FIS in 1995 and served as President and Chief
Executive Officer from 1995 until October 2000. FIS was and remains a leading
provider of computer related financial information systems to the institutional
investment community. Mr. Girod also served as Chief Executive Officer
(1992-1995) and Vice President (1982-1992) of CDA Investment Technologies, Inc.,
a provider of computer related financial services to the institutional
community. From 1976 until 1982, Mr. Girod served as Vice President of Product
Development for SEI Corporation, a provider of automated trust accounting and
banking services and a registered investment advisor. Mr. Girod holds a B.S.
degree from Villanova University.
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Jay Sears joined EDGAR Online as Vice President of Marketing and Business
Development in May 1997. He is currently Senior Vice President of Business &
Strategy Development for EDGAR Online. Mr. Sears is responsible for web strategy
and strategic alliances and runs the Company's Web sites and business
development efforts including content and advertising sales, membership and
public relations. From September 1995 to April 1997, Mr. Sears was Vice
President of Marketing for Wolff Media, a publisher of Internet and printed
guides to the Internet. From July 1991 to August 1995, Mr. Sears was a Senior
Account Supervisor at Creamer Dickson Basford, an international marketing,
communications and public relations firm. Mr. Sears has B.A. degree from Kenyon
College.
Bruce Bezpa joined EDGAR Online as a member of the Board of Directors in March
1999. Since October 1999 Mr. Bezpa has provided consulting services with a focus
on strategic development and helping companies create value. Previously, he had
worked for Bowne & Co., Inc., a leading financial printer and provider of
Internet, localization and outsourcing services, for 15 years in various
capacities including as Vice President-Strategic Development from July 1996 to
October 1999, Director-Mutual Funds Services from August 1994 to June 1996 and
Director-Marketing from April 1989 to July 1994. Mr. Bezpa holds B.A. and M.B.A.
degrees from Rutgers University.
Stefan Chopin joined EDGAR Online as a member of the Board of Directors in 1996.
Mr. Chopin is the Senior Vice President of Technology for iXL Enterprises, Inc.,
an e-business solutions provider. Prior to joining iXL in 1998, Mr. Chopin was
the founder and President of Pequot Systems, a software development and
consulting firm. In October 1998, Pequot was acquired by iXL Enterprises, Inc.
which formed the basis of the iXL Financial Services Industry Practices. Prior
to founding Pequot Systems in November 1995, Mr. Chopin served as the Vice
President of Engineering for Micrognosis, Inc., a leading provider of trading
room systems.
Mark Maged joined EDGAR Online as a member of the Board of Directors in March
1999. Since June, 2000 and during the eight years prior to becoming Chief
Executive Officer of Internet Tradeline as described below, Mr. Maged, either
individually or as Chairman of MJM Associates, LLC, has engaged in various
private investment banking activities in the United States and internationally.
From September 1995 through May 2000, he was chairman of Internet Tradeline,
Inc. From 1975 through 1983, he served as President and Chief Executive Officer
of Schroder's Incorporated, which operated banking, investment banking and
investment management businesses as the United States arm of Schroders PLC, an
international merchant bank. He is currently a member of the Boards of Directors
of Commodore Holdings Limited and Cachier Corporation. He holds a bachelor's
degree from the City College of New York and both a master's degree and a law
degree from Harvard University.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act generally requires the Company's executive
officers and directors, and persons who own more than ten percent of the
Company's Common Stock, to file reports of beneficial ownership and changes in
beneficial ownership with the SEC. The Company became subject to the
requirements of Section 16(a) on May 26, 1999. Regulations promulgated by the
SEC require the Company to disclose in this Form 10-K any reporting violations
with respect to the 2000 fiscal year which came to the Company's attention based
on a review of the applicable filings required by the SEC to report the status
of an officer or director, or such changes in beneficial ownership as submitted
to the Company. Based solely on review of such forms received by the Company,
Stefan Chopin is the only reporting person to have made a late filing under
Section 16(a). Mr. Chopin filed a Form 4 on October 10, 2000, to report five
sale transactions relating to the Company's Common Stock that were consummated
in August 2000. These transactions were required to be reported on a Form 4 by
September 10, 2000. This statement is based solely on a review of the copies of
such reports furnished to the Company by its officers, directors and security
holders and their written representations that such reports accurately reflect
all reportable transactions and holdings.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for the
fiscal years ended December 31, 2000 and 1999 by our Chief Executive Officer and
our four most highly compensated executive officers (other than our Chief
Executive Officer) (collectively, the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
------------------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS (#)
- --------------------------- ---- ------ ----------- ----- -----------
Susan Strausberg........................... 2000 $150,000 $20,000 --- 35,000
Chief Executive Officer 1999 $150,000 $70,000 (2) --- ---
1998 $150,000 (3) --- --- ---
Marc Strausberg............................ 2000 $150,000 $20,000 --- 35,000
Chairman and Chief Information Officer 1999 $150,000 $70,000 (2) --- ---
1998 $150,000 (3) --- --- ---
Tom Vos.................................... 2000 $125,000 $20,000 --- 70,000
President and Chief Operating Officer 1999 $125,000 $70,000 (2) --- 100,000
1998 $ 93,750 (4) --- --- 200,000
Greg Adams................................. 2000 $125,000 $20,000 $ 8,100 70,000
Chief Financial Officer 1999 $ 93,269 (5) $62,500 $ 3,254 125,000
Albert E. Girod (1)........................ 2000 $ 25,035 $ 5,000 --- ---
Chief Technology Officer, Executive Vice
President and Director
Jay Sears.................................. 2000 $125,000 $20,000 $ 5,100 65,000
Senior Vice President 1999 $115,096 $70,000 $11,760 25,000
of Business and Strategy Development 1998 $ 97,400 $10,000 --- 65,000
- ----------------------------
(1) Mr. Girod joined EDGAR Online as Executive Vice President and Chief
Technology Officer, and Director on October 30, 2000 and earns a salary
at the rate of $150,000 per annum.
(2) These bonuses have been awarded as deferred compensation.
(3) In 1998, $92,788 of this amount was deferred and not paid.
(4) Mr. Vos joined EDGAR Online as Chief Operating Officer on March 31,
1998 and earns salary at the rate of $125,000 per annum. He was elected
by the Board of Directors to the additional position of President in
March, 1999.
(5) Mr. Adams joined EDGAR as Chief Financial Officer in May 1999 and earns
salary at the rate of $125,000 per annum.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during 2000. We have never granted any
stock appreciation rights.
INDIVIDUAL GRANTS (1)
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS POTENTIAL REALIZABLE VALUE
UNDERLYING GRANTED TO EXERCISE AT ASSUMED ANNUAL RATES OF
OPTIONS EMPLOYEES IN PRICE PER STOCK PRICE APPRECIATION
NAME GRANTED 2000 (2) SHARE ($) EXPIRATION DATE FOR OPTION TERM (3)
5% 10%
Susan Strausberg 35,000 5.11% $3.85 August 1, 2010 -- (4) 9,937
Marc Strausberg 35,000 5.11% $3.85 August 1, 2010 -- (4) 9,937
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Tom Vos 40,000 5.84% $9.00 January 26, 2010 -- (4) -- (4)
30,000 4.38% $3.06 July 14, 2010 -- (4) 32,142
Greg Adams 40,000 5.84% $9.00 January 26, 2010 -- (4) -- (4)
30,000 4.38% $3.06 July 14, 2010 -- (4) 32,142
Jay Sears 40,000 5.84% $9.00 January 26, 2010 -- (4) -- (4)
25,000 3.65% $3.06 July 14, 2010 -- (4) 26,785
(1) Each option represents the right to purchase one share of common stock.
The options shown in this table were all granted under our 1999 Stock
Option Plan, as amended.
(2) In the year ended December 31, 2000, we granted options to employees to
purchase an aggregate of 684,750 shares of common stock.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5%
and 10% assumed annual rates of compounded stock price appreciation are
mandated by the rules of the SEC and do not represent our estimate or
projection of future common stock price growth. These amounts represent
certain assumed rates of appreciation in the value of our common stock
from the fair market value on the date of grant. Actual gains, if any,
on stock option exercises are dependent on the future performance of
the common stock and overall stock market conditions. The amounts
reflected in the table may not necessarily be achieved.
(4) Value less than zero (0).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth information concerning the exercise of stock
options during the fiscal year ended December 31, 2000 by each of the Named
Executive Officers and the fiscal year-end value of unexercised options. No
options were exercised by any of the Named Executive Officers during this
period.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2000 DECEMBER 31, 2000 (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Susan Strausberg................. 0 35,000 --- ---
Marc Strausberg.................. 0 35,000 --- ---
Tom Vos.......................... 263,334 106,666 $268,760 ---
Greg Adams....................... 80,576 114,424 --- ---
Jay Sears........................ 93,334 61,666 $87,347 ---
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(1) The fair market value of the common stock as of December 31, 2000 was
$1.594.
EMPLOYMENT AGREEMENTS
We entered into a five-year amended and restated employment agreement dated as
of May 6, 1999 with Susan Strausberg. The agreement extends automatically for an
additional year at the end of the initial term and each anniversary thereafter
unless 30-day prior notice of termination is provided by either Ms. Strausberg
or EDGAR Online. The agreement provides for an annual salary of $150,000, and an
annual bonus at the discretion of the Board. In the event there is a change of
control (as defined in the agreement) and Ms. Strausberg's employment is
terminated (either by her or the employer) within one year thereafter, Ms.
Strausberg will receive a severance benefit equal to the product of 2.99 times
the sum of (1) her then applicable annual base salary and (2) the average of her
last two annual cash bonuses. Additionally, the agreement contains non-compete
and non-solicitation provisions effective during the term of her employment and
for one year thereafter.
We entered into a five-year amended and restated employment agreement dated as
of May 6, 1999 with Marc Strausberg. The agreement extends automatically for an
additional year at the end of the initial term and each anniversary thereafter
unless 30-day prior notice of termination is provided by either Mr. Strausberg
or EDGAR Online. The agreement provides for an annual salary of $150,000, and an
annual bonus at the discretion of the Board. In the event there is a change of
control (as defined in the agreement) and Mr. Strausberg's employment is
terminated (either by him or the employer) within one year thereafter, Mr.
Strausberg will receive a severance benefit equal to the product of 2.99 times
the sum of (1) his then applicable annual base salary and (2) the average of his
last two annual cash bonuses. Additionally, the agreement contains non-compete
and non-solicitation provisions effective during the term of his employment and
for one year thereafter.
We have entered into a two-year employment agreement dated April 23, 1999 with
Tom Vos to serve as President and Chief Operating Officer. The agreement extends
automatically for an additional year at the end of the initial term and each
anniversary thereafter unless 30-day prior notice of termination is provided by
either Mr. Vos or EDGAR Online. The agreement provides Mr. Vos with an annual
salary of $125,000 and an annual bonus at the discretion of the Board. In
addition, if Mr. Vos remains employed by us at the end of the initial term, he
will be entitled to receive a retention bonus equal to two years of his then
applicable base salary, plus the average of his last two annual cash bonuses.
Mr. Vos will also receive a severance payment identical to the retention bonus
described above in the event there is a change of control (as defined in the
agreement) and Mr. Vos' employment is terminated (either by him or the employer)
within one year thereafter. Additionally, the agreement contains a non-compete
and non-solicitation provision effective during the term of his employment and
for one year thereafter.
We have entered into a three-year amended and restated employment agreement
dated May 3, 1999 with Greg Adams to serve as Chief Financial Officer. The
agreement extends automatically for an additional year at the end of the initial
term and each anniversary thereafter unless 30-day prior notice of termination
is provided by either Mr. Adams or EDGAR Online. The agreement provides Mr.
Adams with (1) an annual salary of $125,000, (2) an annual bonus at the
discretion of the Board, and (3) a $500 monthly car allowance. Mr. Adams also
received options to purchase (a) 109,000 shares of common stock at an exercise
price of $4.50 per share, which will vest 25% in year one and 75% in year two
and (b) 16,000 shares of common stock at the initial public offering price per
share, which will vest equally over a three-year period. In addition, the
agreement contains a severance
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arrangement whereby Mr. Adams is entitled to receive a payment in the event he
is terminated without cause of eighteen months salary if the termination occurs
at anytime following the eighteenth month of his employment. Additionally, the
agreement contains a non-compete and non-solicitation provision effective during
the term of his employment and for one year thereafter.
We entered into a two-year employment agreement dated as of October 1, 2000 with
Albert E. Girod. The agreement extends automatically for an additional year at
the end of the initial term and each anniversary thereafter unless 30-day prior
notice of termination is provided by either Mr. Girod or EDGAR Online. The
agreement provides for an annual salary of $150,000, and an annual bonus at the
discretion of the Board. In the event there is a change of control (as defined
in the agreement) and Mr. Girod's employment is terminated (either by him or the
employer) within one year thereafter, Mr. Girod will receive a severance benefit
equal to the product of 2.00 times the sum of (1) his then applicable annual
base salary and (2) the average of his last two annual cash bonuses.
Additionally, the agreement contains non-compete and non-solicitation provisions
effective during the term of his employment and for one year thereafter.
We have entered into an employment agreement dated May 19, 1997 with Jay Sears,
which may be terminated by either party upon 30-days prior notice. The agreement
provides Mr. Sears with an annual salary of $80,000 and an annual bonus at the
discretion of the Board. Mr. Sears' annual salary was increased to $100,000
effective August 1998 and $125,000 effective January 2000. If Mr. Sears'
employment is terminated without cause, we will pay him six months of his total
annual compensation. Additionally, the agreement contains non-compete and
non-solicitation provisions effective during the term of his employment and for
six months thereafter in the case of the non-compete provision and one year
thereafter in the case of the non-solicitation provision.
STOCK OPTION PLANS
EDGAR Online's currently active stock option plans include our 1996 Stock Option
Plan, 1999 Stock Option Plan, as amended, and 1999 Outside Directors Stock
Option Plan. Each of the plans, except for the 1999 Outside Directors Stock
Option Plan, provide for:
- the grant of incentive stock options and non-qualified stock
options; and
- the current administration of the plans by the Compensation
Committee.
The exercise price of options granted under each plan are determined by the
Compensation Committee, except that the exercise price of incentive stock
options must be at least as equal to the fair market value of EDGAR Online's
common stock on the date of grant. Each of the plans authorizes the Board to
provide for option vesting to accelerate and become fully vested in the event of
certain significant corporate transactions if the options are not assumed or
substituted by a successor corporation.
The 1996 Stock Option Plan (the "1996 Plan"), which provides for the granting of
options to purchase up to an aggregate of 800,000 shares of our authorized but
unissued common stock (subject to adjustment in certain cases, including stock
splits, recapitalization and reorganizations) to our officers, directors,
employees and consultants, was ratified and confirmed in November 1998. The 1999
Stock Option Plan (the "1999 Plan"), which provided for the granting of options
to purchase up to an aggregate of 800,000 shares of our authorized but unissued
common stock (subject to
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adjustment in certain cases, including stock splits, recapitalization and
reorganizations) to our officers, directors, employees and consultants, was
adopted in March 1999 and amended to increase the number of shares reserved for
issuance under the Plan from 800,000 to 1,400,000 at the Annual Shareholder
Meeting held on August 1, 2000. The 1996 and 1999 Stock Option Plans are
intended as an incentive to encourage stock ownership by officers and certain of
our other employees in order to increase their proprietary interest in our
continued growth and success and to encourage such employees to remain in the
employ of EDGAR Online.
No incentive stock option may be granted to an individual who, at the time the
option is granted, owns, directly or indirectly, stock possessing more than 10%
of the total combined voting power of all classes of our common stock, unless
(1) such option has an exercise price of at least 110% of the fair market value
of the common stock on the date of the grant of such option and (2) such option
cannot be exercised more than five years after the date it is granted.
Under the 1999 Outside Directors Stock Option Plan, there are up to 100,000
shares authorized for issuance. Each new non-employee director will be granted,
at the time of his or her appointment and on each third anniversary thereafter,
a nonstatutory option to purchase 7,500 shares of common stock. The exercise
price of each of these options will be equal to the fair market value of our
common stock on the date of grant. These options will vest equally over a
three-year period. Under the 1999 Outside Directors Stock Option Plan, our
existing non-employee directors will not be eligible for options grants until
the date of our annual stockholders' meeting to be held in 2002.
As of March 20, 2001, 800,000 options were authorized under the 1996 Plan and
options to purchase 753,500 shares were outstanding and 36,500 options were
available for future grants. As of March 20, 2001, 1,400,000 options were
authorized under the 1999 Plan, options to purchase 1,190,484 shares were
outstanding and 209,516 options were available for future grants. As of March
20, 2001, 100,000 options were authorized under the 1999 Outside Directors Stock
Option Plan, no options to purchase shares had been granted and 100,000 options
were available for future grants. As of March 20, 2001, 100,000 options were
authorized under the FreeEDGAR Stock Option Plan and no shares were available
for future grant under the FreeEDGAR Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationships exist between any members of EDGAR Online's Board
of Directors or Compensation Committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past. The Company has business and financial
relationships with Globix Corporation and iXL Enterprises, Inc. Marc Bell, a
director of the Company until October 27, 2000, is the President and Chief
Executive Officer of Globix Corporation. Stefan Chopin is a Vice President of
iXL Enterprises, Inc. Our relationships with Globix and iXL are described below.
Globix
In July 1998, we issued a 10% convertible debenture in the principal amount of
$1,000,000 to Globix Corporation along with warrants to purchase 666,667 shares
of common stock at an exercise price of $1.50 per share. The terms of the
transaction were determined as the result of arm's length bargaining between the
parties. As part of this transaction, our agreement with Bowne was amended to
modify certain of Bowne's rights and to include Globix as a party, thereby
providing Globix with the same
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anti-dilution rights, tag-along rights and Board participation rights as Bowne.
In May 1999, Globix converted its debenture and exercised its warrants, thereby
acquiring 1,336,667 shares of our common stock. In July 1998, we also entered
into a five-year hosting contract with Globix that requires us to co-locate our
Internet servers at the Globix facility in New York City. During 2000, 1999 and
1998, we paid Globix a total of $298,042, $546,111, and $6,513, respectively,
under this contract. We believe that the terms of our agreements with Globix are
beneficial to EDGAR Online and no less favorable to EDGAR Online than terms
which might be available to us from unaffiliated third parties.
Pequot Systems (iXL)
EDGAR Online and Pequot Systems ("Pequot") shared equally the costs of a single
lease on 6,600 square feet of space. We occupy half of this space and were
jointly obligated with Pequot on the lease. This arrangement with Pequot ended
in June 1999, when we entered into a separate lease for our facilities in
Norwalk, Connecticut. Since our inception, we have outsourced our technology
development to Pequot. During 1995, in partial payment for services rendered,
Pequot received warrants to purchase shares of common stock at an exercise price
of $.05 per share. The warrants were exercised in May 1997. In March 1998,
Pequot agreed to accept shares of our common stock valued at $1.25 per share in
partial payment for services rendered. As a result of these two transactions,
Pequot received 359,384 shares of common stock. In 2000, 1999 and 1998, we paid
Pequot a total of $2,725,770, $989,368 and $610,073, respectively, for services
provided. As a result of the acquisition of Pequot by iXL, an unrelated company,
in 1998, the shares owned by Pequot were transferred to Pequot's founders,
including Stefan Chopin, the founder and President of Pequot. Mr. Chopin has
been a member of our Board of Directors since 1996. We believe that the terms of
our agreements with Pequot are beneficial to EDGAR Online and no less favorable
to EDGAR Online than terms which might be available to us from unaffiliated
third parties.
DIRECTOR COMPENSATION
No cash compensation has ever been paid to any of the directors of EDGAR Online
for service in such capacity. However, directors are currently eligible to
receive stock options every three years under EDGAR Online's 1999 Stock Option
Plan. In March 1999, each of our non-employee directors was granted options to
purchase 10,000 shares of common stock at an exercise price of $4.50 per share.
In August 2000, each of our non-employee directors was granted options to
purchase 7,500 shares of common stock at an exercise price of $3.50 per share.
Non-employee directors of EDGAR Online will be eligible to receive
non-discretionary, automatic grants of options to purchase common stock as part
of our 1999 Outside Directors Stock Option Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 20, 2001 by (1) each of our
directors, including our Chief Executive Officer, (2) our four most highly
compensated executive officers, other than our Chief Executive Officer, who were
serving as executive officers at the end of 2000, (3) all our executive officers
and directors as a group and (4) each person who we know owns beneficially more
than 5% of our common stock. Unless otherwise indicated, the address of each
beneficial owner listed below is c/o EDGAR Online, Inc., 50 Washington Street,
Norwalk, CT 06854.
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NUMBER PERCENT
OF OF
NAME OF BENEFICIAL OWNER SHARES (1) CLASS
Executive Officers and Directors:
Susan Strausberg (2)....................... 3,063,426 20.55%
Marc Strausberg (3)........................ 3,063,426 20.55%
Tom Vos (4)................................ 428,333 2.87%
Greg Adams (5) ............................ 200,791 1.35%
Albert E. Girod............................ 2,082,500 13.97%
Jay Sears (6).............................. 98,334 *
Stefan Chopin (7)(8)....................... 299,384 2.01%
c/o iXL Enterprises, Inc.
50 Washington Street
Norwalk, CT 06854
Bruce Bezpa (8)............................ 12,381 *
405 Patton Avenue
Piscataway, NJ 08854
Mark Maged (8)............................. 29,310 *
c/o Internet Tradeline, Inc.
111 West 40th Street
New York, NY 10018
Marc Bell (9).............................. 986,242 6.62%
c/o Globix Corporation
295 Lafayette Street
New York, NY 10012
All executive officers and directors
as a group (10 persons)........... 7,206,034 48.33%
Other 5% Stockholders:
Globix Corporation......................... 986,242 6.62%
295 Lafayette Street
New York, NY 10012
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Bowne & Co., Inc........................... 1,000,000 6.71%
345 Hudson Street
New York, NY 10014
Par Investment Partners, L.P............... 934,000 (10) 6.26%
One Financial Center, Ste 1600
Boston, MA 02111
Hathaway & Associates, Ltd................. 819,500 (11) 5.50%
119 Rowayton Avenue
Rowayton, CT 06853
- ---------------------------
* Represents beneficial ownership of less than 1%.
(1) Shares of common stock subject to options currently exercisable or
exercisable within 60 days of March 20, 2001 are deemed outstanding for
the purpose of computing the percentage ownership of the person holding
such options but are not deemed outstanding for computing the
percentage ownership of any other person. Unless otherwise indicated
below, the persons and entities named in this table have sole voting
and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
(2) Includes 156,000 shares owned by Ms. Strausberg's husband, Marc
Strausberg, EDGAR Online's Chairman of the Board and 2,751,426 shares
owned by TheBean LLC. Ms. Strausberg is a managing member of TheBean
LLC and as such she may be deemed to be the beneficial owner of all the
shares held by TheBean LLC. Ms. Strausberg disclaims beneficial
ownership of the shares owned by her husband.
(3) Includes 156,000 owned by Mr. Strausberg's wife, Susan Strausberg,
EDGAR Online's Chief Executive Officer and 2,751,426 shares owned by
TheBean LLC. Mr. Strausberg is a managing member of TheBean LLC and as
such he may be deemed to be the beneficial owner of all the shares held
by TheBean LLC. Mr. Strausberg disclaims beneficial ownership of the
shares owned by his wife.
(4) Includes 288,333 shares issuable upon exercise of options exercisable
within 60 days of March 20, 2001.
(5) Includes 135,076 shares issuable upon exercise of options exercisable
within 60 days of March 20, 2001.
(6) Includes 98,334 shares issuable upon exercise of options exercisable
within 60 days of March 20, 2001.
(7) Includes shares owned jointly with Barbara Chopin, his wife.
(8) Includes 6,667 shares issuable upon exercise of options exercisable
within 60 days of March 20, 2001.
(9) Includes 986,242 shares owned by Globix Corporation. Mr. Bell is the
President and Chief Executive Officer of Globix Corporation. In such
capacities, Mr. Bell may be deemed to be the
(10) Reflects amount derived from this entity's Schedule 13G filed with the
SEC on February 14, 2001.
(11) Reflects amount derived from this entity's Schedule 13G filed with the
SEC on January 5, 2001 and subsequent communication with such entity.
40
42
beneficial owner of such shares, although he disclaims beneficial
ownership except to the extent of his pecuniary interest, if any. Mr.
Bell resigned from the Board of Directors on October 27, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Employee Loans
In January 2001, we loaned the sum of $400,000 to certain executives, employees
and outside directors of the Company for the purpose of purchasing shares of our
common stock from TheBean LLC, an entity in which Susan Strausberg, our Chief
Executive Officer and Marc Strausberg, our Chairman of the Board are beneficial
owners. The common stock was purchased at a price of $1.75 per share, the
closing Nasdaq market price on the date of sale. The loan was evidenced by
separate loan and pledge agreements with, and three-year promissory notes of,
each of the borrowers. The promissory notes are full recourse and secured by
the common stock purchased with the proceeds of the individual loans. The
executive officers and outside directors participating in this transaction were
Tom Vos ($175,000 Note and 100,000 shares), Greg Adams ($115,001 Note and
65,715 shares), Bruce Bezpa ($10,001 Note and 5,715 shares) and Mark Maged
($30,000 Note and 17,143 shares).
Globix Corporation
For information regarding our relationship with Globix, see "Item 11. Executive
Compensation -- Compensation Committee Interlocks and Insider Participation."
Pequot Systems (iXL)
For information regarding our relationship with iXL, see "Item 11. Executive
Compensation - Compensation Committee Interlocks and Insider Participation."
Susan Strausberg And Marc Strausberg
From time to time, we have received cash loans from and have made cash advances
to Susan Strausberg and Marc Strausberg, our founders. These loans bear interest
at the prime rate applied to the net outstanding balance. The net amounts owed
to EDGAR Online as of December 31, 2000 and 1999 were $269,206 and $0
respectively. As of March 20, 2001, EDGAR Online owed Susan Strausberg and Marc
Strausberg the sum of $128,623.
41
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------
2.1 Agreement and Plan of Merger dated as of September 10, 1999
among EDGAR Online, Inc., FreeEDGAR Acquisition Corp. and
FreeEDGAR.com, Inc. (7)
2.2 Agreement and Plan of Merger dated as of October 18, 2000
among Registrant, FIS Acquisition Corp., Financial Insight
Systems, Inc. and the Principal Stockholders named therein.
(6)
3.01 Certificate of Incorporation (1)
3.02 Amended and Restated Certificate of Incorporation (2)
3.03 Bylaws (2)
4.01 Form of Specimen Stock Certificate for Registrant's Common
Stock (2)
4.02 10% Convertible Subordinated Debenture due 2001(1)
4.03 Warrant to Purchase Common Stock (1)
10.01 Form of Indemnity Agreement to be entered into between the
Registrant with each of its directors and executive officers
(2)
10.02 1996 Stock Option Plan (1)
10.03 1999 Stock Option Plan (2)
10.04 1999 Outside Directors Stock Option Plan (2)
10.05 Amended and Restated Employment Agreement dated as of May 6,
1999 between the Registrant and Marc Strausberg (2)
10.06 Amended and Restated Employment Agreement dated as of May 6,
1999 between the Registrant and Susan Strausberg (2)
10.07 Employment Agreement, dated as of April 23, 1999, between the
Registrant and Tom Vos(2)
10.08 Employment Agreement, dated as of May 3, 1999, between the
Registrant and Greg Adams (2)
10.09 Employment Agreement, dated as of March 11, 1997, between the
Registrant and Brian Fitzpatrick(2)
10.10 Employment Agreement, dated as of May 19, 1997, between the
Registrant and Jay Sears (2)
10.11 Employment Agreement, dated as of May 3, 1999, between
Registrant and David Trenck (2)
10.12 Securities Purchase Agreement, dated as of July 23, 1998 by
and between the Registrant and Globix Corporation (1)
10.13 Form of Registration Rights Agreement for December 1998
Investors (2)
10.14 Form of Subscription Agreement, including registration rights,
for March 1999 Investors(2)
10.15 Lease Agreement, dated April 4, 1997 by and between 50
42
44
EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------
Washington Street Realty Corp., Pequot Systems, Inc. and the
Registrant (1)
10.16 Dissemination Services Agreement dated September 11, 1998 by
and between TRW, Inc. and the Registrant (1)
10.17 Trademark License Agreement dated March 26, 1999 between the
U.S. Securities and Exchange Commission and the Registrant (2)
10.18 Agreement dated March 1, 1998 by and between the Registrant
and Pequot Systems, Inc. (2)
10.19 Form of Content License Agreement (2)
10.20 Restated Equity Purchase Agreement by and among the
Registrant, Bowne & Co., Inc., Globix Corporation, Marc
Strausberg, Susan Strausberg and Michael Horowitz (2)
10.21 Procurement and Trafficking Agreement dated August 29, 1997
by and between the Registrant and DoubleClick Inc. (3)
10.22 Agreement dated July 23, 1998 by and between the Registrant
and Globix Corporation with annexed Co-location Service
Agreement (3)
10.23 Agreement of Lease, dated June 7, 1999, by and between Sono
Equities LLC and 1122 Associates LLC, as Owner, and the
Registrant, as Tenant. (4)
10.24 Office Lease Agreement, dated January 28, 2000, by and between
Yett Family Partnership, L.P. and the Registrant, regarding
10628 NE 37th Circle, Kirkland, Washington. (4)
10.25 Office Lease Agreement, dated January 28, 2000, by and between
Yett Family Partnership, L.P. and the Registrant, regarding
10635 NE 38th Place, Kirkland, Washington. (4)
10.26 Office Building Lease Agreement, dated February 7, 2000,
between 122 East 42nd Street LLC and Registrant. (5)
10.27 Employment Agreement, dated as of October 1, 2000, between the
Registrant and Albert E. Girod. (6)
10.28 Office Building Lease Agreement, dated July 1, 1998, as
amended September 24, 1998 by and between OTR and Financial
Insight Systems, Inc. regarding 11200 Rockville Pike, Suite
310, Rockville Maryland.
17.1 Resignation Letter of Marc Bell (6)
21.1 Subsidiaries of EDGAR Online, Inc.
- ------------
(1) Incorporated by reference to exhibit with corresponding number
filed with the registrant's Registration Statement on Form S-1
(the "Registration Statement"), as filed with the Commission
on March 30, 1999.
(2) Incorporated by reference to exhibit with corresponding number
filed with Amendment No.1 to the Registration Statement, as
filed with the Commission on May 7, 1999.
(3) Incorporated by reference to exhibit with corresponding number
filed with Amendment No.2 to the Registration Statement, as
filed with the Commission on May 19, 1999.
(4) Incorporated by reference to exhibit with corresponding number
filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999.
(5) Incorporated by reference to exhibit with corresponding number
filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000.
(6) Incorporated by reference to exhibit with corresponding number
filed with Registrant's Current Report on Form 8-K dated
November 9, 2000.
43
45
(7) Incorporated by reference to exhibit with corresponding number
filed with Registrant's Current Report on Form 8-K dated
September 24, 1999.
(b) REPORTS ON FORM 8-K --
Reports on Form 8-K, dated October 20, 2000 and November 9, 2000 filed with
the Securities and Exchange Commission reporting our acquisition of
Financial Insight Systems, Inc. pursuant to the terms and conditions of an
Agreement and Plan of Merger. Report on Form 8-K dated October 27, 2000
filed with the Securities and Exchange Commission reporting third quarter
operating results.
(c) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The consolidated financial statements of the Company filed as part of this Form
10-K are filed on pages F-1 to F-22 to this Form 10-K. The financial statement
schedule required by Regulation S-X follows.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
EDGAR ONLINE, INC.
FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
Description Beginning Costs and Other End of
of Period Expenses Accounts Deductions(1) Period
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts Receivable
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 $22,500 62,207 -- (53,165) 31,542
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 $31,542 84,000 154,661 (82,311) 187,892
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000 $187,892 245,000 57,375 (145,583) 344,684
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Write-offs of receivables.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required under the related instructions or are inapplicable, or
because the information has been provided in the Financial Statement or the
Notes thereto.
44
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EDGAR Online, Inc.
By: /s/ SUSAN STRAUSBERG
Susan Strausberg
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
/s/ SUSAN STRAUSBERG Chief Executive Officer, March 29, 2001
- -------------------------- and Director
Susan Strausberg
/s/ GREG D. ADAMS Chief Financial Officer March 29, 2001
- --------------------------
Greg D. Adams
/s/ MARC STRAUSBERG Chairman of the Board March 29, 2001
- --------------------------
Marc Strausberg
/s/ TOM VOS President, Director March 29, 2001
- --------------------------
Tom Vos
/s/ ALBERT E. GIROD Chief Technology Officer, March 29, 2001
- -------------------------- Executive Vice President
Albert E. Girod and Director
/s/ STEFAN CHOPIN Director March 29, 2001
- --------------------------
Stefan Chopin
/s/ MARK MAGED Director March 29, 2001
- --------------------------
Mark Maged
/s/ BRUCE BEZPA Director March 29, 2001
- --------------------------
Bruce Bezpa
45
47
EDGAR ONLINE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the Years ended
December 31, 2000, 1999, and 1998 F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Years ended December 31, 2000, 1999, and 1998 F-5
Consolidated Statements of Cash Flows for the Years
ended December 31, 2000, 1999, and 1998 F-6
Notes to Consolidated Financial Statements F-7
48
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EDGAR Online, Inc.:
We have audited the accompanying consolidated balance sheets of EDGAR Online,
Inc. as of December 31, 2000 and 1999 and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for each
of the years in the three-year period ended December 31, 2000. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule listed under Item 14(c). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EDGAR Online, Inc.
and subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents, fairly, in all
material respects, the information set forth therein.
KPMG LLP
Stamford, CT
February 1, 2001
F-2
49
EDGAR ONLINE, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 December 31, 1999
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,283,811 $ 10,051,473
Available-for-sale investments 1,497,930 14,534,836
Accounts receivable, less allowance for
doubtful accounts of $344,684 and $187,892 respectively 2,790,277 1,117,636
Income tax receivable 979,500 --
Other current assets 127,078 407,048
------------- -------------
Total current assets 7,678,596 26,110,993
Property and equipment, net 3,355,823 2,024,431
Intangible assets 27,306,891 9,303,948
Investments 575,000 278,167
Employee loans and advances 270,225 --
Other assets 279,824 21,575
------------- -------------
Total assets $ 39,466,359 $ 37,739,114
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,191,281 $ 722,436
Accrued expenses 1,166,858 1,426,568
Deferred revenues 965,916 353,905
Capital lease payable, current portion 67,821 78,235
Current portion of notes payable 507,785 --
Accrued interest 75,000 --
------------- -------------
Total current liabilities 3,974,661 2,581,144
Capital lease obligation, long-term 8,297 71,587
Notes payable, long-term 6,000,000 --
------------- -------------
Total liabilities 9,982,958 2,652,731
Stockholders' equity
Common stock, $0.01 par value, 30,000,000 shares authorized, 14,908,917 and
12,457,989 shares issued and outstanding at December 31, 2000 and 1999,
respectively 149,089 124,580
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares
issued or outstanding -- --
Additional paid-in capital 53,483,008 43,915,642
Unrealized holding losses (2,070) (44,518)
Accumulated deficit (24,146,626) (8,909,321)
------------- -------------
Total stockholders' equity 29,483,401 35,086,383
------------- -------------
Total liabilities and stockholders' equity $ 39,466,359 $ 37,739,114
============= =============
See accompanying notes to consolidated financial statements.
F-3
50
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------------------
2000 1999 1998
------------ ----------- -----------
Revenues:
Corporate contract revenue $ 4,691,651 $ 1,116,358 $ 311,609
Individual subscription revenue 2,171,848 1,427,834 876,146
Advertising revenue 1,676,594 1,060,702 292,360
Barter advertising revenue 1,182,708 983,611 263,440
Other barter revenue 18,868 142,109 79,000
------------ ----------- -----------
9,741,669 4,730,614 1,822,555
------------ ----------- -----------
Cost of revenues:
Software and Web site development 1,838,907 505,974 356,035
Barter advertising expense 1,182,708 983,611 263,440
------------ ----------- -----------
3,021,615 1,489,585 619,475
------------ ----------- -----------
Gross profit 6,720,054 3,241,029 1,203,080
Operating expenses:
Sales and marketing 4,582,809 2,328,113 401,771
General and administrative 6,278,231 4,094,421 2,346,621
Product development 2,377,433 841,590 426,854
Amortization and depreciation 3,484,491 893,614 116,767
Writedown of intangible assets 6,151,074 -- --
------------ ----------- -----------
22,874,038 8,157,738 3,292,013
------------ ----------- -----------
Loss from operations (16,153,984) (4,916,709) (2,088,933)
Interest income 1,055,273 903,256 5,618
Interest expense and other, net (81,155) (149,158) (137,909)
------------ ----------- -----------
Loss before income taxes (15,179,866) (4,162,611) (2,221,224)
Income tax expense 57,439 250 250
------------ ----------- -----------
Net loss $(15,237,305) $(4,162,861) $(2,221,474)
============ =========== ===========
Basic and diluted net loss per share $ (1.18) $ (0.42) $ (0.36)
============ =========== ===========
Basis and diluted weighted average shares outstanding 12,862,604 9,805,456 6,129,116
============ =========== ===========
See accompanying notes to consolidated financial statements.
F-4
51
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ADDITIONAL
----------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ----------- ------------
Balance at December 31, 1997 6,074,000 $ 60,740 $ 875,435 $ (2,524,986)
Exercise of warrants 53,957 540 49,461 --
Issuance of common stock 103,333 1,033 143,967 --
Issuance of common stock in satisfaction of trade payable 100,000 1,000 124,000 --
Stock compensation expense -- -- 1,133,000 --
Issuance of warrants for services provided and debt financing -- -- 136,338 --
Net loss -- -- -- (2,221,474)
---------- -------- ----------- ------------
Balance at December 31, 1998 6,331,290 63,313 2,462,201 (4,746,460)
Comprehensive loss:
Net loss -- -- -- (4,162,861)
Other comprehensive loss:
Unrealized loss on investments -- -- -- --
Total comprehensive loss
Issuance of common stock 240,000 2,400 1,052,850 --
Initial Public Offering, net of issuance costs 3,600,000 36,000 30,362,794 --
Issuance of common stock in satisfaction of notes payable 670,000 6,700 935,488 --
Exercise of stock options and warrants 707,822 7,078 1,013,379 --
Issuance of common stock in connection with a purchase
business combination 908,877 9,089 7,795,892 --
Issuance of stock options and warrants in connection with
purchase business combination -- -- 259,176 --
Issuance of warrants for services provided -- -- 26,197 --
Stock compensation expense -- -- 7,665 --
---------- -------- ----------- ------------
Balance at December 31, 1999 12,457,989 124,580 43,915,642 (8,909,321)
Comprehensive loss:
Net loss -- -- -- (15,237,305)
Other comprehensive loss:
Unrealized gain on investments -- -- -- --
Total comprehensive loss
Issuance of common stock in connection with a purchase
business combination 2,450,000 24,500 9,555,000 --
Exercise of stock options 928 9 2,366 --
Stock compensation expense -- -- 10,000 --
---------- -------- ----------- ------------
Balance at December 31, 2000 14,908,917 $149,089 $53,483,008 $(24,146,626)
========== ======== =========== ============
See accompanying notes to consolidated financial statements.
F-5
52
UNREALIZED HOLDING
GAIN/LOSS TOTAL
------------------ ------------
Balance at December 31, 1997 -- $ (1,588,811)
Exercise of warrants -- 50,001
Issuance of common stock -- 145,000
Issuance of common stock in satisfaction of trade payable -- 125,000
Stock compensation expense -- 1,133,000
Issuance of warrants for services provided and debt financing -- 136,338
Net loss -- (2,221,474)
------------ ------------
Balance at December 31, 1998 -- (2,220,946)
Comprehensive loss:
Net loss -- (4,162,861)
Other comprehensive loss:
Unrealized loss on investments (44,518) (44,518)
------------
Total comprehensive loss (4,207,379)
------------
Issuance of common stock -- 1,055,250
Initial Public Offering, net of issuance costs
-- 30,398,794
Issuance of common stock in satisfaction of notes payable
-- 942,188
Exercise of stock options and warrants -- 1,020,457
Issuance of common stock in connection with a purchase
business combination -- 7,804,981
Issuance of stock options and warrants in connection with a
purchase business combination
-- 259,176
Issuance of warrants for services provided
-- 26,197
Stock compensation expense -- 7,665
------------ ------------
Balance at December 31, 1999 (44,518) 35,086,383
Comprehensive loss:
Net loss -- (15,237,305)
Other comprehensive loss:
Unrealized gain on investments
42,448 42,448
------------
Total comprehensive loss -- (15,194,857)
------------
Issuance of common stock in connection with a purchase -- 9,579,500
business combination
Exercise of stock options -- 2,375
Stock compensation expense -- 10,000
------------ ------------
Balance at December 31, 2000 $ (2,070) $ 29,483,401
============ ============
See accompanying notes to consolidated financial statements.
F-5
(continued)
53
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------------
2000 1999 1998
------------ ------------ -----------
Cash flow from operating activities:
Net loss $(15,237,305) $ (4,162,861) $(2,221,474)
Adjustments to reconcile net loss
to net cash used in operating activities:
Stock compensation expense 10,000 7,665 1,133,000
Depreciation 949,480 312,431 116,767
Accretion and amortization of debt discount -- 14,000 17,118
Amortization of intangibles 2,535,011 581,183 --
Write-down of intangible assets 6,151,074 -- --
Provisions for bad debt 106,792 146,428 62,207
Non-cash service revenue, net -- (33,251) (8,620)
Changes in assets and liabilities:
Accounts receivable (761,236) (1,077,684) (147,932)
Other, net 36,407 (324,315) 13,096
Accounts payable and accrued expenses (976,343) 973,865 (205,419)
Accrued interest 75,000 (133,804) 133,804
Due to employee -- (14,575) 14,575
Due to officers, net (269,425) (644,023) 95,137
Deferred revenues 390,521 84,504 130,096
------------ ------------ -----------
Total adjustments 8,247,281 (107,576) 1,353,829
------------ ------------ -----------
Net cash used in operating activities (6,990,024) (4,270,437) (867,645)
------------ ------------ -----------
Cash flow from investing activities:
Purchase of available-for-sale investments (7,010,000) (16,079,354) --
Sale of available-for-sale investments 20,089,354 1,500,000 --
Purchase of other investments (520,000) (283,000) --
Capital expenditures (1,443,828) (1,023,419) (78,127)
Cash portion of purchase price of business combinations (12,265,000) (968,355) --
Net cash acquired in business combination 443,166 41,346 --
------------ ------------ -----------
Net cash used in investing activities (706,308) (16,812,782) (78,127)
------------ ------------ -----------
Cash flow from financing activities:
Proceeds from issuance of common stock 2,374 35,280,333 155,000
Proceeds upon exercise of stock options and warrants -- 1,020,457 50,001
Proceeds from issuance of notes payable -- -- 1,000,000
Costs incurred in connection with the sales of common stock -- (3,826,289) (10,000)
Principal payments on notes payable -- (1,419,879) --
Payments on capital lease obligations (73,704) (68,310) (28,218)
Cost incurred in connection with debt financing -- -- (89,440)
------------ ------------ -----------
Net cash provided by (used in) financing activities (71,330) 30,986,312 1,077,343
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalent (7,767,662) 9,903,093 131,571
Cash and cash equivalents at beginning of year 10,051,473 148,380 16,809
------------ ------------ -----------
Cash and cash equivalents at end of year $ 2,283,811 $ 10,051,473 $ 148,380
============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Taxes 2,439 250 250
Interest 21,832 21,689 7,751
Fair value of securities issued in connection with purchase business
combination 9,579,500 8,064,157 --
Accounts payable settled upon issuance of common stock -- -- 125,000
Notes payable settled in exchange for services provided -- 59,448 42,250
Stock warrants issued in exchange for services provided -- 26,197 33,630
Equipment acquired under capital lease -- 82,662 163,688
See accompanying notes to consolidated financial statements.
F-6
54
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(1) DESCRIPTION OF BUSINESS
EDGAR Online, Inc. (EDGAR Online or the Company), formerly Cybernet Data
Systems, Inc., was incorporated in the State of Delaware in November 1995 and
launched its "EDGAR Online" Internet Web site in January 1996. EDGAR Online is a
global business-to-business and Web-based provider of business, financial and
competitive information derived from U.S. Securities and Exchange Commission
(SEC) data and, as a result of our acquisition of Financial Insight Systems,
Inc. in October 2000 a developer of Internet-based financial and business
system solutions. The Company sells to the corporate market and Internet portals
as well as running six destination Web sites. The Company has entered into
several arrangements with other Internet service providers to market financial
information services.
Inherent in the Company's mission are various risks and uncertainties, including
its limited operating history, unproven business model and the limited history
of commerce on the Internet. The Company's success may depend in part upon the
emergence and acceptance of the Internet as a communication and information
medium, prospective project development efforts and the acceptance by the market
place of the Company's products and services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
Revenue from subscriptions and corporate contracts are recognized either over
the subscription period, which is typically one, three, six or twelve months
or, in the case of certain up-front fees, over the estimated customer
relationship period. Revenue from consulting services and advertising is
recognized as the services are provided.
(b) BARTER TRANSACTIONS
Barter advertising revenue is non-cash and relates to advertising placed on the
Company's Web site by other Internet service providers. Barter advertising
expense is non-cash and relates to Company advertising placed on the Web sites
of other Internet service providers. The amount of barter advertising revenue
and expense is recorded at the estimated fair value of the services received or
the services provided, whichever is more objectively determinable.
During 2000, 1999, and 1998, the Company also received computer equipment and
publication advertisements in exchange for use of the Company's Web site
services. The Company accounts for such barter transactions at the estimated
fair value of goods or services received or services provided, whichever is more
objectively determinable. Barter revenues related to the computer equipment
barter transaction and the publication advertisements are recognized ratably
over the term of the contract. Barter expense related to the publications
advertisements transaction is recognized ratably over the year, which
approximates the timing of the publications printing. Expense for the computer
equipment exchange is recognized as depreciation expense over the useful lives
of the assets.
The Company expects that barter transactions will represent a increasing smaller
percentage of total activity in the future.
F-7
55
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(c) WEB SITE DEVELOPMENT COSTS
In accordance with Emerging Task Force Issue No. 2000-2, "Accounting for Web
Site Development Costs", and Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1),
the Company capitalizes certain Web site costs for computer software developed
or obtained for internal use. Capitalized software development costs totaled
$422,373 and $85,525 at December 31, 2000 and 1999, respectively, and are being
amortized over their estimated useful life of three years.
Prior to January 1, 1999, substantially all Web site development costs were
expensed as incurred.
(d) CASH AND CASH EQUIVALENTS
The Company considers cash and all highly liquid investments with original
maturities of ninety days or less to be cash and cash equivalents.
(e) AVAILABLE-FOR-SALE INVESTMENTS
The Company's investments comprise government and corporate obligations and
foreign and domestic marketable securities. At December 31, 2000 and 1999, all
of the Company's investments were classified as available-for-sale and,
accordingly, unrealized gains and losses are included as a separate component of
shareholders' equity, net of any related tax effect. Realized gains and losses
are recognized on the specific identification basis.
(f) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost or at estimated fair value if part of
a barter transaction. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets, generally three to seven
years. Leasehold improvements are amortized using the straight-line method over
the estimated useful lives of the assets or the term of the leases, whichever is
shorter.
(g) LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This Statement requires that long-lived assets and certain intangibles assets,
including goodwill, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the discounted cash flows of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
F-8
56
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(h) ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. Advertising expenses were
$2,473,213, $1,022,664 and $123,699 for the years ended December 31, 2000, 1999,
and 1998, respectively.
(i) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and for operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
(j) DEFERRED FINANCING COSTS
Deferred financing costs related to the issuance on a convertible debenture and
was being amortized over the term of the related debt, using the effective
interest method. Amortization expense was $77,018 and $12,422 for the years
ended December 31, 1999 and 1998, respectively.
(k) STOCK-BASED TRANSACTIONS
The Company accounts for stock-based transactions in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation". In accordance with SFAS No. 123,
the Company has elected to measure stock-based employee compensation
arrangements in accordance with the provisions of Accounting Principles Board
(APB) No. 25, "Accounting for Stock Issued to Employees," and comply with the
disclosure provisions of SFAS No. 123. Under APB No. 25, compensation cost is
recognized based on the difference, if any, on the date of grant between the
fair value of the Company's common stock and the exercise price. The Company
accounts for the issuance of equity instruments to non-employees in exchange for
services at either the fair value of the equity instrument given or the fair
value of the services rendered, whichever is more reliably measurable.
(l) CONCENTRATION OF RISK AND FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of accounts receivable. The most
significant concentration of credit risk relates to NASDAQ, which comprised 31%
and 0%, and DoubleClick, which comprised 14% and 53% of the Company's total
gross receivable balance at December 31, 2000 and 1999, respectively. No other
customer accounted for more than 10% of accounts receivable at December 31, 2000
or 1999. The Company's other customers are geographically dispersed throughout
the United States with no one customer accounting for more than 10% of sales
during 2000, 1999 or 1998. In addition, the Company has not experienced any
significant credit losses to date from any one customer.
The fair value of the Company's cash and cash equivalents, accounts receivable,
accounts payable
F-9
57
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
and accrued liabilities at December 31, 2000 and 1999, approximate their
financial statement carrying value because of the short-term maturity of these
instruments. The fair values of the Company's long-term obligations are
discussed in note 7.
(m) LOSS PER SHARE
Loss per share is presented in accordance with the provisions of SFAS No. 128,
"Earnings Per Share", and the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 98. Under SFAS No. 128, Basic EPS excludes dilution for
common stock equivalents and is computed by dividing income or loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
and resulted in the issuance of common stock. Basic earnings per share are
computed using the weighted average number of common shares outstanding during
the period.
Diluted loss per share has not been presented separately, as the outstanding
stock options, warrants and convertible debentures are anti-dilutive for each of
the periods presented.
Anti-dilutive potential common shares outstanding were 523,293, 1,047,207 and
653,400, for the years ended December 31, 2000, 1999, and 1998, respectively.
(n) BUSINESS SEGMENTS
In June 1997, the Financial Accounting Standard Board (FASB) issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information". SFAS
No. 131 establishes standards for the way that public business enterprises
report information about operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company has determined that it does not have any separately
reportable business segments.
(o) COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" during 1998. SFAS No. 130 requires the Company to report in its
financial statements, in addition to its net income (loss), comprehensive income
(loss), which includes all changes in equity during a period from non-owner
sources including, as applicable, foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments in
debt and equity securities. Comprehensive income (loss) is presented within the
statement of changes in stockholders' equity (deficit).
(p) USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates impacting the financial statements include the allowance
for doubtful accounts, recoverability assessments and useful lives of goodwill
and other long-lived assets, fair value of barter arrangements, and the length
of certain customer relationships. Actual results could differ from those
estimates.
F-10
58
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(q) RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the FASB issued Interpretation No. 44 "Accounting For Certain
Transactions Involving Stock Compensation--An Interpretation Of APB Opinion No
.25." This interpretation provides guidance on the application of APB Opinion
No. 25, including (i) the definition of an employee, (ii) the criteria for
determining whether a plan qualifies as a non-compensatory plan, (iii) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award and (iv) the accounting for an exchange of stock
compensation award in a business combination. This interpretation is effective
July 1, 2000 and the effects of applying the interpretation are recognized on a
prospective basis. The adoption of this interpretation did not have a material
impact on the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. During June 1999, SFAS No. 137 was issued which delayed the
effective date of SFAS No. 133. SFAS No. 137 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company does not
expect this statement to affect the Company, as it does not have any derivative
instruments or hedging activities.
(r) RECLASSIFICATIONS
During the third quarter of 1999, development expenses were reclassified to
operating expenses from cost of revenues. In addition, during the first quarter
of 2000, the Company began recording certain advertising revenues net of the
related commissions and amounts previously recorded as stock compensation
expense have been reported within the functional expense category for which the
employee worked. Prior comparative amounts have been reclassified to conform to
the year 2000 presentation
(3) ACQUISITIONS
On October 30, 2000, the Company acquired all the outstanding equity of
Financial Insight Systems, Inc. (FIS), pursuant to the terms and conditions of
an agreement and plan of merger dated October 18, 2000 for approximately $27.9
million. The purchase price included (1) the issuance of 2,450,000 restricted
shares of EDGAR Online common stock valued at approximately $9.6 million, (2)
the payment of $17,765,000 consisting of (i) a cash payment of $11,765,000 and
(ii) a series of two year 7.5% senior subordinated secured promissory notes in
the total principal amount of $6,000,000 and (3) approximately $0.6 million in
cash for the payment of fees and acquisition related expenses.
F-11
59
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
The aggregate purchase price of $27,931,038 has been allocated to the purchased
assets and liabilities based on their relative fair market values at the date of
acquisition. The following summarizes the allocation:
Cash $ 443,166
Accounts receivable 1,018,197
Income taxes recoverable 979,500
Fixed assets 837,043
Other assets 14,686
Accounts payable and accrued expenses (1,225,648)
Intangible assets 25,864,094
------------
Total purchase price $ 27,931,038
The Company is in the process of finalizing valuations that will be used in the
assignment of the FIS excess purchase price to certain intangible assets
acquired and to goodwill. At December 31, 2000, this valuation was not
completed, and the entire FIS excess purchase price has been included within
intangible assets in the accompanying balance sheet. The asset is being
amortized using a useful life of ten years, the estimated blended useful life of
the excess purchase price.
A one year difference in the estimated useful life of the FIS excess purchase
price would increase or decrease the annual amortization expense by $287,319 or
$235,128, respectively. Amortization expense for the period from November 1,
2000 to December 31, 2000 was $431,068.
On September 10, 1999, the Company acquired Partes Corporation (Partes), owner
of the FreeEDGAR.com Web site. Under the terms of the agreement, the Company
purchased all of the outstanding equity of Partes for $9,901,054. The purchase
price included (1) the issuance of 908,877 shares of EDGAR Online common stock
valued at $7,804,981, (2) the issuance of 75,039 EDGAR Online stock options and
warrants, with a fair value of $259,176, in exchange for all outstanding Partes
stock options, (3) the assumption of net liabilities totaling $847,786 and (4)
$989,111 in fees and acquisition related expenses. Subsequent to the
acquisition, the Company repaid Partes bank indebtedness of $919,879.
The aggregate purchase price of $9,901,054 has been allocated to the purchased
assets and liabilities based on their relative fair market value on the date of
acquisition. The excess purchase price over the estimated fair value of the
tangible net liabilities acquired has been allocated (1) $2,496,246 to customer
lists with an estimated useful life of 5 years, (2) $3,155,966 to technology
with an estimated useful life of 5 years, (3) $ 699,280 to established workforce
with a useful life of 3 years and (4) $3,549,562 to goodwill with an estimated
useful life of 6 years. Since the acquisition was a tax-free transaction, the
$6,351,492 allocated to identifiable intangible assets created a book-tax basis
difference for which a corresponding deferred tax liability of $2,540,000 was
established at the acquisition date. In addition, at the date of acquisition,
the Company had deferred tax assets of approximately $2,635,000 for which a
valuation allowance of like amount had been recorded. The establishment of the
FreeEdgar deferred tax liability eliminated the need for substantially all of
the valuation allowance on the Company's deferred tax assets and resulted in a
purchase accounting adjustment to reduce the Company's valuation allowance by
the amount of the FreeEdgar deferred tax liability. The recognition of the
FreeEdgar deferred tax liability and the reduction in the Company's valuation
allowance increased and decreased goodwill by a like amount. See note 4 for a
discussion of subsequent intangible asset impairment.
F-12
60
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
The acquisitions were accounted for under the purchase method of accounting and
accordingly the estimated fair value of FIS' and Partes' assets and liabilities
and the operating results of FIS and Partes from the effective dates of the
acquisition have been included in the accompanying financial statements.
The following unaudited pro forma results of operations assume the acquisitions
occurred as of January 1, 1999 and includes amortization of intangibles. The pro
forma financial information is not necessarily indicative of operating results
that would have occurred had the acquisitions been consummated as of January 1,
1999 nor of future operating results.
Pro forma results for the year end Pro forma results for the year end
December 31, 2000 December 31, 1999
---------------------------------- ----------------------------------
Revenues $ 16,576,000 $ 11,514,000
Loss from operations $(19,178,000) $(12,654,000)
Net loss $(18,261,000) $(12,222,000)
Basic and diluted loss per share $ (1.23) $ (0.93)
Basic and diluted weighted average shares 14,904,000 13,164,000
(4) IMPAIRMENTS OF LONG-LIVED ASSETS
During the fourth quarter of 2000, the Company performed a reassessment of the
recovery of the goodwill and other long-lived assets related to its acquisition
of Partes Corporation, owner of the FreeEDGAR.com Website. The revaluation was
triggered by the continued decline in Internet advertising throughout the year
ended December 31, 2000, which significantly impacted current and projected
advertising revenue generated from the FreeEDGAR Web site. Based on revised
projections of Partes Corporation's revenues and costs, the Company determined
that the undiscounted cash flows from the operation of the FreeEDGAR Web site,
including its estimated terminal value, were less than the remaining book value
of recorded goodwill and other long-lived assets and an other than temporary
impairment had occurred. The Company measured the amount of the impairment by
comparing the anticipated future discounted cash flow from the operation of the
FreeEDGAR Web site and terminal value to the remaining book value of recorded
goodwill and other long-lived assets and recorded an impairment charge of
$5,673,000. The methodology used to test for and measure the amount of the
impairment charge was based on the same methodology used during the Company's
initial valuation of Partes Corporation in 1999.
Also during the fourth quarter of 2000, the Company performed a reassessment of
the recovery of the goodwill and other long-lived assets related to its
acquisition of certain of the assets of Individual Investor Group including the
Web site InsiderTrader.com and related user data. The revaluation was triggered
by the lower than anticipated assimilation of historical users of the acquired
Web site which limited the future revenue potential to be generated from the
assets acquired. Based on revised projections of InsiderTrader.com's revenues
and costs, the Company determined that the undiscounted cash flows from the
operation of the InsiderTrader.com Web site and other assets were less than the
remaining book value of recorded goodwill and other long-lived assets and an
other than temporary impairment had occurred. The Company measured the amount of
the impairment by comparing the anticipated future discounted cash flow from the
operation of the InsiderTrader.com Web site to the remaining book value of
recorded goodwill and other long-lived assets and recorded an impairment charge
of $362,000. The methodology used to test for and measure the amount of the
impairment charge was based on the same methodology used during the Company's
initial acquisition valuation of
F-13
61
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
InsiderTrader.com in 2000.
Lastly, during the fourth quarter of 2000, the Company discontinued the use of
the edgar.com URL which it acquired in 1999 for $150,000, and recorded an
impairment charge for the unamortized book value of $117,000.
(5) AVAILABLE-FOR-SALE INVESTMENTS
The following table summarizes the Company's investment in available-for-sale
investments at December 31, 2000 and 1999.
December 31,
------------------------------------------------------
2000 1999
------------------------ --------------------------
Cost Fair Value Cost Fair Value
---------- ---------- ----------- -----------
U.S. Government and agency obligations $ --- $ --- $ 2,536,932 $ 2,524,675
Corporate bonds and commercial paper 1,500,000 1,497,930 12,042,422 12,010,161
---------- ---------- ----------- -----------
Total $1,500,000 $1,497,930 $14,579,354 $14,534,836
========== ========== =========== ===========
Substantially all investments with maturity dates mature within the year ended
December 31, 2001. Individual unrealized gains and unrealized losses were not
significant at December 31, 2000 or 1999.
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 and 1999 is summarized as follows:
December 31,
---------------------------
2000 1999
----------- -----------
Equipment $3,255,646 $1,518,972
Furniture and fixtures 487,693 209,328
Purchased software 587,730 492,678
Software development costs 507,898 85,525
Leasehold improvements 235,586 60,318
Automobiles 64,754 ---
----------- -----------
Subtotal 5,139,307 2,366,821
Less accumulated depreciation (1,783,484) (342,390)
----------- -----------
Total $3,355,823 $2,024,431
=========== ===========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was
$949,480, $312,431, and $116,767 respectively.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 2000 and 1999.
December 31,
-------------------------
2000 1999
---------- ----------
Professional fees $ 113,603 $ 127,000
Web site development and support --- 280,798
Licensing fees --- 111,438
F-14
62
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Compensation and related benefits 987,888 739,215
Other 65,367 168,117
---------- ----------
Total $1,166,858 $1,426,568
========== ==========
(8) NOTES PAYABLE
Notes payable consist of the following at December 31, 2000:
December 31,
2000
------------
Promissory notes $6,000,000
Line of credit 475,000
Other 32,785
----------
Total notes payable 6,507,785
Less:
Current portion (507,785)
----------
Notes payable, long-term $6,000,000
==========
In connection with the FIS acquisition, the Company issued a series of two-year
senior subordinated secured promissory notes with a total principal amount of
$6,000,000. Interest accrues at 7.5% annually and is payable quarterly in
arrears on January 27, April 27, July 27 and October 27. The entire principal is
payable in one installment on October 27, 2002. Interest expense for the year
ended December 31, 2000 was $75,000. The fair value of the senior subordinated
secured promissory notes at December 31, 2000 was estimated at approximately
$6,000,000 based on the amount of future cash flows associated with the notes,
discounted using an appropriate interest rate.
In October 1998, FIS entered into an agreement with a bank for a $200,000 line
of credit. This agreement was increased in April 2000 to $500,000. At December
31, 2000, $475,000 was outstanding under the facility and is repayable on
demand. The interest rate at December 31, 2000 was 10.0% which is 1/2% over the
bank's prime rate of interest. Interest expense for the year ended December 31,
2000 was $5,049. The fair value of the line of credit at December 31, 2000
approximated its carrying value given the variable nature of the interest rate.
In July 1998, the Company received $1,000,000 in exchange for a $1,000,000
Convertible Debenture due July 2001 with interest accruing at 10% in years two
and three. The terms of this financing enabled the lender to convert the
debenture into 670,000 shares of the Company's common stock. The lender also
received a warrant, expiring July 23, 1999, to purchase an additional 666,667
shares of the Company's common stock at $1.50 per share. The Company estimated
the fair value of the warrant at the date of issue and recorded $102,708 of the
consideration received as a credit to additional paid-in capital. On May 11,
1999, in connection with the Company's IPO, the holder of the Company's
$1,000,000 face amount Convertible Debenture exercised its right to convert the
Convertible Debenture into 670,000 shares of Company common stock. In addition,
the holder exercised their warrant to purchase 666,667 shares of Company common
stock at $1.50 per share. Interest expense for 1999 and 1998 includes $27,778
and $17,118, respectively, of accretion of the debt discount resulting from the
fair value of the warrants and $33,333 relating to the year one interest
holiday.
In January 1997, the Company entered into an agreement with a stockholder for a
$500,000 line of credit, which was originally due on December 31, 1997, but was
extended to February 28, 2000.
F-15
63
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Interest accrued at 12% of the face amount annually. All borrowings were
guaranteed by a principal stockholder of the Company. The agreement originally
provided that the outstanding borrowings could be converted at the sole
discretion of the lending stockholder into common stock at a conversion rate of
$1.50 worth of common stock for each $1.00 of borrowings converted. The
favorable conversion rate represented a beneficial conversion feature and,
accordingly, $250,000 was recorded as a credit to additional paid-in capital at
the issue date. Additional interest expense of $250,000 was recorded in 1997, as
the original maturity of the borrowing was December 31, 1997. In July 1998, the
conversion feature was deleted in connection with the issuance of the
Convertible Debenture. The note was repaid using proceeds from the IPO in June
1999.
In connection with a $100,000 loan under a line of credit established in
December 1995, the Company had arranged with the lender to apply a portion of
the proceeds of credit card payments processed by the lender for the Company to
the loan balance. The loan was further reduced by the offsetting of balances due
from the lender for its monthly subscription charge for use of the Company's
Internet service. Interest accrued at 2% over the prime established by a
financial institution. The loan was repaid during 1999.
Interest expense and other financing charges for the years ended December 31,
2000, 1999, and 1998 totaled $95,027, $149,436, and $137,909, respectively.
(9) INCOME TAXES
Since its inception, the Company has incurred net operating losses and has
incurred no federal or state income tax expense. The net provision for income
taxes for the year ended December 31, 2000 consists primarily of a State of
Connecticut capital tax and for 1999 and 1998, a State of Connecticut minimum
tax. At December 31, 2000, the Company has approximately $12 million in federal
and state operating loss carry forwards, which begin to expire in 2010.
As discussed in note 3, the Company allocated $6,351,492 of the FreeEdgar
purchase price to identifiable intangible assets creating a book-tax basis
difference for which a corresponding deferred tax liability of $2,540,000 was
established at the acquisition date. In addition, at the date of acquisition,
the Company had deferred tax assets of approximately $2,635,000 for which a
valuation allowance of a like amount had been recorded. The establishment of the
FreeEdgar deferred tax liability eliminated the need for $2,540,000 of the
valuation allowance on the Company's deferred tax assets and resulted in a
purchase accounting adjustment to reduce the Company's valuation allowance. The
federal and state deferred tax provision for the years ended December 31, 2000
and 1999 includes a tax benefit of approximately $1,709,000 and $225,000,
respectively, representing the decrease in the FreeEdgar deferred tax liability
as a result of the amortization and impairment write-off of the FreeEdgar
intangible assets offset by a like amount of expense to increase the valuation
allowance necessitated by the decreases in the FreeEdgar deferred tax liability.
F-16
64
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
The Company's tax provision differed from the amount computed using the federal
statutory rate of 34% as follows:
Year Ended December 31,
-------------------------------------------
2000 1999 1998
----------- ----------- ---------
Expected federal income tax benefit at 34% $(5,161,154) $(1,415,288) $(765,650)
State taxes, net of federal effect 39,363 (247,834) (134,280)
Amortization and write-off of non-deductible intangibles $ 1,288,032 58,324 --
Other permanent differences 3,602 44,261 3,882
Valuation allowance 3,887,596 1,560,787 896,298
----------- ----------- ---------
$ 57,439 $ 250 $ 250
=========== =========== =========
The Company's deferred tax assets and liabilities and related valuation
allowance as of December 31, 2000 and 1999 are as follows:
December 31,
2000 1999
----------- -----------
Deferred tax assets (liabilities):
Net operating loss carryforwards $ 5,021,559 $ 2,742,435
Deferred compensation 192,882 --
Accruals and other, net 397,230 171,163
Stock compensation expense 478,354 484,783
Identifiable intangibles (605,415) (2,314,217)
Valuation allowance (5,484,610) (1,084,164)
----------- -----------
$ 0 $ 0
=========== ===========
Realization of the net operating loss carry forward and other future deductible
differences is dependent on the Company being able to generate sufficient
taxable income prior to the expiration of the operating loss carryforwards. Due
to the Company's short operating history, a valuation allowance has been
recorded for the entire amount of the net deferred tax asset as the Company has
concluded that it is not more likely than not that there will be future taxable
income sufficient to realize the future taxable temporary differences and
operating loss carryforwards prior to their expiration.
Under Section 382 of the Internal Revenue Code of 1986, as amended, the
utilization of net operating loss carryforwards may be limited under the change
in stock ownership rules. The Company has not yet determined whether such an
ownership change has occurred.
(10) STOCKHOLDERS' EQUITY
COMMON STOCK
On March 24, 1997, the Board of Directors of the Company declared and approved a
4 for 1 stock split on its common shares. All share and per share data has been
retroactively adjusted to reflect this common stock split.
Upon the formation of the Company, the founders were issued 4,000,000 shares of
the Company's common stock. In 1996, the Company sold 400,000 shares of its
common stock to an investor for
F-17
65
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
$462,500 and issued an additional 400,000 shares of its common stock for $5,000
in connection with the exercise of previously issued warrants. In 1997, the
Company issued 1,274,000 shares of its common stock for $15,925 in connection
with the exercise of previously issued warrants. In 1998, the Company sold an
additional 103,333 shares of common stock for $145,000 in cash, net of related
offering expenses, issued 100,000 shares of common stock in satisfaction of
$125,000 of indebtedness and issued 53,957 shares in connection with the
issuance of previously issued warrants.
On March 25, 1999, the Board of Directors of the Company declared and approved
an increase in the number of authorized shares of common stock to 30,000,000,
par value $0.01 per share, and authorized 1,000,000 shares of preferred stock,
par value $0.01 per share. There are no preferred shares issued or outstanding
at December 31, 1999.
On March 30, 1999, the Company completed the sale of an aggregate of 240,000
shares of its common stock to three investors at $4.50 per share resulting in
net proceeds of $1,055,250.
On May 26, 1999, the Company sold 3,600,000 shares of its common stock to the
public (IPO) at $9.50 per share for net proceeds of $30,448,815. In connection
with this offering, the Company, its underwriters and the holder of the
Convertible Debenture agreed that such holders would convert the Convertible
Debenture into 670,000 shares of the Company's common stock prior to the close
of the IPO. In addition, certain holders of warrants to purchase Company common
stock also agreed to exercise the warrants into an aggregate of 696,667 shares
of common stock prior to the close of the IPO. During 2000 and 1999, additional
shares were issued in connection with the exercise of stock options totaling 928
and 11,155, respectively.
In addition, during 2000 and 1999, 2,450,000 and 908,877 shares were issued in
connection with purchase business combinations.
STOCK WARRANTS
Since its inception, the Company has issued warrants to purchase Company common
stock in return for various services rendered or in connection with certain debt
and equity financings.
Warrants issued in exchange for services totaled 23,167 and 63,333 for the years
ended December 31, 1999 and 1998 respectively. Based on estimated fair values at
the respective dates of issuance the Company has recorded professional services
expense and additional paid-in capital of $26,197 in 1999 and $33,630 in 1998.
In 1998, the Company issued 706,668 warrants in connection with debt financings
which have been fair valued at their date of issuance. Additional interest
expense has been recorded for the years ended December 31, 1999 and 1998 of
$27,778 and $17,118, respectively. The credit to additional paid-in-capital
relating to the fair value of warrants issued in connection with the debt
financing during 1998 was $102,708. The related debt was repaid during 1999.
During 1999, the Company issued 11,299 warrants in connection with the Partes
acquisition and 523,500 warrants in connection with equity financing, including
the Company's IPO.
F-18
66
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Warrant activity during the periods indicated is as follows:
Number of Weighted Average
Warrants Exercise Price
--------- ----------------
Outstanding at December 31, 1997 13,956 $ 0.00
Issued 770,001 1.45
Exercised (53,957) 0.93
Cancelled -- --
--------
Outstanding at December 31, 1998 730,000 1.46
Issued 557,966 7.31
Exercised (696,667) 1.46
Cancelled (240,000) 4.50
--------
Outstanding at December 31, 1999 351,299 8.68
Issued -- --
Exercised -- --
Cancelled -- --
--------
Balance at December 31, 2000 351,299 $ 8.68
========
Included in the above table are 13,956 warrants outstanding at December 31, 1997
that were granted pursuant to certain anti-dilution provisions of the original
warrant grant and, accordingly, have a $0.00 exercise price.
The weighted average contractual life of warrants outstanding at December 31,
2000 and 1999 was 3.41 and 4.42 years, respectively.
(11) STOCK OPTION PLANS
In November 1998, the Company adopted the 1996 Stock Option Plan (the 1996 Plan)
whereby the Company's Board of Directors may grant stock options to officers,
employees, directors and consultants. The 1996 Plan authorizes the issuance of
options to purchase up to 800,000 shares of the Company's common stock. Options
granted may be either incentive stock options (ISOs) or non-qualified stock
options. The exercise price and vesting schedule of the options will be
established on the grant date. However, the established exercise price for ISOs
may not be less than the fair market value of the Company's common stock on the
grant date. The 1996 Plan also provides that no options will have a term of
longer than ten years.
On March 25, 1999, the Company adopted the 1999 Stock Option Plan (the 1999
Plan) and the 1999 Outside Directors Stock Option Plan (the 1999 Directors
Plan). The 1999 Plan authorizes the issuance of options to purchase up to
600,000 shares of the Company's common stock under the same provisions as the
1996 Plan. At the Annual Shareholder Meeting held on August 1, 2000, the Plan
was amended to increase the number of shares available for grant to 1,400,000.
The 1999 Directors Plan authorizes the issuance of options to purchase up to
100,000 shares of the Company's common stock.
Option activity for the 1996 Plan, the 1999 Plan and the 1999 Directors Plan
during the periods indicated is as follows:
F-19
67
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Weighted Average
Number of Options Option Price
----------------- ----------------
Outstanding at December 31, 1997 --- ---
Issued 400,000 $0.29
Exercised --- ---
Cancelled --- ---
-----------------
Outstanding at December 31, 1998 400,000 0.29
Issued 604,928 5.47
Exercised (11,155) 0.49
Cancelled (42,314) 6.35
-----------------
Outstanding at December 31, 1999 951,459 3.64
Issued 684,750 5.71
Exercised (928) 2.56
Cancelled (143,975) 7.27
-----------------
Balance at December 31, 2000 1,491,306 4.06
=================
The Company recorded $10,000, $7,665 and $1,133,000 of compensation expense in
the years ended December 31, 2000, 1999 and 1998, respectively, calculated as
the difference between the exercise price and the estimated fair value of stock
options at the grant date, allocated over the vesting periods of the options.
$10,000 and $7,665 has been included within sales and marketing expenses for the
years ended December 31, 2000 and 1999, respectively. $214,600 and $918,400 has
been included within sales and marketing and general and administrative
expenses, respectively, for the year ended December 31, 1998.
Options outstanding and exercisable at December 31, 2000 are as follows:
Options Outstanding
Weighted Average
Range of Remaining Weighted Average
Exercise Price Number Outstanding Contractual Life Exercise Price
- --------------------------------------- ----------------- -----------------
$ 0.25 to 2.50 415,500 6.88 $ 0.38
2.51 to 5.00 718,027 8.86 3.84
5.01 to 10.00 350,834 8.99 8.65
10.01 t0 15.00 4,940 5.66 10.23
15.01 to 20.00 --- --- ---
20.01 to 25.00 1,076 6.33 20.87
25.01 to 30.00 --- --- ---
30.01 to 35.00 929 6.54 34.05
--------------- ---------- -----------------
0.25 to 35.00 1,491,306 8.33 4.06
=============== ========== =================
Options Exercisable
Range of Exercise Price Number Exercisable Weighted Average Exercise Price
- ---------------------------------------------- -------------------------------
$ 0.25 to 2.50 380,000 $0.26
2.51 to 5.00 191,668 4.23
5.01 to 10.00 36,170 8.37
10.01 to 15.00 3,911 10.23
15.01 to 20.00 --- ---
20.01 to 25.00 769 20.74
25.01 to 30.00 --- ---
30.01 to 35.00 554 34.05
--------- -------------------
0.25 to 35.00 613,072 $2.10
========= ===================
At December 31, 2000, 835,166 options are available for grant.
F-20
68
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
As discussed in note 2, the Company has elected to continue to use APB No. 25 to
measure compensation expense related to employee stock options and has recorded
compensation expense where the exercise price of the option was less than the
fair value of the stock on the date of grant. Had the Company determined
compensation expense based on the fair value of the option on the grant date
under SFAS No. 123, the Company's results of operations for the years ended
December 31, 2000 and 1999 would have been as follows:
2000 1999 1998
---- ---- ----
Net loss - as reported $ (15,237,305) (4,162,861) (2,221,474)
Net loss - pro forma $ (17,334,373) (4,992,836) (3,004,873)
Basic and diluted net loss per share - as reported $ (1.18) (0.42) (0.36)
Basic and diluted net loss per share - pro forma $ (1.35) (0.51) (0.49)
The fair value of the options granted to employees in 2000, 1999 and 1998 as
calculated under SFAS 123, ranged from $1.62 to $8.70, $0.12 to $9.40, and $1.57
to $2.45, respectively, with a weighted average fair value of $5.49, $2.35, and
$1.96 respectively. For options granted during the year ended December 31, 2000,
the fair value of the options was calculated using risk free interest rates of
4.49% to 4.67%, expected life of 10 years, no expected dividend yield and an
actual volatility which averaged 129% during the year ended December 31, 2000.
For options granted after the Company's IPO in May 1999 through December 31,
1999, the fair value of the options was calculated using risk free interest
rates of 6.5% to 6.52%, expected life of 10 years, no expected dividend yield
and an actual volatility which averaged 153% from the date of the Company's IPO
to December 31, 1999. For grants made through the date of the Company's IPO in
May 1999, the fair value of the options was calculated using risk free interest
rates of 6.51% or 6.52%, expected life of 10 years and no expected dividend
yield or volatility.
(12) COMMITMENTS AND CONTINGENCIES
The Company leases space in Norwalk, Connecticut, New York, New York, and
Kirkland, Washington for its primary offices. Rent expense totaled $589,239 and
$149,308, and $57,983 for the years ended December 31, 2000, 1999 and 1998,
respectively.
Future minimum lease payments under non-cancelable operating leases and capital
leases (with initial or remaining lease terms in excess of one year) as of
December 31, 2000 are as follows:
Year ending December 31, : Operating Leases Capital Leases
---------------- --------------
2001 $ 1,014,514 $ 77,407
2002 1,039,115 9,003
2003 888,406 ---
2004 839,215 ---
Thereafter 1,115,817 ---
---------------- ------------
Total $ 4,897,067 86,410
================
Amount representing interest (10,292)
------------
Net capital leases obligation $ 76,118
============
(13) RELATED PARTY TRANSACTIONS
The Company provides services to three shareholders. Revenues from these related
parties totaled
F-21
69
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
$709,200, $383,000, and $69,600 in 2000, 1999 and 1998, respectively. Of the
revenues received, $75,000, and $17,250 in 1999 and 1998 were used to satisfy a
note payable and related accrued interest to one shareholder. The Company also
purchased services from three shareholders, which totaled $3,078,741,
$1,535,479, and $610,073, in 2000, 1999 and 1998, respectively.
The Company entered into compensation agreements with its two founding
stockholders that provide for combined annual compensation of $300,000
commencing in January 1996, payment of which is dependent upon the availability
of cash and other factors. Compensation expense of $300,000 has been recorded in
each of the years ended December 31, 2000, 1999, and 1998. In addition, at
December 31, 2000, the Company has advanced $269,206 to the founding
stockholders.
(14) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 1999 (in thousands, except for per share data):
First Second Third
Quarter Quarter Quarter Fourth
Restated Restated Restated Quarter
-------- -------- -------- --------
Year Ended December 31, 2000
Net Revenues $ 1,879 $ 2,396 $ 2,052 $ 3,415
Loss from Operations $ (2,932) $ (2,337) $ (2,247) $ (8,638)
Net loss $ (2,597) $ (2,047) $ (1,967) $ (8,626)
Basic and diluted net loss per share
$ (0.21) $ (0.16) $ (0.16) $ (0.61)
Basic and diluted weighted average shares
outstanding 12,458 12,459 $ 12,459 $ 14,074
======== ======== ======== ========
Year Ended December 31, 1999
Net Revenues $612 $ 939 $ 1,362 $ 1,818
Loss from Operations (548) $ (847) $ (1,240) $ (2,282)
Net loss $ (586) $ (807) $ (864) $ (1,906)
Basic and diluted net loss per share $ (0.08) $ (0.09) $ (0.07) $ (0.15)
Basic and diluted weighted average shares
outstanding 6,367 8,662 11,736 12,457
========== ========= ========= ========
[CAPTION]
Revenue for the first three quarters of 2000 have been restated by reducing
corporate contract revenue by $97,242, $123,735 and $169,635, respectively, as
compared to amounts previously reported in the Company's Form 10-Q's to reflect
the retroactive application of SAB 101 as of January 1, 2000. The deferral
relates to revenue associated with certain upfront fees charged customers to
build customized applications to access information contained in the Company's
databases. At December 31, the aggregate amount deferred is $306,711 and will be
recognized over the future estimated life of the customer relationship. The
impact of the change for the first three quarters of 2000 is to increase the net
loss by $97,242, $123,735 and $169,635, respectively. The impact of the
restatement was to increase basic and diluted net loss per share for the first
three quarters of 2000 by $(0.01), $(0.01) and $(0.01), respectively. There were
no such arrangements prior to 2000 and accordingly, there is no cumulative
effect adjustment for prior periods.
Loss per share data are computed independently for each of the periods
presented; therefore the sum of the loss per share amounts for the quarters may
not equal the total for the year.
F-22