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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, 2002
COMMISSION FILE NO. 0-26071
EDGAR ONLINE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1447017
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 WASHINGTON STREET, 06854
NORWALK CT (Zip code)
(Address of principal executive offices)
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. | |
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the Act). Yes | | No |X|
As of March 20, 2003 there were 17,003,792 shares of the registrant's common
stock outstanding. The aggregate market value of voting stock held by
non-affiliates of the registrant was $14,080,281 (based on the closing sales
price for the registrant's common stock as reported by the Nasdaq National
Market on March 20, 2003).
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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EDGAR ONLINE, INC.
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 3
Item 2. Properties 19
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 29
PART III
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 36
Item 13. Certain Relationships and Related Transactions 38
Item 14. Controls and Procedures 39
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39
Signatures 43
Certifications 44
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PART I
FORWARD LOOKING STATEMENTS
Statements made in this report that relate to future plans, events, financial
results or performance are forward-looking statements as defined under the
Private Securities Litigation Reform Act of 1995. These statements are based
upon current information and expectations. Actual results may differ materially
from those anticipated as a result of certain risks and uncertainties. For
details concerning these and other risks and uncertainties, see Part I, Item 1,
"Risk Factors That May Affect Our Future Results" of this report, as well as the
Company's other periodic reports on Forms 10-K, 10-Q and 8-K subsequently filed
with the Securities and Exchange Commission (SEC) from time to time. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
republish revised forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Investors should also be aware that while the Company from time to time does
communicate with securities analysts, it is against the Company's policy to
disclose to them any material non-public information or other confidential
commercial information. Investors should not assume that the Company agrees with
any report issued by any analyst or with any statements, projections, forecasts
or opinions contained in any such report.
ITEM 1. BUSINESS
OVERVIEW
We provide our customers with business, financial and competitive information
about public companies. We also provide 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 four primary sources of
revenue are contracts with corporate customers for customized data, seat-based
subscriptions to our Web site services, sale of our technical services to
construct and/or operate the technical systems our customers use to incorporate
our data and data from other sources into their products and services and
advertising and other e-commerce based revenues.
EDGAR TRADEMARK
EDGAR is a federally registered trademark of the 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 through 2009. Our EDGAR Online trademark
has been registered with the U.S. Patent and Trademark office.
DATA SALES
Our proprietary data mining technology allows us to extract and deliver in
real-time customized data derived from EDGAR filings. Corporations, financial
institutions and news organizations purchase this customized data from us. These
customers use this information on corporate intranets, private networks, Web
sites and for redistribution to their customers. They typically enter into
contracts of at least a one-year length for our content, which they use
internally within their own organizations and/or for incorporation into services
they offer their customers. We deliver the data to our customers as formatted
data feeds or via access to our applications programming interface. Our data
customers include corporations, such as Lucent Technologies, financial service
organizations, such as Merrill Lynch and Bank of America, and news service
providers, such as Standard & Poor's. Within these organizations, we tailor our
services to various departments including marketing, sales, human resources,
financial and legal. We also deliver EDGAR content to other subscription Web
sites, such as Multex.com and Scottrade Securities, 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. In 2002, our data sales were responsible
for 33% of our revenue.
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SEAT-BASED SUBSCRIPTIONS
Many companies, professionals and other individuals access our services by
purchasing our seat-based subscriptions, www.edgarpro.com and
www.edgar-online.com. We sell these seat-based subscriptions directly over the
Internet and through our sales force in the form of contracts typically
extending for a period of one year. We use the two major public Web sites we
operate at www.edgar-online.com and www.freeedgar.com and the linking agreements
we have with other prominent Web sites such as Yahoo! to market our seat-based
services. As of March 20, 2003, we had a total of more than 27,000 subscribers
to our seat-based subscription services. Seat-based subscriptions services were
responsible for 32% of our revenue in 2002.
TECHNICAL SERVICES
In addition to using our technical expertise to create and deliver our own
branded data and seat-based services to customers, we also sell our technical
services directly to large financial institutions who contract with us to build,
and in some cases operate, the technical systems they need to use the data we
sell them. Customers who buy these technical services from us, in some cases,
also use our services to acquire and integrate data from third party vendors
into the technical systems we operate for them. In 2002, technical services
revenues were responsible for 27% of our revenue.
ADVERTISING AND E-COMMERCE
We also generate revenues through the sale of advertising banners and
sponsorships on our various Web sites and through e-commerce activities such as
marketing third party services to the users of our Web sites. In 2002, 8% of our
revenues came from these services.
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. The SEC also now requires that
certain filings by foreign issuers be filed 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 from SEC public reference rooms.
SARBANES-OXLEY ACT OF 2002
The recently enacted Sarbanes Oxley Act of 2002 (the "SO Act") represents a
massive restructuring of the regulatory system governing capital markets and is
intended to provide a permanent framework that improves the quality of financial
reporting, as well as increasing the responsibility of management for corporate
disclosures and financial statements. The SO Act's provisions are effective at
different times, ranging from immediately upon enactment - July 30, 2002 - to
later dates as specified in the SO Act. The SO Act contains a new two business
day filing requirement, which is currently in effect, to report transactions in
public company stock on Form 4 by their directors and executive officers.
Because of these strict guidelines, many companies are now filing these forms
through the EDGAR system. The Act also provides that electronic filings of Form
4s will be required beginning not later than July 2003. Other SEC pending
proposals relating to the adoption of the SO Act include requiring companies
that maintain a corporate web site to post Forms 3, 4 and 5 filed with respect
to their equity securities by the end of the business day after the filing is
made, as well as amendments to Form 8-K which will require public companies to
disclose on a rapid and current basis additional information concerning material
changes in the financial condition or operations of issuers. The foregoing
initiatives are expected to result in more companies relying on the internet to
meet these new requirements.
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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, and since the inception of the EDGAR
system, the SEC has consistently moved to require more information to be
disclosed electronically and to have electronic information filed on a
more timely basis. This movement has been evidenced by the adoption of
the SO Act. Because EDGAR Online has established itself as one of
the preeminent brands on the Internet for EDGAR-based information, these trends,
which increase both the number of people who are looking to gain access to
EDGAR-derived data and the amount of data going into the EDGAR database each
year, provide a growing market for our expertise in extracting and delivering
EDGAR-derived information.
STRATEGY
Our goal is to become the leading provider of EDGAR-based business, financial
and competitive information and related technology services. 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 seat-based
subscription services. We seek to convince more financial institutions and data
providers that still use predominantly manual procedures to process EDGAR data
for their own internal use to purchase services from us rather than processing
EDGAR information themselves.
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
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 continuing our efforts to target other existing and
emerging technologies to reach new customers. For example, we are expanding our
sales efforts to news services and data vendors that are using proprietary
private networks.
EXPAND INTERNATIONALLY
We intend to market our services more aggressively in international markets and
have expanded our database to include filings made outside of the United States
in order to provide our users with access to corporate and financial information
from these filings.
EXPAND FUNCTIONALITY AND CONTENT OFFERINGS
We continuously seek 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.
5
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 continue to
expand our brand recognition by marketing higher value services to registered
users of our Web sites, by implementing 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 a
leading provider of EDGAR-based information and related information technology
solutions. 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
OVERVIEW
We sell a variety of EDGAR Online branded data and seat-based subscription
services, and we provide a range of back office technical services to financial
institutions. Each of our service offerings is based on our ability to use the
proprietary technology we have developed and our experience in processing EDGAR
filings to extract and deliver information in standardized or customized
formats. We also sell advertising and e-commerce services targeted to the users
of our Web sites.
DATA SALES
Many corporations and institutions want to see specific information extracted
from EDGAR filings as the filings enter our database. To meet this need, and to
enable these customers to integrate this information into services they provide
to their customers or information they make available directly to a number of
their employees, we sell our services in the form of formatted data feeds. These
feeds range from a simple subset of EDGAR filings for customers who need all the
filings from only a select number of companies, to more sophisticated
extractions of selected information from certain filing types that are formatted
and delivered to match specific custom needs that vary for each data services
contract.
For customers who want the flexibility and economy of constructing the
extraction specifics themselves, or for those customers who have multiple uses
for the data they purchase from us, we offer an applications programming
interface service (API). This service enables a customer to use its own IT
services department to configure the information from our database and is used
primarily by our largest data customers, including OneSource and Standard and
Poors
Since many of our customers are looking for the same kinds of data services, we
have developed a number of pre-packaged data services such as our Fundamental
Data Service, our Insider Trader Data Service, our IR Web Page Service and our
Wealth ID Service to meet these needs.
Our data services are priced based on the amount of customization required in
the extraction process, the number of end-users who will have access to the
data, the amount of the data delivered and the delivery method. The majority of
these contracts range from $1,000 to $15,000 per year, however we also have
several contracts that total over $50,000 per year. These services are usually
sold as yearly contracts and may also include set-up charges.
SEAT-BASED SUBSCRIPTIONS
We offer a variety of seat-based subscription services to meet the demands of
customers who access differing quantities of EDGAR filings or have differing
needs for navigating through, searching for, downloading and printing specific
text or financial information contained in the EDGAR documents.
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Our fully functioned flagship product is EDGARpro. The basic subscription price
for a single seat of EDGARpro, which allows unlimited access to all EDGAR
filings and a full range of alerting, navigation, searching, downloading and
printing features is $600 per year. Discounts are available for multi-seat and
enterprise-wide contracts. EDGARpro is sold only through our sales force.
A less fully functioned seat-based service, known as EDGAR Online, is available
through all of our public Web sites. This service enables users to access a
limited number of filings per month and offers fewer searching and alerting
features than our flagship EDGARpro service. The yearly price for this service
is $180, and may be purchased on www.edgar-online.com by providing a credit card
which is charged for a minimum of three months worth of service in advance.
We also offer other specialized seat-based services available as stand-alone
services or services available in conjunction with the services listed above.
These specialized services include direct access to information extracted from
Schedule 13f institutional ownership filings. Customers interested in this kind
of information purchase these seat-based services to get easy access to
information we extract from multiple filings and present in formats that make it
easy to view summary information quickly. These services are priced at $900 per
seat per year, or less if purchased as a multi-seat contract or as an add-on to
a contract for EDGARpro services.
TECHNICAL SERVICES
In addition to using our technical expertise to create and deliver our own
branded data and seat-based services to customers, we also sell our technical
services directly to large financial institutions who contract with us to build,
and in some cases operate, the technical systems they need to use the data we
sell them. The technical services we offer our customers range from development
of simple data extraction software, through the design and development of entire
technical systems to integrate and use various data obtained from multiple data
vendors, to the hosting and support of a client's entire Internet and Intranet
sites. We have developed and deployed systems to display stock quotes and stock
charts, systems to aggregate and display news feeds, and systems to keep track
of stock symbol changes. Our technical services contracts are unique based on
the specific needs of the client. We charge for our technical services primarily
on a time and materials basis.
The Nasdaq Stock Market, Inc. ("Nasdaq") currently represents the sole client to
whom we provide technical services. Technical services revenues represented 27%
of total revenues for the year ended December 31, 2002. Pursuant to our
agreements with Nasdaq, the Company provides various services, including
operations and facilities management for the Nasdaq Online Web site, forms
validations services and certain data feeds. Our total contracts with Nasdaq
were responsible for 34% of our revenues for the year ended December 31, 2002.
ADVERTISING AND E-COMMERCE SERVICES
We have a contract with Max Worldwide, an Internet advertising services
provider, to sell the advertising space on our public Web sites and on the
edgar-online and ipo-express seat-based offerings. Max Worldwide markets our
advertising space to 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, Hewlett Packard, Toyota and Harvard Business
School Publishing. The advertising Max Worldwide sells on our Web sites
is comparable to services offered by other Web sites. They include
banner-advertising space, sponsorship buttons on specific pages and pop up ads.
We believe that the prices we receive for the advertising services we provide
generally match those available on other comparable financial Web sites. The
contract with Max Worldwide provides for us to receive a share of the revenue
received for any advertising sold.
We also have entered into e-commerce agreements with third parties who want to
offer compatible services to the users of our public Web sites. Recent
e-commerce offerings have included list rentals, credit reports, research
reports, and annual report services. These contracts usually provide for us to
receive a share of the revenue the third party providers obtain from orders
placed directly from our Web sites.
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KEY CONTENT DISTRIBUTION RELATIONSHIPS
In order to enhance our brand recognition and audience reach, we provide
selected EDGAR content to major portals including Yahoo! and Lycos. For example,
we provide the Yahoo! Finance Web site with headline information about SEC
filings, the extracted Management's Discussion and Analysis section of Forms
10-K and 10-Q, insider data and financial fundamental data. In return, EDGAR
Online sites benefit from increased traffic and advertising revenues, which
occur when users of these sites seek additional EDGAR-related information.
MARKETING AND SALES
Historically, we have focused 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 seat-based
subscribers and corporate data and technical services customers.
As of March 20, 2003, we have a staff of 14 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. We promote
our services through on-line and print advertising, 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 and were
reliant on iXL personnel for design and support of our hardware and software
systems. The acquisition of Financial Insight Systems, Inc. (FIS) in October
2000 enabled us to bring development and maintenance of our technology in-house.
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.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
Our employees now perform all of our development programming, as well as
management of our Web sites. 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
a team of development and IT professionals located in 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. The Rockville office also hosts the services used to provide
our flagship seat-based services and our freeedgar.com Web site.
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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 hour-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.
All our systems, including our accounting system, user database, database of
EDGAR filings, and all proprietary software are backed up on a daily basis and
stored offsite. Our software and databases 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 increases in 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, 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 and Rockville, and posted to our Web sites
and distributed to third parties with whom we have distribution contracts via
our production servers located at Globix's facilities 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, 2002, we had 23
employees engaged in customer service and network support for our public Web
sites.
COMPETITION
The market for Internet-based business, financial and competitive information is
intensely competitive and this competition is expected to continue to increase.
We believe that our ability to compete will depend upon many factors both within
and beyond our control, including the timing and market acceptance of new
services and enhancements to existing services developed by us and our
competitors, continuing relationships with major portals, ease of use,
performance, price, reliability, customer service and support and sales and
marketing efforts. Our competitors vary in size and in the scope and breadth of
services offered. We currently compete, directly and indirectly, for seat-based
subscribers and data customers with vendors of broadly-based financial
information such as Bloomberg and Thomson Financial and with Web-based providers
of EDGAR information, such as 10KWizard.com and Global Security Information's
LIVEDGAR. In addition, we also compete with the Securities and Exchange
Commission, who provides raw EDGAR filings on a real time basis free of charge.
In the area of technical services, we compete with solutions providers such as
IBM, Accenture and smaller boutique firms. 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.
Many of our existing and prospective competitors have longer operating
histories, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than we do. As a result,
they may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or devote greater resources to the
development, promotion and sale of their services than we can. These competitors
may be able to undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to potential
employees, clients and strategic partners.
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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. Our employees execute 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 through 2009. We have received registration
for our EDGAR Online trademark from the U.S. Patent and Trademark Office. We
also have registered trademarks and/or servicemarks on other service offerings
including EDGARPRO, EDGAREXPLORER, FREE EDGAR and EDGAR NEWS and have active
trademark/servicemark applications pending on certain other service offerings
including EDGARANALYST.
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 or the 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 or prosecute us for violations of
their laws. We cannot assure you that violations of local laws will not be
alleged or charged by state or foreign governments, that we might not
unintentionally violate these laws or that these laws will not be modified, or
new laws enacted, in the future.
EMPLOYEES
As of March 20, 2003, we had 94 full-time employees. On March 31, 2003, we
announced a plan to reduce our workforce by 17%. 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.
10
RISK FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
The financial statements contained in pages F-1 to F-25 of this report and the
related discussion describe and analyze the Company's financial performance and
condition for the periods indicated. For the most part, this information is
historical. The Company's prior results, however, are not necessarily indicative
of the Company's future performance or financial condition. The Company
therefore has included the following discussion of certain factors which could
affect the Company's future performance or financial condition. These factors
could cause the Company's future performance or financial condition to differ
materially from its prior performance or financial condition or from
management's expectations or estimates of the Company's future performance or
financial condition. These factors, among others, should be considered in
assessing the Company's future prospects and prior to making an investment
decision
OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO INCREASE REVENUES.
As a company in the rapidly evolving market for the delivery of financial and
business information, we face numerous risks and uncertainties in achieving
increased revenues. In order to be successful, we must increase our revenues
from the sale of our services to corporate customers, seat-based subscription
fees and advertising and e-commerce sales. In order to increase our revenues, we
must successfully:
- - implement our marketing plan to increase corporate sales, attract more
individual online users to our services and 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 content distribution relationships with popular Web sites
and providers of business and financial information;
- - maintain our current, and increase, advertising and e-commerce 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; and
- - attract, retain and motivate qualified personnel with Internet experience to
serve in various capacities, including IT services, 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.
OUR CONTRACTS WITH NASDAQ ACCOUNT FOR A SIGNIFICANT PERCENTAGE OF OUR TOTAL
REVENUES AND SUCH REVENUES WILL DECREASE OVER TIME.
A significant portion of our total revenues over the last two fiscal years has
been attributable to the numerous work orders that we have performed pursuant to
our contract with Nasdaq. Sales to Nasdaq accounted for 34% and 38% of our total
revenues for the years ended December 31, 2002 and 2001, respectively. We expect
that Nasdaq will continue to be a significant client, but that sales to Nasdaq
as a percentage of total revenues will decline in future fiscal periods. The
loss of a significant customer such as Nasdaq would have a material adverse
affect on our business, results of operations and financial condition.
We have recently renewed certain work orders and have negotiated new services
pursuant to additional work orders with Nasdaq. However, revenues to be
generated from our Nasdaq business will be significantly below the historical
revenues generated from these contracts commencing in the third quarter of 2003
and for periods thereafter. If we do not generate new business to offset a
portion of the Nasdaq revenue shortfall, there could be a material adverse
effect on our business, results of operations and financial condition.
11
WE HAVE A HISTORY OF LOSSES AND CANNOT ASSURE THAT WE WILL ATTAIN PROFITABILITY.
As of December 31, 2002, we had an accumulated deficit of $41,977,000. We
incurred net losses of $4,163,000 for the year ended December 31, 1999,
$15,237,000 for the year ended December 31, 2000, $6,788,000 for the year ended
December 31, 2001, and $11,042,000 for the year ended December 31, 2002. In
addition, we expect to continue to incur ongoing operating costs and capital
expenditures. As a result, we will need to generate 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 more slowly 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, to fund
payments due to note holders in connection with our acquisition of Financial
Insight Systems, Inc. (FIS) or to respond to competitive pressures. We cannot
assure you that additional financing will be available on 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. The SEC has recently updated its Web
site to provide free access to raw EDGAR filings on a real-time basis. If the
SEC were to make other changes to its Web site such as providing 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,
this competition may continue to intensify. The types of companies with which we
compete for users and advertisers include:
- - traditional vendors of financial information, such as Thomson Financial;
- - proprietary information services and Web sites targeted to business, finance
and investing needs, including those providing EDGAR content, such as Bloomberg,
10K Wizard and LIVEDGAR; and
- - Web-based providers of free EDGAR information.
Our future success will depend on our ability to maintain and enhance our market
position by: using technology to add value to raw EDGAR information, keeping our
pricing models below those of our competitors, maintaining a strong corporate
sales presence in the marketplace and maintaining our branding on high-traffic
Web sites.
12
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. The cost of the Level I EDGAR feed has been significantly reduced since
the introduction of the EDGAR system and is currently approximately $45,000 per
year. Further reductions of the cost of the Level I EDGAR feed could lead to
additional competitors entering our market, as well as current and potential
EDGAR online clients buying the SEC feed directly as opposed to utilizing our
services. Either of these developments could adversely affect our business,
results of operations and financial condition.
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 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
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 equity of at least $10 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. In addition, an
affiliate of our Chairman and Chief Executive Officer has pledged an aggregate
of 1,200,000 shares of our common stock to an institutional lender as collateral
for a certain extension of credit of which $480,265 is outstanding as of March
20, 2003. If a foreclosure occurs under this credit arrangement, the lender
would have the right to sell any and all of the pledged shares, which is likely
to have a material adverse effect on the market price of our common stock.
13
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.
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 MARKET FOR BUSINESS AND
FINANCIAL INFORMATION.
The market for the distribution of business and financial information, including
EDGAR-based content, is rapidly evolving. 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 continues to evolve, 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 new service offerings 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 NEW CONTENT DISTRIBUTION RELATIONSHIPS WITH HIGH-TRAFFIC
WEB SITES IS CRUCIAL TO OUR FUTURE SUCCESS.
Because our revenues depend to some extent on the traffic to our Web sites, our
business could be adversely affected if we do not maintain our current content
distribution relationships on commercially reasonable terms 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 exposure on high-traffic Web sites, and
we may not be able to maintain our present contractual relationships. Even if we
maintain our existing relationships, 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.
14
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE CURRENT (OR ANY FUTURE) DOWNTURN
IN THE FINANCIAL SERVICES INDUSTRY AND/OR THE BUSINESS ECONOMY IN GENERAL.
We are dependent upon the continued demand for the distribution of business and
financial information, making our business susceptible to downturns in the
financial services industry and the business economy in general. In addition,
the broad effects of the terrorist attacks of September 11, 2001 and the
conflict with Iraq have compounded the effects of an already slow global
economy. Our current results of operations reflect, in part, the effects of the
current slowdown in our markets. For example, we believe that decreases in the
expenditures that corporations and individuals are willing to make to purchase
the types of information we provide has resulted in a slower growth in the
number of customers purchasing our information services. These effects may
continue and may worsen if our customers do not recover or if additional events
adverse to the global economy or the financial services industry occur.
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 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 FACE INTENSE COMPETITION FOR ADVERTISING AND E-COMMERCE REVENUES AND THE
VIABILITY OF THE INTERNET AS AN ADVERTISING AND E-COMMERCE 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. Advertising and e-commerce revenues represented 8% and 9% of our total
revenues for the years ended December 31, 2002 and 2001, 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 and e-commerce revenues. In addition, if we are unable to
generate sufficient traffic on our Web sites, we could potentially lose
advertising and e-commerce 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 and e-commerce revenues. Although
advertising and e-commerce revenues do not make up a significant component of
our total revenues, any of these developments could still have an adverse impact
on our business, results of operations or financial condition.
WE MAY NOT BE ABLE TO MAINTAIN 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 maintain an effective sales force to market our
services to this customer group. Our efforts in maintaining an effective sales
force may not be successful.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH.
We have experienced, and with respect to certain segments of our business are
currently experiencing, a period of growth. If we are unable to manage our
growth effectively, our business will be adversely affected. 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.
15
WE FACE RISKS IN CONNECTION WITH OUR PRIOR ACQUISITIONS AND BUSINESS
COMBINATIONS THAT WE MAY CONSUMMATE.
We plan to continue to expand our operations and market presence by making
acquisitions, 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;
- - problems retaining key technical and managerial personnel;
- - expenses associated with amortization or impairment 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, our prior
acquisitions have been structured to be treated as tax-free reorganizations. In
the event the tax-free nature of our transactions is successfully challenged,
there may be a material adverse impact to our business, results of operations
and financial condition. Even if we were to prevail in such challenge, the
dispute could be time consuming and expensive, and could result in the diversion
of our time and attention, which could materially adversely affect our business,
results of operations and financial condition.
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 and President; Marc Strausberg, Chairman; Greg Adams,
Chief Financial Officer and Chief Operating Officer; Paul Sappington, Chief
Software Officer and Vice President 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 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 DEPEND ON THIRD PARTIES FOR IMPORTANT ASPECTS OF OUR BUSINESS OPERATIONS.
We have a hosting contract with Globix Corporation, 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. In March 2002,
Globix announced that it had filed for bankruptcy protection as part of its
efforts to restructure its debt. The resulting reorganization plan was confirmed
by the United States Bankruptcy Court in April 2002. To date, Globix provision
of services under our contract has not been affected, but this could change
unexpectedly in the future. 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.
16
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 Max Worldwide. These systems and operations
are vulnerable to damage or interruption from human error, natural disasters,
terrorist attacks, telecommunication failures, break-ins, sabotage, computer
viruses, intentional acts of vandalism and similar unexpected adverse 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 our and Globix's ability to protect the systems in the
data centers against damage from fire, power loss, water damage,
telecommunications failure, vandalism and similar unexpected adverse events.
Although our Rockville, Maryland facility and Globix provide comprehensive
facilities management services, including human and technical monitoring of all
production servers 24 hours-per-day, seven days-per-week, neither facility can
guarantee that our Internet access will be uninterrupted, error-free or secure.
Any disruption in the Internet access to our Web sites 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 and communication
line 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 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 2009. 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.
17
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 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.
18
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 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 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 500 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.
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, 2002.
19
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, 2003, the last reported sales price of the common stock on the
Nasdaq National Market was $1.03. As of March 20, 2003, there were approximately
114 holders of record of our common stock.
HIGH LOW
-------- -------
FISCAL YEAR ENDED DECEMBER 31, 2001
First Quarter............................................... $ 3.00 $1.15
Second Quarter.............................................. $ 3.91 $0.99
Third Quarter............................................... $ 3.94 $1.05
Fourth Quarter.............................................. $ 3.61 $0.93
FISCAL YEAR ENDED DECEMBER 31, 2002
First Quarter............................................... $ 3.49 $2.25
Second Quarter.............................................. $ 4.00 $1.75
Third Quarter............................................... $ 2.00 $1.03
Fourth Quarter.............................................. $ 2.25 $1.25
FISCAL YEAR ENDED DECEMBER 31, 2003
First Quarter (through March 20, 2003)...................... $ 1.80 $0.85
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.
RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to the terms of an Amended and Restated Common Stock Purchase Agreement
(the "Stock Purchase Agreement"), we sold an aggregate of 2,000,000 unregistered
shares of common stock, par value $0.01 ("Common Stock") to select institutional
investors at a purchase price of $2.50 per share, resulting in gross proceeds of
$5,000,000. The transaction was consummated as to 500,000 shares and $1,250,000
in proceeds on December 31, 2001 and 1,500,000 shares and $3,750,000 in proceeds
on January 8, 2002. Pursuant to this private financing, the Company also issued
the purchasers four-year warrants to purchase an aggregate of 400,000 shares of
Common Stock at an exercise price of $2.875 per share. In connection with the
transaction, the Company paid a transaction fee to Atlas Capital Services, LLC
equal to 4.625% of the gross proceeds and issued Atlas a four-year warrant to
purchase 40,000 shares of Common Stock at an exercise price of $2.50 per share.
The securities were sold pursuant to an exemption provided in Section 4(2) of
the Securities Act of 1933 and Regulation D promulgated thereunder on the basis
that the transaction did not involve a public offering. The shares of common
stock referenced in this paragraph, along with the shares of common stock
issuable upon the exercise of the warrants referenced in this paragraph, were
registered for resale pursuant to a Registration Statement on Form S-3 which was
declared effective in February, 2002.
20
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, 2002 are derived from our audited
consolidated financial statements. The financial statements for, and as of the
end of, each of the years in the five-year period ended December 31, 2002 have
been audited by KPMG LLP, independent certified public accountants, and those
financial statements and the report thereon are included elsewhere in this or
previously filed Reports on Form 10-K. The auditors' report makes reference to a
change in our method of accounting for goodwill resulting from the adoption of
SFAS No. 142, "Goodwill and other Intangible Assets". 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,
--------------------------------------------------------------------
1998 1999 2000 2001 2002
---------- ----------- ----------- ------------ -----------
STATEMENT OF OPERATIONS
DATA:(1)
Revenues................... $1,822,555 $ 4,730,614 $ 9,741,669 $17,052,886 $16,170,834
Cost of revenues........... 619,475 1,489,585 3,021,615 4,448,968 2,632,192
---------- ----------- ----------- ------------ -----------
Gross profit............... 1,203,080 3,241,029 6,720,054 12,603,918 13,538,642
Operating expenses:
Selling, general and
administrative and
development.............. 3,175,246 7,264,124 13,295,912 12,964,558 12,315,113
Restructuring costs(2)..... -- -- -- 995,482 (182,428)
Amortization and
depreciation............. 116,767 893,614 3,484,491 4,767,121 2,880,067
Impairment of intangible
assets(3)................ -- -- 6,151,074 -- --
---------- ----------- ----------- ------------ -----------
Loss from operations....... (2,088,933) (4,916,709) (16,211,423) (6,123,243) (1,474,110)
Interest income (expense)
and other, net........... (132,291) 754,098 974,118 (665,068) (251,266)
---------- ----------- ----------- ------------ -----------
Loss before income taxes... (2,221,224) (4,162,611) (15,237,305) (6,788,311) (1,725,376)
Income tax expense......... 250 250 -- -- --
---------- ----------- ----------- ------------ -----------
Loss before cumulative
effect of change in
accounting principle....... (2,221,474) (4,162,861) (15,237,305) (6,788,311) (1,725,376)
Cumulative effect of change
in accounting principle (4) -- -- -- -- (9,316,884)
----------- ------------ ------------ ------------ -------------
Net loss.................. $(2,221,474) $(4,162,861) $(15,237,305) $(6,788,311) $(11,042,260)
=========== =========== =========== ============ ============
Loss before cumulative
effect of change in
accounting principle
per share - basic and
diluted................... $ (0.36) $ (0.42) $ (1.18) $ (0.46) $ (0.10)
Cumulative effect of change
in accounting principle per
share- basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.55)
---------- ----------- ----------- ------------ -----------
Net loss per share -
basic and diluted......... $ (0.36) $ (0.42) $ (1.18) $ (0.46) $ (0.65)
=========== =========== =========== ============ ===========
Weighted average shares
outstanding - basic and
diluted (5)........... 6,129,116 9,805,456 12,862,604 14,911,903 16,932,595
=========== =========== =========== ============ ===========
21
DECEMBER 31,
--------------------------------------------------------------------
1998 1999 2000 2001 2002
----------- ----------- ----------- ------------ -----------
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 148,380 $10,051,473 $ 2,283,811 $ 3,460,515 $ 5,549,934
Available-for-sale
investments.............. -- 14,534,836 1,497,930 -- --
Working capital
(deficit)................ (440,754) 23,529,849 3,703,935 46,388 2,457,545
Total assets............... 784,943 37,739,114 39,466,359 33,485,831 23,218,692
Long-term debt............. 1,473,858 -- 6,000,000 3,800,000 1,878,394
Stockholders' equity
(deficit)................(2,220,946) 35,086,383 29,483,401 23,960,410 16,369,994
(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) During the third quarter of 2001, we recognized restructuring costs which
were primarily comprised of expenses associated with the shut down of the
Kirkland, WA office. These costs include severance payments, non-recoverable
lease liabilities, loss on fixed assets, and the cost of non-cancelable service
contracts for operating expenses such as phone lines and equipment leases.
Restructuring costs also include severance expenses for certain FIS employees.
In 2002, a portion of these costs were reversed as certain contract terminations
were negotiated.
(3) 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 and its
acquisition of certain of the assets of Individual Investor Group including the
Web site InsiderTrader.com and related user data. Based on these reassessments,
we recorded impairment charges of $6.0 million. We also recorded an additional
impairment charge of $117,000 as we discontinued the use of the edgar.com URL.
(4) The Company adopted SFAS 142 effective January 1, 2002. This standard
requires that the company perform a transitional assessment to determine whether
there is an impairment of goodwill. The assessment indicated that goodwill
associated with the FIS acquisition was impaired and accordingly the Company
recognized a non-cash charge as the cumulative effect of a change in accounting
principle for the write-down of goodwill to its fair value.
(5) 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 securities outstanding were 1,130,000,
1,302,758, 1,900,105, 2,806,060, and 3,124,643 for the years ended December 31,
1998, 1999, 2000, 2001 and 2002 respectively.
22
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.
OVERVIEW
We are a provider of financial information derived from U.S. Securities and
Exchange Commission data and a developer of financial and business system
solutions. We sell to the corporate market and Internet portals as well as
running five 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 derive revenues from four primary sources: contracts with corporate customers
for customized data, seat based subscriptions to our Web site services, sale of
our technical services to construct and/or operate the technical systems our
customers use to integrate our data and data from other sources into their
products and services, and advertising and other e-commerce based revenues.
Revenue from data sales is recognized over the term of the contract or, in the
case of certain up-front fees, over the estimated customer relationship period.
Revenue from seat-based subscriptions is recognized ratably over the
subscription period, which is typically three or twelve months. Revenue from
technical services is recognized in the period services are rendered.
Advertising and e-commerce revenue is recognized as the services are provided.
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 $28.1
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 $0.8 million in
cash for the payment of fees and acquisition related expenses. The acquisition
was accounted for under the purchase method of accounting and accordingly the
estimated fair value of FIS' assets and liabilities and the operating results of
FIS from the effective date of the acquisition have been included in the
accompanying financial statements. Certain of the notes were subsequently
restructured to provide for the following schedule of principal repayments:
$1,900,000 which was made on April 1, 2002, $1,900,000 on April 1, 2003 and
$1,900,00 on January 2, 2004.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
REVENUES
Revenues decreased 5% to $16.2 million for the year ended December 31, 2002,
from $17.1 million for the year ended December 31, 2001. The net decrease in
revenues is primarily attributable to a $2.5 million, or 37%, decrease in
technical services revenues to $4.3 million in 2002 from $6.8 million in 2001, a
$112,000, or 8%, decrease in advertising and e-commerce revenues to $1.4 million
in 2002 from $1.5 million in 2001, and a $36,000, or 1%, decrease in data sales
which were partially offset by a $1.8 million, or 52%, increase in seat-based
subscriptions to $5.1 million in 2002 from $3.4 million in 2001.
The $2.5 million decrease in technical services revenue is primarily due to the
discontinuance of services to non-core consulting clients. In 2002, as part of
completing the integration of the FIS acquisition, we shifted some of the
technology resources formerly devoted to consulting services to support the
growth of our higher margin data and web businesses. Technical services revenues
represented 27% of revenues for the year ended December 2002, compared to 40% of
revenues in the prior year. Technical services revenues are expected to continue
to decrease as the Company anticipates an approximate $1.0 million reduction in
revenues related to Nasdaq work orders in the second half of 2003.
23
The $112,000 decrease in advertising and e-commerce revenues is primarily due
to the decrease in advertising impressions and rates and reflects the
significant decline in the online and overall advertising industry that has
taken place in the past year. The decrease was partially offset by the addition
of list rentals and sales of third party data in 2002. Advertising and
e-commerce represented 8% of revenues for the year ended December 31, 2002,
compared to 9% of revenues in the prior year.
The $36,000 net decrease in data sales results as the number of corporate
contracts decreased to 191 at December 31, 2002, from 215 at December 31, 2001.
The decrease in the number of contracts was offset by contracts added during the
year with greater average annual values than the contracts that were terminated.
Data sales represented 33% of revenues for the year ended December 31, 2002,
compared to 32% of revenues in the prior year.
The $1.8 million increase in seat-based subscription revenue is due to the
increase in the number of seat-based contracts and individual accounts, as well
as an increase in the average price per seat. The number of subscribers
increased to approximately 26,500 as of December 31, 2002 from approximately
23,500 as of December 31, 2001. Sales leads, which were primarily provided by
the traffic to our web sites and free to fee initiatives, contributed to the
increase in new seats sold. Seat-based subscriptions represented 32% of revenues
for the year ended December 31, 2002 compared to 20% in the prior year.
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 certain 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 decreased
$1.8 million or 41% to $2.6 million for the year ended December 31, 2002, from
$4.4 million for the year ended December 31, 2001. The decrease in cost of
revenues is primarily attributable to a decrease in software and Web site
maintenance, content feeds and communications lines, as well as the reassignment
of certain previously billable employees to the development team. Gross margins
increased to 84% for the year ended December 31, 2002 from 74% for the year
ended December 31, 2001.
OPERATING EXPENSES
Selling and Marketing. Sales and marketing expenses consist primarily of
salaries and benefits, sales commissions, advertising expenses, public
relations, and costs of marketing materials. Sales and marketing expenses
decreased $87,000 or 4% to $2.3 million for the year ended December 31, 2002
from $2.4 million for the year ended December 31, 2001. As a percentage of
revenues, sales and marketing expenses remained consistent at 14% for the years
ended December 31, 2002 and 2001, respectively. The net decrease in sales and
marketing expenses in dollar terms resulted from a reduction in our advertising
spending and marketing campaigns offset by the addition of sales people in 2002.
Development. Development expenses increased $96,000 or 4% to $2.2 million for
the year ended December 31, 2002 from $2.1 million for the year ended December
31, 2001. As a percentage of revenues, development expenses increased to 14% for
the year ended December 31, 2002 from 13% for the year ended December 31, 2001.
The net increase in development is primarily due to the reassignment of certain
previously billable employees from cost of sales to the development team which
was offset by a reduction in expenses resulting from the closing of the
Kirkland, WA office.
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
decreased $658,000 or 8% to $7.8 million for the year ended December 31, 2002
from $8.4 million for the year ended December 31, 2001. As a percentage of
revenues, general and administrative expenses decreased to 48% for the year
ended December 31, 2002 from 49% for the year ended December 31, 2001. The
decrease in general and administrative expenses was primarily due to a decrease
in personnel, professional service fees and general corporate expenses. These
decreases were offset by costs incurred in association with a terminated
proposed transaction.
24
Restructuring Costs. During the second quarter of 2001, the Company recorded a
$912,000 pre-tax charge associated with the shut down of the Kirkland, WA
office. These costs include severance payments, non-recoverable lease
liabilities, loss on fixed assets, and the cost of non-cancelable service
contracts for operating expenses such as phone lines and equipment leases. The
Company recorded an additional $84,000 in September 2001 related to severance
expenses for certain FIS employees. In 2002, the Company negotiated certain
contract terminations, thereby eliminating $182,000 of future obligations. The
Company anticipates that an additional $800,000 of restructuring costs will be
incurred in the first quarter of 2003. These estimated costs consist of employee
severance associated with a 17% work force reduction and severance related to a
Separation and Release Agreement with the Company's former President and Chief
Operating Officer.
Depreciation and Amortization. Depreciation and amortization expenses include
the depreciation of property and equipment and the amortization of goodwill and
intangible assets. Depreciation and amortization decreased $1.9 million, or 40%,
to $2.9 million for the year ended December 31, 2002, from $4.8 million for the
year ended December 31, 2001. As a percentage of revenues, depreciation and
amortization decreased to 18% for the year ended December 31, 2002, from 28% for
the year ended December 31, 2001. The decrease in depreciation and amortization
is due to the adoption of SFAS 142 which requires that goodwill no longer be
amortized, as well as the retirement of assets associated with the shut down of
the Kirkland, WA office. The elimination of goodwill amortization resulted in a
decrease in amortization expense of $1.6 million or $0.09 per share for the year
ended December 31, 2002.
Cumulative Effect of Change in Accounting Principle. As required by SFAS No.
142, which was adopted by the Company effective January 1, 2002, the Company
performed a transitional assessment to determine whether there was an impairment
of goodwill at the effective date. Based on this assessment, the Company
recognized a $9.3 million non-cash charge, measured as of January 1, 2002, as
the cumulative effect of a change in accounting principle for the write-down of
goodwill to its fair value. The impaired goodwill was not deductible for tax
purposes, and as a result, no tax benefit has been recorded in relation to the
change.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
REVENUES
Revenues increased 75% to $17.1 million for the year ended December 31, 2001,
from $9.7 million for the year ended December 31, 2000. The growth in revenues
is primarily attributable to a $2.0 million, or 60%, increase in data sales to
$5.4 million in 2001 from $3.4 million in 2000, a $5.7 million, or 503%,
increase in technical services to $6.8 million in 2001 from $1.1 million in 2000
and a $1.2 million, or 53%, increase in seat-based subscriptions to $3.4 million
in 2001 from $2.2 million in 2000, offset by a $1.5 million, or 51%, decrease in
advertising and e-commerce revenues to $1.5 million in 2001 from $3.0 million in
2000.
The $2.0 million increase in data sales is due to an increase in the number of
corporate contracts to 215 at December 31, 2001, from 152 at December 31, 2000.
The addition of new products, such as fundamental data and institutional
holdings, as well as an increase in the number of salespeople also contributed
to the increase in new corporate contracts. Data sales represented 32% of
revenues for the year ended December 31, 2001, compared to 35% of revenues in
the prior year.
The $5.7 million increase in technical services resulted from new contracts to
provide these services which were assigned to us in connection with the FIS
acquisition effective November 1, 2000. Sales of our technical services were
fully reflected in the year ended December 31, 2001 as compared to only two
months in the prior year. Technical services represented 40% of revenues for the
year ended December 31, 2001, compared to 12% of revenues in the prior year.
The $1.2 million increase in seat-based subscriptions is due to the increase in
the number of seat-based contracts and from an increase in individual accounts.
The number of subscribers increased to approximately 23,500 as of December 31,
2001, from approximately 16,000 as of December 31, 2000. Sales leads, which were
primarily provided by the traffic to our Web sites and our free to fee
initiatives, contributed to the increase in new seats sold. Seat-based
subscriptions represented 20% of revenues for the year ended December 31, 2001,
compared to 23% of revenues in the prior year.
The $1.5 million decrease in advertising and e-commerce revenues is primarily
due to the decrease in advertising rates and reflects the significant decline in
the online and overall advertising industry that has taken place in the past
year. Advertising and e-commerce represented 8% of revenues for the year ended
December 31, 2001, compared to 30% of revenues in the prior year.
25
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 certain 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
$1.4 million, or 47%, to $4.4 million for the year ended December 31, 2001, from
$3.0 million for the year ended December 31, 2000. The $1.4 million increase in
cost of revenues is primarily attributable to the FIS acquisition ($2.5 million)
offset by a decrease in software and Web site maintenance, content feeds and
communications lines. Gross margins increased to 74% for the year ended December
31, 2001, from 69% for the year ended December 31, 2000.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and benefits, sales commissions, advertising expenses, public relations, and
costs of marketing materials. Sales and marketing expenses decreased $2.2
million, or 48%, to $2.4 million for the year ended December 31, 2001, from $4.6
million for the year ended December 31, 2000. As a percentage of revenues, sales
and marketing expenses decreased to 14% for the year ended December 31, 2001,
from 47% for the year ended December 31, 2000. The $2.2 million decrease in
sales and marketing expenses was due to a reduction in our advertising spending
and marketing campaign. The decrease in sales and marketing expenses as a
percentage of revenue is primarily due to the addition of revenue from FIS which
has a smaller percentage of revenue dedicated to sales and marketing as compared
to our existing business. We expect sales and marketing expenses to increase as
we continue to hire additional sales personnel.
Development. Development expenses decreased $229,000, or 10%, to $2.1 million
for the year ended December 31, 2001 from $2.4 million for the year ended
December 31, 2000. As a percentage of revenues, development expenses decreased
to 13% for the year ended December 31, 2001, from 24% for the year ended
December 31, 2000. The $229,000 decrease in development expenses is due to the
closing of the Kirkland, WA office, as well as internalizing development
expenses previously outsourced. The decrease as a percentage of revenues is the
result of the addition of revenue from FIS which has a smaller percentage of
revenue dedicated to development as compared to our existing business.
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 $2.1 million, or 33%, to $8.4 million for the year ended December 31,
2001, from $6.3 million for the year ended December 31, 2000. As a percentage of
revenues, general and administrative expenses decreased to 49% in the year ended
December 31, 2001, from 64% for the year ended December 31, 2000. The $2.1
million increase in general and administrative expenses was primarily due to the
FIS acquisition ($2.7 million) offset by a decrease in personnel, professional
service fees and general corporate expenses. The decrease in general and
administrative expenses as a percentage of revenue is due to the addition of FIS
revenue which has a smaller percentage of revenue dedicated to general and
administrative as compared to our existing business.
Depreciation and Amortization. Depreciation and amortization expenses include
the depreciation of property and equipment and the amortization of goodwill and
intangible assets. Depreciation and amortization increased $1.3 million, or 37%,
to $4.8 million for the year ended December 31, 2001, from $3.5 for the year
ended December 31, 2000. As a percentage of revenues, depreciation and
amortization decreased to 28% for the year ended December 31, 2001, from 36% for
the year ended December 31, 2000. The increase in depreciation and amortization
in dollar terms is due to the additional amortization expense related to the FIS
acquisition and the increase in property and equipment.
Loss on Investment. Loss on investment represents a one-time non-cash charge
associated with the write-off of an equity investment made in 2000 as we have
determined that the fair value of the investment is $0 due to historical and
projected declines in the operating results of the company in which the
investment was made. This investment was accounted for under the cost method.
26
Restructuring Costs. Restructuring costs are primarily comprised of expenses
associated with the shut down of the Kirkland, WA office. These costs include
severance payments, non-recoverable lease liabilities, loss on fixed assets, and
the cost of non-cancelable service contracts for operating expenses such as
phone lines and equipment leases. Restructuring costs also include severance
expenses for certain FIS employees.
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.
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR.31, JUNE 30, SEPT. 30, DEC. 31,
2001 2001 2001 2001 2002 2002 2002 2002
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
(UNAUDITED)
REVENUE SOURCES:
Data sales ................. $1,267,501 $1,172,235 $1,435,979 $1,540,178 $1,442,478 $1,360,125 $1,353,351 $1,224,295
Seat-based
subscriptions ............ 648,461 717,420 952,746 1,068,663 1,108,133 1,254,537 1,382,189 1,402,949
Technical services ......... 1,920,105 1,923,268 1,596,524 1,342,468 1,143,133 1,101,833 1,020,468 1,021,853
Advertising and
e-commerce ............... 446,905 342,498 271,520 406,415 391,869 398,643 305,602 259,376
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total ...................... $4,282,972 $4,155,421 $4,256,769 $4,357,724 $4,085,613 $4,115,138 $4,061,610 $3,908,473
========== ========== ========== ========== ========== ========== ========== ==========
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,566,038 and $64,485 for the
years ended December 31, 2002 and 2001, respectively. We have historically
financed these activities through private debt placements and the sale of equity
securities to investors. We continue to focus on growing our corporate customer
base and implemented recent and forthcoming expense reductions. We expect to
yield positive cash flows from operations, although less than that which was
provided from operations during the year ended December 31, 2002, although no
assurance can be given that the Company will yield positive cash flows.
Capital expenditures, primarily for computers, office and communications
equipment, totaled $317,793 for the year ended December 31, 2002 and $598,832
for the year ended December 31, 2001. The purchases were required to support our
expansion and increased infrastructure.
In December 2001 and January 2002, we consummated a private sale of common stock
and warrants to certain institutional investors. Pursuant to these transactions,
we sold an aggregate of 2,000,000 shares of Common Stock, at a purchase price of
$2.50 per share, along with four-year warrants to purchase an aggregate of
400,000 shares of Common Stock at an exercise price of $2.875 per share
resulting in gross proceeds of $5,000,000.
On March 28, 2003, the Company entered into a Separation and Release Agreement
with the Company's former President and Chief Operating Officer. Under the
Agreement, the Company will make payments of $340,000 in 2003, $170,000 in 2004,
and $42,000 in 2005 or thereafter. The Company will also make three payments of
$60,972 to a deferred compensation plan, one payment per year in 2003, 2004 and
2005. On March 31, 2003, the Company announced a plan to align the Company's
cost structure with current business conditions. These conditions include an
anticipated reduction in technical services revenues related to the Nasdaq
contract in the second half of 2003 by approximately $1 million. The plan
provides for a reduction in workforce of 17%. The Company anticipates that the
restructuring actions will reduce operating expenses on an annualized basis by
approximately $1.2 to $1.3 million. The Company expects to incur restructuring
charges of approximately $800,000 in the quarter ended March 31, 2003 consisting
of employee severance associated with the work force reduction and the
Separation and Release Agreement with the Company's former President and Chief
Operating Officer.
At December 31, 2002, we had cash and cash equivalents on hand of $5,549,934. We
believe that our existing capital resources and cash generated from operations
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.
27
In connection with our acquisition of FIS, we issued $6,000,000 in promissory
notes to the former owners of FIS ("FIS Notes"). The FIS Notes were originally
scheduled to mature on October 27, 2002. In March 2002, we concluded
negotiations to extend the maturity date of the FIS Notes. Based on these
negotiations, holders of $5,700,000 in principal amount of FIS Notes agreed to
amend and restate their notes to provide for, among other things, the following
schedule of principal payments: $1,900,000 which was made on April 1,2002,
$1,900,000 on April 1, 2003 and $1,900,000 on January 2, 2004. If cash generated
from operations is insufficient to satisfy these revised debt repayment terms,
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. Our
future contractual obligations at December 31, 2002 were as follows:
2007 AND
2003 2004 2005 2006 THEREAFTER
------ ------ ------ ---- ----------
Notes payable and interest................ $2,104 $1,927 $ -- $ -- $ --
Operating leases.......................... 845 835 730 313 $ 56
------ ------ ------ ---- ----
$2,949 $2,762 $ 730 $313 $ 56
====== ====== ====== ==== ====
The Company intends to fund these obligations from its cash on hand at December
31, 2002, as well as through future operating cash flows.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
is based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. Actual
results may vary from these estimates under different assumptions or conditions.
On an on-going basis, we evaluate our estimates, including those related to the
allowance for doubtful accounts, estimated useful lives of intangible assets and
the determination of restructuring obligations. We base our estimates on
historical experience, business practices and corporate policies, contractual
provisions and various other assumptions that are believed to be reasonable
under the circumstances.
We believe the following critical accounting policies affect our significant
judgments and estimates used in the preparation of our financial statements. We
maintain an allowance for doubtful accounts for estimated losses resulting from
the inability of customers to make payments and for sales allowances. If the
financial conditions of our customers deteriorate or there are specific factors
resulting from the specific type of product or customer class inability to make
payments, additional allowances will be required. We establish the estimated
useful lives of our intangible assets based on a number of factors, which is in
part based on our assessments of the technology and customer relationships
acquired. If these estimates change, the estimated useful lives of our
intangibles may require adjustment. We test goodwill annually and between annual
tests if events occur or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. These
evaluations are done with the assistance of an independent valuation firm and
include assumptions regarding future cash flows, growth rates, and discount
rates. Subsequent reviews may result in future periodic impairments that could
have a material adverse effect on the results of operations in the period
recognized. We have reduced our deferred tax assets to an amount that we believe
is more likely than not to be realized. In so doing, we have estimated future
taxable losses in determining the valuation allowance.
28
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, 2002, we had no available-for-sale
investments and as a result, 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.
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 2002 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, 2003, the directors and executive officers of EDGAR Online, Inc.
were as follows:
NAME AGE POSITION
- ---- --- --------
Susan Strausberg(1)......... 63 Chief Executive Officer, President,
Secretary and Director
Marc Strausberg(1).......... 67 Chairman of the Board and Director
Greg D. Adams............... 41 Chief Financial Officer and Chief Operating
Officer
Paul Sappington............. 40 Chief Software Officer and Vice President
Jay Sears................... 36 Senior Vice President of Business Strategy and
Development
Bruce Bezpa (2)(3).......... 47 Director
Stefan Chopin (2)........... 43 Director
Mark Maged (3).............. 71 Director
Douglas McIntyre (2)(3)..... 48 Director
Tom Vos .................. 55 Director
(1) Member of the Outside Directors Compensation Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
29
Susan Strausberg, a co-founder of EDGAR Online, has served as a member of the
Board of Directors, Chief Executive Officer and Secretary since EDGAR Online was
formed in November 1995 and as President since January 2003. From December 1994
until the formation of EDGAR Online, Ms. Strausberg was a consultant to Internet
Financial Network. Ms. Strausberg served on the Board of Directors of RKO
Pictures from December 1998 to May 2001. Ms. Strausberg, the wife of Mr. Marc
Strausberg, EDGAR Online's Chairman, holds 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, the husband of Ms. Susan Strausberg, EDGAR Online's Chief Executive
Officer and President, holds a B.A. degree from Muhlenberg College.
Greg D. Adams joined EDGAR Online as Chief Financial Officer in March 1999 and
became Chief Operating Officer in January 2003. 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 Senior Vice
President -- 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 holds a B.B.A.
degree in Accounting from the College of William & Mary.
Paul Sappington joined EDGAR Online as Vice President following EDGAR Online's
acquisition of FIS in October 2000 and was named Chief Software Officer of EDGAR
Online in August 2001. Mr. Sappington joined FIS in 1999 and served as Senior
Project Manager from 1999 until October 2000. Mr. Sappington also served as
Project Manger (1997-1999), Manager of Software Development (1992-1997) and
Senior Software Engineer (1987-1992) of the Research division of Thomson
Financial (formally CDA Investment Technologies Inc.), a provider of computer
related financial services to the institutional community. Mr. Sappington holds
a B.S. degree from Bridgewater College.
Jay Sears joined EDGAR Online as Vice President of Marketing Business and
Development in May 1997. He is currently Senior Vice President of Business
Strategy and Development for EDGAR Online. 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
holds B.A. degree from Kenyon College.
Bruce Bezpa joined EDGAR Online as a member of the Board of Directors in March
1999. Mr. Bezpa is currently Vice President of Marketing for Command Financial
Press, a leading financial printer. Prior to joining Command in October of 2001,
Mr. Bezpa provided consulting services with a focus on strategic development and
helping companies create value. Previously, he had worked for Bowne & Co., Inc.,
a New York based financial printer for 15 years in various capacities including
as Vice President of Strategic Development from July 1996 to October 1999,
Director of Mutual Funds Services from August 1994 to June 1996 and Director of
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.
He is currently the President of Pequot Group, Inc., a technology development
company for the financial services industry. Previously, Mr. Chopin was 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
Chief Executive Officer of Pequot Systems, Inc., a software development and
consulting firm. In October 1998, Pequot was acquired by iXL Enterprises, Inc.
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.
30
Mark Maged joined EDGAR Online as a member of the Board of Directors in March
1999. Since 1992, 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.
Douglas McIntyre joined EDGAR Online as a member of the Board of Directors in
January 2003. He is currently the Chairman, President and Chief Executive
Officer of On2 Technologies, a leading technology firm at the forefront of video
compression. From 1998 to March of 2000, he served as President and Chief
Executive Officer of FutureSource L.L.C., a software and data vendor to the
securities industry. From 1996 to 1997, he served as President of
Switchboard.com Inc., a provider of directory technology and online yellow page
solutions. Mr. McIntyre is a member of the Board of Directors of TheStreet.com.
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 and
served until January 2003. From September 1986 until March 1998, Mr. Vos was
Vice President of Marketing at Bowne & Co., Inc ("Bowne"). 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 holds 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.
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 2002 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, we
believe that all required reports for fiscal 2002 have been timely filed.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for the
fiscal years ended December 31, 2002, 2001 and 2000 by our Chief Executive
Officer and our five most highly compensated executive officers (other than our
Chief Executive Officer) (collectively, the Named Executive Officers).
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
---------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(3) OPTIONS (#)
- --------------------------- ---- -------- ------- ------- ------------
Susan Strausberg............................... 2002 $152,923 -- -- 14,000
President and Chief Executive Officer 2001 $149,654 -- -- 47,500
2000 $150,000 $20,000 -- 35,000
Marc Strausberg................................ 2002 $146,885 -- -- 14,000
Chairman 2001 $149,654 -- -- 47,500
2000 $150,000 $20,000 -- 35,000
Tom Vos (1).................................... 2002 $149,904 -- -- 14,000
Former President and Chief Operating Officer 2001 $149,173 -- -- 47,500
2000 $125,000 $20,000 -- 70,000
Greg Adams..................................... 2002 $149,904 -- $43,049 14,000
Chief Financial Officer and 2001 $149,173 -- $ 8,100 47,500
Chief Operating Officer 2000 $125,000 $20,000 $ 8,100 70,000
Jay Sears...................................... 2002 $138,538 -- $ 6,000 12,500
Senior Vice President 2001 $137,923 -- $ 5,579 15,000
of Business and Strategy Development 2000 $125,000 $20,000 $ 5,100 65,000
Paul Sappington(2)............................. 2002 $138,907 -- -- 62,500
Chief Software Officer and Vice President 2001 $136,098 -- -- 36,000
2000 $ 23,366 $ 5,000 -- --
31
(1) Effective January 27, 2003, Ms. Strausberg assumed the responsibilities of
President and Mr. Adams assumed the responsibilities of Chief Operating Officer.
Mr. Vos is a member of the Board of Directors and a consultant to the Company.
(2) Mr. Sappington joined EDGAR Online as Chief Software Officer and Vice
President on October 30, 2000 at a salary of $140,000 per annum.
(3) Other compensation includes commutation allowances and a commission paid to
Mr. Adams for certain sales.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during 2002. We have never granted any
stock appreciation rights.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
-------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE PER OPTION TERM(3)
OPTIONS EMPLOYEES IN SHARE --------------------
NAME GRANTED 2002(2) ($) EXPIRATION DATE 5% 10%
- ------------------------------ ---------- ------------- --------- ---------------- -------- ---------
Susan Strausberg.............. 14,000 3.30% $3.60 January 28, 2007 --(4) --(4)
Marc Strausberg............... 14,000 3.30% $3.60 January 28, 2007 --(4) --(4)
Tom Vos....................... 14,000 3.30% $3.27 January 28, 2012 --(4) $ 18,493
Greg Adams.................... 14,000 3.30% $3.27 January 28, 2012 --(4) $ 18,493
Jay Sears..................... 12,500 2.95% $3.27 January 28, 2012 --(4) $ 16,512
Paul Sappington............... 12,500 2.95% $3.27 January 28, 2012 --(4) $ 16,512
50,000 11.80% $3.25 April 5, 2012 --(4) $ 67,046
(1) Each option represents the right to purchase one share of common stock. The
options shown in this table were all granted under our 1996 or 1999 Stock Option
Plan, as amended.
(2) In the year ended December 31, 2002, we granted options to employees to
purchase an aggregate of 423,775 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, 2002 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.
32
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 2002 AT DECEMBER 31, 2002(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Susan Strausberg...................... 42,916 53,584 $6,300 $6,300
Marc Strausberg....................... 42,916 53,584 $6,300 $6,300
Tom Vos............................... 362,918 68,583 $311,538 $7,538
Greg Adams............................ 194,955 61,546 $7,538 $7,538
Jay Sears............................. 138,334 44,166 $98,800 --
Paul Sappington....................... 15,500 83,000 $7,035 $7,035
(1) The fair market value of the common stock as of December 31, 2002 was $1.77.
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 a minimum 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 EDGAR Online) 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. In connection with Ms Strausberg assuming the
additional responsibilities of President, the Company and Ms. Strausberg
executed an amendment to her employment agreement dated March 17, 2003. Pursuant
to such amendment, Ms. Strausberg's annual compensation was increased to
$220,000 per annum and Ms. Strausberg was provided with a commutation allowance
equal to $1,750 per month.
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 a minimum 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 EDGAR Online) 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. The Company and Mr. Strausberg executed an amendment to
his employment agreement dated March 17, 2003. Pursuant to such amendment, Mr.
Strausberg's annual compensation was decreased to $100,000 per annum and Mr.
Strausberg was provided with a commutation allowance equal to $1,750 per month.
We entered into a five-year amended and restated employment agreement dated June
29, 2001 with Tom Vos to serve as President and Chief Operating Officer. In
March 2003, the Company and Mr. Vos entered into a Separation and Release
Agreement (the "Separation Agreement") pursuant to which Mr. Vos' employment
terminated with the Company as of February 24, 2003. Pursuant to the Separation
Agreement, the Company has agreed to pay Mr. Vos the following payments (i)
$250,000 on or before April 16, 2003, (ii) $50,000 on or before January 15,
2004, (iii) $210,000 in 21 consecutive monthly installments of $10,000
commencing on or before April 16, 2003 and (iv) $42,000 in six (or fifteen at
Mr. Vos' election) equal installments consistent with the Company's
group payroll dates commencing January 2005. All of the foregoing payments are
immediately due and payable upon a change of control (as defined in the
employment agreement with Mr. Vos) of the Company or upon death. Mr. Vos shall
also have the right on or after June 30, 2004 to demand payment in full of
payments then remaining due to him under the Separation Agreement, in which
case all other benefits due Mr. Vos shall terminate. The Company is also
obligated to make scheduled payments in 2003, 2004 and 2005 to the Deferred
Compensation Plan established for the benefit of Mr. Vos pursuant to the June
29, 2001 agreement. All stock options issued to Mr. Vos shall be fully vested as
of April 25, 2003 and shall be exercisable through June
33
30, 2005. Pursuant to the Separation Agreement, Mr. Vos agreed (i) to make
himself available as a consultant on an as-needed basis at the request of the
Company from April 25, 2003 through June 30, 2005 and (ii) to non-compete and
non-solicitation provisions which are effective through March 31, 2004.
We entered into a three-year amended and restated employment agreement dated
February 1, 2002 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 a minimum 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. Adams's employment is terminated (either by him or
EDGAR Online) within one year thereafter, Mr. Adams 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. In
connection with Mr. Adams assuming the additional responsibilities of Chief
Operating Officer, the Company and Mr. Adams executed an amendment to his
employment agreement dated February 17, 2003. Pursuant to such amendment, Mr.
Adams' annual compensation was increased to $195,000 per annum.
We entered into a three-year amended and restated employment agreement dated
April 13, 2001 with Jay Sears. The agreement provides Mr. Sears with a minimum
annual salary of $135,000 and an annual bonus at the discretion of the Board of
Directors. If Mr. Sears' employment is terminated without cause, or in the event
of a change of control (as defined in the agreement) we will pay him eighteen
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.
We entered into a three-year amended and restated employment agreement dated
August 1, 2001 with Paul Sappington. The agreement provides Mr. Sappington with
a minimum annual salary of $140,000 and an annual bonus at the discretion of the
Board. If Mr. Sappington's employment is terminated without cause, or in the
event of a change of control (as defined in the agreement) we will pay him a
severance benefit equal to the product of 1.5 times his annual salary plus 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 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 our 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.
34
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 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, to 1,900,000 at the Annual
Shareholder meeting held August 1, 2001 and to 2,400,000 at the Annual
Shareholder Meeting held on August 1, 2002. 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 15,000 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.
EQUITY COMPENSATION PLAN INFORMATION (as of December 31, 2002)
PLAN CATEGORY NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE FOR
EXERCISE OF OUTSTANDING OUTSTANDING OPTIONS, FUTURE ISSUANCE UNDER
OPTIONS, WARRANTS AND RIGHTS WARRANTS AND RIGHTS EQUITY COMPENSATION PLANS
(excluding securities
reflected in column (a)
(a) (b) (c)
- -----------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 2,333,344 (1) $3.09 959,698 (2)
- -----------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security holders 0 0 0
- -----------------------------------------------------------------------------------------------------
Total 2,333,344 $3.09 959,698
- -----------------------------------------------------------------------------------------------------
(1) Includes 661,455 options issued and outstanding in the 1996 Stock Option
Plan with an average exercise price of $2.37 per share, 1,622,967 options issued
and outstanding under the 1999 Stock Option Plan with an average exercise price
of $3.43 per share, 3,922 options issued and outstanding under the FreeEDGAR
Stock Option Plan with an average exercise price of $3.29 and 45,000 options
issued and outstanding in the 1999 Outside Director Plan with an average
exercise price of $1.75 per share.
(2) Includes 69,545 shares available for issuance under the 1996 Stock Option
plan, 741,158 shares available for issuance under the 1999 Stock Option Plan,
93,995 shares available for issuance under the FreeEDGAR Stock Option Plan and
55,000 shares available for issuance under the 1999 Outside Directors Stock
Option Plan.
35
As of March 20, 2003, 800,000 options were authorized under the 1996 Plan and
options to purchase 718,955 shares were outstanding and 12,045 options were
available for future grants. As of March 20, 2003, 2,400,000 options were
authorized under the 1999 Plan, options to purchase 1,784,947 shares were
outstanding and 579,178 options were available for future grants. As of March
20, 2003, 100,000 options were authorized under the 1999 Outside Directors Stock
Option Plan, 60,000 options to purchase shares had been granted and 40,000
options were available for future grants. As of March 20, 2003, 100,000 options
were authorized under the FreeEDGAR Stock Option Plan and 3,922 shares were
outstanding. No future grants will be made 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 had business and financial
relationships with iXL Enterprises, Inc. Stefan Chopin served as a Vice
President of iXL Enterprises, Inc during 2001. Our relationship with iXL is
described below.
PEQUOT SYSTEMS (IXL)
From our inception through February 2001, we 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 1998, Pequot was acquired by
iXL, an unrelated company. In 2002, 2001, and 2000, we paid iXL a total of $0,
$164,216, and $2,725,770, respectively, for services provided. As a result of
the acquisition of Pequot by iXL, 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 and serves as
chairman of the Compensation Committee. We believe that the terms of our
agreements with Pequot and iXL were beneficial to EDGAR Online and no less
favorable to EDGAR Online than terms which might have been available to us from
unaffiliated third parties.
DIRECTOR COMPENSATION
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 under the 1996 Plan. 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 under the 1999
Plan. In August 2002, each of our non-employee directors were granted options to
purchase 15,000 shares of our common stock at a price of $1.75 per share under
our 1999 Outside Directors Stock Option Plan. In November 2002, a Mergers and
Acquisition Committee was formed consisting of Bruce Bezpa, Stefan Chopin and
Mark Maged, our then current outside directors to explore a proposed
transaction. Each member of the committee was paid $7,500 in 2002 and $7,500 in
2003. The transaction was not consummated, and no further payments are due to
the members of this committee, which has since been terminated. In January 2003,
Douglas McIntyre was granted options to purchase 15,000 shares of our common
stock at a price of $1.42 under 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, 2003 (unless otherwise
noted) by (1) each of our directors, including our Chief Executive Officer, (2)
our five most highly compensated executive officers, other than our Chief
Executive Officer, who were serving as executive officers at the end of 2002,
(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.
36
PERCENT
NUMBER OF OF
NAME OF BENEFICIAL OWNER SHARES (1) CLASS
- ------------------------ ---------- -------
EXECUTIVE OFFICERS AND DIRECTORS:
Susan Strausberg(2)....................................... 2,888,160 16.87%
Marc Strausberg(3)........................................ 2,888,160 16.87%
Tom Vos(4)................................................ 492,584 2.84%
Greg Adams(5)............................................. 283,299 1.65%
Jay Sears(6).............................................. 160,834 *
Paul Sappington(7)........................................ 79,167 *
Stefan Chopin(8)(9)...................................... 307,717 1.81%
35 Godfrey Road
Weston, CT 06883
Bruce Bezpa(9)........................................... 20,715 *
405 Patton Avenue
Piscataway, NJ 08854
Mark Maged(9)............................................ 37,643 *
Rue Kwadeplas, 55
1640 Rhode Saint Genese
Belguim
Douglas McIntyre.......................................... 1,000 *
33 Highview Road
Pound Ridge, NY 10576
All executive officers and directors as a group(10
persons)............................................... 4,271,119 23.81%
OTHER 5% STOCKHOLDERS:
Albert Girod(10).......................................... 1,647,090 9.69%
11105 South Glen Rd.
Potomac, MD 02085
Bowne & Co., Inc.......................................... 1,000,000 5.88%
345 Hudson Street
New York, NY 10014
Par Investment Partners, L.P(11).......................... 852,930 5.02%
One Financial Center, Ste 1600
Boston, MA 02111
Austin W. Marxe/David Greenhouse(12)....................... 2,938,404 17.03%
153 East 53rd Street
New York, NY 10021
* 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, 2003 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 174,700 shares owned by Ms. Strausberg's husband, Marc Strausberg,
EDGAR Online's Chairman of the Board and 2,550,426 shares owned by TheBean LLC
as well as 55,917 shares issuable upon exercise of options exercisable within 60
days of March 20, 2003 and 55,917 shares issuable upon exercise of options
exercisable within 60 days of March 20, 2003 owned by Ms. Strausberg's husband,
Marc Strausberg. 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.
37
(3) Includes 51,200 owned by Mr. Strausberg's wife, Susan Strausberg, EDGAR
Online's Chief Executive Officer and 2,550,426 shares owned by TheBean LLC as
well as 55,917 shares issuable upon exercise of options exercisable within 60
days of March 20, 2003 and 55,917 shares issuable upon exercise of options
exercisable within 60 days of March 20, 2003 owned by Mr. Strausberg's wife,
Susan Strausberg. 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 352,584 shares issuable upon exercise of options exercisable within
60 days of March 20, 2003.
(5) Includes 217,584 shares issuable upon exercise of options exercisable within
60 days of March 20, 2003.
(6) Includes 160,834 shares issuable upon exercise of options exercisable within
60 days of March 20, 2003.
(7) Includes 49,667 shares issuable upon exercise of options exercisable within
60 days of March 20, 2003.
(8) Includes shares owned jointly with Barbara Chopin, his wife.
(9) Includes 15,000 shares issuable upon exercise of options exercisable within
60 days of March 20, 2003.
(10) Reflects amount derived from this person's Form 4 filed with the SEC on
March 4, 2003.
(11) Reflects amount derived from this entity's Schedule 13G as filed with the
SEC on February 14, 2003.
(12) Consists of the following as reported in such persons' Amendment No. 1 to
Schedule 13G as filed with the SEC on February 14, 2003: 1,561,671 shares of
common stock and 150,000 shares of common stock issuable upon exercise of
warrants exercisable within 60 days of March 20, 2003 owned by Special
Situations Fund III, L.P , 1,045,933 shares of common stock, and 100,000 shares
of common stock issuable upon exercise of warrants exercisable within 60 days of
March 20, 2003 owned by Special Situations Private Equity Fund, L.P and 80,800
shares of common stock owned by Special Situations Cayman Fund L.P.. AWM
Investment Company, Inc. is the general partner and investment adviser to the
Special Situations Cayman Fund L.P. and is the general partner of MGP Advisers
Limited Partnership, the general partner of Special Situations Fund III, L.P. MG
Advisors, L.L.C. is the general partner of and investment advisor to Special
Situations Private Equity Fund, L.P. Austin W. Marx and David M. Greenhouse are
the principal owners of AWM Investment Company, Inc., MGP Advisers Limited
Partnership and MG Advisors, L.L.C.
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 President 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 price as reported on Nasdaq 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). The shares of common stock referenced in this
paragraph were registered for resale pursuant to a Registration Statement on
Form S-3 which was declared effective in February, 2002.
38
PEQUOT SYSTEMS (IXL)
For information regarding our relationship with iXL, see Item 11. Executive
Compensation -- Compensation Committee Interlocks and Insider Participation.
INDEBTEDNESS OF MANAGEMENT
From time to time, we have received cash loans from and have made cash advances
to Susan Strausberg and Marc Strausberg, our founders.. In July 2001, we
advanced the Strausbergs $200,000 which was subsequently repaid in September
2001.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15(d)- 14(c). This
evaluation has provided our principal executive officer and principal financial
officer with reasonable assurance that our disclosure controls and
procedures are effective and can be relied upon to gather, analyze and disclose
all information that is required to be included in our periodic SEC reports.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, nor were there any deficiencies or material weaknesses in our
internal controls. As a result, no corrective actions were taken.
ITEM 15. 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)
39
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
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)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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.(8)
10.29 Amended and Restated Stock Purchase Agreement dated as of
January 8, 2002 among EDGAR Online, Inc. and the Investors
set forth in Schedule I thereto(9)
10.30 Amended and Restated Registration Rights Agreement dated as
of January 8, 2002 among EDGAR Online, Inc. and the
Investors set forth in Schedule I thereto(9)
40
10.31 Form of Warrant(9)
10.32 Amendment to Employment Agreement of Albert E. Girod dated
March 21, 2002(10)
10.33 Form of Amended and Restated Promissory Note(10)
10.34 Security Agreement dated March 21, 2002 by and among the Company,
Financial Insight Systems, Inc. and Albert E. Girod, as agent for
certain note holders(10)
10.35 Employment Agreement dated as of June 30, 2001 between the
Company and Tom Vos.(11)
10.36 Amended and Restated Employment Agreement dated as of August
1, 2001 between the Company and Paul Sappington.(11)
10.37 Employment Agreement dated as of February 1, 2001 between
the Company and Greg Adams.(11)
10.38 Amended and Restated Employment Agreement dated as of April
13, 2001 between the Company and Jay Sears.(11)
10.39 Amendment to Employment Agreement dated as of March 17, 2003 between
the Company and Susan Strausberg
10.40 Amendment of Employment Agreement dated as of March 17, 2003 between
the Company and Marc Strausberg
10.41 Amendment to Employment Agreement dated as of February 17, 2003
between the Company and Greg Adams.
10.42 Separation and Release Agreement, dated March 28, 2003 between
the Company and Tom Vos.
17.1 Resignation Letter of Marc Bell(6)
21.1 Subsidiaries of EDGAR Online, Inc.
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(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.
(7) Incorporated by reference to exhibit with corresponding number filed with
Registrant's Current Report on Form 8-K dated September 24, 1999.
(8) Incorporated by reference to exhibit with corresponding number filed with
Registrant's Annual Report on Form 10-K for the year ended December 31, 2000.
(9) Incorporated by reference to exhibit with corresponding number filed with
the Company's Current Report on Form 8-K dated January 11, 2002.
(10) Incorporated by reference to exhibit with corresponding number filed with
the Company's Current Report on Form 8-K dated March 22, 2002.
(11) 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,
2001.
41
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter of 2002.
(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-24 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
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ----------- ---------- ---------- ---------- ------------- ----------
Allowance for Doubtful Accounts
Receivable
Year ended December 31, 2000.......... $187,892 245,000 57,375 (145,583) $344,684
Year ended December 31, 2001.......... $344,684 545,000 50,479 (642,654) $297,509
Year ended December 31, 2002.......... $297,509 185,000 -- (258,162) $224,347
(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.
42
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
President and
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.
President and March 20, 2003
/s/ SUSAN STRAUSBERG Chief Executive Officer and
- ----------------------------------------------- Director
Susan Strausberg
/s/ GREG D. ADAMS Chief Financial Officer March 20, 2003
- ----------------------------------------------- and Chief Operating Officer
Greg D. Adams
/s/ MARC STRAUSBERG Chairman of the Board March 20, 2003
- -----------------------------------------------
Marc Strausberg
/s/ STEFAN CHOPIN Director March 20, 2003
- -----------------------------------------------
Stefan Chopin
/s/ MARK MAGED Director March 20, 2003
- -----------------------------------------------
Mark Maged
/s/ BRUCE BEZPA Director March 20, 2003
- -----------------------------------------------
Bruce Bezpa
/s/ DOUGLAS MCINTYRE Director March 20, 2003
- -----------------------------------------------
Douglas McIntyre
/s/ TOM VOS Director March 20, 2003
- -----------------------------------------------
Tom Vos
43
CERTIFICATIONS
I, Susan Strausberg, certify that:
1) I have reviewed this annual report on Form 10-K of EDGAR Online, Inc.;
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function);
a) all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Susan Strausberg
Susan Strausberg
Chief Executive Officer
March 20, 2003
44
CERTIFICATIONS
I, Greg D. Adams, certify that:
1) I have reviewed this annual report on Form 10-K of EDGAR Online, Inc.;
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function);
a) all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Greg D. Adams
Greg D. Adams
Chief Financial Officer
March 20, 2003
45
EDGAR ONLINE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 2002 and
2001...................................................... F-3
Consolidated Statements of Operations for the Years ended
December 31, 2002, 2001, and 2000........................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years ended December 31, 2002, 2001, and
2000 ................................................... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 2002, 2001, and 2000......................... F-7
Notes to Consolidated Financial Statements.................. F-8
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EDGAR Online, Inc.:
We have audited the accompanying consolidated balance sheets of EDGAR Online,
Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001 and the
related consolidated statements of operations, changes in stockholders' equity ,
and cash flows for each of the years in the three-year period ended December 31,
2002. In connection with our audits of the consolidated financial statements, we
also have audited the related financial statement schedule. 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, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule on page 42, 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.
As discussed in Note 4 to the consolidated financial statements, in 2002 the
Company changed its method of accounting for Goodwill and other Intangible
Assets as of January 1, 2002.
KPMG LLP
New York, NY
March 26, 2003
F-2
EDGAR ONLINE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
ASSETS
Current assets:
Cash................................... $ 5,549,934 $ 3,460,515
Accounts receivable, less allowance for doubtful accounts of
$224,347 and $297,509 respectively........................ 1,561,899 2,025,523
Other current assets........................................ 316,016 278,347
----------- -----------
Total current assets................................... 7,427,849 5,764,385
Property and equipment, net................................. 1,693,334 2,518,767
Goodwill, net............................................... 2,189,089 8,008,930
Intangible assets, net...................................... 11,134,774 16,291,990
Investments................................................. 16,667 83,333
Employee loans and advances................................. 431,596 434,812
Other assets................................................ 325,383 383,614
----------- -----------
Total assets........................................... $23,218,692 $33,485,831
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 520,669 $ 442,579
Accrued expenses............................................ 749,226 1,236,671
Deferred revenues........................................... 1,743,901 1,393,222
Capital lease payable, current portion...................... 7,425 24,525
Current portion of notes payable............................ 1,900,000 2,546,000
Accrued interest............................................ 49,083 75,000
----------- -----------
Total current liabilities.............................. 4,970,304 5,717,997
Capital lease obligation, long-term......................... -- 7,424
Notes payable, long-term.................................... 1,878,394 3,800,000
----------- -----------
Total liabilities...................................... 6,848,698 9,525,421
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000 shares authorized,
17,003,792 and 15,421,917 shares issued and outstanding at
December 31, 2002 and 2001, respectively.................. 170,038 154,219
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding............... -- --
Additional paid-in capital.................................. 58,177,153 54,741,128
Accumulated deficit......................................... (41,977,197) (30,934,937)
----------- -----------
Total stockholders' equity................................ 16,369,994 23,960,410
----------- -----------
Total liabilities and stockholders' equity............. $23,218,692 $33,485,831
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
----------- ------------ -----------
Revenues:
Data sales......................................... $ 5,380,249 $ 5,415,893 $ 3,385,341
Seat-based subscriptions........................... 5,147,808 3,387,290 2,220,074
Technical services................................. 4,287,287 6,782,365 1,123,549
Advertising and e-commerce......................... 1,355,490 1,467,338 3,012,705
------------ ------------ -----------
16,170,834 17,052,886 9,741,669
------------ ------------ -----------
Cost of revenues:
Software and Web site development.................. 2,323,250 3,805,244 1,838,907
Barter advertising expense......................... 308,942 643,724 1,182,708
------------ ------------ -----------
2,632,192 4,448,968 3,021,615
------------ ------------ -----------
Gross profit.................................... 13,538,642 12,603,918 6,720,054
Operating expenses:
Sales and marketing................................ 2,314,188 2,401,671 4,582,809
General and administrative......................... 7,757,167 8,415,023 6,335,670
Product development................................ 2,243,758 2,147,864 2,377,433
Amortization and depreciation...................... 2,880,067 4,767,121 3,484,491
Impairment of intangible assets.................... -- -- 6,151,074
Restructuring costs................................ (182,428) 995,482 --
------------ ------------ -----------
15,012,752 18,727,161 22,931,477
------------ ------------ -----------
Loss from operations............................ (1,474,110) (6,123,243) (16,211,423)
Interest income...................................... 100,540 111,345 1,055,273
Interest expense and other, net...................... (351,806) (501,413) (81,155)
Loss on investment................................... -- (275,000) --
------------ ------------ -----------
Loss before cumulative effect of change in
accounting principle............................ (1,725,376) (6,788,311) (15,237,305)
Cumulative effect of change in accounting principle.. (9,316,884) -- --
------------ ------------ -----------
Net loss........................................ $(11,042,260) $ (6,788,311) $(15,237,305)
============ ============ ===========
Loss before cumulative effect of change in accounting
principle per share - basic and diluted ........ $ (0.10) $ (0.46) $ (1.18)
Cumulative effect of change in accounting principle
per share- basic and diluted.................... $ (0.55) $ (0.00) $ (0.00)
------------ ------------ -----------
Net loss per share - basic and diluted.......... .... $ (0.65) $ (0.46) $ (1.18)
-=========== ============ ===========
Weighted average shares outstanding
- basic and diluted .............................. 16,932,595 14,911,903 12,862,604
-=========== ============ ===========
See accompanying notes to consolidated financial statements
F-4
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ----------- ------------
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)
Comprehensive loss:
Net loss................................. -- -- -- (6,788,311)
Other comprehensive loss
Unrealized loss on investments........ -- -- -- --
Total comprehensive loss
Issuance of common stock................... 500,000 5,000 1,245,000 --
Exercise of stock options.................. 13,000 130 3,120 --
Stock compensation expense................. -- -- 10,000 --
---------- -------- ----------- ------------
Balance at December 31, 2001............... 15,421,917 154,219 54,741,128 (30,934,937)
Comprehensive loss:
Net loss................................. -- -- -- (11,042,260)
Total comprehensive loss
Issuance of common stock, net of issuance
costs ................................ 1,500,000 15,000 3,366,750 --
Exercise of stock options.................. 81,875 819 66,940 --
Stock compensation expense................. -- -- 2,335 --
---------- -------- ----------- ------------
Balance at December 31, 2002............... 17,003,792 $170,038 $58,177,153 $(41,977,197)
========== ======== =========== ============
See accompanying notes to consolidated financial statements.
F-5
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
UNREALIZED HOLDING
GAIN/LOSS TOTAL
------------------ -----------
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
business combination...................................... -- 9,579,500
Exercise of stock options................................... -- 2,375
Stock compensation expense.................................. -- 10,000
-------- -----------
Balance at December 31, 2000................................ (2,070) 29,483,401
Comprehensive loss:
Net loss.................................................. -- (6,788,311)
Other comprehensive loss:
Unrealized gain on investments......................... 2,070 2,070
-----------
Total comprehensive loss (6,786,241)
-----------
Issuance of common stock, net of issuance costs ............ -- 1,250,000
Exercise of stock options................................... -- 3,250
Stock compensation expense.................................. -- 10,000
-------- -----------
Balance at December 31, 2001................................ -- 23,960,410
Comprehensive loss:
Net loss.................................................. -- (11,042,260)
-----------
Total comprehensive loss (11,042,260)
-----------
Issuance of common stock.................................... -- 3,381,750
Exercise of stock options................................... -- 67,759
Stock compensation expense.................................. -- 2,335
-------- -----------
Balance at December 31, 2002................................ $ -- $16,369,994
======== ===========
See accompanying notes to consolidated financial statements.
F-6
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2002
YEARS ENDED DECEMBER 31,
-----------------------------------------
2002 2001 2000
----------- ------------ ------------
Cash flow from operating activities:
Net loss................................................ $(11,042,260) $ (6,788,311) $(15,237,305)
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock compensation expense............................ 2,335 10,000 10,000
Depreciation.......................................... 1,143,227 1,248,924 949,480
Disposal of fixed assets included in restructuring.... -- 219,134 --
Loss on investment.................................... -- 275,000 --
Cumulative effect of change in accounting........... 9,316,884 -- --
Amortization of intangibles........................... 1,736,840 3,518,197 2,535,011
Write-down of intangible assets....................... -- -- 6,151,074
Amortization of financing costs ..................... 16,205 -- --
Changes in assets and liabilities:
Accounts receivable................................. 463,624 764,754 (654,444)
Accounts payable and accrued expenses............... (409,355) (92,351) (976,343)
Accrued interest.................................... (25,917) -- 75,000
Due to officers, net................................ -- -- (269,425)
Deferred revenues................................... 350,679 427,306 390,521
Income tax receivable............................... -- 901,478 --
Other, net.......................................... 13,776 (419,646) 36,407
----------- ------------ ------------
Total adjustments................................... 12,608,298 6,852,796 8,247,281
----------- ------------ ------------
Net cash provided by (used in) operating
activities...................................... 1,566,038 64,485 (6,990,024)
----------- ------------ ------------
Cash flow from investing activities:
Purchase of available-for-sale investments.............. -- -- (7,010,000)
Sale of available-for-sale investments.................. -- 1,500,000 20,089,354
Purchase of other investments........................... -- -- (520,000)
Capital expenditures.................................... (317,793) (598,832) (1,443,828)
Cash portion of purchase price of business
combinations.......................................... -- (804,075) (12,265,000)
Net cash acquired in business combination............... -- -- 443,166
----------- ------------ ------------
Net cash (used in) provided by investing
activities...................................... (317,793) 97,093 (706,308)
----------- ------------ ------------
Cash flow from financing activities:
Proceeds from issuance of common stock.................. $ 3,381,750 $ 1,250,000 $ 2,374
Proceeds from exercise of stock options and warrants.... 67,759 3,250 --
Financing costs................................ (37,811) -- --
Principal payments on notes payable..................... (2,546,000) (161,785) --
Principal payments on capital lease obligations.......... (24,524) (76,339) (73,704)
----------- ------------ ------------
Net cash provided by (used in)
financing activities............................ 841,174 1,015,126 (71,330)
----------- ------------ ------------
Net increase (decrease) in cash
and cash equivalent............................. 2,089,419 1,176,704 (7,767,662)
Cash and cash equivalents at beginning of year.............. 3,460,515 2,283,811 10,051,473
----------- ------------ ------------
Cash and cash equivalents at end of year.................... $ 5,549,934 $ 3,460,515 $ 2,283,811
=========== ============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest............................................ $ 301,461 $ 498,318 $ 21,832
Fair value of securities issued in connection with purchase
business combination...................................... -- -- $ 9,579,500
Equipment acquired under capital lease...................... -- $ 32,170 --
See accompanying notes to consolidated financial statements.
F-7
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(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 Web site in January 1996. EDGAR Online is a provider
of financial information derived from U.S. Securities and Exchange Commission
(SEC) data and a developer of financial and business systems solutions. The
Company sells to the corporate market and to individuals as well as running five
destination Web sites. The Company has entered into several arrangements with
other Internet service providers to market financial information services.
The Company has a history of operating losses although the Company has generated
cash flows from operations during the years ended December 31, 2002 and 2001.
During the year ended December 31, 2002 the Company experienced a reduction in
revenues as compared to the year ended December 31, 2001 and, as a result, has
taken actions to reduce operating expenses - See Note 16. The Company believes
that its existing capital resources and cash generated from operations will be
sufficient to meet its anticipated cash requirements for working capital and
capital expenditures through December 31, 2003. These financial statements have
been prepared on a basis that the Company will continue as a going concern.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
We derive revenues from four primary sources: contracts with corporate customers
for customized data, seat based subscriptions to our Web site services, sale of
our technical services to construct and/or operate the technical systems our
customers use to integrate our data and data from other sources into their
products and services, and advertising and other e-commerce based revenues.
Revenue from data sales is recognized over the term of the contract or, in the
case of certain up-front fees, over the estimated customer relationship period.
Revenue from seat-based subscriptions is recognized ratably over the
subscription period, which is typically three or twelve months. Revenue from
technical services, consisting primarily of time and materials based contracts,
is recognized in the period services are rendered. Advertising and e-commerce
revenue is recognized as the services are provided.
Revenue is recognized provided acceptance, or delivery if applicable, has
occurred, collection of the resulting receivable is probable and no significant
obligations remain. If amounts are received in advance of the services being
performed, the amounts are recorded and presented as deferred revenues.
(b) BARTER TRANSACTIONS
Barter advertising revenue relates to advertising placed on the Company's Web
site by other Internet companies in exchange for the Company's advertising
placed on their Web sites. Barter expenses reflect the expense offset to barter
revenue. 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, in the month that banners are
exchanged. The Company applies the provisions of EITF 99-17, Accounting for
Advertising Barter Transactions and, accordingly, recognizes barter revenues
only to the extent that the Company has similar cash transactions within a
period not to exceed six months prior to the date of the barter transaction.
Barter revenues totaled $308,942, $643,724, and $1,201,576 in the years ended
December 31, 2002, 2001, and 2000, respectively.
(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 $533,098 and
$528,898 at December 31, 2002 and 2001, respectively, and are being amortized
over their estimated useful life of three years. Related amortization expense
totaled $167,389, $170,726, and $130,946 in the years ended December 31, 2002,
2001,and 2000, respectively.
(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.
F-8
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. 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.
(f) LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This Statement, which superceded SFAS 121, 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. Long-lived assets that are to be disposed of by sale
be measured at the lower of book value or fair value less cost to sell.
Additionally, SFAS No. 144 expands the scope of discontinued operations to
include all components of an entity with operations that can be distinguished
from the rest of the entity and will be eliminated from the ongoing operations
of the entity in a disposal transaction.
(g) ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. Advertising expenses were
$94,677, $124,208, and $2,473,213, for the years ended December 31, 2002, 2001,
and 2000, respectively.
(h) 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 carry forwards. 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.
(i) 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.
F-9
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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, 2002, 2001 and 2000 would have been as follows:
2002 2001 2000
----------- ------------ -----------
Net loss -- as reported...................... $(11,042,260) $(6,788,311) $(15,237,305)
Compensation expense related to options-
as reported ................................. -- -- --
Compensation expense related to options-
Fair value method ........................... (2,364,898) (2,543,088) (2,097,069)
------------- ----------- -------------
Net loss -- pro forma........................ $(13,407,158) $(9,331,399) $(17,334,374)
-============ =========== =============
Basic and diluted net loss per share -- as
reported................................... $ (0.65) $ (0.46) $ (1.18)
Basic and diluted net loss per share -- pro
forma...................................... $ (0.79) $ (0.63) $ (1.35)
The fair value of the options granted to employees in 2002, 2001, and 2000 as
calculated under SFAS 123, ranged from $1.75 to $2.96, $1.08 to $3.37, and $1.62
to $8.70, respectively, with a weighted average fair value of $2.81, $1.80, and
$5.49, respectively. The following assumptions were used in the calculations:
2002 2001 2000
----------- ----------- -----------
Risk free interest rate.................... 1.56%-3.54% 3.25%-4.97% 4.49%-4.67%
Expected life.............................. 10 years 10 years 10 years
Expected dividend yield.................... 0% 0% 0%
Volatility................................. 104% 142% 129%
(j) 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 24%
and 17% of the Company's total gross receivable balance at December 31, 2002 and
2001, respectively. No other customer accounted for more than 10% of accounts
receivable at December 31, 2002 or 2001. NASDAQ comprised 34% and 38% of the
company's total revenue during 2002 and 2001, respectively. See Note 16 for
further discussion. The Company's other customers are geographically dispersed
throughout the United States with no one customer accounting for more than 10%
of revenues during 2002, 2001, or 2000. 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 and accrued liabilities at December 31, 2002 and 2001,
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 notes 9 and 14.
(k) 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 earnings per share
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.
F-10
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
Diluted loss per share has not been presented separately, as the outstanding
stock options and warrants are anti-dilutive for each of the periods presented.
Anti-dilutive securities outstanding were 3,124,643, 2,806,060, and 1,900,105
for the years ended December 31, 2002, 2001, and 2000, respectively.
(l) 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 as management does not manage its operations by the
different product and service offerings, but instead views the Company as one
operating segment when making business decisions, with one operating decision
making group.
(m) 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).
(n) 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 embedded in the consolidated financial statements for the
periods presented concern the allowance for doubtful accounts, fair values and
useful lives of goodwill and other intangible assets, and the length of certain
customer relationships. Actual results could differ from those estimates.
(o) RECENT ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. This statement supercedes SFAS No. 121, and
amends APB 30 "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business." SFAS No. 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value
or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of
discontinued operations to include all components of an entity with operations
that can be distinguished from the rest of the entity and will be eliminated
from the ongoing operations of the entity in a disposal transaction. The
adoption of SFAS No. 144 did not have a significant impact on the consolidated
financial statements.
F-11
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146, which is effective
prospectively for exit or disposal activities initiated after December 31, 2002,
applies to costs associated with an exit activity, including restructurings, or
with a disposal of long-lived assets. Those activities can include eliminating
or reducing product lines, terminating employees and contracts and relocating
plant facilities or personnel. SFAS No. 146 requires that exit or disposal costs
are recorded as an operating expense when the liability is incurred and can be
measured at fair value. Commitment to an exit plan or a plan of disposal by
itself will not meet the requirement for recognizing a liability and the related
expense under SFAS No. 146. SFAS No. 146 grandfathers the accounting for
liabilities that were previously recorded under EITF Issue 94-3. Accordingly,
SFAS No. 146 will have no effect on the restructuring costs recorded previously
by the Company.
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation" ("SFAS 148"), is an amendment to Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", and provides
alternative methods of transition for an entity that voluntarily changes from
the intrinsic value based method of accounting for stock-based employee
compensation prescribed in APB No. 25 to the fair value method prescribed in
SFAS 123. As permitted under SFAS 148, we have continued to apply the accounting
provisions of APB No. 25, and to provide the annual pro forma disclosures of the
effect of adopting the fair value method as required by SFAS 123. SFAS 148 also
requires pro forma disclosure to be provided on a quarterly basis. We plan to
adopt the quarterly disclosure requirement during the first quarter of 2003.
(p) RECLASSIFICATIONS
In 2001, the Company reclassified revenues into data sales, seat-based
subscriptions, technical services, and advertising and e-commerce revenues.
Prior comparative amounts have been reclassified to conform to the current
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 $28,148,575. The
purchase price included (1) the issuance of 2,450,000 restricted shares of EDGAR
Online common stock valued at $9,579,500, (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 (see note 9 for subsequent modification of these notes) and (3)
$804,075 for the payment of fees and acquisition related expenses which were
paid in 2001.
The aggregate purchase price of $28,148,575 has been allocated to the purchased
assets and liabilities based on their relative fair market values at the date of
acquisition. The excess purchase price over the estimated fair value of the
tangible assets acquired has been allocated as follows: (1) $9,124,338 to
accumulated know how with an estimated useful life of 10 years, (2) $4,044,645
to customer based intangibles with an estimated useful life of 12 years, (3)
$4,194,264 to accumulated work force with an estimated useful life of 5 years
and (4) $8,796,406 to goodwill with an estimated useful life of 12 years. Since
the acquisition was a tax-free transaction, the $17,363,247 allocated to
identifiable intangible assets created a book tax difference for which a
corresponding deferred tax liability of $6,945,299 was established at the
acquisition date. In addition, at the date of acquisition, the Company had net
deferred tax assets of approximately $6,120,373 for which a valuation allowance
of like amount had been recorded. The establishment of the FIS 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 FIS
deferred tax liability. This purchase accounting adjustment
F-12
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
was recorded in 2001 when the valuation of the intangible assets acquired was
finalized. The recognition of the FIS 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.
The Company has treated this acquisition as a tax-free reorganization. The
Company may be contingently liable for taxes associated with such acquisitions.
In the event the tax-free nature of the transaction is successfully challenged,
there may be a material adverse impact to the Company's financial position and
results of operations. Management does not currently believe an unfavorable
outcome to be probable or the resulting impact to be estimable. Accordingly, no
provision has been made in connection with this contingency in the consolidated
financial statements as of December 31, 2002.
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 as follows: (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 net deferred tax assets of approximately $4,719,592
for which a valuation allowance of like amount had been recorded. The
establishment of the FreeEDGAR 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 5 for a discussion of subsequent intangible asset impairment.
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 consolidated financial
statements.
The following unaudited pro forma results of operations assume the acquisitions
occurred as of January 1, 1999 and include 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 ended
December 31, 2002 and 2001 are not presented as the transactions are fully
reflected in the Company's results of operations for the period.
PRO FORMA RESULTS
FOR THE YEAR END
DECEMBER 31,
2000
-----------------
Revenues.............................................. $ 16,576,000
Loss from operations.................................. $(19,178,000)
Net loss.............................................. $(18,261,000)
Basic and diluted loss per share...................... $ (1.23)
Basic and diluted weighted average shares............. 14,904,000
F-13
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(4) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated or
completed after June 30, 2001. SFAS No. 141 also specifies the criteria that
intangible assets acquired in a business combination must meet to be recognized
and reported apart from goodwill. SFAS No. 141 was effective July 1, 2001,
except with regard to business combinations that were initiated prior to that
date, which the Company accounted for using the purchase method of accounting.
SFAS No. 142, which is effective for fiscal years beginning after December 15,
2001, requires that goodwill and intangible assets with indefinite useful lives
no longer be amortized, but instead tested for impairment at least annually.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS No. 144).
The Company adopted SFAS 142 effective January 1, 2002. The adoption of this
accounting standard required that assembled workforce with a net book value of
$3.4 million as of January 1, 2002 be subsumed into goodwill and also eliminated
the amortization of goodwill commencing January 1, 2002. SFAS No. 142 also
required the Company to perform a transitional assessment by June 30, 2002, to
determine whether there is an impairment of goodwill. To perform this
assessment, the Company compared the fair value of the FIS reporting unit
calculated under a present value methodology with a rate of interest
commensurate to the risks involved, and was assisted by an independent valuation
firm, to the carrying amount of the related net assets. This assessment
indicated that goodwill associated with the FIS acquisition was impaired as of
January 1, 2002. Accordingly, the Company recognized a $9,316,884 non-cash
charge, recorded as of January 1, 2002, as the cumulative effect of a change in
accounting principle for the write-down of goodwill to its fair value. The
impaired goodwill was not deductible for tax purposes, and as a result, no tax
benefit has been recorded in relation to the change.
SFAS 142 also requires goodwill to be tested annually and between annual tests
if events occur or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying amount. The Company has
elected to perform its annual tests for indications of goodwill impairment as of
December 31 of each year. The Company determined, as was assisted by an
independent valuation firm, that there is no further impairment at December 31,
2002. Subsequent reviews may result in future periodic impairments that could
have a material adverse effect on the results of operations in the period
recognized.
The following table reflects the reconciliation of reported loss before
cumulative effect of change in accounting principle in total and per share to
amounts adjusted for the exclusion of goodwill amortization for the prior
periods:
Year Ended December 31,
2002 2001 2000
-------- -------- --------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE
Reported loss $ (1,725,376) $ (6,788,311) $ (15,237,305)
Goodwill amortization -- 1,607,949 1,054,253
------------ ------------ -------------
Adjusted loss $ (1,725,376) $ (5,180,362) $ (14,183,052)
============ ============ =============
PER SHARE OF COMMON STOCK - BASIC AND
DILUTED
Reported loss $ (0.10) $ (0.46) $ (1.18)
Goodwill amortization -- 0.11 0.08
------------ ------------ -------------
Adjusted loss $ (0.10) $ (0.35) $ (1.10)
============ ============ =============
F-14
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(5) IMPAIRMENTS OF LONG-LIVED ASSETS
The Company's management performs on-going business reviews and, based on
quantitative and qualitative measures, assesses the need to record impairment
losses on long-lived assets when impairment indicators are present. Where
impairment indicators were identified, management determined the amount of the
impairment charge by comparing the carrying value of long-lived assets to their
fair value.
During the second quarter of 2001, the Company recorded a $275,000 loss on
investment related to an equity investment made in 2000. This investment was
accounted for under the cost method. The company in which the investment was
made had lower than expected financial results over the previous several
quarters as compared to those forecasted at the time of the investment and these
results were not expected to improve in the foreseeable future. As a result, the
carrying amount has been reduced to $0.
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 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.
Among other factors, when assessing evidence of impairment, management considers
the proximity of its original investment to the date of evaluation, the
Company's commitments to provide ongoing financing, and the expectations at the
time of investment of operating results to be achieved. Where impairment
indicators are identified, management determines the amount of any impairment
charge by comparing the carrying value of the investment and other intangible
assets to their fair value. The Company's monitoring process will continue on a
prospective basis and the impairment factors evaluated by management may change
in subsequent periods given that the Company operates in a volatile business
environment. This could result in material impairment charges in future periods.
F-15
62
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(6) RESTRUCTURING COSTS
In 2001, the Company closed the Kirkland, WA office. The office closing
completed the Company's consolidation of its technical operations. During the
second quarter of 2001, the Company recorded a $912,000 pre-tax charge which is
included in operating expenses in the consolidated statement of operations.
These restructuring costs included employment termination charges for 14
employees, 11 of which were discharged. In September 2001, the Company incurred
$84,000 of additional severance costs related to restructuring at FIS. These
restructuring costs included employment termination charges for 12 employees,
all of which were discharged. In 2002, the Company negotiated contract
terminations, thereby eliminating $182,429 of obligations. Restructuring costs
include the following:
2001 Remaining
Total Activity Obligation at
Costs Cash Non-C ash December 31, 2001
--------- --------- ---------- -----------------
Write down of fixed assets $ 234,243 $ -- $ (234,243) $ --
Non-recoverable lease payments 170,487 (61,352) (11,853) 97,282
Non-cancelable service contracts 187,930 (95,292) 89,030 181,668
Employment termination payments 319,299 (236,799) (54,500) 28,000
Employment termination payments - FIS 83,523 (83,523) -- --
--------- --------- ---------- ---------
Total restructuring costs $ 995,482 $(476,966) $ (211,566) $ 306,950
========= ========= ========== =========
2002 Remaining
Activity Obligation at
Cash Non-Cash December 31, 2002
--------- -------- -----------------
Write down of fixed assets $ -- $ -- $ --
Non-recoverable lease payments (72,059) (20,570) 4,653
Non-cancelable service contracts (8,961) (172,707) --
Employment termination payments (38,848) 10,848 --
Employment termination payments - FIS -- -- --
--------- -------- ---------
Total restructuring costs $(119,868) $(182,429) $ 4,653
========= ========= =========
All restructuring obligations are included in accrued expenses at December 31,
2002 and 2001.
(7) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2002 and 2001 is summarized as follows:
DECEMBER 31,
-----------------------
2002 2001
---------- ----------
Equipment............................................... $4,029,316 $3,805,723
Furniture and fixtures.................................. 395,733 395,733
Purchased software...................................... 545,886 530,042
Software development costs.............................. 533,098 528,598
Leasehold improvements.................................. 228,367 186,781
Automobiles............................................. 6,000 6,000
---------- ----------
Subtotal................................................ 5,738,400 5,452,877
Less accumulated depreciation........................... (4,045,066) (2,934,110)
---------- ----------
Total................................................... $1,693,334 $2,518,767
========== ==========
F-16
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
Depreciation expense for the years ended December 31, 2002, 2001 and 2000 was
$1,143,227, $1,248,924, and $949,480, respectively.
At December 31, 2002, the Company had $32,170 of equipment under capital leases
included in furniture and fixtures. At December 31, 2001, the Company had
$82,762 of equipment under capital leases included in equipment and $32,170 of
equipment under capital leases included in furniture and fixtures. Related
accumulated amortization totaled $7,108 at December 31, 2002, and $39,410 and
$2,516 at December 31, 2001, respectively. Amortization of these assets recorded
under capital leases is included in depreciation expense.
(8) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 2002 and 2001:
DECEMBER 31,
-----------------------
2002 2001
---------- ----------
Compensation and related benefits....................... $ 462,090 $ 681,293
Professional fees....................................... 272,282 162,900
Restructuring costs..................................... 4,653 306,950
Other................................................... 10,201 85,528
---------- ----------
Total................................................... $ 749,226 $1,236,671
========== ==========
(9) NOTES PAYABLE
Notes payable consist of the following at December 31, 2002 and 2001:
DECEMBER 31,
-----------------------
2002 2001
---------- ----------
Promissory notes........................................ $3,800,000 $6,000,000
Line of credit.......................................... -- 346,000
Loan restructuring costs................................ (21,606) --
---------- ----------
Total notes payable................................... 3,778,394 6,346,000
Less:
Current portion....................................... 1,900,000 2,546,000
---------- ----------
Notes payable, long-term................................ $1,878,394 $3,800,000
========== ==========
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. The Company repaid $2,200,000 of these notes in 2002. Interest
accrues at 7.5% annually and is payable quarterly in arrears on January 27,
April 27, July 27 and October 27. Interest expense for the years ended December
31, 2002, 2001, and 2000 was $342,541, $450,000 and $75,000 respectively. The
fair value of the senior subordinated secured promissory notes at December 31,
2002 was estimated at approximately $3,800,000 based on the amount of future
cash flows associated with the notes, discounted using an appropriate interest
rate.
F-17
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
On March 21, 2002, the Company concluded negotiations to extend the maturity
date of certain of the FIS Notes. The holders of $5,700,000 in principal amount
of FIS Notes agreed to amend and restate their notes to provide for the
following schedule of principal payments: $1,900,000 which was made on April 1,
2002, $1,900,000 on April 1, 2003 and $1,900,000 on January 2, 2004. Interest
will remain at 7.5% and will be payable according to the original terms. The
Company deferred $37,811 of costs associated with the note restructuring.
Amortization of these costs totaled $16,205 in 2002. The holder of $300,000 of
the FIS notes that did not participate in the negotiations was repaid in 2002.
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, 2002, no balance was outstanding under the facility and this line of credit
is no longer available to the Company. Related interest expense for the years
ended December 31, 2002, 2001 and 2000 was $2,977, $36,094 and $5,049,
respectively.
Interest expense and other financing charges for the years ended December 31,
2002, 2001, and 2000, $351,806, $497,450, and $95,027, respectively.
(10) INCOME TAXES
Since its inception, the Company has incurred net operating losses and has
incurred no federal or state income tax expense. At December 31, 2002, the
Company has approximately $22 million in federal net operating losses, which
will expire between 2012 and 2022, and approximately $17 million of state and
certain local net operating loss carry forwards, which will expire between 2002
and 2021.
As discussed in note 3, the Company allocated $17,363,247 of the FIS purchase
price to identifiable intangible assets creating a book-tax difference for which
a corresponding deferred tax liability of $6,945,299 was established at the
acquisition date. In addition, at the date of acquisition, the Company had
deferred tax assets of approximately $6,120,373 for which a valuation allowance
of a like amount had been recorded. The establishment of the FIS deferred tax
liability eliminated the need for the valuation allowance on the Company's net
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, 2002, 2001 and 2000 includes a tax benefit of
approximately $1,916,339, $788,783, and $115,754, respectively, representing the
decrease in FIS' deferred tax liability as a result of the amortization and
impairment write-off of the FIS intangible assets offset by a like amount of tax
expense to increase the valuation allowance necessitated by the decrease in the
FIS deferred tax liability.
As discussed in note 3, the Company allocated $6,351,492 of the FreeEdgar
purchase price to identifiable intangible assets creating a book-tax 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 $4,719,592 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 Company's
valuation allowance. The federal and state deferred tax provision for the years
ended December 31, 2002, 2001 and 2000 includes a tax benefit of approximately
$173,893, $207,156, and $1,693,572, 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 tax expense to increase the valuation allowance necessitated by the decrease
in the FreeEdgar deferred tax liability.
F-18
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
The Company's tax provision differed from the amount computed using the federal
statutory rate of 34% in 2002, 35% in 2001 and 34% in 2000:
YEAR ENDED DECEMBER 31
---------------------------------------
2002 2001 2000
----------- ----------- -----------
Expected federal income tax benefit .......... $(3,754,368) $(2,361,639) $(5,161,154)
State taxes, net of federal effect............ (20,896) (86,094) (18,076)
Amort. and write-off of non-deductible
intangibles................................. 2,045,633 363,833 1,600,300
Other permanent differences................... (82,394) (162,330) 3,602
Federal valuation allowance................... 1,812,025 2,246,230 3,575,328
----------- ----------- -----------
$ 0 $ 0 $ 0
=========== =========== ===========
The Company's deferred tax assets and liabilities and related valuation
allowance as of December 31, 2002 and 2001 are as follows:
2002 2001
----------- ----------
Deferred tax assets :
Net operating loss carry forwards......................... $ 9,080,834 $10,283,908
Accruals and other, net................................... 293,894 265,197
Stock compensation expense................................ 479,648 481,737
----------- ----------
Total deferred tax assets................................... 9,854,376 11,030,242
Federal and state valuation allowance....................... (5,353,692) (4,488,126)
----------- ----------
Net deferred tax assets..................................... $ 4,500,684 $ 6,542,716
=========== ==========
Deferred tax liabilities:
Identifiable intangibles.................................. $(4,500,684) $(6,542,716)
=========== ==========
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 carry forwards. 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
deductible income sufficient to realize the future taxable temporary differences
and operating loss carry forwards prior to their expiration.
Under Section 382 of the Internal Revenue Code of 1986, as amended, the
utilization of net operating loss carry forwards may be limited under the change
in stock ownership rules. The company has not yet determined whether such an
ownership change has occurred.
(11) STOCKHOLDERS' EQUITY
Common Stock
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, 2002.
F-19
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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 2002, 2001, and 2000, additional shares were issued in connection with
the exercise of stock options totaling 81,875, 13,000, and 928, respectively.
In addition, during 2000 and 1999, 2,450,000 and 908,877 shares were issued in
connection with purchase business combinations.
In January 2002, the Company completed a private sale of 2,000,000 shares of
common stock at a purchase price of $2.50 and 400,000 four-year warrants at an
exercise price of $2.875 per share to certain institutional investors which
resulted in gross proceeds of $5,000,000. 500,000 shares and 100,000 warrants
were sold prior to December 31, 2001 and the remaining 1,500,000 shares and
300,000 warrants were sold on January 8, 2002. In connection with the
transaction, the Company paid a transaction fee to Atlas Capital Services, LLC
equal to 4.625% of the gross proceeds and issued Atlas a four-year warrant to
purchase 40,000 shares of Common Stock at an exercise price of $2.50 per share.
Total proceeds from the private sale, net of issuance costs, were $3,381,750.
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 for the year ended
December 31, 1999. 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.
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 year ended December 31, 1999 of $27,778. 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.
In December 2001 and January 2002, the Company issued 100,000 and 300,000
four-year warrants with an exercise price of $2.875 in connection with the
private placement of 500,000 and 1,500,000 shares of its common stock. The
Company also and issued a four-year warrant to purchase 40,000 shares of Common
Stock at an exercise price of $2.50 per share.
F-20
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
Warrant activity during the periods indicated is as follows:
NUMBER OF WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE
--------- ----------------
Outstanding at December 31, 1999....................... 351,299 8.68
Issued................................................. -- --
Exercised.............................................. -- --
Cancelled.............................................. -- --
--------
Outstanding at December 31, 2000....................... 351,299 8.68
Issued................................................. 100,000 2.88
Exercised.............................................. -- --
Cancelled.............................................. -- --
--------
Outstanding at December 31, 2001....................... 451,299 $7.43
Issued................................................. 340,000 $2.83
Exercised.............................................. -- --
Cancelled.............................................. -- --
--------
Balance at December 31, 2002........................... 791,299 $5.45
========
The weighted average contractual life of warrants outstanding at December 31,
2002 and 2001 was 2.29 and 2.76 years, respectively.
(12) 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 are 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 originally authorized 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 Meetings held on August 1, 2002, 2001
and August 1, 2000, the Plan was amended to increase the number of shares
available for grant by 500,000, 500,000 and 800,000, respectively. As of
December 31, 2002, 2,400,000 options are authorized under the 1999 Plan. The
1999 Directors Plan authorizes the issuance of options to purchase up to 100,000
shares of the Company's common stock.
F-21
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
Option activity for the 1996 Plan, the 1999 Plan and the 1999 Directors Plan
during the periods indicated is as follows:
WEIGHTED AVERAGE
NUMBER OF OPTIONS OPTION PRICE
----------------- ----------------
Outstanding at December 31, 1999..................... 951,459 $3.64
Issued............................................... 759,750 $5.63
Exercised............................................ (928) $2.56
Cancelled............................................ (161,475) $7.03
---------
Outstanding at December 31, 2000..................... 1,548,806 $4.10
Issued............................................... 1,016,050 $1.86
Exercised............................................ (13,000) $2.56
Cancelled............................................ (198,145) $4.00
---------
Outstanding at December 31, 2001................... .. 2,353,711 $3.16
Issued............................................... 423,775 $3.13
Exercised............................................ (81,875) $0.83
Cancelled............................................ (362,267) $4.05
---------
Balance at December 31, 2002......................... 2,333,344 $3.09
========= =========
The Company recorded $2,355, $10,000 and $10,000 of compensation expense in the
years ended December 31, 2002, 2001, and 2000, 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 related
options. These amounts have been included within sales and marketing expenses
Options outstanding and exercisable at December 31, 2002 are as follows:
OPTIONS OUTSTANDING
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- -------------- ----------- ---------------- ----------------
$ 0.25 to 2.50......................... 805,525 7.17 $ 0.84
2.51 to 5.00......................... 1,301,339 7.83 3.49
5.01 to 10.00......................... 226,333 7.01 8.85
10.01 to 15.00......................... -- -- --
15.01 to 20.00......................... -- -- --
20.01 to 25.00......................... 147 5.06 21.98
----------- ---- -----
0.25 to 25.00......................... 2,333,344 7.52 $ 3.09
=========== ==== =====
F-22
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
OPTIONS EXERCISABLE
NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------------- ----------- ----------------
$ 0.25 to 2.50........................................ 519,283 $ 0.61
2.51 to 5.00........................................ 628,378 3.88
5.01 to 10.00........................................ 168,203 8.81
10.01 to 15.00........................................ -- --
15.01 to 20.00........................................ -- --
20.01 to 25.00........................................ 137 21.98
--------- ------
0.25 to 25.00........................................ 1,316,001 3.22
========= ======
At December 31, 2002, 959,698 options are available for grant under the
Company's option plans.
(13) COMMITMENTS AND CONTINGENCIES
The Company leases space in Norwalk, Connecticut, New York, New York, and
Rockville, Maryland for its primary offices. Rent expense totaled $1,061,605,
$1,243,278, and $589,239 for the years ended December 31, 2002, 2001, and 2000,
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, 2002 are as follows:
YEAR ENDING DECEMBER 31, OPERATING LEASES CAPITAL LEASES
---------------- --------------
2003..................................................... $ 845,118 $ 7,674
2004..................................................... 834,943 --
2005..................................................... 730,363 --
2006..................................................... 312,973 --
Thereafter............................................... 56,212 --
---------- -------
Total.................................................. $2,779,609 7,674
==========
Amount representing interest............................. (249)
-------
Net capital leases obligation............................ $ 7,425
=======
The amounts above include payments due under the lease on the former FreeEDGAR
facilities, net of contractual sublease payments, which have been accrued in
restructuring costs.
(14) RELATED PARTY TRANSACTIONS
The Company provided services in the normal course of business to two
shareholders in 2002 and three shareholders in 2001 and 2000. Revenues from
these related parties totaled $633,043, $788,281, and $709,200 in 2002, 2001 and
2000, respectively. The Company also purchased services in the normal course of
business from two other shareholders in 2002, and three in 2001 and 2000, only
one of which was included in the group of shareholders to whom we provided
services, which totaled $231,770, $417,138 and $3,078,741 in 2002, 2001, and
2000, respectively.
F-23
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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 The Bean 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 loans were 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 fair value
of these notes at December 31, 2002 was estimated at approximately $400,000
based on the amount of future cash flows associated with the notes, discounted
using an appropriate interest rate.
(15) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2002 and 2001 (in thousands, except for per share data):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Year Ended December 31, 2002
Net revenues.......................................... $ 4,086 $ 4,115 $ 4,062 $ 3,908
Loss from operations.................................. $ (114) $ (325) $ (295) $ (740)
Loss before cumulative effect of change in accounting
principle ............................................ $ (208) $ (379) $ (348) $ (790)
Net loss.............................................. $ (208) $(9,696) $ (348) $ (790)
Loss before cumulative effect of change in accounting
principle per share - basic and diluted................ $ (0.01) $ (0.02) $ (0.02) $ (0.05)
Net loss per share basic and diluted ................ $ (0.01) $ (0.57) $ (0.02) $ (0.05)
Weighted average shares outstanding -
basic and diluted....................................... 16,789 16,956 16,984 17,002
======= ======= ======= =======
Year Ended December 31, 2001
Net Revenues........................................... $ 4,283 $ 4,155 $ 4,257 $ 4,358
Loss from Operations................................... $(1,635) $(2,311) $(1,626) $ (551)
Loss before cumulative effect of change in accounting
principle ............................................. $(1,706) $(2,690) $(1,732) $ (660)
Net loss............................................... $(1,706) $(2,690) $(1,732) $ (660)
Loss before cumulative effect of change in accounting
principle per share - basic and diluted................ $ (0.11) $ (0.18) $ (0.12) $ (0.04)
Net loss per share - basic and diluted................. $ (0.11) $ (0.18) $ (0.12) $ (0.04)
Weighted average shares outstanding -
basic and diluted.................................... 14,909 14,909 14,909 14,921
======= ======= ======= =======
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.
(16) SUBSEQUENT EVENTS (UNAUDITED)
On March 28, 2003, the Company entered into a Separation and Release Agreement
with the Company's former President and Chief Operating Officer. Under the
Agreement, the Company will make payments of $340,000 in 2003, $170,000 in
2004, and $42,000 in 2005 or thereafter. The Company will also make three
payments of $60,972 to a deferred compensation plan, one payment per year in
2003, 2004 and 2005.
On March 31, 2003, the Company announced a plan to align the Company's cost
structure with current business conditions. These conditions include an
anticipated reduction in technical services revenues related to the Nasdaq
contract in the second half of 2003 by approximately $1 million. The plan
provides for a reduction in workforce of 17% effective immediately. The Company
anticipates that the restructuring actions will reduce operating expenses on an
annualized basis by approximately $1.2 to $1.3 million.
The Company expects to incur restructuring charges of approximately $800,000 in
the quarter ended March 31, 2003 consisting of employee severance associated
with the work force reduction and the Separation and Release Agreement with the
Company's former President and Chief Operating Officer.
F-24