<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
Filed Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
DATE OF REPORT (date of earliest event reported): November 22, 1999
(September 24, 1999)
EDGAR ONLINE, INC.
(Exact name of registrant as specified in charter)
DELAWARE 0-26071 06-1447017
(State or Other Jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
50 Washington Street
Norwalk, Connecticut 06854
(Address of principal executive offices, with zip code)
(203) 852-5666
(Registrant's telephone number, including area code)
<PAGE> 2
The undersigned registrant hereby amends the following items, financial
statements, exhibits, or other portions of the Current Report on Form 8-K filed
by the registrant on September 24, 1999 as set forth on the pages attached
hereto:
ITEM 7. Financial Statements, Pro Forma Financial Information And Exhibits
(A) Financial Statements Of Business Acquired
Partes Corporation:
Financial statements for the Years Ended December 31, 1998 and
1997 and Reports of Independent Accountants
<PAGE> 3
PARTES CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of KPMG LLP 1
Report of PricewaterhouseCoopers LLP 2
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited) 3
Statements of Operations for the Years Ended December 31, 1997 and 1998 and for
the Six Months Ended June 30, 1998 and 1999 (unaudited) 4
Statements of Stockholders' Deficit for the Years Ended December 31, 1997 and 1998 and for
the Six Months Ended June 30, 1999 (unaudited) 5
Statements of Cash Flows for the Years Ended December 31, 1997 and 1998 and for
the Six Months Ended June 30, 1998 and 1999 (unaudited) 6
Notes to Financial Statements 7
</TABLE>
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FreeEDGAR.com, Inc. (Formerly known as Partes Corporation):
We have audited the accompanying balance sheet of Partes Corporation as of
December 31, 1997 and the related statements of operations, stockholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Partes Corporation as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG LLP
Seattle, Washington
November 5, 1999
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Partes Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Partes Corporation at December 31, 1998, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses, has limited
financial resources and has a net capital deficit. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PricewaterhouseCoopers LLP
April 23, 1999,
except for the second paragraph of
Note 11 which is as of May 26, 1999
and the third paragraph of Note 11
which is as of July 25, 1999.
Seattle, Washington
2
<PAGE> 6
PARTES CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------------
ASSETS 1997 1998 1999
---------------- ---------------- ----------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 41,020 789,485 42,709
Accounts receivable, net of allowance for doubtful accounts of $0
and $4,010 at December 31, 1997 and 1998, respectively, and
$9,923 at June 30, 1999 3,341 30,645 166,026
Prepaid expenses and other assets 16,866 26,280 26,280
---------------- ---------------- ----------------
Total current assets 61,227 846,410 235,015
Property and equipment, net 281,208 915,258 859,823
Software development costs -- 109,963 --
Other assets 3,700 6,293 6,903
---------------- ---------------- ----------------
Total assets $ 346,135 1,877,924 1,101,741
================ ================ ================
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank notes payable $ -- -- 948,032
Notes payable to stockholders and employees 285,053 -- --
Trade accounts payable 51,070 186,537 289,634
Stockholder payable -- 15,354 33,764
Accrued interest 2,750 115,414 227,216
Accrued liabilities 49,961 112,982 227,864
Employee payable -- 12,000 12,000
---------------- ---------------- ----------------
Total current liabilities 388,834 442,287 1,738,510
Convertible note payable -- 2,000,000 2,000,000
---------------- ---------------- ----------------
Total liabilities 388,834 2,442,287 3,738,510
---------------- ---------------- ----------------
Mandatorily redeemable convertible preferred stock, $0.01 par
value, Series B convertible, 2,390,234 shares authorized, 930,232
shares issued and outstanding at December 31, 1998 and
June 30, 1999, liquidation value of $1,999,998 -- 1,945,000 1,945,000
---------------- ---------------- ----------------
Stockholders' deficit:
Preferred stock, $0.01 par value, 4,000,000 shares authorized,
Series A convertible, 383,244 shares authorized, issued and
outstanding at December 31, 1997 and 1998 and June 30, 1999,
liquidation value of $1,277,480 3,832 3,832 3,832
Common stock, $0.01 par value, 12,000,000 shares authorized,
1,367,500 and 1,369,500 issued and outstanding at December 31,
1997 and 1998, respectively, and 1,379,400 issued and outstanding
at June 30, 1999 13,675 13,695 13,794
Additional paid-in capital 1,421,741 1,991,333 2,432,317
Deferred compensation (78,246) (39,568) (275,340)
Accumulated deficit (1,403,701) (4,478,655) (6,756,372)
---------------- ---------------- ----------------
Total stockholders' deficit (42,699) (2,509,363) (4,581,769)
Commitments and subsequent events
---------------- ---------------- ----------------
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' deficit $ 346,135 1,877,924 1,101,741
================ ================ ================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 7
PARTES CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------- -----------------------------------
1997 1998 1998 1999
---------------- ---------------- ---------------- ----------------
(unaudited)
<S> <C> <C> <C> <C>
Revenue $ 10,022 137,546 15,845 195,251
---------------- ---------------- ---------------- ----------------
Operating expenses:
Research and development 784,861 987,569 405,819 908,439
Marketing 5,309 28,619 27,891 34,426
General and administrative 627,233 1,532,033 593,136 1,401,356
---------------- ---------------- ---------------- ----------------
Total operating costs 1,417,403 2,548,221 1,026,846 2,344,221
---------------- ---------------- ---------------- ----------------
Loss from operations (1,407,381) (2,410,675) (1,011,001) (2,148,970)
Interest income (expense) 3,680 (713,549) (575,819) (128,747)
Other income -- 49,270 4,663 --
---------------- ---------------- ---------------- ----------------
Net loss $ (1,403,701) (3,074,954) (1,582,157) (2,277,717)
================ ================ ================ ================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 8
PARTES CORPORATION
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
PREFERRED SERIES A COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 -- $ -- 1,367,500 $ 13,675
Conversion to C Corporation -- -- -- --
Issuance of Preferred Series A
stock 383,244 3,832 -- --
Issuance of warrants to
purchase common stock -- -- -- --
Issuance of common stock on exercise
of stock options -- -- 1,000 10
Repurchase of common stock -- -- (1,000) (10)
Issuance of stock options -- -- -- --
Amortization of deferred
compensation -- -- -- --
Net loss -- -- -- --
-------------------- -------------------- -------------------- --------------------
Balances at December 31, 1997 383,244 3,832 1,367,500 13,675
Issuance of common stock on
exercise of stock options -- -- 2,000 20
Issuance of warrants to
purchase common stock -- -- -- --
Amortization of deferred
compensation -- -- -- --
Net loss -- -- -- --
-------------------- -------------------- -------------------- --------------------
Balances at December 31, 1998 383,244 3,832 1,369,500 13,695
Issuance of common stock for
employee bonuses -- -- 9,900 99
Issuance of stock options -- -- -- --
Amortization of deferred
compensation -- -- -- --
Issuance of warrants to
purchase common stock -- -- -- --
Net loss -- -- -- --
-------------------- -------------------- -------------------- --------------------
Balances at June 30, 1999
(unaudited) 383,244 $ 3,832 1,379,400 $ 13,794
==================== ==================== ==================== ====================
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
CAPITAL COMPENSATION DEFICIT DEFICIT
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 378,825 -- (429,619) (37,119)
Conversion to C Corporation (429,619) -- 429,619 --
Issuance of Preferred Series A
stock 1,273,648 -- -- 1,277,480
Issuance of warrants to
purchase common stock 18,977 -- -- 18,977
Issuance of common stock 990 -- -- 1,000
Repurchase of common stock (3,320) -- -- (3,330)
Issuance of stock options 182,240 (182,240) -- --
Amortization of deferred
compensation -- 103,994 -- 103,994
Net loss -- -- (1,403,701) (1,403,701)
-------------------- -------------------- -------------------- --------------------
Balances at December 31, 1997 1,421,741 (78,246) (1,403,701) (42,699)
Issuance of common stock on
exercise of stock options 1,980 -- -- 2,000
Issuance of warrants to
purchase common stock 567,612 -- -- 567,612
Amortization of deferred
compensation -- 38,678 -- 38,678
Net loss -- -- (3,074,954) (3,074,954)
-------------------- -------------------- -------------------- --------------------
Balances at December 31, 1998 1,991,333 (39,568) (4,478,655) (2,509,363)
Issuance of common stock for
employee bonuses 4,257 -- -- 4,356
Issuance of stock options 431,440 (431,440) -- --
Amortization of deferred
compensation -- 195,668 -- 195,668
Issuance of warrants to
purchase common stock 5,287 -- -- 5,287
Net loss -- -- (2,277,717) (2,277,717)
-------------------- -------------------- -------------------- --------------------
Balances at June 30, 1999
(unaudited) 2,432,317 (275,340) (6,756,372) (4,581,769)
==================== ==================== ==================== ====================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 9
PARTES CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1997 1998 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,403,701) (3,074,954) (1,582,157) (2,277,717)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 79,620 127,745 44,306 234,390
Non-cash interest expense 18,977 567,612 567,612 5,287
Amortization of deferred compensation and
other employee stock compensation expense 103,994 38,678 19,338 200,024
Changes in:
Accounts receivable (3,341) (27,304) 3,240 (135,381)
Prepaid expenses and other current assets (2,809) (9,414) 7,866 --
Trade accounts payable and stockholder and
employee payables 47,996 150,822 (28,682) 121,507
Accrued interest 2,750 135,283 7,250 111,802
Accrued liabilities 9,903 75,020 15,195 114,882
-------------- -------------- -------------- --------------
Net cash used in operating activities (1,146,611) (2,016,512) (946,032) (1,625,206)
-------------- -------------- -------------- --------------
Cash flows from investing activities:
Investment in software development -- (109,963) -- --
Investment in other assets (3,700) (2,888) -- (610)
Purchases of property and equipment (270,139) (761,500) (126,094) (68,992)
-------------- -------------- -------------- --------------
Net cash used in investing activities (273,839) (874,351) (126,094) (69,602)
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Proceeds from short-term borrowings 275,000 495,000 442,490 --
Repayment of short-term borrowings -- (225,120) (125,000) --
Proceeds from bank notes payable -- -- -- 948,032
Proceeds from issuance of convertible notes 150,000 2,000,000 2,000,000 --
Proceeds from issuance of common stock 1,000 2,000 2,000 --
Repurchase of common stock (3,330) -- -- --
Proceeds from issuance of Series B redeemable
convertible preferred stock -- 1,367,448 1,367,448 --
Proceeds from issuance of Series A preferred
stock 977,480 -- -- --
-------------- -------------- -------------- --------------
Net cash provided by financing
activities 1,400,150 3,639,328 3,686,938 948,032
-------------- -------------- -------------- --------------
Net increase (decrease) in cash and
cash equivalents (20,300) 748,465 2,614,812 (746,776)
Cash and cash equivalents at beginning of period 61,320 41,020 41,020 789,485
-------------- -------------- -------------- --------------
Cash and cash equivalents at end of period $ 41,020 789,485 2,655,832 42,709
============== ============== ============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -- 28,399 -- 19,066
Non-cash financing activities:
Value ascribed to warrants issued with
short-term borrowings 18,997 567,612 567,612 5,287
Conversion of accrued interest to short-term
borrowings 10,053 15,440 -- --
Conversion of short-term borrowings to
Series A preferred stock and
Series B redeembable
Convertible preferred stock 300,000 577,555 577,555 --
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 10
PARTES CORPORATION
Notes to Financial Statements
(1) THE COMPANY
Partes Corporation (the Company), a Delaware corporation, was
incorporated in 1992. The Company develops and provides software tools
and services to access, organize, and interpret financial data via the
Internet. In 1999, the Company changed its legal name to FreeEDGAR.com,
Inc.
The financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the realization of
assets and liquidation of liabilities in the ordinary course of business.
The Company has limited financial resources, has incurred recurring
losses and has a net capital deficit. The Company's ability to continue
as a going concern is dependent upon its ability to raise additional
financing. The Company is vigorously seeking additional debt or equity
financing. However, there can be no assurance that the Company will be
successful in its efforts to obtain such financing or, if available, that
it will be able to obtain it on acceptable terms. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Subsequent to December 31, 1998, the Company obtained additional
financing and entered into a merger agreement with EDGAR Online, Inc.
("EDGAR Online") (note 11).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
Highly liquid investments purchased with original maturities of
three months or less are considered to be cash equivalents. There
were no cash equivalents at December 31, 1997 and 1998.
(b) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations as incurred;
additions, improvements and major replacements are capitalized.
For financial reporting purposes, depreciation is provided using
the straight-line method over the estimated useful lives of
depreciable assets, which range from 3 to 5 years. Leasehold
improvements are amortized over the lesser of the useful life of
the asset or the term of the lease.
(c) SOFTWARE DEVELOPMENT COSTS
Software development costs incurred in conjunction with product
development are charged to research and development expense until
technological feasibility is established. Thereafter, until the
product is released for sale, such software development costs are
capitalized and reported at the lower of unamortized cost or net
realizable value of each product. The establishment of
technological feasibility and the ongoing assessment of
recoverability of costs require considerable judgment by the
Company with respect to certain internal and external factors,
including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes to hardware and
software technology. The Company amortizes capitalized software
costs using the straight-line method over the estimated economic
life of the product.
(d) REVENUE RECOGNITION
The Company recognizes revenue from website advertising in the
month the activity occurs. Revenues from internet linking
agreements are recognized ratably over the periods in which
services are provided.
7 (Continued)
<PAGE> 11
PARTES CORPORATION
Notes to Financial Statements
(e) CONCENTRATION OF CREDIT RISK AND SALES TO MAJOR CUSTOMERS
The Company performs ongoing credit evaluations of its commercial
customers' financial condition and requires no collateral from
these customers. The Company has a cash investment policy which
generally restricts investments to ensure preservation of
principal and maintenance of liquidity. All of the Company's cash
was held in one financial institution at December 31, 1998.
The Company's customers include advertisers and other companies
with websites linked to the Company's website. Two of these
customers represented 41 percent and 59 percent of total revenue
during the year ended December 31, 1998. Two customers with
linking arrangements represent 45 percent of total revenues during
the year ended December 31, 1998. Customers with website links
represented 45 percent of total accounts receivable balance at
December 31, 1998.
(f) ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. There was no
advertising expense for the years ended December 31, 1997 and
1998.
(g) INCOME TAXES
The Company follows the asset and liability method of accounting
for 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. If
it is more likely than not that some portion of a deferred tax
asset will not be realized, then a valuation allowance is
recorded.
Until 1997, the Company had elected to be taxed as an S
corporation for federal income tax purposes whereby the Company
was not directly subject to income taxes as its stockholders were
taxed on their proportionate share of income and losses. The
change in tax status in 1997 did not have a significant impact on
the Company's financial position or results from operations.
(h) STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option
grants as if the fair value based method defined in SFAS No. 123
has been applied. Under APB No. 25, compensation expense would be
recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. The Company has
elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123. The Company
is required to implement SFAS No. 123 for stock-based awards to
other than employees.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
8 (Continued)
<PAGE> 12
PARTES CORPORATION
Notes to Financial Statements
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash
equivalents, accounts receivable, accounts payable, and accrued
liabilities. The carrying amounts of these financial instruments
approximates fair value due to their short maturities. The
carrying amount of the notes payable and convertible note payable
approximates fair value as the interest rates approximate that
charged on similar type debt instruments.
(k) UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial data as of June 30, 1999 and for each of the
six months ended June 30, 1998 and 1999 is unaudited; however, in
the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments,
which are necessary to present fairly the Company's financial
position as of June 30, 1999 and the results of its operations and
cash flows for each of the six-months ended June 30, 1998 and
1999. The interim financial statements should be read in
conjunction with the financial statements and accompanying notes.
The results of operations for the interim periods are not
necessarily indicative of the results to be expected for a full
year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------------- ----------------
<S> <C> <C>
Computer hardware and software $ 324,968 989,937
Furniture and fixtures 21,752 24,347
Equipment 14,236 98,474
Leasehold improvements 9,173 18,871
---------------- ----------------
370,129 1,131,629
Less accumulated depreciation and amortization (88,921) (216,371)
---------------- ----------------
$ 281,208 915,258
================ ================
</TABLE>
(4) NOTES PAYABLE AND CONVERTIBLE NOTE PAYABLE
(a) NOTES PAYABLE TO SHAREHOLDERS AND EMPLOYEES
At December 31, 1997, notes payable primarily consist of notes
payable to stockholders and employees bearing interest at 8
percent per annum, due February 12, 1998. The notes payable were
repaid or were converted to Series B convertible preferred stock
in 1998.
(b) CONVERTIBLE NOTE PAYABLE
On June 9, 1998, the Company issued a $2,000,000 convertible
promissory note, due June 12, 2003. The note accrues interest at
10 percent per annum, payable in quarterly installments beginning
in March 31, 1999, and is convertible into shares of Series B
convertible preferred stock at a conversion price equal to (a)
$2.15 per share within 90 days of the date of issuance, (b) $2.69
per share within one year of the date of issuance, (c) $3.23 per
share during the second year subsequent to the date of
9 (Continued)
<PAGE> 13
PARTES CORPORATION
Notes to Financial Statements
issuance, (d) $3.76 per share during the third year subsequent to the
date of issuance, (e) $4.30 per share on or after the third anniversary
from the date of issuance and prior to maturity. The Company is required
to reserve 1,069,768 shares of Series B convertible preferred stock and
the requisite number of common shares issuable upon conversion of the
Series B convertible preferred stock. The convertible note payable is
collaterized by substantially all of the assets of the Company. The note
is subordinate to the line of credit described in note 11.
(5) LEASE COMMITMENTS
The Company's lease commitments consist of operating leases for its three
facilities and certain office equipment. Annual rentals are primarily
fixed minimum amounts, plus a contingent amount determined on the basis
of a percentage of sales exceeding a stipulated amount. Lease provisions
also require additional payments for maintenance and other miscellaneous
expenses.
Rental expense was $61,209 and $127,189 for the years ended December 31,
1997 and 1998, respectively. Future minimum annual rental commitments on
all leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 160,040
2000 6,958
-----------
$ 166,998
===========
</TABLE>
(6) INCOME TAXES
A provision for income taxes was not recorded for the years ended
December 31, 1997 and 1998 due to taxable losses incurred during the
year. A valuation allowance has been recorded against deferred tax assets
as it has not been determined that it is more likely than not that these
deferred tax assets will be realized. Deferred tax assets and liabilities
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1998
-------------------- --------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 407,000 1,422,000
Compensation and benefits -- 35,000
Research and development tax credit carryforward 46,000 138,000
Other -- 2,000
-------------------- --------------------
Total deferred tax assets 453,000 1,597,000
Deferred tax liabilities - depreciation (11,000) (19,000)
-------------------- --------------------
442,000 1,578,000
Valuation allowance (442,000) (1,578,000)
-------------------- --------------------
$ -- --
==================== ====================
</TABLE>
10 (Continued)
<PAGE> 14
PARTES CORPORATION
Notes to Financial Statements
As of December 31, 1998, the Company has net operating loss carryforwards
of approximately $4.2 million for federal income tax reporting purposes
which expire from 2012 through 2018. If certain substantial changes in
the Company's ownership should occur, there could be an annual limitation
on the amount of the carryforward which could be utilized. Losses
incurred prior to the Company becoming a C corporation in 1997, are
not available to offset future taxable income, if any.
Substantially all of the difference between the expected income tax
benefit determined by applying the applicable federal income tax rate of
34 percent to the net loss before income taxes to the actual income tax
benefit of $0 for each of the years ended December 31, 1997 and 1998
relates to the increase in the valuation allowance for deferred tax
assets of $442,000 and $1,136,000 for 1997 and 1998, respectively.
(7) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In June 1998, the Company completed a private placement of Series B
redeemable convertible preferred stock in which 930,232 shares of
preferred stock were issued for $2.15 per share, of which 268,630 shares
were issued for the conversion of $577,555 of short-term borrowings and
accrued interest. The shares have preference over common stock upon
liquidation of the Company to receive $2.15 per share plus any declared
but unpaid dividends. The shares are entitled to receive dividends
declared at the same rate as those declared for Series A preferred stock
or the common stock, at the discretion of the Board of Directors. The
Company's Series B redeemable convertible preferred stock includes a
provision whereby, in June 2008, the Company is required to repurchase
all of the shares of Series B redeemable convertible preferred stock at a
redemption price of $2.15 per share plus all dividends declared but
unpaid. The total redemption price and number of shares to be redeemed
are $1,999,998 and 930,232 shares, respectively, at December 31, 1998.
Each share of the Series B redeemable convertible preferred stock is
convertible at any time at the option of the holder into common stock on
a one-for-one basis, adjusted for any dilutive events. Each share of the
Series B redeemable convertible preferred stock will automatically be
converted into common stock (a) immediately prior to the closing of an
underwritten public offering of common stock registered under the
Securities Act of 1933 in which the Company receives gross proceeds of at
least $12,000,000 and at a price per share equal to or greater than $10,
or (b) at any time upon affirmative vote or written consent of at least
80 percent of the Series B preferred stockholders.
11 (Continued)
<PAGE> 15
PARTES CORPORATION
Notes to Financial Statements
(8) EQUITY
(a) COMMON STOCK
Common stockholders are entitled to receive cash dividends when
and if declared by the Company's Board of Directors.
The Company has reserved for future issuance the following shares
of common stock at December 31:
<TABLE>
<CAPTION>
1997 1998
------------------- --------------------
<S> <C> <C>
Warrants 11,000 274,088
Stock options 300,000 500,000
Convertible preferred Series A 471,000 471,047
Convertible redeemable preferred Series B -- 930,232
Convertible note payable -- 729,927
</TABLE>
(b) PREFERRED STOCK
In 1997, the Company issued 383,244 shares of Series A preferred
stock for $3.33 per share. These shares have voting rights and
liquidation preferences over common stock and are entitled to
receive cash dividends when and if declared by the Company's Board
of Directors.
The Series A preferred stock are convertible at any time at the
option of the holder into a certain number of shares of common
stock determined by dividing $3.33 by the conversion price. The
conversion price is $3.33 subject to adjustment for any dilutive
events. Each share of the Series A preferred stock will
automatically be converted into common stock (a) immediately prior
to the closing of an underwritten public offering of common stock
registered under the Securities Act of 1933; or (b) at any time
upon affirmative vote or written consent of at least 51 percent of
the Series A preferred stockholders.
Upon liquidation, dissolution, or winding up of the Corporation,
the holders of the Series A preferred stock will be entitled to be
paid out of the assets of the Company an amount per share equal to
the sum of $3.33 for each outstanding share of Series A preferred
stock plus an amount equal to all declared but unpaid dividends on
each such share, once the liquidation preference of the Series B
redeemable convertible preferred stockholders has been satisfied.
Any remaining net assets after the distribution to Series A
preferred stockholders will be split ratably among the holders of
the Series B redeemable convertible preferred stock and common
stock.
The holders of the Series B redeemable convertible preferred
stock, voting separately as a series, are entitled to elect three
members of the Board of Directors of the Company. The holders of
the Series B redeemable convertible preferred stock, Series A
preferred stock and common stock, voting together as a single
class, are entitled to elect four members of the Board of
Directors.
12 (Continued)
<PAGE> 16
PARTES CORPORATION
Notes to Financial Statements
(c) STOCK WARRANTS
In conjunction with the issuance of short-term borrowings during
the period from November 1997 to May 1998, the Company issued
warrants to purchase common stock. The holders of such warrants
are entitled to exercise the right to purchase common stock. The
holders of such warrants are entitled to exercise the right to
purchase 274,088 shares of common stock at an exercise price of
$5.00 per share. Each warrant has a maximum term of ten years, and
is exercisable beginning three years from the date of issuance. In
June 1998, coinciding with the issuance of the Series B redeemable
convertible preferred stock, all warrants were cancelled and
reissued to the holders at an exercise price of $2.15 per share.
For purposes of recording and disclosing the fair value of
warrants granted in accordance with SFAS No. 123, the value of
each warrant was estimated at the date of grant using the fair
value, which is defined as the amount at which an asset could be
bought or sold in a current transaction between willing parties.
The Black Scholes pricing model was used to calculate the fair
value. The following weighted average assumptions were used for
warrants granted during 1997 and 1998: dividend yield of 0
percent, risk-free interest rate ranging from 5.51 percent to 5.86
percent, expected term of ten years, and volatility of 40 percent.
Non-cash interest expense of $18,977 was recognized in 1997 on
warrants related to bridge loans outstanding at December 31, 1997.
The bridge loans matured during 1998, and accordingly the entire
unamortized fair value of the warrants of $567,612 was expensed
during 1998 as non-cash interest expense. No warrants were
exercised during 1997 and 1998.
(9) STOCK OPTIONS
The 1996 Stock Incentive Plan ("Plan") was established to provide for the
grant of incentive stock options and nonqualified stock options to
employees, officers, directors and consultants, as determined by the Plan
Administrator. Options granted under the Plan vest over periods ranging
from the date of grant to five years and remain exercisable for a period
not exceeding ten years from the date of grant. The Company has
authorized 500,000 shares of common stock for issuance under the Plan.
The date of grant, option price, vesting period and other terms specific
to options granted under the Plan are determined by the Plan
Administrator.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for options granted to employees. Under this method,
compensation expense is recognized on stock options issued to employees
where the exercise price of the option is less than the fair market value
of the Company's stock on the date of grant. During 1997 and 1998, the
Company recognized $103,994 and $38,678, respectively, of compensation
expense related to stock options. The Company applies SFAS No. 123 to
account for options granted to non-employees.
Had compensation expense for the Plan been determined based upon the fair
value at the grant date consistent with the methodology prescribed under
SFAS No. 123. The net loss for the year ended December 31, 1997, using
the methodology prescribed under SFAS No. 123, would be substantially the
same as the reported net loss. The Company's net loss would have
increased by $130,232 to $3,205,186 for the year ended December 31, 1998.
The fair value of the options granted to employees during 1997 and 1998
is estimated on the date of grant using the minimum value method with the
following assumptions: risk-free interest rate of between 4.22 percent
and 5.47 percent, and expected life of five years.
13 (Continued)
<PAGE> 17
PARTES CORPORATION
Notes to Financial Statements
A summary of stock option activity for the years ended December 31, 1997
and 1998 is presented below:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
-------------------- --------------------
<S> <C> <C>
Outstanding at December 31, 1996 -- $
Granted 250,500 1.91
Exercised (1,000) 1.00
Forfeited (17,000) 1.29
-------------------- --------------------
Outstanding at December 31, 1997 232,500 1.98
Granted 281,000 2.15
Exercised (2,000) 1.00
Forfeited (92,000) 2.33
-------------------- --------------------
Outstanding at December 31, 1998 419,500 $ 1.98
==================== ====================
Options exercisable at December 31, 1997 39,800 1.05
Options exercisable at December 31, 1998 128,500 $ 1.59
==================== ====================
</TABLE>
The weighted-average fair value of options granted at a price equal to
market during the years ended December 31, 1997 and 1998 were $0.73 and
$0.45 per option, respectively. The weighted average fair value of
options granted at a price less than market during the year ended
December 31, 1997 was $2.54 per option.
The following tables summarize information about stock options
outstanding and exercisable at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE
RANGE OF OPTIONS REMAINING WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICES
----------------- ---------------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.00-2.00 138,500 8.24 $ 1.06 39,700 $ 1.05
2.00-3.33 94,000 9.84 3.33 100 3.33
---------------- ----------------
232,500 39,800
================ ================
</TABLE>
14 (Continued)
<PAGE> 18
PARTES CORPORATION
Notes to Financial Statements
<TABLE>
<CAPTION>
1998
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE
RANGE OF EXERCISE OPTIONS REMAINING WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICES
- ------------------- ----------------- ------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 1.00-2.00 138,500 7.26 $ 1.06 64,800 $ 1.05
2.00-2.15 281,000 9.29 2.15 63,700 2.15
------------------ -------------------
419,500 128,500
================== ===================
</TABLE>
(10) EMPLOYEE BENEFIT PLAN
In 1998, the Company adopted an employee-defined contribution plan for
substantially all employees of the Company which qualified under Section
401(k) of the Internal Revenue Code. The Company may match employee
contributions at a percentage determined by the Board of Directors.
Employer contributions vest 20 percent per year of service beginning the
second year of service. There were no amounts matched by the Company
during the year ended December 31, 1998.
(11) SUBSEQUENT EVENTS
(a) LINE OF CREDIT
During February 1999, the Company entered into a $650,000
revolving line of credit with a financial institution for working
capital and capital equipment purchases. The line of credit bears
interest at the prime rate of the financial institution (7.75
percent at December 31, 1998) and increases to $1,000,000 once a
minimum of $3,000,000 of equity financing is obtained by the
Company. The line contains certain affirmative and negative
covenants which require, among other things, that the Company meet
certain financial position covenants and limit certain capital
expenditures, and is collateralized by a first priority interest
in all assets of the Company including all present and future
inventory, chattel paper, accounts, contract rights, unencumbered
equipment, general intangibles and fixtures.
(b) BRIDGE FINANCING
On May 26, 1999, the Company entered into a $375,000 bridge loan
with a bank which expires the earlier of July 15, 1999 or upon the
Company's next equity or financing event. The bridge loan bears
interest at the bank's prime rate plus three percent (10.75
percent at the initiation of the loan). In connection with this
loan, the Company issued warrants to purchase 18,750 shares of the
Company's common stock with an exercise price of $1.00. The
warrants expire in five years. Additionally, if the bridge loan is
not repaid in full by July 15, 1999, the Company is required to
issue additional warrants for the purchase of 18,750 shares of the
Company's common stock at similar terms.
15 (Continued)
<PAGE> 19
PARTES CORPORATION
Notes to Financial Statements
(c) LETTER OF INTENT
On July 25, 1999, the Company entered into a Letter of Intent to
be acquired by EDGAR Online. Under the terms of the Letter of
Intent, EDGAR Online advanced the Company $200,000 under a
subordinated note agreement which bears interest at 10 percent.
(d) ACQUISITION OF THE COMPANY (UNAUDITED)
On September 10, 1999, the Company entered into a definative
agreement to be merged with EDGAR Online.
16
<PAGE> 20
(B) Pro Forma Financial Information
On September 10, 1999, the Company acquired FreeEDGAR.com, Inc.
(formerly known as Partes Corporation ("Partes")) for approximately $9.0
million, including acquisition costs. This acquisition was accounted for as a
purchase business combination.
The unaudited pro forma condensed consolidated balance sheet and
statement of operations have been prepared by combining the historical financial
statements of the Company with the historical financial statements of Partes and
applying pro forma adjustments to the combined amounts assuming the acquisition
had occurred as of June 30, 1999 with respect to the pro forma unaudited
condensed consolidated balance sheet and as of January 1, 1998 and January 1,
1999 with respect to the unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 1998 and the six months ended
June 30, 1999.
The pro forma financial information is intended for informational
purposes only and is not necessarily indicative of the future financial position
or results of operations of the consolidated company after the acquisition. In
addition, the pro forma financial information is not necessarily indicative of
the actual results that would have occurred had the acquisition been effected on
January 1, 1998 or January 1, 1999. The pro forma balance sheet and statements
of operations and accompanying notes should be read in connection with and are
qualified by the historical financial statements of the Company and notes
thereto.
<PAGE> 21
EDGAR Online, Inc. Unaudited Pro Forma Condensed Consolidated
Balance Sheet as of June 30, 1999 (in thousands)
<TABLE>
<CAPTION>
6/30/99 6/30/99 Pro Forma Pro Forma
EDGAR Online Partes Adjustments As Adjusted
<S> <C> <C> <C> <C>
Cash and investments $ 30,218 $ 43 $ $ 30,261
Accounts receivable, net 277 166 443
Other 93 26 119
------------- -------------- ----------------- ------------------
Total current assets 30,588 235 - 30,823
Fixed assets 481 860 1,341
Prepaid offering costs - - -
Capitalized software costs - - -
Intangible assets - - 9,596 (a),(c),(d) 9,596
Other assets 22 7 29
------------- -------------- ----------------- ------------------
Total assets $ 31,091 $ 1,102 $ 9,596 $ 41,789
============= ============== ================= ==================
Accounts payable and accrued
expenses $ 728 $ 755 $ 895 (d) $ 2,378
Deferred revenue 238 35 273
Notes payable - 948 948
Capital leases, current portion 81 - 81
------------- -------------- ----------------- ------------------
Total current liabilities 1,047 1,738 895 3,680
Notes payable - 2,000 (2,000) (b) -
Accrued interest payable 27 - 27
Due to officers - - -
Capital leases, long-term portion 109 - 109
------------- -------------- ----------------- ------------------
Total liabilities 1,183 3,738 (1,105) 3,816
Mandatory redeemable stock - 1,945 (1,945) (c) -
Preferred stock - 4 (4) (b),(c) -
Common stock 115 14 (5) (a),(c) 124
Additional paid-in capital 35,932 2,432 5,624 (a),(c) 43,988
Deferred compensation - (275) 275 (c) -
Accumulated deficit (6,139) (6,756) 6,756 (c) (6,139)
------------- -------------- ------------------ ------------------
Total stockholders
equity 29,908 (4,581) 12,646 37,973
Total liabilities and
stockholders equity $ 31,091 $ 1,102 $ 9,596 $ 41,789
============= ============== ================= ==================
</TABLE>
<PAGE> 22
EDGAR Online, Inc. Unaudited Pro Forma
Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1999 (in thousands)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1999 Pro Forma Pro Forma
EDGAR Online Partes Adjustments As Adjusted
------------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 1,680 $ 195 $ - $ 1,875
Cost of revenues 485 - - 485
----------------------------------------------------------------------------------------
Gross profit 1,195 195 - 1,390
Operating expenses 2,590 2,344 753 (a) 5,687
------------------------------------------------------------------------------------------
Loss from operations (1,395) (2,149) (753) (4,297)
Other income 2 (129) - (127)
------------------------------------------------------------------------------------------
Loss before income
taxes (1,393) (2,278) (753) (4,424)
Income tax expense - - - -
------------------------------------------------------------------------------------------
Net loss $ (1,393) $ (2,278) $ (753) $ (4,424)
==========================================================================================
Basic and diluted
weighted average
shares outstanding 8,662 909 9,571
======================= ======================== ===================
Basic and diluted net
loss per share $ (0.16) $ (2.51) $ (0.46)
======================= ========================= ====================
</TABLE>
<PAGE> 23
EDGAR Online, Inc. Unaudited Pro Forma
Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1998 (in thousands)
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1998 December 31, 1998 Pro Forma Pro Forma
EDGAR Online Partes Adjustments As Adjusted
-------------------- ----------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Revenues $ 2,003 $ 138 $ - $ 2,141
Cost of revenues 619 - - 619
------------------------------------------------------------------------------------
Gross profit 1,384 138 - 1,522
Operating expenses 3,473 2,549 1 ,792 (a) 7,814
-------------------------------------------------------------------------------------
Loss from operations (2,089) (2,411) (1,792) (6,292)
Other income (132) (664) - (797)
------------------------------------------------------------------------------------
Loss before income
taxes (2,221) (3,075) (1,792) (7,089)
Income tax expense - - -
------------------------------------------------------------------------------------
Net loss $ (2,221) $ (3,075) $ (1,792) $ (7,089)
====================================================================================
Basic and diluted
weighted average
shares outstanding 6,129 909 7,038
=================== ==================== ====================
Basic and diluted net
loss per share $ (0.36) $ (3.38) $ (1.01)
=================== ==================== ====================
</TABLE>
<PAGE> 24
EDGAR Online, Inc. and Partes Corporation
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
1. On September 10, 1999, EDGAR Online, Inc. ("the Company") purchased all of
the outstanding equity of FreeEDGAR.com, Inc. (formerly known as Partes
Corporation ("Partes")) for approximately $9.0 million. The purchase price
included (1) the issuance of 908,877 shares of EDGAR Online common stock
valued at approximately $7.8 million, (2) the issuance of 75,039 EDGAR
Online stock options and warrants, with a fair value of approximately $0.3
million, in exchange for all outstanding Partes stock options, and (3)
approximately $0.9 million in cash for the payment of fees and acquisition
related expenses. The acquisition was accounted for under the purchase
method of accounting. The unaudited pro forma condensed consolidated
information has been prepared by combining the historical financial
statements of the Company with the historical financial statements of Partes
and applying pro forma adjustments to the combined amounts assuming the
acquisition had occurred as of June 30, 1999 with respect to the pro forma
unaudited condensed consolidated balance sheet and as of January 1, 1998
and 1999 with respect to the unaudited pro forma condensed consolidated
statements of operations.
The estimated excess purchase price over the fair value of the net assets
acquired is labeled intangibles in the accompanying pro forma unaudited
condensed consolidated balance sheet based on the preliminary assignment of
fair values to the net assets acquired and is being amortized over five
years, the estimated blended useful life of the excess purchase price.
2. The pro forma balance sheet includes the following adjustments:
(a) To reflect the issuance of 908,877 shares of EDGAR Online, Inc.
Common Stock and 75,039 EDGAR Online stock options and warrants
(b) To reflect the conversion of the $2.0 million note payable into
Partes preferred stock.
(c) To reflect the retirement of all Partes equity accounts.
(d) To reflect costs related to the acquisition.
3. The pro forma statements of operations include the following adjustments:
(a) To reflect the increase in amortization expense due to the
amortization of intangible assets over 5 years.
(b) Earnings per share is computed by dividing the net loss by the
weighted average number of common shares outstanding. The
calculation assumes that the 908,877 shares of the Company's
common stock issued in the acquisition were outstanding for the
entire period. Diluted earnings per share is the same as basic
earnings per share as the potential common stock equivalents are
anti-dilutive.
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
EDGAR Online, Inc.
Dated: November 22, 1999 By: /s/ Tom Vos
---------------------------
Tom Vos
President and Chief Operating
Officer
