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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-75291
PROSPECTUS
3,600,000 SHARES
[EDGAR ONLINE LOGO]
COMMON STOCK
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This is the initial public offering of EDGAR Online, Inc. and we are offering
3,600,000 shares of our common stock.
The shares we are offering have been approved for quotation on the Nasdaq
National Market under the symbol "EDGR."
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THIS INVESTMENT INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS" BEGINNING ON PAGE
5.
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<CAPTION>
PER
SHARE TOTAL
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Public offering price....................................... $ 9.50 $34,200,000
Underwriting discounts...................................... $ 0.67 $2,412,000
Proceeds, before expenses, to EDGAR Online.................. $ 8.83 $31,788,000
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Certain of our shareholders have granted the underwriters a 30-day option to
purchase up to 540,000 additional shares to cover over-allotments.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on June 1, 1999.
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C.E. UNTERBERG, TOWBIN FAHNESTOCK & CO. INC.
The undersigned is facilitating Internet distribution.
DLJdirect INC.
May 26, 1999
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[THE INSIDE FRONT COVER CONTAINS THE FOLLOWING: PICTURES OF HOME PAGE AND
VARIOUS OTHER PAGES FROM THE EDGAR ONLINE WEB SITE]
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary................... 1
Risk Factors......................... 5
Forward-Looking Statements........... 16
Use of Proceeds...................... 17
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 19
Selected Financial Data.............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 29
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Management........................... 39
Certain Relationships and Related
Party Transactions................. 48
Principal Stockholders............... 50
Description of Capital Stock......... 52
Shares Eligible for Future Sale...... 53
Underwriting......................... 55
Legal Matters........................ 57
Experts.............................. 58
Additional Information............... 58
Index to Financial Statements........ F-1
</TABLE>
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IN MAKING A DECISION WHETHER TO BUY OUR COMMON STOCK, YOU SHOULD ONLY RELY
ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH ANY INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF OUR
COMMON STOCK ONLY WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION
CONTAINED IN THIS PROSPECTUS MAY ONLY BE ACCURATE ON THE DATE OF THIS
PROSPECTUS.
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PROSPECTUS SUMMARY
Because this is only a summary, it may not contain all the information that
may be important to you. For a more complete understanding of this offering, we
encourage you to read this entire prospectus and the documents we refer you to.
Before deciding whether to invest in our common stock, you should read the
following summary together with the more detailed information and consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus. In this prospectus, references to "EDGAR Online," "we," "us"
and "our" refer to EDGAR Online, Inc. Except as otherwise noted, all information
in this prospectus (1) reflects a one-for-four stock split effected in May 1997
and (2) assumes no exercise of the underwriters' over-allotment option.
EDGAR ONLINE
OUR BUSINESS
EDGAR Online, Inc. is an Internet-based commercial provider of business,
financial and competitive information contained in corporate filings made by
public companies with the SEC. Our services are designed to satisfy the demands
of individuals and businesses for timely and cost-effective access to the
filings of the more than 15,000 U.S. public companies. These services include a
variety of search and navigation tools, personalization features and e-mail and
Web-based alerts. We obtain corporate filings from the SEC's EDGAR (Electronic
Data Gathering, Analysis and Retrieval) database on a non-exclusive, real-time
basis. With our proprietary software, we enhance these filings by organizing and
processing them into an easily accessible and searchable format. We then use
these enhanced EDGAR filings as the basis for our value-added services, which we
offer on our EDGAR Online Web site, located at http://www.edgar-online.com.
We offer several tiers of paid subscription services to individual users
and custom-tailored applications to businesses. A monthly subscription to our
Web site for an individual user starts at $9.95 and includes the following
services:
- TODAY'S SEC FILINGS provides users with real-time access to EDGAR
filings;
- FULL SEARCH allows users to combine multiple criteria to search all EDGAR
filings;
- EDGAR ONLINE PEOPLE allows users to search the EDGAR database for
information about individuals named in EDGAR filings;
- EDGAR ONLINE PERSONAL allows users to store their queries and sends
e-mail alerts immediately when new EDGAR filings match their search
criteria;
- EDGAR ONLINE IPO EXPRESS allows users to track initial public offerings
as they are filed, priced, postponed or withdrawn; and
- DOCUMENT DISPLAY options allow users to download information in multiple
formats.
For corporate customers, we offer customized services to meet their particular
needs in a real-time and cost-effective manner. We have entered into a number
of, and are pursuing additional, corporate contracts to supply EDGAR content for
use on corporate intranets, extranets and Web sites. We currently have over 100
corporate customers.
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In order to build brand awareness, increase traffic and create a large pool
of potential subscribers, we promote our Web site and provide a portion of our
content for free. This basic free service includes access to filings on a
delayed basis and selected features of Full Search and EDGAR Online People, as
well as stock quotes, charts, research and news. Both traffic on our Web site
and the number of individual registered users nearly tripled in 1998. As of
March 31, 1999, we had over 115,000 registered users, of which approximately
7,500 were paying subscribers. Approximately one million people visit our EDGAR
Online Web site monthly. For the past two years, Barron's has rated our EDGAR
Online site as one of the top 20 investment Web sites.
As an important part of our strategy to build brand awareness, increase
traffic to our site and sell our subscription services, we have established a
significant number of content distribution relationships. We currently have
contracts to supply EDGAR content to more than 60 widely used Web sites,
including Yahoo!, Infoseek's GO Network, MSNBC, TheStreet.com, CNET's SNAP,
Go2Net, PointCast, Infospace, CBS MarketWatch, SmartMoney.com, Business Wire,
Big Charts, Raging Bull and Track Data. Users can access our services either
directly as registered EDGAR Online subscribers or indirectly through those Web
sites with which we have established one of these content distribution
arrangements.
We believe our Web site draws users who represent an attractive demographic
group for companies that advertise or conduct business over the Internet. Since
introducing our EDGAR Online Web site in January 1996, we have steadily
increased the number of individual advertising banners appearing on our Web
pages. In March 1999, more than 240 advertisers purchased banners on our Web
site.
We are not affiliated with or approved by the SEC, which owns the rights to
the name "EDGAR". The SEC has granted us a non-exclusive license to use the name
EDGAR in our service marks and in our corporate name. We are also not affiliated
with the SEC's Web site, located at http://www.sec.gov, which provides free
access to EDGAR filings on a time-delayed basis. We are one of the 12 companies
that subscribe to the real-time EDGAR database feed from TRW, the SEC's data
vendor, which costs approximately $80,000 per year.
OUR MARKET OPPORTUNITY
Today's business environment is characterized by a rapidly growing demand
for fast and easy access to corporate and financial information. SEC filings,
such as prospectuses and annual and quarterly reports, are a primary source of
this information. Prior to the introduction of the EDGAR system, SEC filings
were only available on a delayed basis in costly paper or CD-ROM format from a
limited number of document providers or SEC public reference rooms. The
availability of SEC filings in an electronic format, together with the
distributive power of the Internet, has created a significant opportunity to
deliver this information in a real-time and cost-effective manner. At the same
time, individuals and businesses are increasingly using the Internet as a source
of valuable business intelligence. According to Simba Information, a media
industry research firm, revenues from the sale of business information delivered
online in the U.S. are projected to grow from approximately $27 billion in 1998
to approximately $40 billion in 2002. Growth in this market is expected to
continue as more people gain access to, and increasingly rely on, the Internet
as their primary source of business information.
We believe that easy access to EDGAR-based information is important to
professionals, businesses and the growing population of online investors. In
addition, newly evolving technologies make it possible to locate and retrieve
selected details from vast electronic databases, such as the EDGAR database,
more quickly and economically than historically had been possible. By helping
our
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customers access the EDGAR filings contained in our comprehensive database,
which we update on a real-time basis, we believe that we are well positioned to
exploit these market opportunities.
CORPORATE INFORMATION
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. Our Web site is
located at http://www.edgar-online.com. The information on our Web site is not
part of this prospectus.
THE OFFERING
Common stock offered by EDGAR Online.... 3,600,000 shares
Common stock to be outstanding after the
offering................................ 11,537,957 shares(1)
Use of proceeds......................... Repayment of debt, expansion of our
sales and marketing efforts, other
general corporate purposes and
possible acquisitions. See "Use of
Proceeds."
Control by management and principal
stockholders............................ Following the completion of this
offering, our directors and
executive officers, together with
our other principal stockholders,
will own or control more than 60%
of our common stock. Accordingly,
these stockholders may be able to
influence the outcome of
stockholder votes following the
completion of this offering.
Nasdaq National Market symbol........... EDGR
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(1) Does not include (a) 800,000 shares issuable upon exercise of outstanding
options under our 1996 Stock Option Plan with a weighted average exercise
price of $2.36 per share, (b) 600,000 shares reserved for future issuance
under our 1999 Stock Option Plan, of which options to purchase 41,000 shares
have been granted at an exercise price of $9.50 per share, (c) 100,000
shares reserved for future issuance under our 1999 Outside Directors Stock
Option Plan, (d) 90,000 shares issuable upon exercise of outstanding
warrants with a weighted average exercise price of $2.76 per share and (e)
250,000 shares issuable upon exercise of warrants to be issued to the
underwriters at an exercise price of $10.45 per share.
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SUMMARY FINANCIAL DATA
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YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
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1996 1997 1998 1998 1999
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 169,822 $ 1,044,138 $ 2,003,117 $ 384,461 $ 641,457
Gross profit......................... $ (56,692) $ 160,935 $ 956,788 $ 173,329 $ 320,835
Loss from operations................. $ (763,056) $(1,199,088) $(2,088,933) $ (170,603) $ (548,177)
Net loss............................. $ (835,853) $(1,497,899) $(2,221,474) $ (188,263) $ (586,456)
Basic and diluted net loss per
share.............................. $ (0.19) $ (0.26) $ (0.36) $ (0.03) $ (0.09)
Basic and diluted weighted average
shares outstanding................. 4,302,466 5,655,151 6,129,116 6,074,000 6,367,290
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MARCH 31, 1999
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PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 216,003 $1,746,003 $30,963,003
Working capital (deficit)................................ $ (419,920) $1,110,080 $30,397,080
Total assets............................................. $ 1,156,179 $2,616,613 $31,529,353
Total stockholders' equity (deficit)..................... $(2,240,790) $ 192,613 $30,748,613
</TABLE>
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(1) Gives pro forma effect to (a) the conversion of a $1 million debenture into
670,000 shares of common stock, (b) the exercise of warrants into an
aggregate of 696,667 shares of common stock and (c) collection of the stock
subscription receivable of $515,000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and notes 8 and 13 of the notes to our December 31, 1998
financial statements contained elsewhere in this prospectus.
(2) As adjusted to give effect to the sale of 3,600,000 shares of common stock
in this offering at the initial public offering price of $9.50 per share,
after deducting the underwriting discounts and the estimated offering
expenses payable by us, and the application of the estimated net proceeds
from this offering. See "Use of Proceeds" and "Capitalization."
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the financial and other information contained in this prospectus, before
you decide whether to buy our common stock. The following risks reflect all
material risks of which we are aware that may affect your investment in our
common stock. Additional risks and uncertainties, including those generally
affecting the market in which we operate or that we currently deem immaterial,
may also impair our business. If any of these risks actually occur, our
business, financial condition and results of operations would likely suffer. In
such case, the trading price of our common stock could decline, and you might
lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AND OUR FUTURE SUCCESS WILL DEPEND ON OUR
ABILITY TO INCREASE REVENUES.
As an early stage company in the new and rapidly evolving market for the
delivery of financial and business information over the Internet, we face
numerous risks and uncertainties in achieving increased revenues. We were
incorporated in November 1995 and launched our EDGAR Online Web site, located at
http://www.edgar-online.com, in January 1996. Accordingly, we have a limited
operating history on which you can evaluate our business and prospects. During
this period, we have invested heavily in our proprietary technologies to enable
us to carry out our business plan. These expenditures, in advance of revenues,
have resulted in operating losses in each of the last three years. In order to
be successful, we must increase our revenues from the sale of our services to
corporate customers, individual subscription fees and advertising sales. In
order to increase our revenues, we must successfully:
- create and successfully implement a marketing plan to (1) attract more
individual online users to our services, (2) convert visitors to paying
subscribers and (3) increase corporate sales;
- continue to improve our market position as an Internet-based commercial
provider of information services based on EDGAR filings;
- maintain our current, and develop new, content distribution relationships
with popular Web sites and providers of business and financial
information;
- maintain our current, and continue to increase, advertising revenues by
increasing traffic to our Web site 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 sales and marketing positions.
If we are not successful in addressing these uncertainties through the execution
of our business strategy, our business, results of operations and financial
condition will be materially adversely affected.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE THAT LOSSES WILL CONTINUE.
As of March 31, 1999, we had an accumulated deficit of $5,332,916. We may
not ever generate sufficient revenues to achieve profitability. We incurred net
losses of $835,853 for the year ended December 31, 1996, $1,497,899 for the year
ended December 31, 1997, $2,221,474 for the year ended December 31, 1998 and
$586,456 for the quarter ended March 31, 1999. We expect operating losses to
continue for the foreseeable future as we continue to incur significant
operating costs and capital
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expenditures. As a result, we will need to generate significant additional
revenues to achieve and maintain profitability. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. In addition, if
revenues grow slower than we anticipate, or if operating expenses exceed our
expectations or cannot be adjusted accordingly, our business, results of
operations and financial condition will be materially adversely affected.
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 site from the type of
EDGAR-information available from the SEC on its Web site. Through its Web site,
the SEC provides free access to EDGAR filings on a time-delayed basis of 24 to
72 hours. If the SEC, which has recently announced that it intends to modernize
the EDGAR system, were to make changes to its Web site such as providing (1)
free real-time access to EDGAR filings or (2) value-added services comparable to
those provided on our Web site, our business, results of operations and
financial condition would be materially adversely affected.
WE FACE INTENSE COMPETITION FROM OTHER PROVIDERS OF BUSINESS AND FINANCIAL
INFORMATION.
We compete with many providers of business and financial information,
including other Internet companies, for consumers' and advertisers' attention
and spending. Because our market poses no substantial barriers to entry, we
expect this competition to continue to intensify. The types of companies with
which we compete for users and advertisers include:
- traditional vendors of financial information, such as Disclosure;
- proprietary information services and Web sites targeted to business,
finance and investing needs, including those providing EDGAR content,
such as Bloomberg and LIVEDGAR; and
- Web-based providers of free EDGAR information, such as FreeEDGAR.
Our future success will depend on our ability to maintain and enhance our market
position by: (1) using technology to add value to raw EDGAR information, (2)
keeping our pricing models below those of our competitors and (3) signing
high-traffic Web sites to distribution contracts.
Our potential commercial competitors include entities that currently
license our content, but which may elect to purchase a real-time EDGAR database
feed (called a Level I EDGAR feed) directly from the SEC and use it to create
value-added services, similar to services provided by us, for their own use or
for sale to others. This risk is particularly serious in light of the fact that
the SEC has, as part of the modernization of the EDGAR system, introduced a new
dissemination system effective November 1, 1998 that reduced the annual
subscription cost of a Level I feed by approximately 73%.
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
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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. See
"Business -- Industry Background" and "-- Competition."
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 EDGAR Online Web site. 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 traffic to our Web
site. We intend to spend a significant portion of the proceeds of this offering
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 SITE.
Our market is characterized by rapidly changing technologies, evolving
industry standards, frequent new product and service introductions and changing
customer demands. To be successful, we must adapt to our rapidly changing market
by continually enhancing our existing services and adding new services to
address our customers' changing demands. We could incur substantial costs if we
need to modify our services or infrastructure to adapt to these changes. Our
business could be adversely affected if we were to incur significant costs
without generating related revenues or if we cannot adapt rapidly to these
changes.
Our business could also be adversely affected if we experience difficulties
in introducing new or enhanced services or if these services are not favorably
received by users. We may experience technical or other difficulties that could
delay or prevent us from introducing new or enhanced services. Furthermore,
after these services are introduced, we may discover errors in these services
which may require us to significantly modify our software or hardware
infrastructure to correct these errors.
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF THE EMERGING MARKET FOR ONLINE
BUSINESS AND FINANCIAL INFORMATION.
The success of our business will depend on the growing use of the Internet
for the dissemination of business and financial information. The number of
individuals and institutions that use the Internet as a primary source of
business and financial information may not continue to grow. The market for the
distribution of business and financial information, including EDGAR-based
content, over the Internet has only recently begun to develop, is rapidly
evolving and is characterized by an increasing number of market entrants who
have introduced or developed electronic distribution services over the Internet
and private networks. As is typical of a rapidly evolving industry, demand and
market acceptance for new services are subject to a high level of uncertainty.
Because the market for our products and services is new and rapidly
evolving, it is difficult to predict with any certainty what the growth rate, if
any, and the ultimate size of this market will be. We cannot be certain that the
market for our services will continue to develop or that our services will ever
achieve a significant level of market acceptance. If the market fails to
continue to develop, develops more slowly than expected or becomes saturated
with competitors, or if our services do not achieve significant market
acceptance, or if pricing becomes subject to considerable competitive
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pressures, our business, results of operations and financial condition would be
materially adversely affected.
MAINTAINING EXISTING AND ESTABLISHING NEW CONTENT DISTRIBUTION RELATIONSHIPS
WITH HIGH-TRAFFIC WEB SITES IS CRUCIAL TO OUR FUTURE SUCCESS.
Because our advertising revenues, which form a significant component of our
total revenues, depend to a great extent on the traffic to our Web site, our
business could be adversely affected if we do not maintain our current, and
establish additional, content distribution relationships on commercially
reasonable terms or if a significant number of our content distribution
relationships do not result in increased use of our Web site. We rely on
establishing and maintaining content distribution relationships with
high-traffic Web sites for a significant portion of the traffic on our Web site.
For example, in the month of March 1999, approximately 25% of our traffic came
to us from the Web sites to which we have licensed our EDGAR-based content.
There is intense competition for placements on high-traffic Web sites, and we
may not be able to maintain our present contractual relationships or enter into
any additional relationships on commercially reasonable terms, if at all. Even
if we maintain our existing relationships or enter into new content distribution
relationships with other Web sites, they themselves may not continue to attract
significant numbers of users. Therefore, our Web site may not continue to
receive significant traffic or receive additional new users from these
relationships.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A DOWNTURN IN THE FINANCIAL SERVICES
INDUSTRY.
We are dependent upon the continued demand for the distribution of business
and financial information over the Internet, making our business susceptible to
a downturn in the financial services industry. For example, a decrease in the
number of individuals investing their money in the equity markets could result
in a decrease in the number of subscribers utilizing our Web site for real-time
access to EDGAR filings. This downturn could have a material adverse effect on
our business, results of operations and financial condition.
WE DEPEND ON DOUBLECLICK FOR ADVERTISING REVENUES.
We anticipate that our results of operations in any given period will
continue to depend to a significant extent upon advertising revenues generated
through our relationship with DoubleClick, Inc., which has provided us with a
full range of advertising services for the last two years. DoubleClick's failure
to enter into a sufficient number of advertising contracts during a particular
period could have a material adverse effect on our business, financial condition
and results of operations. Historically, a limited number of customers, all
represented by DoubleClick, have accounted for a significant percentage of our
paid advertising revenues. For the twelve months ended December 31, 1998, our
DoubleClick-related paid advertising revenue was 24% of our total 1998 revenues.
For the three months ended March 31, 1999, our DoubleClick-related paid
advertising revenue was 13% of our total revenues for this period.
Our existing agreement with DoubleClick can be canceled by either party on
90 days notice. In addition, this agreement does not prohibit DoubleClick from
selling the same type of service that we currently receive from them to Web
sites that compete with our site. If DoubleClick is unable or unwilling to
provide these advertising services to us in the future, we would be required to
obtain them from another provider or perform them ourselves. We would likely
lose significant advertising revenues while we are in the process of replacing
DoubleClick's services.
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WE FACE INTENSE COMPETITION FOR ADVERTISING REVENUES AND THE VIABILITY OF THE
INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN.
We compete with both traditional advertising media, such as print, radio
and television, and other Web sites for a share of advertisers' total
advertising budgets. Paid advertising revenues represented 24% and 13% of our
total revenues for the year ended December 31, 1998 and the quarter ended March
31, 1999, respectively. If advertisers do not perceive the Internet to be an
effective advertising medium, companies like ours will be unable to compete
successfully with traditional media for advertising revenues. In addition, if we
are unable to generate sufficient traffic on our Web site, we could potentially
lose advertising revenues to other Web sites that generate higher user traffic.
Because advertising sales make up a significant component of our revenues,
either of these developments could have a significant adverse impact on our
business, results of operations or financial condition.
WE MAY NOT BE ABLE TO CREATE AND DEVELOP AN EFFECTIVE DIRECT SALES FORCE.
Because a significant component of our growth strategy relates to
increasing our revenues from sales of our corporate services, our business would
be adversely affected if we were unable to develop and maintain an effective
sales force to market our services to this customer group. Until recently, we
had not employed any sales executives to sell our corporate services. In March
1999, we hired Brian Fitzpatrick to serve as Vice President of Corporate Sales.
Mr. Fitzpatrick's job duties include hiring, training and managing a sales force
whose task will be to market and sell our services to the corporate market.
These efforts may not be successful.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH.
We have experienced and are currently experiencing a period of significant
growth. If we are unable to manage our growth effectively, our business will be
adversely affected. This growth has placed, and our anticipated future growth
will continue to place, a significant strain on our technical, financial and
managerial resources. As part of this growth, we may have to implement new
operational and financial systems and procedures and controls to expand, train
and manage our employees, especially in the areas of sales and product
development.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF OUR NEWLY-HIRED EXECUTIVES CANNOT WORK
TOGETHER EFFECTIVELY.
Several members of our senior management joined us recently, including our
President and Chief Operating Officer in March 1998 and both our Vice President
of Corporate Sales and Chief Financial Officer in March 1999. These individuals,
who are becoming integrated as a management team, have not previously worked
together and may not be able to work together effectively to successfully manage
our growth.
WE DEPEND ON KEY PERSONNEL.
Our future success will depend to a significant extent on the continued
services of our senior management and other key personnel, particularly Susan
Strausberg, Chief Executive Officer, Marc Strausberg, Chairman and Chief
Information Officer, Tom Vos, President and Chief Operating Officer and Greg
Adams, Chief Financial Officer, 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
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able to retain our key employees or attract, assimilate or retain other highly
qualified employees in the future. If we do not succeed in attracting new
personnel or retaining and motivating our current personnel, our business will
be adversely affected. In addition, the employment agreements with our key
employees contain restrictive covenants that restrict their ability to compete
against us or solicit our customers. These restrictive covenants, or some
portion of these restrictive covenants, may be deemed to be against public
policy and may not be fully enforceable. If these provisions are not
enforceable, these employees may be in a position to leave us and work for our
competitors or start their own competing businesses. See "Business" and
"Management" for detailed information on our key personnel.
WE DEPEND ON THIRD PARTIES FOR IMPORTANT ASPECTS OF OUR BUSINESS OPERATIONS.
We depend on third parties to develop and maintain the software and
hardware we use to operate our Web site. iXL Enterprises, Inc., an Internet
strategy consulting company, develops, maintains and upgrades our proprietary
software, which includes those features which enable users to locate and
retrieve data, as well as our database of EDGAR filings, Web-based customer
interfaces and customer support and billing systems. While our contract with iXL
is currently on a month-to-month basis, we are in negotiations with iXL to amend
our agreement to provide for a more definitive term. If iXL were unable or
unwilling to provide these services, we would need to find a suitable
replacement. The failure to find a suitable replacement or to come to an
agreement with an acceptable alternate provider on terms acceptable to us could
materially adversely affect our business, results of operations and financial
condition.
We also have a hosting contract with Globix Corporation, a provider of
Internet services, pursuant to which Globix operates and maintains the Web
servers owned by us in their New York City data center. Our hosting contract
with Globix expires in July 2003. If Globix were unable or unwilling to provide
these services, we would have to find a suitable replacement. Our operations
could be disrupted while we were in the process of finding a replacement for
Globix and the failure to find a suitable replacement or to reach an agreement
with an alternate provider on terms acceptable to us could materially adversely
affect our business, results of operations and financial condition. See
"Business -- Infrastructure, Operations and Technology."
WE FACE A RISK OF SYSTEM FAILURE.
Our ability to provide EDGAR content on a real-time basis depends on the
efficient and uninterrupted operation of our computer and communications
hardware and software systems. Similarly, our ability to track, measure and
report the delivery of advertisements on our site depends on the efficient and
uninterrupted operation of a third-party system provided by DoubleClick. These
systems and operations are vulnerable to damage or interruption from human
error, natural disasters, telecommunication failures, break-ins, sabotage,
computer viruses, intentional acts of vandalism and similar events. Any system
failure, including network, software or hardware failure, that causes an
interruption in our service or a decrease in responsiveness of our Web site
could result in reduced traffic, reduced revenue and harm to our reputation,
brand and relations with advertisers.
Our operations depend on Globix's ability to protect its and our systems in
its data center against damage from fire, power loss, water damage,
telecommunications failure, vandalism and similar unexpected adverse events.
Although Globix provides comprehensive facilities management services, including
human and technical monitoring of all production servers 24 hours-per-day, seven
days-per-week, Globix does not guarantee that our Internet access will be
uninterrupted, error-free or secure. Any disruption in the Internet access to
our Web site provided by Globix could materially adversely affect our business,
results of operations and financial condition. Our insurance policies may not
adequately compensate us for any losses that we may incur because of any
failures in our system or
10
<PAGE> 14
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 site has 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 our
users 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 site must accommodate an increasingly high volume of traffic
and deliver frequently updated information. Our Web site has in the past, and
may in the future, experience slower response times or other problems for a
variety of reasons, including hardware capacity restraints and software
failures. These strains on our system could cause customer dissatisfaction and
could discourage visitors from becoming paying subscribers.
We also depend on the Level I EDGAR feed we purchase in order to provide
SEC filings on a real-time basis. Our Web site 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 site as not functioning properly and cause them to use other
methods, including the SEC's Web site or those of our competitors, to obtain
EDGAR-based information.
WE LICENSE THE TERM EDGAR FROM THE SEC AND DEPEND ON OTHER INTELLECTUAL
PROPERTY.
Trademarks and other proprietary rights, principally our proprietary
database technology, are important to our success and our competitive position.
The SEC is the owner of a United States trademark registration covering the use
of the term EDGAR. We have obtained a non-exclusive, royalty-free license from
the SEC to use the term EDGAR in our trademarks, service marks and corporate
name. This license is due to expire in September 2008. Since we have built
significant brand recognition through the use of the term EDGAR in our service
offerings, company name and Web site, our business, results of operations and
financial condition could be adversely affected if we were to lose the right to
use the term EDGAR in the conduct of our business.
We seek to protect our trademarks and other proprietary rights by entering
into confidentiality agreements with our employees, consultants and content
distribution partners, and attempting to control access to and distribution of
our proprietary information. Despite our efforts to protect our proprietary
rights from unauthorized use or disclosure, third parties may attempt to
disclose, obtain or use our proprietary information. The precautions we take may
not prevent this type of misappropriation. In addition, our proprietary rights
may not be viable or of value in the future since the validity, enforceability
and scope of protection of proprietary rights in Internet-related industries is
uncertain and still evolving.
Finally, third parties could claim that our database technology infringes
their proprietary rights. Although we have not been subjected to litigation
relating to these types of claims, such claims and any resultant litigation,
should it occur, could subject us to significant liability for damages and could
result in the invalidation of our proprietary rights. Even if we prevail, such
litigation could be time-consuming and expensive, and could result in the
diversion of our time and attention, any of which could materially adversely
affect our business, results of operations and financial condition. Any claims
or litigation could also result in limitations on our ability to use our
trademarks and other intellectual property unless we enter into license or
royalty agreements, which agreements may not be available on commercially
reasonable terms, if at all.
11
<PAGE> 15
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 more rapid
expansion, to develop new or enhance existing services, or to respond to
competitive pressures. We cannot assure you that additional financing will be
available on 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.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" for a
discussion of our working capital and capital expenditures.
WE FACE YEAR 2000 RISKS.
Because our business is completely dependent on the ability of our
customers to access our services through their computer systems and the
Internet, any serious disruption of this computer infrastructure caused by the
Year 2000 problem could have a material adverse effect on our business,
financial condition and results of operations. A disruption of this type could
result from problems experienced by our information providers, our information
technology systems, such as our Web servers, or from external problems affecting
the Internet and the methods our customers use to gain access to our services,
such as Internet service providers and online service providers. Efforts to
comply with Year 2000 requirements may disrupt or delay our ability to continue
developing and marketing our services, or we may incur unexpected costs in
connection with our Year 2000 compliance efforts. Any such Year 2000 related
disruptions could have a material adverse effect on our business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of the Year 2000" for
information on our state of readiness, potential risks and contingency plans
regarding the Year 2000 issue.
RISKS RELATED TO OUR INDUSTRY
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 site 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.
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<PAGE> 16
WE ARE SUBJECT TO UNCERTAIN GOVERNMENT REGULATION AND OTHER LEGAL UNCERTAINTIES
RELATING TO THE INTERNET.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Any new laws or regulations relating
to the Internet could adversely affect our business. In addition, current laws
and regulations may be applied and new laws and regulations may be adopted in
the future that address issues such as user privacy, pricing, taxation and the
characteristics and quality of products and services offered over the Internet.
For example, several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. This could increase the cost of
transmitting data over the Internet, which could increase our expenses and
discourage people from using the Internet to obtain business and financial
information. Moreover, it may take years to determine the extent to which
existing laws relating to issues such as property ownership, libel and personal
privacy are applicable to the Internet.
WE FACE WEB SECURITY CONCERNS THAT COULD HINDER INTERNET COMMERCE.
Any well-publicized compromise of Internet security could deter more people
from using the Internet or from using it to conduct transactions that involve
transmitting confidential information, such as stock trades or purchases of
goods or services. Because a portion of our revenue is based on individuals
using credit cards to purchase subscriptions over the Internet and a portion
from advertisers who seek to encourage people to use the Internet to purchase
goods or services, our business could be adversely affected by this type of
development. We may also incur significant costs to protect against the threat
of security breaches or to alleviate problems, including potential private and
governmental legal actions, caused by such breaches.
WE COULD FACE LIABILITY AND OTHER COSTS RELATING TO OUR STORAGE AND USE OF
PERSONAL INFORMATION ABOUT OUR USERS.
Our policy is not to willfully disclose any individually identifiable
information about any user to a third party without the user's consent. This
policy statement is available to users of our subscription services when they
initially register. Despite this policy, 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 SITE.
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 site, 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 site 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.
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<PAGE> 17
RISKS RELATED TO THIS OFFERING
SALES OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY
AFFECT OUR STOCK PRICE.
Holders of most of our outstanding shares of common stock have agreed not
to sell their shares during the 12-month period following the date of this
prospectus without the consent of C.E. Unterberg, Towbin. The holder of 810,572
shares of common stock has agreed not to sell such shares during the 90-day
period following the date of this prospectus without obtaining such consent.
Approximately 161,000 shares are not subject to any lock-up arrangement and a
substantial portion of these shares will be eligible for sale in the public
market immediately following this offering. Sales of significant amounts of
common stock in the public market after this offering, or the perception that
such sales will occur, could materially adversely affect the market price of the
common stock or our ability to raise capital through future offerings of equity
securities. See "Shares Eligible for Future Sale."
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND OUR SHARES MAY
EXPERIENCE EXTREME PRICE FLUCTUATIONS.
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which investor interest in our company
will lead to the development of a trading market in our common stock or how
liquid that market might become. The initial public offering price for the
shares was determined through negotiations between us and the representatives of
the underwriters and may not be indicative of prices that will prevail in the
trading market.
The stock market has experienced significant price and volume fluctuations,
and the market prices for securities of technology companies have been highly
volatile. The market prices of the securities of Internet-related companies in
particular have experienced extreme fluctuations that are not necessarily
related to the operating performance of the affected companies. Investors may
not be able to resell their shares at or above the initial public offering
price. Wide fluctuations in our trading price may also result from, among other
things:
- investor perception of our company and EDGAR content providers in
general;
- announcements or implementations by us, our competitors or the SEC of new
products or services; and
- financial estimates by securities analysts.
INVESTORS IN THIS OFFERING WILL INCUR SUBSTANTIAL IMMEDIATE DILUTION.
The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of the common stock will be
immediately after this offering. Therefore, if you purchase our common stock in
this offering, you will incur immediate dilution of approximately $6.84 in the
net tangible book value per share of common stock from the price you paid for
such common stock. See "Dilution." The exercise of outstanding options and
warrants may result in further dilution.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDERS COULD CONFLICT WITH THOSE OF OUR
OTHER STOCKHOLDERS.
The interests of our controlling stockholders could conflict with the
interests of other EDGAR Online stockholders, including purchasers in this
offering. Following completion of this offering, our directors and executive
officers, together with our other principal stockholders, will own or control
approximately 61.16% (56.60% if the underwriters' over-allotment option is
exercised in full) of our outstanding common stock. Accordingly, these
stockholders may be able to influence the outcome of stockholder votes,
including votes concerning the election of directors, amendments to our charter
and bylaws and the approval of significant corporate transactions such as a
merger or a sale of our assets.
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<PAGE> 18
In addition, such controlling influence could have the effect of delaying,
deferring or preventing a change in control of our company. See "Principal
Stockholders."
WE HAVE BROAD DISCRETION IN THE APPLICATION OF PROCEEDS, WHICH MAY INCREASE THE
RISK THAT THE PROCEEDS WILL NOT BE APPLIED EFFECTIVELY.
We currently have no specific uses for approximately 81% of the net
proceeds of this offering. Accordingly, investors in this offering will be
relying on management's judgment with only limited information about our
specific intentions regarding the use of proceeds. Our failure to apply such
funds effectively could have a material adverse effect on our business, results
of operations and financial condition. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT.
The anti-takeover provisions contained in Section 203 of the Delaware
General Corporation Law, which apply to us, may delay, discourage or prevent a
change in control. This section may discourage bids for our common stock at a
premium over the market price and may adversely affect the market price and the
voting and other rights of the holders of our common stock. In addition, our
certificate of incorporation authorizes the issuance of up to one million shares
of preferred stock. Such preferred stock, which is issuable without stockholder
approval, could grant its holders rights and powers that would tend to
discourage changes in control.
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<PAGE> 19
FORWARD-LOOKING STATEMENTS
Certain statements made or incorporated by reference in this prospectus are
"forward-looking statements," that are based on our current expectations,
assumptions, estimates and projections about EDGAR Online and our industry.
These forward-looking statements include statements about:
- the competitiveness of the online business and financial information
industry;
- our strategies;
- the future growth of the Internet as a communications and advertising
medium;
- the Year 2000 problem; and
- other statements that are not historical facts.
When used in this prospectus, the words "anticipate," "believe," "expect,"
"estimate" and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause our actual
results to differ materially from those expressed or implied by these
forward-looking statements, including:
- changes in general economic and business conditions (including in the
online business and financial information industry);
- actions of our competitors;
- the extent to which we are able to develop new services and markets for
our services;
- the time and expense involved in such development activities;
- the level of demand and market acceptance of our services;
- changes in our business strategies; and
- other factors discussed above under "Risk Factors" as well as elsewhere
in this prospectus.
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<PAGE> 20
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
3,600,000 shares of common stock offered by us will be approximately $30.6
million, after deducting underwriting discounts and the estimated offering
expenses payable by us. We will not receive any proceeds from the sale of shares
by our stockholders if the underwriters exercise their over-allotment option.
We currently estimate that the use of the net proceeds of this offering
will be as follows:
- repayment of certain outstanding indebtedness consisting of
approximately:
- $625,000 owed to Bowne & Co., Inc., which indebtedness matures
February 28, 2000 and has been accruing interest at the rate of 12%
per annum;
- $70,000 owed to Track Data Corporation, which has been accruing
interest at 2% over the prime rate established by a financial
institution (10.25% at December 31, 1998) per annum;
- $644,000 owed to Susan Strausberg and Marc Strausberg for net deferred
compensation; and
- approximately $4.5 million for expansion of our sales and marketing
efforts; and
- the balance of approximately $24.8 million, representing 81% of the net
proceeds, will be used for other general corporate purposes, including
working capital, and possible acquisitions.
We have no current plans, agreements or commitments with respect to any
such acquisitions or other investments, and we are not currently engaged in any
negotiations with respect to any such transactions. Pending these uses, the net
proceeds from this offering will be invested in short-term, investment grade
debt instruments, certificates of deposit or direct or guaranteed obligations of
the United States.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
fund the development and growth of our business. Future dividends, if any, will
be determined by our Board of Directors. In addition, we may incur indebtedness
in the future which may prohibit or effectively restrict the payment of
dividends, although we have no current plans to do so.
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<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of EDGAR Online as of
March 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect (a) the conversion of a $1 million
convertible debenture into 670,000 shares of common stock, (b) the
exercise of warrants into an aggregate of 696,667 shares of common stock,
(c) collection of the stock subscription receivable of $515,000 and (d)
the authorization of shares of preferred stock and the increase in the
number of authorized shares of common stock; and
- on a pro forma as adjusted basis to give effect to the sale of the
3,600,000 shares of common stock in this offering, at the initial public
offering price of $9.50 per share and after deducting underwriting
discounts and the estimated offering expenses payable by us and the
application of the estimated net proceeds from this offering. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Long-term debt, less current portion........... $ 1,422,969 $ 500,000 $ --
----------- ----------- -----------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 1,000,000
authorized on a pro forma basis; no shares
issued and outstanding on an actual, pro
forma or pro forma as adjusted basis......... -- -- --
Common stock, $0.01 par value; 30,000,000
shares authorized; 6,571,290 shares issued
and outstanding on an actual basis; 7,937,957
shares issued and outstanding on a pro forma
basis; and 11,537,957 shares issued and
outstanding on a pro forma as adjusted
basis(1)..................................... 65,713 79,380 115,380
Additional paid-in capital..................... 3,541,413 5,465,715 35,985,715
Stock subscription receivable.................. (515,000) -- --
Accumulated deficit............................ (5,332,916) (5,352,482) (5,352,482)
----------- ----------- -----------
Total stockholders' equity
(deficit)......................... (2,240,790) 192,613 30,748,613
----------- ----------- -----------
Total capitalization................. $ (817,821) $ 692,613 $30,748,613
=========== =========== ===========
</TABLE>
- -------------------------
(1) Excludes (a) 800,000 shares issuable upon the exercise of outstanding
options under our 1996 Stock Option Plan with a weighted average exercise
price of $2.36 per share, (b) 600,000 shares reserved for future issuance
under our 1999 Stock Option Plan, of which options to purchase 41,000 shares
have been granted at an exercise price of $9.50 per share, (c) 100,000
shares reserved for future issuance under our 1999 Outside Directors Stock
Option Plan, (d) 90,000 shares issuable upon the exercise of outstanding
warrants with a weighted average exercise price of $2.76 per share and (e)
250,000 shares issuable upon exercise of warrants to be issued to the
underwriters at an exercise price $10.45 per share.
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<PAGE> 22
DILUTION
The pro forma net tangible book value of EDGAR Online as of March 31, 1999,
was approximately $192,613, or approximately $0.02 per share of common stock.
Pro forma net tangible book value per share represents the amount of EDGAR
Online's total tangible assets less total liabilities, divided by the pro forma
number of shares of common stock outstanding after giving effect to (a) the
conversion of a $1 million convertible debenture into 670,000 shares of common
stock, (b) the exercise of warrants into an aggregate of 696,667 shares of
common stock and (c) collection of the stock subscription receivable of
$515,000. After giving effect to the sale of the 3,600,000 shares of common
stock offered by this prospectus at the initial public offering price of $9.50
per share, and after deducting underwriting discounts and the estimated offering
expenses payable by us, the pro forma net tangible book value of EDGAR Online,
as of March 31, 1999, as adjusted, would have been approximately $30.7 million,
or $2.66 per pro forma share of common stock. This represents an immediate
increase in net tangible book value of $2.64 per share to existing stockholders
and an immediate dilution in net tangible book value of $6.84 per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $9.50
Pro forma net tangible book value per share at March 31,
1999................................................... $0.02
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 2.64
-----
Pro forma net tangible book value per share after
offering.................................................. 2.66
-----
Dilution per share to new investors......................... $6.84
=====
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
the differences between the number of shares of common stock purchased from
EDGAR Online, the aggregate cash consideration paid and the average price per
share paid by existing stockholders and by new investors purchasing shares of
common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 7,937,957 68.8% $ 5,545,095 14.0% $0.70
New investors................... 3,600,000 31.2 34,200,000 86.0 $9.50
----------- ----- ----------- -----
Total........................... 11,537,957 100.0% $39,745,095 100.0% $3.44
=========== ===== =========== =====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by existing stockholders will be reduced to
7,397,957, or 64.1% of the total number of shares of common stock to be
outstanding immediately after this offering, and the number of shares of common
stock held by new investors will be increased to 4,140,000, or 35.9% of the
total number of shares of common stock to be outstanding immediately after this
offering. See "Principal Stockholders."
The foregoing discussion and tables assume no exercise of options
outstanding under our 1996 Stock Option Plan and 1999 Stock Option Plan, no
issuance of shares reserved for future issuance under our 1996 Stock Option
Plan, 1999 Stock Option Plan and 1999 Outside Directors Stock Option Plan and no
exercise of outstanding warrants, other than the exercise of warrants into an
aggregate of 696,667 shares of common stock as described above. As of March 31,
1999, on a pro forma basis,
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<PAGE> 23
there were (a) 800,000 shares issuable upon the exercise of outstanding options
under our 1996 Stock Option Plan with a weighted average of $2.36 per share, (b)
600,000 shares reserved for future issuance under our 1999 Stock Option Plan, of
which options to purchase 41,000 shares have been granted at an exercise price
of $9.50 per share, (c) 100,000 shares reserved for future issuance under our
1999 Outside Directors Stock Option Plan and (d) 90,000 shares issuable upon the
exercise of outstanding warrants with a weighted average of $2.76 per share. In
connection with this offering, an additional 250,000 shares will be issuable
upon exercise of warrants issued to the underwriters at an exercise price of
$10.45 per share. See "Risk Factors -- Investors in this offering will incur
substantial immediate dilution," "Management -- Stock Option Plans" and note 8,
note 9 and note 13 of the notes to our December 31, 1998 financial statements
contained elsewhere in this prospectus.
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<PAGE> 24
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the
years in the three-year period ended December 31, 1998, and for the period from
November 3, 1995 (inception) to December 31, 1995, are derived from our audited
financial statements. The financial statements for, and as of the end of, each
of the years in the three-year period ended December 31, 1998 have been audited
by KPMG LLP, independent certified public accountants, and those financial
statements and the report thereon are included elsewhere in this prospectus. The
financial data as of March 31, 1999 and for the three-month periods ended March
31, 1998 and 1999 are derived from our unaudited financial statements. The
unaudited interim financial statements include all adjustments, consisting of
only normally recurring adjustments, which management considers necessary for a
fair presentation of the financial position and the results of operations for
these periods. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1999. 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 prospectus.
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
NOVEMBER 3, 1995 YEAR ENDED DECEMBER 31, MARCH 31,
(INCEPTION) TO ------------------------------------- -------------------------
DECEMBER 31, 1995 1996 1997 1998 1998 1999
----------------- --------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ -- $ 169,822 $ 1,044,138 $ 2,003,117 $ 384,461 $ 641,457
Cost of revenues........................ -- 226,514 883,203 1,046,329 211,132 320,622
---------- --------- ----------- ----------- ----------- -----------
Gross profit............................ -- (56,692) 160,935 956,788 173,329 320,835
Operating expenses:
Selling, general and administrative..... 191,234 663,750 1,193,014 1,615,122 295,195 816,177
Advertising costs....................... -- 42,614 167,009 297,599 48,737 52,670
Stock compensation expense.............. -- -- -- 1,133,000 -- 165
---------- --------- ----------- ----------- ----------- -----------
Loss from operations.................... (191,234) (763,056) (1,199,088) (2,088,933) (170,603) (548,177)
Interest expense and other, net......... -- 72,547 298,561 132,291 17,610 38,029
---------- --------- ----------- ----------- ----------- -----------
Loss before income taxes................ (191,234) (835,603) (1,497,649) (2,221,224) (188,213) (586,206)
Income tax expense...................... -- 250 250 250 50 250
---------- --------- ----------- ----------- ----------- -----------
Net loss................................ $ (191,234) $(835,853) $(1,497,899) $(2,221,474) (188,263) (586,456)
========== ========= =========== =========== =========== ===========
Basic and diluted net loss per
share(1).............................. $ (0.05) $ (0.19) $ (0.26) $ (0.36) $ (0.03) $ (0.09)
========== ========= =========== =========== =========== ===========
Basic and diluted weighted average
shares outstanding(1)................. 4,000,000 4,302,466 5,655,151 6,129,116 6,074,000 6,367,290
========== ========= =========== =========== =========== ===========
Pro forma net loss per share(2)......... $ (0.34) $ (0.08)
=========== ===========
Pro forma weighted average shares
outstanding........................... 6,408,283 7,037,290
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999
-------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ -- $ 17,086 $ 16,809 $ 148,380 $ 216,003
Working capital (deficit)......................... (8,735) (481,091) (1,339,280) (440,754) (419,920)
Total assets...................................... 41,751 200,368 366,254 784,943 1,156,179
Long-term debt.................................... -- -- -- 1,414,410 1,422,969
Stockholders' equity (deficit).................... (51,984) (356,837) (1,588,811) (2,220,946) (2,240,790)
</TABLE>
- ------------------------
(1) Diluted loss per share has not been presented separately, as the outstanding
stock options, warrants and convertible debenture are anti-dilutive for each
of the periods presented. Anti-dilutive potential common shares outstanding
were 0, 1,489,099, 829,545 and 653,400 for the period ended December 31,
1995, the years ended December 31, 1996, 1997 and 1998, respectively, and
399,286 and 1,545,264 for the three months ended March 31, 1998 and 1999,
respectively.
(2) Pro forma net loss per share gives effect to the conversion of a $1 million
convertible debenture into 670,000 shares of common stock in July 1998 and
as of January 1, 1999 for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively.
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this prospectus. The
following discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and elsewhere in this prospectus, particularly in "Risk Factors."
OVERVIEW
EDGAR Online is an Internet-based commercial provider of business,
financial and competitive information contained in corporate filings made by
U.S. public companies with the SEC. We were founded in November 1995 as Cybernet
Data Systems, Inc. In January 1999, we changed our corporate name to EDGAR
Online, Inc.
We had no revenue in 1995. Our primary activities in 1995 related to
beginning development of our proprietary systems. In January 1996, we launched
our Web site and began selling our subscription services and establishing
contractual relationships with large Web portal and business and financial
information sites to supply EDGAR content for display on these sites. We started
selling advertising banners and sponsorships on our site in February 1997. We
have a limited operating history and are still in the early stages of
development.
We derive revenues from three primary sources: individual subscriptions,
corporate contracts and advertising. Revenue from individual subscriptions and
corporate contracts is deferred and recognized as income over the subscription
period. Revenue from advertising is recognized as the services are provided.
Individual subscriptions are typically billed in advance to subscribers' credit
cards and are collected, net of credit card transaction fees deducted by the
credit card processing institution, within one week of the sale. Services
related to corporate contracts are typically billed quarterly in advance.
Advertising revenue is paid to us by DoubleClick, net of advertising commission
fees, in the month following the month in which the revenue is earned.
In addition, a portion of our revenues is derived from barter transactions.
Barter advertising revenue is a non-cash item and relates to advertising placed
on our Web site by other Internet companies in exchange for our advertising
placed on their Web sites. Barter advertising revenue is recorded in the month
that banners are exchanged. The amount of barter advertising revenue and expense
is recorded at the fair market value of the services received or provided,
whichever is more objectively determinable, and is expected to become a smaller
percentage of revenue in the future. Other barter revenue is also non-cash and
relates to corporate contract sales for which we received computer equipment or
other non-cash consideration for services provided. The amount of such revenues
are recorded at the fair market value of the equipment or services received or
services provided, whichever is more objectively determinable. Barter expenses
reflect the expense offset to barter revenue.
We intend to increase our operating expenses to fund increased marketing
and advertising, to enhance our Web site and to continue to establish
relationships critical to our success.
22
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------
1996 1997 1998 1998 1999
------ ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Revenues............................. 100% 100% 100% 100% 100%
Cost of revenues..................... 133 85 52 55 50
---- ---- ---- ---- ----
Gross profit......................... (33) 15 48 45 50
Operating expenses................... 416 130 152 89 135
---- ---- ---- ---- ----
Loss from operations................. (449)% (115)% (104)% (44)% (85)%
==== ==== ==== ==== ====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues. Revenues increased 67% to $641,457 in the three month period
ended March 31, 1999, from $384,461 for the comparable period in 1998. The
growth in revenues is primarily attributable to a $89,358, or 48%, increase in
individual subscription revenues, a $126,872, or 508%, increase in corporate
contract revenues and the addition of $37,150 in barter advertising revenues.
The number of individual subscriptions increased from approximately 3,500
subscriptions at March 31, 1998 to approximately 7,500 subscriptions at March
31, 1999, offset by a decrease in average revenue per subscriber in the first
quarter of 1999 due to a larger percentage of new subscribers joining at our
lowest subscription rate of $9.95 per month. The increase in corporate contract
revenue resulted from (i) an increase in the number of corporate contracts from
approximately 30 at March 31, 1998 to approximately 70 at March 31, 1999 and
(ii) a higher number of corporate contracts being outstanding for more days
during the quarter ended March 31, 1999 as compared to the quarter ended March
31, 1998. There were no price increases for individual subscription or corporate
contract services between the two periods. The increase in advertising revenues
of $3,616, or 5%, is primarily due to the increase in the number of advertisers
and ads delivered, offset by a decrease in advertising rates. Revenue increases
were primarily due to increased marketing efforts, which resulted in an expanded
customer base of individual subscribers, a larger number of corporate contracts
and additional content distribution agreements with other Web sites. All of
these increases contributed to increased traffic on our Web site. The increase
in barter advertising revenue is a result of additional exchange of advertising
with other Web sites, offset by the decrease in advertising rates noted above.
Other barter revenue increased primarily because only one month of a computer
equipment barter contract was included in the first quarter of 1998 compared to
three months for the same contract in the first quarter of 1999.
Cost of Revenues. Cost of revenues consist primarily of fees paid to
acquire the Level I EDGAR database feed from the SEC, Web site development and
maintenance charges and the costs associated with our computer equipment and
communications lines used in conjunction with our Web site. In addition, for
each period, a barter advertising expense is recorded equal to the barter
advertising revenue for that period. Total cost of revenues increased 52% to
$320,622 in the three-month period ended March 31, 1999, from $211,132 for the
comparable period in 1998. The increase in cost of revenues is primarily
attributable to increases in software development, Web site maintenance and
communications lines needed to handle increased traffic. Gross margins related
to the sale of our services were 50% in the three-month period ended March 31,
1999 and 45% for the comparable period in 1998.
Operating Expenses. Operating expenses consist primarily of personnel
expenses, advertising and public relations expenses, depreciation and
amortization and general corporate expenses. Operating expenses increased 153%
to $869,012 in the three-month period ended March 31, 1999,
23
<PAGE> 27
from $343,932 for the comparable period in 1998. The increase in operating
expenses is a function of (1) addition of company personnel, (2) higher
advertising commissions due to increased advertising volume and (3) increased
depreciation of infrastructure. As a percentage of revenues, operating expenses
increased to 135% for the three-month period ended March 31, 1999, from 89% for
the comparable three month period in 1998.
FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Revenues. Revenues were $169,822 in 1996, with individual subscription
revenues representing $99,661, or 59%, of total revenues and corporate contract
revenues representing $70,161, or 41%, of total revenues. There were no
advertising or barter revenues in 1996. Revenues increased 515% to $1,044,138 in
1997, due to a $352,278, or 353%, increase in individual subscription revenues,
a $148,686, or 212%, increase in corporate contract revenues and the addition of
$166,671 in advertising revenues and $206,681 in barter advertising revenues.
The increase in revenue in 1997 was primarily attributable to increased
visibility of our Web services and the addition of advertising to our Web site.
Revenues increased 92% in 1998 to $2,003,117. This increase was attributable to
a $442,912, or 98%, increase in individual subscriptions, a $74,057, or 34%,
increase in corporate contract revenues, a $306,251, or 184%, increase in
advertising revenues, a $56,759, or 27%, increase in barter advertising revenues
and the addition of $79,000 in other barter revenues. The increase in individual
subscription revenue in each of the three years was due to an increase in the
number of individual subscriptions from approximately 500 subscriptions at
December 31, 1996 to approximately 2,700 subscriptions at December 31, 1997 and
to approximately 6,000 subscriptions at December 31, 1998. The increase in
corporate contract revenue resulted from an increase in the number of corporate
contracts from approximately 5 at December 31, 1996 to 20 at December 31, 1997
and 60 at December 31, 1998. The full impact of the increase number of corporate
contracts from December 31, 1997 to December 31, 1998 was not realized in
revenue during 1998 because a high percentage of the new corporate contracts
were entered into in the second half of 1998. There were no price increases for
our individual subscription or corporate contract services between the two
periods. Average annual advertising rates were substantially the same in 1997
and 1998. Increases in advertising revenue were due primarily to increasing
traffic on our Web site, which resulted in more advertising space being sold.
Increases in the number of individual subscribers and corporate contracts were
primarily due to increased marketing efforts. Increased marketing efforts were
also responsible for additional content syndication agreements with Web portal
and financial sites, which led to increased traffic on our Web site and
increased advertising revenues. The increase in barter advertising revenue is a
result of additional exchanges of advertising with other Web sites. Other barter
revenue was recorded in 1998 as a result of a contract with a computer company
to exchange advertising on our Web site for computer equipment of equal value.
Cost of Revenues. Total cost of revenues was $226,514 in 1996, $883,203 in
1997 and $1,046,329 in 1998. The cost of revenue in 1996 was impacted by certain
start-up costs of developing the proprietary software used to operate our Web
site, all of which were expensed. Cost of revenues in 1997 increased as a result
of increased software development costs as compared to 1996. In 1998, cost of
revenues increased as a result of both increased purchases of computer and
communications services needed to handle increased traffic, and development of
Version 2.0 of the EDGAR Online Web site, which was introduced in the fall of
1998. Gross margins related to the sale of our services were (33%) in 1996, 15%
in 1997 and 48% in 1998.
Operating Expenses. Operating expenses increased $653,659, or 93%, from
$706,364 in 1996 to $1,360,023 in 1997 and increased $1,685,698, or 124%, to
$3,045,721 in 1998. As a percentage of revenues, operating expenses decreased
from 416% in 1996 to 130% in 1997 and increased to 152% in 1998 as a result of
non-cash stock compensation expense in 1998 of $1,133,000. Absent this charge,
operating expenses would have decreased to 95% of revenues for 1998. The dollar
increase in operating expenses is a function of (1) addition of company
personnel, (2) higher advertising
24
<PAGE> 28
commissions due to increased advertising volume, (3) increased depreciation of
infrastructure and (4) a non-cash charge of $1,133,000 associated with the
issuance of employee stock options.
SELECTED QUARTERLY REVENUE RESULTS
The following table sets forth unaudited revenue results for each of our
last eight fiscal quarters. In the opinion of our 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 prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE SOURCES:
Individual
subscriptions....... $ 68,219 $ 89,963 $142,691 $151,066 $184,245 $216,017 $245,963 $248,626 $273,603
Corporate contracts... 37,633 60,293 54,300 66,621 24,972 74,436 77,171 116,325 151,844
Advertising........... 26,360 43,003 33,421 63,887 80,118 122,133 118,932 151,739 83,734
Barter advertising.... 0 62,141 43,020 101,520 82,626 66,652 50,224 63,937 96,775
Other barter.......... 0 0 0 0 12,500 18,750 18,750 29,000 35,501
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total........ $132,212 $255,400 $273,432 $383,094 $384,461 $497,988 $511,040 $609,627 $641,457
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations with cash generated
from operations and by obtaining capital contributions from individual private
investors and corporations. During 1995 and the first half of 1996, we received
$125,250 worth of services from various vendors in exchange for warrants to
purchase shares of our common stock at an exercise price of $0.05 per share. In
the third quarter of 1996, Bowne & Co., Inc. invested $462,500 by purchasing
shares of our common stock. In 1997, we received $15,925 from the exercise of
previously issued warrants.
Beginning in 1997, Bowne has made a series of loans to us totaling
$500,000. These loans carry an interest rate of 12% per annum. The proceeds of
the loans were used for working capital and general corporate purposes. We
intend to repay the principal and accrued interest on the loans with a portion
of the proceeds of this offering. In July 1998, we received $1,000,000 in gross
proceeds from the sale of a convertible debenture with detachable warrants to
Globix Corporation. In May 1999, Globix converted this debenture into 670,000
shares of our common stock and exercised its warrant to purchase an additional
666,667 shares of our common stock. See "Use of Proceeds," "Principal
Stockholders" and "Certain Transactions." In connection with the sale of the
debenture and warrants to, and the exercise of the warrants by, Globix, we paid,
or agreed to pay, VM Equity Partners a cash fee of $100,000 and issued to VM
Equity Partners warrants to purchase an aggregate of 66,833 shares of common
stock at an average exercise price of $1.50 per share.
In 1998, we received gross proceeds of $155,000 from the sale of our common
stock, for which we paid, or agreed to pay, VM Equity Partners a cash fee of
$7,750 and in January 1999, we issued VM Equity Partners warrants to purchase
5,167 shares of common stock at an exercise price of $1.50 per share. In 1998,
we also received $50,001 from the exercise of previously issued warrants. Also
in 1998, we satisfied $125,000 of accounts payable with the issuance of common
stock. In March 1999, we received $1,080,000 in gross proceeds from the sale of
240,000 shares of common stock. As compensation for the placement of 120,000 of
these shares, we agreed to pay VM Equity Partners a cash fee of $27,000 and
issued to VM Equity Partners warrants to purchase 6,000 shares of common stock
at an exercise price of $4.50 per share. As compensation for the placement of
the remaining 120,000 shares, we issued to C.E. Unterberg, Towbin warrants to
purchase 12,000 shares of common
25
<PAGE> 29
stock at an exercise price of $9.50 per share. Under a separate financial
advisory agreement, we have agreed to pay VM Equity Partners a termination fee
of $250,000 upon completion of this offering. In addition, we received an
aggregate of $1,015,000 in gross proceeds in connection with the exercise of
warrants in May 1999.
Net cash provided by operating activities was $52,533 for the three months
ended March 31, 1998. Net cash used in operating activities was $460,271 for the
three months ended March 31, 1999, and was $341,035, $317,070 and $867,645 for
the years ended December 31, 1996, 1997 and 1998, respectively. We have financed
these activities through private debt placements and equity investments as
described above.
Capital expenditures, primarily for computers, office and communications
equipment, totaled $112,312, $224,132 and $78,127 for the years ended December
31, 1996, 1997 and 1998, respectively. The purchases were required to support
our expansion and increased infrastructure. There were no capital expenditures
for the three months ended March 31, 1998 and 1999.
At March 31, 1999, we had cash and cash equivalents on hand of $216,003 and
on April 3, 1999, we received the remaining proceeds from the sale of the
240,000 shares of our common stock in the March 1999 private placement discussed
above. Based on these cash balances, we anticipate to be able to fund our
operations through at least December 31, 1999.
In January 1996, we entered into five-year employment agreements with our
two founders to serve as Co-Chief Executive Officer and President, respectively.
In March 1999, Mr. Strausberg resigned as President and currently serves as the
Chairman of the Board of Directors and Chief Information Officer. The employment
contracts provide for our Chief Executive Officer and Chairman to each receive a
base salary of $150,000 per year. During the years 1996 and 1997, both officers
agreed to defer their entire salaries. In 1998, both officers received partial
salaries totaling $57,211 each. Such salaries began to be paid on a current
basis in January 1999. See "Use of Proceeds," "Management," "Certain
Transactions" and note 7 of the notes to our financial statements contained
elsewhere in this prospectus.
We believe that our existing capital resources, together with cash
generated from operations and the net proceeds from the private equity
investment we received in March 1999, will enable us to fund our operations
through at least December 31, 1999. We further believe that the net proceeds
from this offering, together with 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 following this offering.
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. Furthermore, such equity securities might have rights, preferences or
privileges senior to those of our common stock.
IMPACT OF THE YEAR 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, computer systems and/or software used by many companies and
governmental agencies may need to be upgraded to comply with such Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
State of Readiness. We have begun to assess the Year 2000 readiness of our
information technology ("IT") systems, including the hardware and software that
we utilize in connection with
26
<PAGE> 30
managing our Web sites and providing our value-added services to customers, and
our non-IT systems. Our Year 2000 assessment plan consists of the following:
- quality assurance testing of our proprietary software developed by iXL;
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our services over the Internet;
- contacting providers of material non-IT systems; and
- assessment of repair or replacement requirements.
iXL has advised us that our proprietary software has been designed to be
Year 2000 compliant and iXL is in the process of performing on our behalf Year
2000 compliance simulations on our proprietary software to test system
readiness. This testing is scheduled to be completed by June 1, 1999. Based on
the results of these Year 2000 simulation tests, we intend to revise the code of
our proprietary software as necessary to improve its Year 2000 compliance. We
have been informed by many of the vendors of material hardware and software
components of our IT systems, including Globix and TRW (which acts under
contract as the SEC's dissemination agent for the EDGAR system and from which we
purchase our Level I EDGAR feed), and by our advertising services provider,
DoubleClick, that the products used by them to provide services to us are
currently Year 2000 compliant. We are in the process of attempting to obtain
from other vendors of our material hardware and software components of our IT
systems assurances of their Year 2000 compliance. We plan to complete this
vendor process during the summer of 1999. We are currently assessing the
materiality of our non-IT systems and will seek assurances of Year 2000
compliance from providers of material non-IT systems. Until such testing is
complete and such vendors and providers are contacted and have responded, we
will not be able to completely evaluate whether our IT systems or non-IT systems
will need to be revised or replaced.
Costs. To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our expenses have related to,
and are expected to continue to relate to, the operating costs associated with
time spent by employees in the evaluation process and Year 2000 compliance
matters generally. At this time, we do not possess the information necessary to
estimate the potential costs of revisions to our proprietary software, should
such revisions be required, or the replacement of third-party software, hardware
or services that are determined not to be Year 2000 compliant. Although we do
not anticipate that such expenses will be material, such expenses, if higher
than anticipated, could have a material adverse effect on our business, results
of operations and financial condition.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to our proprietary software or our IT or non-IT systems that would have
a material adverse effect on our business, results of operations and financial
condition, notwithstanding our efforts to detect and correct such problems.
There can be no assurance that we will not discover Year 2000 compliance
problems in our proprietary software that will require substantial revisions or
replacements. In addition, there can be no assurance that third-party software,
hardware or services incorporated into our material IT and material non-IT
systems will not need to be revised or replaced, which could be time consuming
and expensive. Our failure to fix, if necessary, our proprietary software or to
fix or replace, if necessary, third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs and other
business interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition. Moreover, the failure
to adequately address Year 2000 compliance issues in our proprietary software
and our IT and non-IT systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000
27
<PAGE> 31
compliant. The failure by such entities to be Year 2000 compliant could result
in a systemic failure beyond our control, such as a prolonged Internet,
telecommunications or electrical failure, which could prevent us from operating
our Web site.
Contingency Plan. While, as discussed above, we are engaged in an ongoing
Year 2000 assessment, we have not developed any contingency plans. The results
of our Year 2000 simulation testing and the responses received from third-party
vendors and service providers will be taken into account in determining the need
for and nature and extent of any contingency plans.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. We do not believe that the adoption of
SOP 98-1 will have a material impact on our results of operations or financial
position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to affect us as we currently do not have any
significant derivative instruments or hedging activities.
28
<PAGE> 32
BUSINESS
THE COMPANY
EDGAR Online, Inc. is an Internet-based commercial provider of business,
financial and competitive information contained in corporate filings made by
public companies with the SEC. Our services are designed to satisfy the demands
of individuals and businesses for timely and cost-effective access to the
filings of the more than 15,000 U.S. public companies. These services include a
variety of search and navigation tools, personalization features and e-mail and
Web-based alerts. We obtain corporate filings from the SEC's EDGAR (Electronic
Data Gathering, Analysis and Retrieval) database on a non-exclusive, real-time
basis. With our proprietary software, we enhance these filings by organizing and
processing them into an easily accessible and searchable format. We then use
these enhanced SEC filings as the basis for our value-added services, which we
offer on our EDGAR Online Web site, located at http://www.edgar-online.com.
We derive revenues from the following three primary sources:
- monthly fees from individual subscribers to our Web site;
- fees generated from corporate customers for (1) group subscriptions to
our Web site, (2) information customized for their particular needs and
(3) delivery of their SEC filings for display on their corporate Web
sites; and
- advertising revenues derived from sales of banners and sponsorship
buttons on our site.
In order to build brand awareness, increase traffic and create a large pool
of potential subscribers, we promote our site and provide a portion of our
content for free. We have also established a significant number of content
distribution relationships. We currently have contracts to supply EDGAR content
to more than 60 widely used Web sites including Yahoo!, Infoseek's GO Network,
MSNBC, TheStreet.com, CNET's SNAP, Go2Net, PointCast, Infospace, CBS
MarketWatch, SmartMoney.com, Business Wire, Big Charts, Raging Bull and Track
Data.
INDUSTRY BACKGROUND AND OPPORTUNITY
Today's business environment is characterized by a rapidly growing demand
for fast and easy access to corporate and financial information. SEC filings,
such as prospectuses and annual and quarterly reports, are a primary source of
this information. The SEC began to require electronic filings in 1994 and, since
May 1996, all reporting U.S. public companies have been required to make their
SEC filings in an electronic format through the EDGAR system. The SEC
established this system to perform automated collection and acceptance of
submissions by companies and others who are required to file disclosure
documents with the SEC. Prior to the introduction of the EDGAR system, SEC
filings were only available on a delayed basis in costly paper or CD-ROM format
from a limited number of document providers or SEC public reference rooms.
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.
Individuals and institutions are increasingly using the Internet as a source of
valuable business intelligence. According to Simba Information, revenues from
the sale of business information delivered online in the U.S. are projected to
grow from approximately $27 billion in 1998 to approximately $40 billion in
2002. Industry sources report that paid online subscriptions for business and
professional information grew almost 27% in 1997 to 3.3 million subscribers and
increased in the first three quarters of 1998 to an estimated 5.0 million
subscribers. Growth in this market is expected to continue as more people gain
access to and increasingly rely on the Internet as their primary source of
business information. In addition, the
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growth of online investing has created a population of individuals who are
making their own investment decisions rather than relying on traditional brokers
and delayed sources of information. According to International Data Corporation,
a provider of information technology data, the number of online brokerage
accounts in the United States is expected to grow from 6.4 million at the end of
1998 to 24 million at the end of 2002. We believe these trends indicate that an
increasing number of people will use the Internet as a tool to obtain the
information contained in SEC filings.
The Internet has also emerged as an attractive medium for advertisers.
Forrester Research, an independent technology research firm, estimates that
total Internet advertising expenditures will grow from an estimated $1 billion
in 1998 to over $8 billion by 2002. Internet advertising is expanding to include
not only technology and Internet-related companies, but also traditional
advertisers, such as consumer product companies, airlines, financial services
companies and automobile manufacturers.
The availability of SEC filings in an electronic format, together with the
distributive power of the Internet, has created a significant opportunity to
deliver this information in ways that previously had not been possible. In
addition, newly evolving technologies make it possible to locate and retrieve
selected information from electronic databases, such as the EDGAR database, in a
real-time and cost-effective manner. As the demand for U.S. corporate and
financial information grows, we will continue to seek to improve our market
position as an Internet distributor of business and financial information based
on EDGAR filings.
THE EDGAR ONLINE SOLUTION
Having recognized the possibility of combining EDGAR data, the Internet and
new data-mining technologies to serve the market for real-time information about
U.S. public companies, in 1996 we launched the first commercial Web site that
made information derived from EDGAR filings available on a real-time basis. Our
Web site provides EDGAR filings and real-time business news, e-mail and
Web-based alerts based upon these filings. Our proprietary software enhances
EDGAR filings by organizing and processing them into user-friendly formats. We
also provide users with multiple navigation and search features that allow them
to efficiently retrieve the specific information they seek. For the last three
years, we have been at the forefront in integrating EDGAR-based information into
high traffic business and financial information Web sites. We believe that
EDGAR-based information is now an integral part of the mix of business and
financial information available on these types of Web sites.
We seek to capture the fast-growing market of individual users of business
and financial information by offering low cost, value-added services to our
paying subscribers. We also offer basic free content that encourages repetitive
usage by visitors to our Web site and customize our services to meet the
particular needs of our corporate and institutional customers.
STRATEGY
Our goal is to create the preeminent brand for EDGAR-based business and
financial information on the Internet. We aim to meet the increasing market
demand for real-time, value-added business, financial and competitive
information by providing our users with sophisticated methods of mining data
contained in EDGAR filings. Our objective is to establish EDGAR Online as the
most reliable and trusted source of company information for individual investors
and businesses. We are seeking to increase the number of our corporate
customers. We also aim to further develop a community of loyal individual users
in order to build our subscription base and attract advertisers. Key elements of
our strategy are described below.
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STRENGTHEN BRAND RECOGNITION
We believe that strengthening brand recognition of our EDGAR Online Web
site helps us to attract additional traffic, subscribers, content distribution
partners and advertisers. Our EDGAR Online name and logo, the advertising and
promotion we receive from our co-branded partners and our plans for
significantly increased marketing activities will continue to raise visibility
and cultivate our brand identity. We intend to continue to pursue content
distribution relationships with high-traffic Web sites to expose our brand name
and drive additional traffic to our Web site. We will also seek to increase
traffic to our Web site with a national brand building campaign in traditional
and online media.
INCREASE SUBSCRIBER BASE AND SUBSCRIPTION REVENUES
We will use a portion of the proceeds of this offering to develop a sales
and marketing campaign to increase the number of individual subscribers to our
site. This campaign will use direct mail and trial offers to market our
value-added premium services to our existing base of more than 115,000
registered users. We will also promote our services to the more than 900,000
individuals who access our Web site each month through our content distribution
network. In addition, our marketing efforts will focus on increasing the number
of group subscriptions we sell to businesses and on further developing our
custom-tailored business applications.
INCREASE ADVERTISING REVENUES
We believe our Web site attracts users who, as a group, are more affluent
and better educated than those of many other Web sites and therefore represents
an attractive medium for companies that advertise over the Internet. We have an
agreement with DoubleClick, an online advertising company, under which
DoubleClick acts as our exclusive advertising representative for the placement
of advertising banners and other advertising on our Web site. In March 1999,
more than 240 separate advertisers placed banners on our site as part of the
DoubleClick network. In order to attract new users and retain a loyal audience
that appeals to a broad range of advertisers and business partners, we are
investing in content, improving and expanding the functionality of our Web site
and engaging in increased advertising and promotional programs. We believe that
this strategy will attract new subscribers and advertisers to our Web site.
Advertising sales are also directly tied to the number of pages viewed by users
of our site on a monthly basis. In the twelve month period from January to
December 1998, the advertising pages viewed by our users doubled to
approximately 8 million per month. In March 1999, our customers viewed
approximately 9 million advertising pages.
PURSUE ADDITIONAL REVENUE STREAMS BY INTRODUCING NEW SERVICES
We intend to introduce new value-added services to increase revenues from
our existing customer base and to attract new customers. We have sophisticated
search technology under development to further mine the data in EDGAR filings
and plan to market tailored products to specific niche users. We are also
developing product offerings designed to help businesses and individuals use the
Internet to make selected SEC filings, such as Schedules 13D and 13G which are
used to report beneficial ownership interests in public companies.
EDGAR ONLINE WEB SITE
We believe that our Web site, located at http://www.edgar-online.com, is
one of the most heavily trafficked commercial sources of EDGAR information on
the Internet. For the past two years, Barron's has rated our EDGAR Online site
as one of the top 20 investment Web sites.
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All filings made through the EDGAR system since 1994 may be obtained
through our Web site. Individual users who wish to access our full range of
services pay a monthly fee starting at $9.95. Individual subscribers who access
more than 25 real-time filings per month are charged additional fees. Our
highest standard subscription rate of $99.95 per month entitles a user to
unlimited access to real-time filings. Selected services are also available to
non-paying registered users of our Web site.
Our EDGAR Online Web site, which is password protected and requires
registration for access, is displayed through a graphical interface that
provides easy navigation for the user. Our Web site is regularly updated from a
functionality standpoint to meet the specific needs of our users. The main areas
into which the content is organized are described below. Our paying subscribers
have access to all of these services and to EDGAR filings on a real-time basis.
Today's SEC Filings is an up-to-the-minute list of new EDGAR filings
received by the SEC. This information can be sorted by company name, form type
or time filed. Each entry also provides a brief description of the filing. The
Today's SEC Filings list can be accessed by non-paying visitors as well as by
paying subscribers, but the filings themselves cannot be downloaded by
non-paying visitors until one full business day after they are submitted to the
SEC. The Today's SEC Filings page also displays a list of Form 144 filings,
which is a non-EDGAR form that sellers of restricted securities are required to
file with the SEC to give notice of a proposed sale of these types of
securities. These filings are provided for subscribers as an additional
value-added service at a premium cost.
Full Search allows users to combine multiple criteria to search EDGAR
filings on a very general basis or an extremely detailed basis. Users can search
by company name, ticker symbol, central index key (CIK) code, industry or
sector, city, state, SEC form type and filing date or filing date range. We also
offer pre-packaged search protocols that allow searching for annual reports
(Form 10-K), latest quarterly reports (Form 10-Q), latest proxy filings
(Schedule 14A), insider transactions (Schedules 13D, 13G, Forms 3, 4 and 5) and
Form 144 (Notice of Proposed Sale of Securities Pursuant to Rule 144) filings.
Document Display: Users are provided the option of viewing filings in the
following formats:
- HTML (Hypertext Markup Language): This format treats the document as
one page. It downloads quickly, but is not the optimal format for
output or printing. The document is displayed with the table of
contents appearing on the left side of a user's computer screen with
navigation links to the relevant sections including financial tables.
- RTF (Rich Text Format): Paying subscribers can select RTF to download
the document into Word(R) or WordPerfect(R). Enhanced formatting
allows the user to output specific pages, search for keywords and
print filings suitable for presentation.
- XLS (Excel(R) Spreadsheet Format): Users have the option of extracting
balance sheet, income statement and cash flow statements directly into
spreadsheet applications and financial models. This extraction feature
allows the user to quickly compare financial statement data across
multiple companies or industries.
EDGAR Online People allows users to search the EDGAR database for
information about individuals named in SEC filings. A user can either look for
occurrences of a specific person across all filings or can retrieve a table
listing all people appearing in the filings for a specific company. To obtain
more information about an individual, such as compensation, stock option grants
or employment agreements, the user clicks on the filing and is brought directly
to the relevant sections of the filing, where each occurrence of the
individual's name is highlighted.
EDGAR Online Personal allows users to store their queries and sends alerts
immediately when new filings come in that match the user's search criteria. With
EDGAR Online Personal, a customized portfolio of companies, industries and
regions may be created. A portfolio can include
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specific companies, form types or combinations such as "All Form S-1 filings by
technology sector companies in California."
EDGAR Online IPO Express displays new public offerings as they are filed,
priced, postponed or withdrawn and provides daily and weekly summaries of all
companies filing IPO prospectuses with the SEC. Users can quickly and easily
access key sections of the prospectus, including competition, risk factors,
management and financial data, as well as key details such as underwriters and
ticker symbols.
Special Extracted Information: Our services also allow subscribers to
directly extract popular sections of filings:
- Glimpse extracts and retrieves the Management's Discussion and
Analysis section of Forms 10-K and 10-Q. Many of our co-branded
partners choose to display this extracted information with the other
financial information appearing on their Web sites.
- FDS (Financial Data Schedule) extracts the financial data schedule
from filings and formats it into table or spreadsheet form.
Supporting company data is also available on our Web site, including:
- Stock Quotes: 20 minute delayed stock quotes from PC Quote;
- Charts: including interactive charts, quotes, reports and indicators
on over 50,000 stocks, mutual funds and market indexes from Big
Charts; and
- News and Research Resources: from sources such as Hoover's, Zacks,
Multex.com and News Alert.
CORPORATE SERVICES
We have entered into a number of, and are pursuing additional, corporate
contracts to supply data for use on corporate intranets, extranets and Web
sites.
CORPORATE INTRANETS AND EXTRANETS
We provide EDGAR content to corporate customers consisting of American
Express, Bowne, CreditriskMonitor, Infonautics, IPOMonitor, Joint Info and
Merrill Lynch for their internal use, including on their intranets and
extranets. Each of these customers receives a tailored application for their
internal use at a price based on content, degree of customization and the number
of users. These corporate customers are willing to pay a premium for having the
content of SEC filings processed and delivered to them in ways that best meet
their internal needs. These services include real-time delivery of selected
types of filings or specific elements of filings that contain information such
as changes in shareholders' ownership used in targeting investors or company
information used as sales leads. In addition, we offer bulk sales of
subscriptions to our Web site services to firms for use by their employees.
SUBSCRIPTION WEB SITES
We deliver EDGAR content to other subscription Web sites, consisting of
Hoovers.com, Multex.com, Newstraders, Scotttrade Securities, streetfusion and
Quote.com, 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.
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CORPORATE WEB SITES
Many public companies maintain Web sites that contain information about
their businesses, management, press releases and other public information. For a
monthly fee, we supply a broad range of companies with their company-specific
EDGAR filings for display on their Web sites. This content is typically part of
the investor relations section of these companies' Web sites. For example, many
of these Web sites provide links to these companies' Form 10-K and Form 10-Q
filings, which we provide from our database of EDGAR filings. By contracting
with us, these companies are assured that their Web sites contain an up-to-date
list of their EDGAR filings.
FUTURE SERVICE OFFERINGS
Given the proliferation of business information, we believe that our
customers need greater functionality in searching for the specific business
information that is important to them. Recognizing this need, we intend to
introduce later this year a new service offering to our paying subscribers that
will involve the use of a key word search engine. By entering a single word or a
series of words into a query box, users will be able to search through a
database of the last two years of EDGAR filings. For example, entering the words
"advertising" and "Yahoo" would bring the user to the sections of Yahoo!'s SEC
filings which discuss Yahoo!'s advertising revenues.
We also intend to introduce later this year a new service offering that
will enable users to use natural language to search IPO filings for concepts,
rather than searching for specific key words. This new service offering would
utilize the DR-LINK(R) natural language search engine which we currently license
on a non-exclusive basis from Manning & Napier Information Services. A user
would enter a complex natural language description of his search, such as "I am
looking for an Internet business incorporated in Delaware that generates
subscription revenues." The program will then search the full text of over 4,000
IPO registration statements filed through the EDGAR system since 1996. The
search results will be ranked by relevance and keyed to the section of the
document that contains the relevant information. Users will have the option of
receiving e-mail alerts when future occurrences of the same criteria appear in
subsequent IPO filings. We anticipate that this premium priced service will be
attractive to venture capital and investment firms, business plan writers,
securities analysts, attorneys, accountants and others needing an efficient
method of performing comparative company analyses.
KEY CONTENT DISTRIBUTION RELATIONSHIPS
We have entered into a number of, and are pursuing additional, content
distribution contracts to enhance our brand recognition and audience reach. We
provide EDGAR content to these partners in order to build traffic to our Web
site. During March 1999, approximately 25% of our traffic stemmed from these
relationships. We have more than 60 of these content distribution contracts.
These contracts are typically for a one-year term, with automatic renewal for
one-year periods, unless either party cancels the agreement within 60 days prior
to the end of the then current term or at any time in the event "cause" exists.
For purposes of these agreements, cause is limited to bankruptcy-related events
and material breaches that are not cured within 30 days following written
notice.
PORTAL OR SEARCH ENGINE WEB SITES
We provide selected EDGAR content to so-called portal and search engine
sites, which are popular Web sites through which users can access a broad array
of content resources, including Yahoo!, Infoseek's GO Network, CNET's SNAP,
Go2Net and Infospace. For example, we provide the Yahoo! Finance Web site with
headline information about SEC filings and the extracted Management's Discussion
and Analysis section of Forms 10-K and 10-Q on a real-time basis. We deliver
selected free information for display on other Web sites, such as Infoseek's GO
Network and
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Infospace. We also support co-branded pages, which provide links to our Web site
where we have the opportunity to sell subscriptions. Our agreements with these
entities provide us with the right to sell advertising on these co-branded
pages. While we typically retain 100% of these advertising revenues, under some
of these arrangements we share up to 20% with our co-branded partners.
NEWS, FINANCIAL INFORMATION AND INVESTMENT SITES
We provide selected EDGAR content to news, financial information and
investing sites such as CBS MarketWatch, SmartMoney.com, Multex.com, PointCast,
MSNBC, TheStreet.com, Hoover's, Quote.com, Track Data, Business Wire, Big Charts
and Raging Bull. We provide Multex.com, Hoover's, Quote.com and Track Data with
a digital feed of real-time header information from all EDGAR filings. These Web
sites offer this information to their paying subscribers who can download
real-time and historical full-text filings from our Web site. We support
co-branded links to CBS MarketWatch, Hoover's, SmartMoney.com, Business Wire and
Raging Bull.
LINKS FROM THOUSANDS OF WEB SITES WORLDWIDE
The open architecture of the Internet allows Web sites to link without
permission to Web pages they believe will benefit their users. We estimate that
more than 2,000 different Web sites provide links to our Web site, thereby
generating extensive traffic to our site and increasing our brand awareness.
CUSTOMERS AND ADVERTISERS
We have a diversified base of individual subscribers, corporate customers
and advertisers. We believe that this customer and advertiser base will grow
significantly and become further diversified as we implement our sales and
marketing plan and increase the range of our service offerings.
INDIVIDUAL SUBSCRIBERS
As of March 31, 1999, EDGAR Online had over 115,000 registered users, of
which approximately 7,500 were paying subscribers. Based on information from
@plan., Inc., an Internet-focused market research provider, we believe our
individual users represent a demographic group characterized by levels of
education and personal income that are well above the average profile of an
Internet user. According to the registration data we collect, these individuals
are typically executives, research analysts, bankers, journalists, attorneys,
accountants, sales representatives, recruiters, business development and
marketing professionals. We provide them with cost-effective and flexible tools
to obtain information about companies' financial performance, competitive
position, strategic plans, products and industries, expenditure plans,
management changes, shareholder changes, capital raising and other information
reported in SEC filings.
CORPORATE CUSTOMERS
As of March 31, 1999, we had over 100 corporate customers representing a
broad range of industry sectors. We believe that our corporate contract services
are attractive to professional firms and large corporations who can benefit from
using our services to generate valuable business, financial and competitive
information that can help them conduct their businesses more effectively.
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ADVERTISERS
In March 1999, we sold advertising through DoubleClick, an Internet
advertising services provider, to over 240 companies. Our advertisers represent
a broad cross section of industries that are attracted by the subject matter of
our Web site and by the demographics of the users of our Web site. These
advertisers include companies such as Datek Online Brokerage Services, Fidelity
Investments, Korn Ferry, GTE, Nortel Power and IBM.
MARKETING AND SALES
Historically, we have focused our business on building content distribution
relationships with major search engines and financially-oriented and general
information Web sites to build our brand recognition. These co-branded
relationships and our well-known presence on the Internet have allowed us to
attract individual subscribers and corporate customers. We plan to use a portion
of the proceeds of this offering to expand our sales and marketing efforts.
We seek to:
- attract more individual online users to our services and convert visitors
into paying subscribers;
- increase corporate sales;
- strengthen brand awareness through a variety of advertising, marketing
and promotional programs;
- expand marketing efforts to public companies that display SEC filings on
their Web sites; and
- increase our advertising revenues by increasing traffic to our Web site
and continuing to provide our advertisers with a growing, demographically
desirable audience.
We believe that corporate customers will 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 assign several
of our new sales professionals to market our services exclusively to corporate
accounts.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
Our development programming is performed by iXL Enterprises, Inc. from its
office in Norwalk, Connecticut on our computers. iXL also manages our Web site.
iXL, formerly Pequot Systems, has been our software developer since our
inception. We own all the programs that run our Web site, including those
developed by iXL. Our Web site is 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. The system is maintained on a 24 hours-a-day, 7 days-a-week basis
remotely by iXL technicians with the exception of our networking communications
which are managed by Globix. See "Certain Transactions."
All our systems, including our accounting system, user database and
database of EDGAR filings, and all proprietary software are backed up on a daily
basis to our data center in our Norwalk, Connecticut offices and also backed up
to tape. The tape backup is held offsite. Our software and database are
replicated across multiple servers, using the clustering facilities of Microsoft
Windows NT Server, Enterprise edition. This provides us with both resilience
against hardware failure and with scalability to handle our increasing traffic
loads.
The flow of information in and out of our site operates as follows:
- the live feed of EDGAR filings comes from the SEC's dissemination agent,
TRW, which sends this feed to Globix via a private high speed T-1
connection; and
- the raw EDGAR filings are processed by our proprietary software and
posted to our site or distributed to third parties with which we have
distribution contracts via production servers located at Globix's
facilities.
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Our services are available to users 24 hours-a-day, 7 days-a-week. Customer
service is available weekdays 9:00 AM to 7:30 PM (ET). Inquiries come in through
our Web site and via e-mail and telephone. At March 29, 1999, we had 6 employees
engaged in customer service and network support.
COMPETITION
The market for Internet information services and products is relatively
new, has no substantial barriers to entry and is intensely competitive and
rapidly changing. The number of Web sites competing for consumers' and
advertisers' attention and spending has proliferated and we expect that
competition will continue to intensify. We currently compete, directly and
indirectly, for subscribers, viewers and advertisers with the following
categories of companies:
- traditional vendors of financial information such as Disclosure;
- proprietary information services and Web sites targeted to business,
finance and investing needs, including those providing EDGAR content,
such as Bloomberg and LIVEDGAR; and
- Web-based providers of free EDGAR information, such as FreeEDGAR.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of their services. These competitors may
also engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies
(including offering their EDGAR content for free) and make more attractive
offers to existing and potential employees, content distribution partners and
advertisers. Our competitors may offer EDGAR content that achieves greater
market acceptance than ours. It is also possible that new competitors may emerge
and rapidly acquire significant market share. We may not be able to compete
successfully for subscribers, which could have a material adverse effect on our
business, results of operations and financial condition. Increased competition
could result in price reductions, reduced margins or loss of market share, any
of which could materially adversely affect our business, results of operations
and financial condition. See "Risk Factors -- We face intense competition from
other providers of business and financial information."
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 site 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
site. See "Risk Factors -- We face intense competition for advertising revenues
and the viability of the Internet as an advertising medium is uncertain."
INTELLECTUAL PROPERTY
Our success depends significantly upon our proprietary technology. We
currently rely on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect our proprietary
rights. All of our employees have executed confidentiality and non-use
agreements which provide that any rights they may have in copyrightable works or
patentable technologies belong to us. In addition, prior to entering into
discussions with third parties regarding our proprietary technologies, we
require that such parties enter into a confidentiality agreement. If these
discussions result in a license or other business relationship, we also require
that the agreement setting forth the parties' respective rights and obligations
include provisions for the protection of our intellectual property rights.
The SEC has granted us a non-exclusive, royalty-free license to use the
name EDGAR in our logo and corporate name initially through 2008, and we have
received notification from the U.S. Patent and Trademark Office that our
application to register our EDGAR Online trademark has proceeded to the
publication stage.
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We use database technology designed for us by iXL. This proprietary
technology integrates software that was developed exclusively for us by iXL with
software systems obtained commercially. The software developed for us by iXL
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 and
NetOwl Extractor. The nature of our proprietary system allows us to enhance our
service offerings by rapidly integrating new technology developed for us by
third parties. See "Certain Transactions."
We also have non-exclusive rights to the DR-LINK natural language search
engine pursuant to an agreement with Manning & Napier Information Services,
which we plan to include in our service offerings later this year. See
"-- Future Service Offerings."
GOVERNMENT REGULATION
We are subject, both directly and indirectly, to various laws and
governmental regulations relating to our business. There are currently few laws
or regulations directly applicable to online services of the 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 site.
FACILITIES
Our executive offices are located in Norwalk, Connecticut, where, together
with iXL, we lease 6,600 square feet of office space. See "Certain
Transactions -- Pequot Systems (iXL)." The term of this lease expires April
2000. We are seeking additional office space which we believe will be available
on commercially reasonable terms.
EMPLOYEES
As of May 25, 1999, we had 20 full-time employees. We believe that we have
good relations with our employees.
LEGAL PROCEEDINGS
On May 3, 1999, we were informed of a potential claim by a former candidate
for our Chief Financial Officer position alleging that we entered into an
employment agreement and granted stock options to the candidate. We believe that
these allegations are without merit and intend to contest them if any lawsuit is
filed against us.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of our
executive officers and directors as of the date of this prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Susan Strausberg(1).................. 60 Chief Executive Officer, Secretary and Director
Marc Strausberg(1)................... 64 Chairman of the Board, Chief Information Officer
and Director
Tom Vos(1)........................... 51 President, Chief Operating Officer and Director
Greg D. Adams........................ 38 Chief Financial Officer
Brian Fitzpatrick.................... 42 Vice President of Corporate Sales
Jay Sears............................ 32 Vice President of Marketing and Business
Development
David Trenck......................... 25 Vice President of Operations
Marc H. Bell(2)(3)................... 31 Director
Bruce Bezpa(3)....................... 43 Director
Stefan Chopin(2)..................... 40 Director and Chief Technology Consultant
Mark Maged(2)........................ 65 Director
</TABLE>
- -------------------------
(1) Member of the Outside Directors Compensation Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Susan Strausberg, a co-founder of EDGAR Online, has served as Chief
Executive Officer and Secretary since EDGAR Online was formed in November 1995.
From December 1994 until the formation of EDGAR Online, Ms. Strausberg was a
consultant to Internet Financial Network. In her capacity as Chief Executive
Officer, Ms. Strausberg oversees strategic planning and development and is
responsible for the production of the EDGAR Online Web site. Ms. Strausberg has
served on the Board of Directors of RKO Pictures since December 1998. Ms.
Strausberg, the wife of Mr. Strausberg, EDGAR Online's Chairman, has a B.A.
degree from Sarah Lawrence College.
Marc Strausberg, a co-founder of EDGAR Online, has served as Chairman of
the Board of Directors and President since EDGAR Online was formed in November
1995. Mr. Strausberg resigned as President upon the election of Tom Vos to this
position in March 1999. In December 1994, Mr. Strausberg co-founded Internet
Financial Network, a 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 operations to individuals, hedge funds and brokerage
firms. Mr. Strausberg oversees product development for EDGAR Online. Mr.
Strausberg, the husband of Ms. Strausberg, EDGAR Online's Chief Executive
Officer, has a B.A. degree from Muhlenberg College.
Tom Vos joined EDGAR Online as a Director in August 1996 and was elected
Chief Operating Officer in March 1998. Mr. Vos was elected President in March
1999. Mr. Vos is responsible for EDGAR Online's day-to-day operations. From
September 1986 until March 1998, Mr. Vos was Vice President of Marketing at
Bowne & Co., Inc. In that capacity, Mr. Vos was responsible for strategic
planning, acquisitions and new product development. While at Bowne, Mr. Vos was
also responsible for advertising and public relations and for the development of
both Bowne's Web site and its EDGAR services department. Mr. Vos has a B.S.
degree in Physics from Notre Dame University, an M.S.
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degree in Electrical Engineering from Ohio State University and an M.B.A. degree
from Pace University.
Greg D. Adams joined EDGAR Online as Chief Financial Officer in March 1999.
Mr. Adams is a Certified Public Accountant with diversified business experience
in both the public and private sectors. From November 1997 to March 1999, Mr.
Adams served as the Senior Vice President -- Finance and Administration of PRT
Group Inc., a technology solutions and services company. Mr. Adams served as
Chief Financial Officer of PRT Group Inc. from May 1996 to October 1997. From
June 1994 to May 1996, Mr. Adams was the Chief Financial Officer of the Blenheim
Group Inc., a publicly held UK information technology exposition and conference
management company. From August 1983 to June 1994, Mr. Adams served as Senior
Manager in the areas of audit and business advisory services with KPMG Peat
Marwick. He is a member of the New York State Society of Certified Public
Accountants and the American Institute of Certified Public Accountants. Mr.
Adams has a B.B.A. degree in Accounting from the College of William & Mary.
Brian Fitzpatrick joined EDGAR Online as Vice President of Corporate Sales
in March 1999. From August 1998 to March 1999, he was Regional Vice President,
Sales and Marketing for Iverson Financial Systems, Inc., a business information
provider, and from April 1993 to August 1998, he was Vice President, Sales and
Marketing of Newsware, Inc, a financial news service. From August 1991 to March
1993 he was the National Accounts Manager of Desktop Data, a real-time news and
information filtering business. From 1986 to 1991, he was Key Accounts Manager
of Walsh Greenwood Information Systems, a provider of PC-based intelligent
market data systems for the financial services industry. Mr. Fitzpatrick has a
B.A. degree from Boston University.
Jay Sears joined EDGAR Online as Vice President of Marketing and Business
Development in May 1997. Mr. Sears is responsible for strategic alliances,
content syndication, content sales, advertising sales, membership and direct
marketing, public relations and general marketing for EDGAR Online. From
September 1995 to April 1997, Mr. Sears was Vice President of Marketing for
Wolff New Media, a publisher of Internet and printed guides to the Internet.
From July 1991 to August 1995, Mr. Sears was a Senior Account Supervisor at
Creamer Dickson Basford, an international marketing, communications and public
relations firm. Mr. Sears has a B.A. degree from Kenyon College.
David Trenck joined EDGAR Online in December 1995 as its first employee and
was responsible for data entry and customer support. In May 1998, he became Vice
President of Operations. Mr. Trenck is in charge of product implementation and
liaison with iXL, EDGAR Online's primary service offering developer.
Marc H. Bell joined EDGAR Online as a member of the Board of Directors in
August 1998. Mr. Bell has been the President and Chief Executive Officer of
Globix Corporation since its inception in 1989. Mr. Bell has a B.S. degree from
Babson College and an M.S. degree from New York University.
Bruce Bezpa joined EDGAR Online as a member of the Board of Directors in
March 1999. He has worked for Bowne & Co., Inc., a leading financial printer and
provider of Internet, localization and outsourcing services, for 15 years in
various capacities including as Vice President-Strategic Development (since July
1996), Director-Mutual Funds Services from August 1994 to June 1996 and
Director-Marketing from April 1989 to July 1994. Mr. Bezpa holds B.A. and M.B.A.
degrees from Rutgers University.
Stefan Chopin joined EDGAR Online as a member of the Board of Directors in
1996. As the Chief Technology Consultant to EDGAR Online, Mr. Chopin is
responsible for software interface development and systems integration and
maintenance. Mr. Chopin is the founder and President of Pequot Systems, a
software development and consulting firm. In October 1998, Pequot was acquired
by iXL Enterprises, Inc. and began operating as iXL Financial Services. Prior to
founding Pequot
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Systems in November 1995, Mr. Chopin served as the Vice President of Engineering
for Micrognosis, Inc., a leading provider of trading room systems.
Mark Maged joined EDGAR Online as a member of the Board of Directors in
March 1999. He has been Chairman since 1995 and Chief Executive Officer since
January 1997, of Internet Tradeline, Inc., an operator of electronic shopping
malls on the Internet. During the eight years prior to becoming Chief Executive
Officer of Internet Tradeline, Mr. Maged, either individually or as Chairman of
MJM Associates, LLC, engaged in various private investment banking activities in
the United States and internationally. From 1975 through 1983, he served as
President and Chief Executive Officer of Schroder's Incorporated, which operated
banking, investment banking and investment management businesses as the United
States arm of Schroders PLC, an international merchant bank. He is currently a
member of the Board of Directors of Commodore Holdings Limited. He holds a
bachelor's degree from the City College of New York and both a master's degree
and a law degree from Harvard University.
The members of the Board are elected at each annual meeting of shareholders
and serve until their successors are duly elected and qualified or until their
earlier resignation or removal.
BOARD COMMITTEES
EDGAR Online's Board of Directors has established an Audit Committee and
appointed Marc Bell and Bruce Bezpa to be its members. The Audit Committee has
the responsibility to review audited financial statements and accounting
practices of EDGAR Online and to consider and recommend the employment of, and
approve the fee arrangements with, independent accountants for both audit
functions and for advisory and other consulting services.
The Board has also established a Compensation Committee and appointed Marc
Bell, Stephan Chopin and Mark Maged to be its members. The Compensation
Committee has the responsibility to review and recommend to the Board the
compensation plans and levels for the officers of EDGAR Online, administers our
employee stock option plans and establishes and reviews general policies
relating to compensation and benefits of employees of EDGAR Online.
The Board has also established the Outside Directors Compensation Committee
and appointed Marc Strausberg, Susan Strausberg and Tom Vos to be its members.
The Outside Directors Compensation Committee has the responsibility to
administer our 1999 Outside Directors Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationships exist between any members of EDGAR Online's
Board of Directors or Compensation Committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past. The Company has business and financial
relationships with Globix Corporation and iXL Enterprises, Inc. Marc Bell is the
President and Chief Executive Officer of Globix Corporation. Stefan Chopin is a
Vice President of iXL Enterprises, Inc. Our relationships with Globix and iXL
are described below.
Globix
In July 1998, we issued a 10% convertible debenture in the principal amount
of $1,000,000 to Globix Corporation along with warrants to purchase 666,667
shares of common stock at an exercise price of $1.50 per share. The terms of the
transaction were determined as the result of arm's length bargaining between the
parties. As part of this transaction, our agreement with Bowne was amended to
modify certain of Bowne's rights and to include Globix as a party, thereby
providing Globix with the same anti-dilution rights, tag-along rights and Board
participation rights as Bowne. In May 1999, Globix converted its debenture and
exercised its warrants, thereby acquiring 1,336,667 shares of our common stock.
In July 1998, we also entered into a five-year hosting contract with Globix that
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requires us to co-locate our Internet servers at the Globix facility in New York
City. During 1998, we paid Globix a total of $6,513 under this contract. We
believe that the terms of our agreements with Globix are beneficial to EDGAR
Online and no less favorable to EDGAR Online than terms which might be available
to us from unaffiliated third parties.
Pequot Systems (iXL)
EDGAR Online and Pequot Systems ("Pequot") share equally the costs of a
single lease on 6,600 square feet of space. We occupy half of this space and are
jointly obligated with Pequot on the lease, which expires in April 2000. Since
our inception, we have outsourced our technology development to Pequot. During
1995, in partial payment for services rendered, Pequot received warrants to
purchase shares of common stock at an exercise price of $.05 per share. The
warrants were exercised in May 1997. In March 1998, Pequot agreed to accept
shares of our common stock valued at $1.25 per share in partial payment for
services rendered. As a result of these two transactions, Pequot received
359,384 shares of common stock. In 1998, we paid Pequot a total of $610,073 for
services provided. As a result of the acquisition of Pequot by iXL, an unrelated
company, in 1998, the shares owned by Pequot were transferred to Pequot's
founders, including Stefan Chopin, the founder and President of Pequot. Mr.
Chopin has been a member of our Board of Directors since 1996. We believe that
the terms of our agreements with Pequot are beneficial to EDGAR Online and no
less favorable to EDGAR Online than terms which might be available to us from
unaffiliated third parties.
DIRECTOR COMPENSATION
No cash compensation has ever been paid to any of the directors of EDGAR
Online for service in such capacity. However, directors are currently eligible
to receive stock options every three years under EDGAR Online's 1996 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. Non-employee directors of EDGAR Online will be eligible to receive
non-discretionary, automatic grants of options to purchase common stock as part
of our 1999 Outside Directors Stock Option Plan. See "-- Stock Option Plans."
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EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 by our Chief Executive Officer and certain
other executive officers whose annual salaries and bonus were in excess of
$100,000 in 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1) SECURITIES
------------------ UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)
- --------------------------- -------- ------ ------------
<S> <C> <C> <C>
Susan Strausberg.......................................... $150,000(2) -- --
Chief Executive Officer
Marc Strausberg........................................... $150,000(2) -- --
Chairman and Chief Information Officer(3)
Tom Vos................................................... $ 93,750(4) -- 200,000
President and Chief Operating Officer
Jay Sears................................................. $ 97,400 10,000 65,000
Vice President of Marketing and Business Development
</TABLE>
- -------------------------
(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in such column. The aggregate amount
of perquisites and other personal benefits provided to each Named Executive
Officer is less than 10% of the total annual salary and bonus of such
officer.
(2) In 1998, $92,788 of this amount was deferred and not paid. See "Certain
Transactions" and "Use of Proceeds."
(3) Mr. Strausberg served as President during 1998.
(4) Mr. Vos joined EDGAR Online as Chief Operating Officer on March 31, 1998 and
earns salary at the rate of $125,000 per annum. He was elected by the Board
of Directors to the additional position of President in March 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during 1998. We have never granted any
stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
-------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED 1998(2) SHARE($) DATE 5% 10%
- ---- ---------- ------------- --------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Susan Strausberg........... -- -- -- -- -- --
Marc Strausberg............ -- -- -- -- -- --
Tom Vos.................... 200,000 50% $0.25 March 31, 2008 $936,711 $1,477,340
Jay Sears.................. 65,000 16% $0.25 May 31, 2007 $289,120 $ 434,892
</TABLE>
- -------------------------
(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 Stock Option
Plan.
(2) In the year ended December 31, 1998, we granted options to employees to
purchase an aggregate of 400,000 shares of common stock.
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(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.
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, 1998 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.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Susan Strausberg....................... -- -- -- --
Marc Strausberg........................ -- -- -- --
Tom Vos................................ 200,000 -- $664,000 --
Jay Sears.............................. 65,000 -- $215,800 --
</TABLE>
- -------------------------
(1) There was no public market for the common stock on December 31, 1998. The
fair market value of the common stock as of December 31, 1998 was determined
by our Board of Directors to be $3.57 per share.
EMPLOYMENT AGREEMENTS
We entered into a five year amended and restated employment agreement dated
as of May 6, 1999 with Susan Strausberg. The agreement extends automatically for
an additional year at the end of the initial term and each anniversary
thereafter unless 30-day prior notice of termination is provided by either Ms.
Strausberg or EDGAR Online. The agreement provides for an annual salary of
$150,000, and an annual bonus at the discretion of the Board. In the event there
is a change of control (as defined in the agreement) and Ms. Strausberg's
employment is terminated (either by her or the employer) within one year
thereafter, Ms. Strausberg will receive a severance benefit equal to the product
of 2.99 times the sum of (1) her then applicable annual base salary and (2) the
average of her last two annual cash bonuses. Additionally, the agreement
contains non-compete and non-solicitation provisions effective during the term
of her employment and for one year thereafter.
We entered into a five year amended and restated employment agreement dated
as of May 6, 1999 with Marc Strausberg. The agreement extends automatically for
an additional year at the end of the initial term and each anniversary
thereafter unless 30-day prior notice of termination is provided by either Mr.
Strausberg or EDGAR Online. The agreement provides for an annual salary of
$150,000, and an annual bonus at the discretion of the Board. In the event there
is a change of control (as defined in the agreement) and Mr. Strausberg's
employment is terminated (either by him or the employer) within one year
thereafter, Mr. Strausberg will receive a severance benefit equal to the product
of 2.99 times the sum of (1) his then applicable annual base salary and (2) the
average
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of his last two annual cash bonuses. Additionally, the agreement contains
non-compete and non-solicitation provisions effective during the term of his
employment and for one year thereafter.
We have entered into a two year employment agreement dated April 23, 1999
with Tom Vos to serve as President and Chief Operating Officer. The agreement
extends automatically for an additional year at the end of the initial term and
each anniversary thereafter unless 30-day prior notice of termination is
provided by either Mr. Vos or EDGAR Online. The agreement provides Mr. Vos with
an annual salary of $125,000 and an annual bonus at the discretion of the Board.
In addition, if Mr. Vos remains employed by us at the end of the initial term,
he will be entitled to receive a retention bonus equal to two years of his then
applicable base salary, plus the average of his last two annual cash bonuses.
Mr. Vos will also receive a severance payment identical to the retention bonus
described above in the event there is a change of control (as defined in the
agreement) and Mr. Vos' employment is terminated (either by him or the employer)
within one year thereafter. Additionally, the agreement contains a non-compete
and non-solicitation provision effective during the term of his employment and
for one year thereafter.
We have entered into a three year amended and restated employment agreement
dated May 3, 1999 with Greg Adams to serve as Chief Financial Officer. The
agreement extends automatically for an additional year at the end of the initial
term and each anniversary thereafter unless 30-day prior notice of termination
is provided by either Mr. Adams or EDGAR Online. The agreement provides Mr.
Adams with (1) an annual salary of $125,000, (2) an annual bonus at the
discretion of the Board, provided that Mr. Adams will be entitled to a minimum
bonus of $62,500 for the first year of his employment and (3) a $500 monthly car
allowance. Mr. Adams will also receive options to purchase (a) 109,000 shares of
common stock at an exercise price of $4.50 per share, which will vest 25% in
year one and 75% in year two and (b) 16,000 shares of common stock at the
initial public offering price per share, which will vest equally over a
three-year period. In addition, the agreement contains a severance arrangement
whereby Mr. Adams is entitled to receive a payment determined as follows in the
event he is terminated without cause: (a) six months salary if the termination
occurs within the first six months of his employment, (b) twelve months salary
if the termination occurs between the seventh and eighteenth month of his
employment and (c) eighteen months salary if the termination occurs at anytime
following the eighteenth month of his employment. Additionally, the agreement
contains a non-compete and non-solicitation provision effective during the term
of his employment and for one year thereafter.
We have entered into a three year employment agreement dated March 11, 1999
with Brian Fitzpatrick to serve as Vice President of Corporate Sales. The
agreement provides Mr. Fitzpatrick with (1) an annual salary of $125,000 and (2)
an annual bonus at the discretion of the Board, provided that Mr. Fitzpatrick
will be entitled to a minimum annual bonuses of (a) $100,000 for 1999, (b)
$125,000 for 2000 and (c) $150,000 for 2001. Mr. Fitzpatrick received a signing
bonus of $85,000 when he joined us. Mr. Fitzpatrick will also receive options to
purchase 60,000 shares of common stock at an exercise price of $4.00 per share,
which will vest equally over a three-year period. Additionally, the agreement
contains a non-compete and non-solicitation provision effective during the term
of his employment and for nine months thereafter in the case of the non-compete
provision and one year thereafter in the case of the non solicitation provision.
We have entered into an employment agreement dated May 19, 1997 with Jay
Sears, which may be terminated by either party upon 30-days prior notice. The
agreement provides Mr. Sears with an annual salary of $80,000 and an annual
bonus at the discretion of the Board. Mr. Sears' annual salary was increased to
$100,000 effective August 1998. If Mr. Sears' employment is terminated without
cause, we will pay him six months of his total annual compensation.
Additionally, the agreement contains non-compete and non-solicitation provisions
effective during the term of his employment and
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for six months thereafter in the case of the non-compete provision and one year
thereafter in the case of the non-solicitation provision.
STOCK OPTION PLANS
EDGAR Online's currently active stock option plans include our 1996 Stock
Option Plan, 1999 Stock Option Plan and 1999 Outside Directors Stock Option
Plan. Each of the plans, except for the 1999 Outside Directors Stock Option
Plan, provide for:
- the grant of incentive stock options and non-qualified stock options; and
- the current administration of the plans by the Compensation Committee.
The exercise price of options granted under each plan are determined by the
Compensation Committee, except that the exercise price of incentive stock
options must be at least as equal to the fair market value of EDGAR Online's
common stock on the date of grant. Each of the plans authorizes the Board to
provide for option vesting to accelerate and become fully vested in the event of
certain significant corporate transactions if the options are not assumed or
substituted by a successor corporation.
The 1996 Stock Option Plan (the "1996 Plan"), which provides for the
granting of options to purchase up to an aggregate of 800,000 shares of our
authorized but unissued common stock (subject to adjustment in certain cases,
including stock splits, recapitalization and reorganizations) to our officers,
directors, employees and consultants, was ratified and confirmed in November
1998. The 1999 Stock Option Plan (the "1999 Plan"), which provides for the
granting of options to purchase up to an aggregate of 600,000 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. 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, each new non-employee
director will be granted, at the time of his or her appointment and on each
third anniversary thereafter, a nonstatutory option to purchase 7,500 shares of
common stock. The exercise price of each of these options will be equal to the
fair market value of our common stock on the date of grant. These options will
vest equally over a three-year period. Under the 1999 Outside Directors Stock
Option Plan, our existing non-employee directors will not be eligible for
options grants until the date of our annual stockholders' meeting to be held in
2002.
As of May 6, 1999, 800,000 options were authorized under the 1996 Plan and
options to purchase all 800,000 shares had been granted. As of May 6, 1999,
600,000 options were authorized under the 1999 Plan, options to purchase 41,000
shares had been granted and 559,000 options were available for future grants. As
of May 6, 1999, 100,000 options were authorized under the 1999 Outside Directors
Stock Option Plan, no options to purchase shares had been granted and 100,000
options were available for future grants.
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INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our amended and restated certificate of incorporation includes a provision
that eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to EDGAR Online or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our amended and restated bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to certain very limited exceptions;
- we may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our certificate of incorporation, our bylaws or agreements; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with legal proceedings to the fullest extent
permitted by Delaware law, subject to certain very limited exceptions.
Prior to the completion of this offering, we intend to enter into indemnity
agreements with each of our directors and executive officers to give them
additional contractual assurances regarding the scope of the indemnification
described above and to provide additional procedural protections. In addition,
we intend to obtain directors' and officers' insurance providing indemnification
for our directors, officers and certain employees for certain liabilities. We
believe that these indemnification provisions and agreements are necessary to
attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our amended
and restated certificate of incorporation and our amended and restated bylaws
may discourage stockholders from bringing a lawsuit against directors for breach
of their fiduciary duty. They may also have the effect of reducing the
likelihood of derivative litigation against directors and officers, even though
such an action, if successful, might otherwise benefit us and our stockholders.
Furthermore, a stockholder's investment may be adversely affected to the extent
we pay the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
BOWNE & CO., INC.
In May and July 1996, Bowne & Co., Inc. loaned us an aggregate of $75,000
pursuant to non-interest bearing notes. The terms of these notes provided that,
if Bowne were to invest in our common stock within 180 days after delivery of
the notes, the notes would not have to be repaid but would be convertible into
an aggregate credit of $112,500 applicable towards the purchase of our common
stock. In August 1996, EDGAR Online, Bowne and Marc Strausberg, Susan Strausberg
and Michael Horowitz entered into an Equity Purchase Agreement pursuant to which
Bowne purchased 400,000 shares of common stock from us and 200,000 shares from
each of the Strausbergs and Mr. Horowitz for an aggregate purchase price of
$875,000. The purchase price of $1.25 per share for the shares sold by us and
$0.625 per share for the shares sold by the Strausbergs and Mr. Horowitz (a
weighted average purchase price of $0.875) was determined as the result of arm's
length bargaining among the parties. From this transaction, EDGAR Online
received $387,500 in cash and the notes evidencing the $75,000 Bowne loaned to
us were converted into shares of common stock valued at $112,500 (the amount of
"credit" referred above). Each of the Strausbergs and Mr. Horowitz received
$125,000. Our agreement with Bowne provided Bowne with certain anti-dilution
rights, a right of first refusal and tag-along rights with regard to future
sales of shares owned by the Strausbergs or Mr. Horowitz and certain issuances
of shares by EDGAR Online, as well as Board participation rights. Bowne's
designee to our Board of Directors is Bruce Bezpa, its Vice President.
In 1997, we borrowed $500,000 pursuant to a line-of-credit extended to us
by Bowne. These loans are evidenced by promissory notes which were originally
due on December 30, 1997, each at an interest rate of 12% prior to the maturity
date and 18% thereafter. EDGAR Online and Bowne have subsequently agreed to two
extensions on the repayment of these notes, which are now due on February 28,
2000. These loans are guaranteed by Marc Strausberg. We intend to repay the
principal and accrued interest on the loans with a portion of the proceeds of
this offering. See "Use of Proceeds" and "Principal Stockholders."
EDGAR Online sells certain EDGAR content to Bowne and provides Bowne with
EDGAR Online services in its offices. Bowne also pays EDGAR Online for
advertising it places on the EDGAR Online site. In 1998, EDGAR Online charged
Bowne a total of $52,350 for these services. We believe that the terms of our
agreements with Bowne are beneficial to EDGAR Online and no less favorable to
EDGAR Online than terms which might be available to us from unaffiliated third
parties.
GLOBIX CORPORATION
For information regarding our relationship with Globix, see
"Management -- Compensation Committee Interlocks and Insider Participation."
TRACK DATA CORPORATION
In conjunction with our formation, Track Data Corporation, a business
information company and one of our principal stockholders, extended a $100,000
loan to EDGAR Online at an interest rate of prime plus 2% and received and
subsequently exercised warrants to purchase 810,572 shares of common stock.
Track Data purchases EDGAR content which it uses in conjunction with the
services that it offers. These services are paid for through reductions in the
principal amount of this loan. During 1998, the loan was reduced by $17,250 in
this fashion. At March 31, 1999, the loan principal was $40,698 plus accrued
interest due of $29,289. We intend to repay any remaining principal and
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<PAGE> 52
interest with a portion of the proceeds from this offering. We believe that our
agreements with Track Data are beneficial to EDGAR Online and no less favorable
to EDGAR Online than terms which may be available to us from unaffiliated third
parties.
PEQUOT SYSTEMS (iXL)
For information regarding our relationship with iXL, see
"Management -- Compensation Committee Interlocks and Insider Participation."
SUSAN STRAUSBERG AND MARC STRAUSBERG
From time to time, we have received cash loans from and have made cash
advances to Susan Strausberg and Marc Strausberg, our founders. These loans bear
interest at the prime rate applied to the net outstanding balance. The net
amounts owed to EDGAR Online at December 31, 1996, 1997, 1998 were $17,432,
$51,114, $141,554, respectively. During this same period, Susan Strausberg and
Marc Strausberg agreed to defer all or most of their annual salaries of $150,000
each. The aggregate amount of deferred compensation for the two of them combined
at December 31, 1996, 1997 and 1998 was $300,000, $600,000 and $785,577,
respectively. These deferred salaries, net of the loans outstanding to them,
will be paid to Susan and Marc Strausberg upon consummation of this offering.
See "Use of Proceeds." Susan and Marc Strausberg may be deemed to be "promoters"
of the Company. Susan Strausberg and Marc Strausberg each received 2,000,000
shares of common stock upon the Company's incorporation for $69,625, or $0.035
per share.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of May 25, 1999 and as adjusted to
reflect the sale of the shares of common stock offered hereby by (1) each of our
directors, including our Chief Executive Officer, (2) our three most highly
compensated executive officers, other than our Chief Executive Officer, who were
serving as executive officers at the end of 1998, (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. The table also provides information with respect to
the number of shares of common stock that certain of our stockholders are
obligated to sell if the underwriters exercise their over-allotment option and
the impact that this will have on those stockholders' post-offering common stock
holdings. Unless otherwise indicated, the address of each beneficial owner
listed below is c/o EDGAR Online, Inc., 50 Washington Street, Norwalk, CT 06854.
<TABLE>
<CAPTION>
ASSUMING THE OVER-ALLOTMENT
OPTION IS EXERCISED BY THE
UNDERWRITERS
PERCENTAGE -----------------------------------
BENEFICIALLY OWNED SHARES TO BE PERCENT
NUMBER ---------------------- OFFERED BY THE BENEFICIALLY
OF BEFORE AFTER OVER-ALLOTMENT OWNED AFTER
NAME OF BENEFICIAL OWNER SHARES(1) OFFERING OFFERING(2) SELLING STOCKHOLDERS OFFERING
- ------------------------ ---------- -------- ----------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Executive Officers and Directors:
Susan Strausberg(3)................. 3,392,000 42.73% 29.40% 159,500 26.63%
Marc Strausberg(4).................. 3,392,000 42.73% 29.40% 159,500 26.63%
Tom Vos(5).......................... 240,000 2.95% 2.04% -- 2.04%
Jay Sears(6)........................ 65,000 * * -- *
Stefan Chopin(7).................... 339,384 4.28% 2.94% -- 2.94%
c/o iXL Enterprises, Inc.
50 Washington Street
Norwalk, CT 06854
Bruce Bezpa......................... 0 * * -- *
c/o Bowne & Co., Inc.
345 Hudson Street
New York, NY 10014
Marc Bell........................... 1,336,667 16.84% 11.58% -- 10.49%(9)
c/o Globix Corporation
295 Lafayette Street
New York, NY 10012(8)
Mark Maged.......................... 0 * * -- *
c/o Internet Tradeline, Inc.
111 West 40th Street
New York, NY 10018
All executive officers and directors
as a group (11 persons).......... 5,433,051 65.91% 45.88% 319,000 42.12%(9)
</TABLE>
50
<PAGE> 54
<TABLE>
<CAPTION>
ASSUMING THE OVER-ALLOTMENT
OPTION IS EXERCISED BY THE
UNDERWRITERS
PERCENTAGE -----------------------------------
BENEFICIALLY OWNED SHARES TO BE PERCENT
NUMBER ---------------------- OFFERED BY THE BENEFICIALLY
OF BEFORE AFTER OVER-ALLOTMENT OWNED AFTER
NAME OF BENEFICIAL OWNER SHARES(1) OFFERING OFFERING(2) SELLING STOCKHOLDERS OFFERING
- ------------------------ ---------- -------- ----------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Other 5% Stockholders:
Globix Corporation.................. 1,336,667 16.84% 11.58% 126,000 10.49%
295 Lafayette Street
New York, NY 10012
Bowne & Co., Inc.................... 1,000,000 12.60% 8.67% 95,000 7.84%
345 Hudson Street
New York, NY 10014
Track Data Corporation.............. 810,572 10.21% 7.03% -- 7.03%
56 Pine Street
New York, NY 10005
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Shares of common stock subject to options currently exercisable or
exercisable within 60 days of May 25, 1999 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) Assumes no exercise of the underwriters' over-allotment option.
(3) Includes 196,000 shares owned by Ms. Strausberg's husband, Marc Strausberg,
EDGAR Online's Chairman of the Board and 3,000,000 shares owned by TheBean
LLC. Ms. Strausberg is a managing member of TheBean LLC and as such she may
be deemed to be the beneficial owner of all the shares held by TheBean LLC.
Ms. Strausberg disclaims beneficial ownership of the shares owned by her
husband.
(4) Includes 196,000 owned by Mr. Strausberg's wife, Susan Strausberg, EDGAR
Online's Chief Executive Officer and 3,000,000 shares owned by TheBean LLC.
Mr. Strausberg is a managing member of TheBean LLC and as such he may be
deemed to be the beneficial owner of all the shares held by TheBean LLC. Mr.
Strausberg disclaims beneficial ownership of the shares owned by his wife.
(5) Includes 200,000 shares issuable upon exercise of options exercisable within
60 days of May 25, 1999.
(6) Includes 65,000 shares issuable upon exercise of options exercisable within
60 days of May 25, 1999.
(7) Includes shares owned jointly with Barbara Chopin, his wife.
(8) Includes 1,336,667 shares owned by Globix Corporation. Mr. Bell is the
President and Chief Executive Officer of Globix Corporation. In such
capacities, Mr. Bell may be deemed to be the beneficial owner of such
shares, although he disclaims beneficial ownership except to the extent of
his pecuniary interest, if any.
(9) Gives effect to the sale of 126,000 shares of common stock by Globix
Corporation assuming the underwriters' over-allotment option is exercised in
full.
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<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 30,000,000 shares of common stock,
par value $0.01 per share, and 1,000,000 shares of preferred stock, par value
$0.01 per share. While we believe that the following summary reflects all of the
material terms and provisions of our capital stock, you are nevertheless urged
to read our amended and restated certificate of incorporation and bylaws, which
have been filed as exhibits to the registration statement of which this
prospectus forms a part.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as our Board of Directors from time to time may
determine. Holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of shareholders. Cumulative voting for the
election of directors is not authorized by Edgar Online's certificate of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The common stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon the liquidation, dissolution or winding-up of EDGAR Online, the
holders of shares of common stock would be entitled to share ratably in the
distribution of all of EDGAR Online's assets remaining available for
distribution after satisfaction of all our liabilities and the payment of the
liquidation preference of any outstanding preferred stock. Each outstanding
share of common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be upon payment therefor, duly and validly
issued, fully paid and nonassessable.
PREFERRED STOCK
Our Board of Directors is authorized, subject to any limitations prescribed
by Delaware law, to issue preferred stock in one or more series. The Board can
fix the rights, preferences and privileges of the shares of each series and any
qualifications, limitations or restrictions thereon.
The Board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes could, under certain circumstances, have the effect of delaying,
deferring or preventing a change in control of EDGAR Online. We have no current
plan to issue any shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which regulates corporate takeovers. This section prevents
Delaware corporations that are subject to it from engaging, under certain
circumstances, in a "business combination," which includes a merger or sale of
more than 10% of the corporation's assets, with any "interested stockholder," or
a stockholder who owns 15% or more of the corporation's outstanding voting
stock, as well as affiliates and associates of any such persons, for three years
following the date that such stockholder became an "interested stockholder"
unless:
- the transaction in which such stockholder became an "interested
stockholder" is approved by the board of directors of the corporation
prior to the date the "interested stockholder" attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of this
calculation those shares owned by persons who are directors and also
officers; or
52
<PAGE> 56
- on or subsequent to such date, the "business combination" is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders by the affirmative vote of at least
two-thirds of the outstanding voting stock that is not owned by the
"interested stockholder."
Our bylaws provide that stockholders may act only at an annual or special
meeting of stockholders and may not act by written consent. Our certificate of
incorporation and the bylaws provide that special meetings of the stockholders
may only be called by the Chairman of the Board, the Chief Executive Officer,
the Board or by any stockholder holding at least 25% of the outstanding common
stock. Such provisions may have the effect of delaying or preventing a
change-in-control.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company. Its address is 40 Wall Street, New York, New York
10005, and its telephone number at this location is (212) 936-5100.
LISTING
Our common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "EDGR."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock. Sales of substantial amounts of our common stock in the public market, or
the perception that such sales could occur, could adversely affect prevailing
market prices of our common stock and could impair our future ability to raise
capital through the sale of equity securities.
Upon completion of this offering, there will be an aggregate of 11,537,957
shares of our common stock outstanding, assuming no exercise of outstanding
options or warrants. Of the outstanding shares, all the shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless such shares are purchased by our "affiliates,"
as that term is defined in Rule 144 under the Securities Act. Among the shares
held by our existing stockholders, 6,966,284 shares are subject to the one-year
lock-up agreements described below and 810,572 shares are subject to a 90-day
lock-up agreement described below. The remaining 161,101 shares held by our
existing stockholders are not subject to these lock-up agreements, but are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144 or 701
under the Securities Act, which rules are summarized below. Immediately
following this offering, 110,000 of the shares that are not subject to any
lock-up agreement will be eligible for sale in the public market under Rule 144.
The remaining 51,101 shares that are not subject to any lock-up agreement will
become eligible for sale in the public market under Rule 144 at various times
within 12 months after the date of this prospectus. As described below, certain
of our shareholders have registration rights in respect of their shares of
common stock. The registration of any of these shares would result in those
shares becoming freely tradeable without restriction under the Securities Act
immediately upon effectiveness of the applicable registration statement.
LOCK-UP AGREEMENTS
All our officers, directors and all our existing stockholders, other than
stockholders holding an aggregate of 161,101 shares of common stock, have signed
"lock-up" agreements under which they have agreed not to transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock, for a period of
12 months or, in the case of the holder of 810,572 shares, 90 days after the
date of this prospectus without the prior written consent of C.E. Unterberg,
Towbin. See "Underwriting -- Lock-up Agreements."
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<PAGE> 57
RULE 144
In general, under Rule 144, as currently in effect, a person who owns
shares that were acquired from us or an affiliate of us at least one year prior
to the proposed sale is entitled to sell, within any three-month period
beginning 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 115,380 shares immediately after this offering or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates for purposes of the Securities Act at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years, including the holding period of any prior owner other
than an affiliate of us, is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144. Therefore, unless otherwise restricted, "144(k) shares" may be sold
immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock or option plan or other written agreement
is eligible to resell such shares 90 days after the date of this prospectus in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Pursuant to the terms of registration rights agreements entered into
between us and certain of our stockholders, the holders of 2,770,000 shares of
common stock are entitled to "piggyback" registration rights concerning the
registration of shares of common stock under the Securities Act. In the event
that we propose to register any shares of common stock under the Securities Act,
either for our own account or for the account of other security holders, the
stockholders having piggyback rights are entitled to receive notice of that
registration and are entitled to include their shares in the registration.
However, the managing underwriter, if any, of such offering has certain rights
to limit the number of shares proposed to be included in such registration. The
above registration rights are subject to customary conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares of common stock held by security holders with registration rights to be
included in that registration. We are generally required to bear all of the
expenses of all these registrations, except underwriting discounts and
commissions. The registration of any of the shares of common stock held by
stockholders with registration rights would result in these shares becoming
freely tradable without restriction under the Securities Act immediately upon
effectiveness of that registration statement.
54
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among us and the underwriters, each of the underwriters named below, for whom
C.E. Unterberg, Towbin and Fahnestock & Co. Inc. are acting as representatives,
has severally agreed to purchase from us the number of shares of common stock
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
C.E. Unterberg, Towbin...................................... 2,124,000
Fahnestock & Co. Inc........................................ 1,416,000
DLJdirect Inc............................................... 60,000
---------
Total.................................................. 3,600,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions. The nature of the underwriters'
obligations is that they are committed to purchase and pay for all of the above
shares of common stock if any are purchased.
PUBLIC OFFERING PRICE AND DEALERS CONCESSION
The underwriters propose initially to offer the shares of common stock
offered by this prospectus to the public at the public offering price per share
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession not in excess of $0.40 per share. The underwriters may
allow, and these dealers may reallow, a discount not in excess of $0.10 per
share on sales to certain other dealers. After commencement of this offering,
the offering price, discount price and reallowance may be changed by the
underwriters. No such change will alter the amount of proceeds to be received by
us as set forth on the cover page of this prospectus.
INTERNET DISTRIBUTION
DLJdirect Inc. is facilitating the distribution of the shares sold in this
offering over the Internet. DLJdirect specializes in distributing securities
over the Internet to retail customers through the use of e-mail and automated
telephone communications, rather then through traditional communications with
individual brokers. Because C.E. Unterberg, Towbin and Fahnestock & Co. Inc. do
not have facilities in place to distribute securities over the Internet,
DLJdirect will provide access to this distribution channel. DLJdirect will sell
the shares allocated to it to its qualified online brokerage account customers.
An electronic version of this prospectus is available on the Web site maintained
by DLJdirect.
The following briefly describes DLJdirect's process for distributing
securities over the Internet in initial public offerings. DLJdirect communicates
with its qualified online brokerage clients (those with sufficient assets and
who have stated that speculative investments are part of their investment
objectives) by sending an e-mail alert notifying them about an offering. Each
alert contains a link to the digital version of the preliminary prospectus.
Investors interested in purchasing shares in the offering submit conditional
offers by sending an e-mail to DLJdirect. After the registration statement
relating to the offering is declared effective by the SEC, DLJdirect obtains an
affirmative confirmation of each investor's conditional offer through e-mail
notification.
OVER-ALLOTMENT OPTION
Certain existing shareholders have granted the underwriters an option,
which may be exercised within 30 days after the date of this prospectus, to
purchase up to 540,000 additional shares of
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<PAGE> 59
common stock to cover over-allotments, if any, at the initial public offering
price, less the underwriting discount set forth on the cover page of this
prospectus. If the underwriters exercise their over-allotment option to purchase
any of these additional 540,000 shares of common stock, these additional shares
will be sold by the underwriters on the same terms as those on which the shares
offered by this prospectus are being sold. The existing shareholders will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters if the underwriters exercise their over-allotment option. The
underwriters may exercise their over-allotment option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered by this prospectus. The names of the existing shareholders, and the
amounts they are respectively obligated to sell if the underwriters exercise
their over-allotment option, are set forth under the heading "Principal
Stockholders."
UNDERWRITING COMPENSATION
The following table summarizes the compensation to be paid to the
underwriters by us and the selling shareholders who have granted the
underwriters the over-allotment option:
<TABLE>
<CAPTION>
TOTAL
--------------------------------
PER WITHOUT WITH
SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts paid by us................. $0.67 $2,412,000 $2,412,000
Underwriting discounts paid by the selling
shareholders.................................... $0.67 -- $ 361,800
</TABLE>
INDEMNIFICATION OF UNDERWRITERS
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in connection with these
liabilities.
UNDERWRITERS' WARRANTS
Upon completion of this offering, we will sell to the underwriters, for
their own accounts, warrants covering an aggregate of up to 250,000 shares of
common stock exercisable at a price of $10.45 per share. The underwriters will
pay a price of $0.01 per warrant. The underwriters may exercise these warrants
as to all or any lesser number of the underlying shares of common stock
commencing on the first anniversary of the date of this offering until the fifth
anniversary of the date of this offering. The terms of these warrants require us
to register the common stock for which these warrants are exercisable within one
year from the date of the prospectus. These underwriters' warrants are not
transferable by the warrant holders other than to officers and partners of the
underwriters. The exercise price of these underwriters' warrants and the number
of shares of common stock for which these warrants are exercisable are subject
to adjustment to protect the warrant holders against dilution in certain events.
In addition, in connection with the placement of 120,000 shares of common stock
in a March 1999 private placement, we issued C.E. Unterberg, Towbin warrants to
purchase 12,000 shares of common stock. These warrants are exercisable at a
price of $9.50 per share. For a period of one year following the date of this
prospectus, these warrants are not transferrable by C.E. Unterberg, Towbin other
than to officers and partners of C.E. Unterberg, Towbin or to one of the other
underwriters or its officers or partners.
LOCK-UP AGREEMENTS
We, and all of our directors, officers, and all of our existing
stockholders, option holders and warrant holders, other than stockholders
holding an aggregate of 161,101 shares of common stock,
56
<PAGE> 60
have agreed to a "lock-up" arrangement under which we and they may not offer,
sell, contract to sell, pledge or otherwise dispose of, or file a registration
statement with the SEC in respect of, or establish or increase a put position
within the meaning of Section 16 of the Exchange Act with respect to any shares
of capital stock of EDGAR Online or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly announce an
intention to effect any such transaction, in each case without the prior written
consent of C.E. Unterberg, Towbin for a period of one year or, in the case of
the holder of 810,572 shares, 90 days after the date of this prospectus, subject
to certain exceptions. Certain selling stockholders have, however, granted the
underwriters an option to purchase up to 540,000 additional shares of common
stock to cover over-allotments, if any, at the initial public offering price
less the underwriting discount. The terms of the lock-up agreement entered into
with these selling stockholders will permit them to sell those shares that they
are obligated to sell if the underwriters exercise their over-allotment option.
See "-- Over-allotment Option."
STABILIZATION AND OTHER TRANSACTIONS
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M under the Exchange Act,
pursuant to which the underwriters may bid for, or purchase, common stock for
the purpose of stabilizing the market price. The underwriters also may create a
short position by selling more common stock in connection with this offering
than they are committed to purchase from us, and in such case may purchase
common stock in the open market following completion of this offering to cover
all or a portion of such short position. In addition, the underwriters may
impose "penalty bids" whereby they may reclaim from a dealer participating in
this offering, the selling concession with respect to the common stock that it
distributed in this offering, but which was subsequently purchased for the
accounts of the underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
common stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in the paragraph is required, and, if
they are undertaken, they may be discontinued at any time.
DISCRETIONARY ACCOUNTS
The underwriters have informed us that they do not intend to confirm sales
to any account over which they exercise discretionary authority.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no market for our common stock.
Accordingly, the initial public offering price for the common stock was
determined by negotiation between us and the underwriters. Among the factors
considered in determining the initial public offering price were our results of
operations, our current financial condition, our future prospects, the state of
the markets for our services, the experience of our management, the economics of
the online information industry in general, the general condition of the equity
securities market and the demand for similar securities of companies considered
comparable to us.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Littman Krooks Roth & Ball P.C., New York, New York. Certain
members of Littman Krooks Roth & Ball P.C. own in the aggregate 7,500 shares of
common stock of EDGAR Online. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Cravath, Swaine & Moore,
New York, New York.
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<PAGE> 61
EXPERTS
The financial statements and schedule of EDGAR Online, Inc. as of December
31, 1998 and 1997, and for each of the years in the three-year period ended
December 31, 1998, have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
EDGAR Online has filed a registration statement on Form S-1 with the SEC
with respect to the shares of common stock to be sold in this offering. This
prospectus, which forms a part of that registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document of EDGAR Online, such references are not necessarily complete
and you should refer to the exhibits attached to the registration statement for
copies of the actual contract or document. You may review a copy of the
registration statement at the SEC's public reference room in Washington, D.C.,
and at the SEC's regional offices in Chicago, Illinois and New York, New York.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of its public reference rooms. The registration statement can also be reviewed
by accessing the SEC's Web site at http://www.sec.gov.
As a result of this offering, EDGAR Online will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934
and will file periodic reports, proxy statements and other information with the
SEC. Upon approval of the common stock for quotation on the Nasdaq National
Market, these reports, proxy statements and other information may also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
EDGAR Online intends to furnish its stockholders with annual reports
containing audited financial statements and with quarterly reports for the first
three quarters of each year containing unaudited interim financial information.
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<PAGE> 62
EDGAR ONLINE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditor's Report................................ F-2
Balance Sheets as of December 31, 1997 and 1998............. F-3
Statements of Operations for the Years Ended December 31,
1996, 1997, and 1998...................................... F-4
Statements of Changes in Stockholders' Equity (Deficit) for
the Years Ended December 31, 1996, 1997, and 1998......... F-5
Statements of Cash Flows for the Years Ended December 31,
1996, 1997, and 1998...................................... F-6
Notes to Financial Statements............................... F-7
Balance Sheet as of March 31, 1999 (Unaudited).............. F-19
Statements of Operations for the Three Months Ended March
31, 1998 and 1999 (Unaudited)............................. F-20
Statement of Changes in Shareholders' Equity (Deficit) for
the Three Months Ended March 31, 1999 (Unaudited)......... F-21
Statements of Cash Flows for the Three Months Ended March
31, 1998 and 1999 (Unaudited)............................. F-22
Notes to Financial Statements (Unaudited)................... F-23
</TABLE>
F-1
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EDGAR Online, Inc.:
We have audited the accompanying balance sheets of EDGAR Online, Inc. as of
December 31, 1997 and 1998 and the related statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1998. 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 audits.
We conducted our audits 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 audits provide 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 EDGAR Online, Inc. as of
December 31, 1997 and 1998 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG
LLP
Stamford, CT
February 12, 1999, except for note 13a,
which is as of March 25, 1999, notes 12 and 13b
and c, which are as of March 30, 1999 and note 13d,
which is as of May 11, 1999
F-2
<PAGE> 64
EDGAR ONLINE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 16,809 148,380
Accounts receivable, less allowance for doubtful accounts
of $22,500 and $31,542, respectively................... 49,090 134,815
Other..................................................... 1,000 6,710
----------- ----------
Total current assets.............................. 66,899 289,905
Property and equipment, net................................. 286,672 411,720
Deferred financing costs.................................... -- 77,018
Other assets................................................ 12,683 6,300
----------- ----------
Total assets...................................... $ 366,254 784,943
=========== ==========
Current liabilities:
Current portion of notes payable.......................... $ 601,697 59,448
Accounts payable and accrued expenses..................... 726,127 395,708
Deferred revenues......................................... 78,355 208,451
Due to employee........................................... -- 14,575
Capital lease payable, current portion.................... -- 52,477
----------- ----------
Total current liabilities......................... 1,406,179 730,659
Notes payable, long-term.................................... -- 1,414,410
Capital lease obligation, long-term......................... -- 82,993
Accrued interest payable.................................... -- 133,804
Due to officers, net........................................ 548,886 644,023
----------- ----------
Total liabilities................................. 1,955,065 3,005,889
Stockholders' equity (deficit):
Common stock, $.01 par value, 8,000,000 shares authorized,
6,074,000 and 6,331,290 shares issued and outstanding
at December 31, 1997 and 1998, respectively............ 60,740 63,313
Additional paid-in capital................................ 875,435 2,462,201
Accumulated deficit....................................... (2,524,986) (4,746,460)
----------- ----------
Total stockholders' deficit....................... (1,588,811) (2,220,946)
----------- ----------
Total liabilities and stockholders' deficit....... $ 366,254 784,943
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 65
EDGAR ONLINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Individual subscription revenue................ $ 99,661 451,939 894,851
Corporate contract revenue..................... 70,161 218,847 292,904
Advertising revenue............................ -- 166,671 472,922
Barter advertising revenue..................... -- 206,681 263,440
Other barter revenue........................... -- -- 79,000
--------- ----------- -----------
169,822 1,044,138 2,003,117
--------- ----------- -----------
Cost of revenues:
Software and Web site development.............. 226,514 676,522 782,889
Barter advertising expense..................... -- 206,681 263,440
--------- ----------- -----------
226,514 883,203 1,046,329
--------- ----------- -----------
Gross profit........................... (56,692) 160,935 956,788
Operating expenses:
Selling, general and administrative............ 663,750 1,193,014 1,615,122
Advertising costs.............................. 42,614 167,009 297,599
Stock compensation expense..................... -- -- 1,133,000
--------- ----------- -----------
706,364 1,360,023 3,045,721
--------- ----------- -----------
Loss from operations................... (763,056) (1,199,088) (2,088,933)
Interest expense and other, net.................. 72,547 298,561 132,291
--------- ----------- -----------
Loss before income taxes............... (835,603) (1,497,649) (2,221,224)
Income tax expense............................... 250 250 250
--------- ----------- -----------
Net loss............................... $(835,853) (1,497,899) (2,221,474)
========= =========== ===========
Basic and diluted net loss per share............. $ (0.19) (0.26) (0.36)
========= =========== ===========
Basic and diluted weighted average shares
outstanding.................................... 4,302,466 5,655,151 6,129,116
========= =========== ===========
Pro forma basic and diluted loss per share....... -- -- $ (0.34)
===========
Number of shares used in computing pro forma
basic and diluted loss per share............... -- -- 6,408,283
===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 66
EDGAR ONLINE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
------------------- PAID-IN- ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... 4,000,000 $40,000 99,250 (191,234) (51,984)
Exercise of warrants................. 400,000 4,000 1,000 -- 5,000
Debt issued with beneficial
conversion feature................. -- -- 37,500 -- 37,500
Issuance of common stock............. 400,000 4,000 458,500 -- 462,500
Issuance of warrants for services
provided........................... -- -- 26,000 -- 26,000
Net loss............................. -- -- -- (835,853) (835,853)
--------- ------- --------- ---------- ----------
Balance at December 31, 1996......... 4,800,000 48,000 622,250 (1,027,087) (356,837)
Exercise of warrants................. 1,274,000 12,740 3,185 -- 15,925
Debt issuance with beneficial
conversion feature................. -- -- 250,000 -- 250,000
Net loss............................. -- -- -- (1,497,899) (1,497,899)
--------- ------- --------- ---------- ----------
Balance at December 31, 1997......... 6,074,000 60,740 875,435 (2,524,986) (1,588,811)
Exercise of warrants................. 53,957 540 49,461 -- 50,001
Issuance of common stock in
satisfaction of trade payables..... 100,000 1,000 124,000 -- 125,000
Issuance of common stock............. 103,333 1,033 143,967 -- 145,000
Stock compensation................... -- -- 1,133,000 -- 1,133,000
Issuance of warrants for services
provided and debt financing........ -- -- 136,338 -- 136,338
Net loss............................. -- -- -- (2,221,474) (2,221,474)
--------- ------- --------- ---------- ----------
Balance at December 31, 1998......... 6,331,290 $63,313 2,462,201 (4,746,460) (2,220,946)
========= ======= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 67
EDGAR ONLINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(835,853) (1,497,899) (2,221,474)
--------- ---------- ----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock compensation expense......................... -- -- 1,133,000
Depreciation and amortization...................... 17,688 55,334 116,767
Accretion and amortization of debt discount........ 37,500 250,000 17,118
Provisions for bad debts........................... -- 22,500 62,207
Noncash service expenses........................... 26,000 -- 33,630
Noncash service revenue............................ -- (12,000) (42,250)
Changes in assets and liabilities:
Accounts receivable.............................. (34,168) (37,422) (147,932)
Other assets..................................... (10,975) (875) 13,096
Accounts payable and accrued expenses............ 127,583 589,809 (205,419)
Accrued interest................................. -- -- 133,804
Due to employee.................................. -- -- 14,575
Due to officers, net............................. 300,000 266,318 95,137
Deferred revenues................................ 31,190 47,165 130,096
--------- ---------- ----------
Total adjustments............................. 494,818 1,180,829 1,353,829
--------- ---------- ----------
Net cash used in operating activities......... (341,035) (317,070) (867,645)
--------- ---------- ----------
Cash flows from investing activities:
Capital expenditures.................................. (112,312) (224,132) (78,127)
Other................................................. (1,764) -- --
--------- ---------- ----------
Net cash used in investing activities......... (114,076) (224,132) (78,127)
--------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable and
warrants........................................... 91,500 545,000 1,000,000
Proceeds from issuance of common stock................ 387,500 15,925 155,000
Costs incurred in connection with the sale of common
stock.............................................. -- -- (10,000)
Costs incurred in connection with debt financing...... -- -- (89,440)
Proceeds upon exercise of warrants.................... 5,000 -- 50,001
Principal payments on notes payable................... (11,083) (20,000) --
Payments on capital lease obligations................. -- -- (28,218)
--------- ---------- ----------
Net cash provided by financing activities..... 472,917 540,925 1,077,343
--------- ---------- ----------
Net increase (decrease) in cash............... 17,806 (277) 131,571
Cash at beginning of year............................... -- 17,086 16,809
--------- ---------- ----------
Cash at end of year..................................... $ 17,806 16,809 148,380
========= ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for:
Taxes.............................................. $ -- 250 250
Interest........................................... $ 167 -- 7,751
Accounts payable settled upon issuance of common
stock................................................. $ -- -- 125,000
Notes payable settled in exchange for services
provided.............................................. $ -- 12,000 42,250
Stock warrants issued in exchange for services
provided.............................................. $ 26,000 -- 33,630
Equipment acquired under capital leases................. $ -- -- 163,688
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 68
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) DESCRIPTION OF BUSINESS
EDGAR Online, Inc. (the Company), formerly Cybernet Data Systems, Inc., was
incorporated in the State of Delaware in November 1995 and launched its "EDGAR
Online" Internet Web site in January 1996. The Company is a Web-based provider
of business, financial, and competitive information derived from the EDGAR
(Electronic Data Gathering, Analysis, and Retrieval) document filing system
maintained by the U.S. Securities and Exchange Commission (SEC). The Company has
entered into several arrangements with other Internet service providers to
market financial information services.
Inherent in the Company's mission are various risks and uncertainties,
including its limited operating history, unproven business model and the limited
history of commerce on the Internet. The Company's success may depend in part
upon the emergence and acceptance of the Internet as a communication and
information medium, prospective project development efforts and the acceptance
by the market place of the Company's products and services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
Revenue from subscriptions and corporate contracts are recognized over the
subscription period, which is typically three, six or twelve months. Revenue
from advertising is recognized as the services are provided.
(b) BARTER TRANSACTIONS
Barter advertising revenue is non-cash and relates to advertising placed on
the Company's Web site by other Internet service providers. Barter advertising
expense is non-cash and relates to Company advertising placed on the Web sites
of other Internet service providers. The amount of barter advertising revenue
and expense is recorded at the fair market value of the services received or the
services provided, whichever is more objectively determinable.
During 1998, the Company also received computer equipment and publication
advertisements in exchange for use of the Company's Web site services. The
Company accounts for such barter transactions at the fair value of goods or
services received or services provided, whichever is more objectively
determinable. Barter revenues related to the computer equipment barter
transaction and the publication advertisements are recognized ratably over the
term of the contract. Barter expense related to the publications advertisements
transaction is recognized ratably over the year, which approximates the timing
of the publications printing. Barter expense for the computer equipment exchange
is recognized as depreciation expense over the useful lives of the assets.
The Company expects that barter transactions will represent a significantly
smaller percentage of total activity in the future.
(c) WEB SITE DEVELOPMENT COSTS
The costs incurred to develop the Company's "EDGAR Online" Internet Web
site are principally performed under contract with an Internet Web site
developer. Software development costs are required to be capitalized when a
product's technological feasibility has been established by completion of a
working model of the product and ending when a product is available for general
F-7
<PAGE> 69
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
release to customers. To date, completion of a working model of the Company's
products and general release have substantially coincided. As a result, the
Company has not capitalized any software development costs.
(d) CASH AND CASH EQUIVALENTS
The Company considers cash and all highly liquid investments with original
maturities of ninety days or less to be cash and cash equivalents.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost or at estimated fair value if
part of a barter transaction. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets, generally three to
seven years. Leasehold improvements are amortized using the straight-line method
over the estimated useful lives of the assets or the term of the leases,
whichever is shorter.
(f) LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This Statement requires that
long-lived assets and certain identifiable intangibles 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 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 fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(g) ADVERTISING EXPENSES
The Company expenses advertising costs as incurred.
(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 carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
(i) DEFERRED FINANCING COSTS
Deferred financing costs relate to the issuance of the Convertible
Debenture (see note 5) and are being amortized over the term of the related
debt, using the effective interest method. Amortization expense was $12,422 in
1998.
F-8
<PAGE> 70
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(j) STOCK-BASED TRANSACTIONS
The Company accounts for stock-based transactions in accordance with
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). In accordance with SFAS 123, the Company
has elected to measure stock-based employee compensation arrangements in
accordance with the provisions of APB No. 25, "Accounting for Stock Issued to
Employees," (APB 25) and comply with the disclosure provisions of SFAS No. 123.
Under APB 25, compensation cost is recognized based on the difference, if any,
on the date of grant between the fair value of the Company's common stock and
the exercise price.
The Company accounts for the issuance of equity instruments to
non-employees in exchange for services at either the fair value of the equity
instrument given or the fair value of the services rendered, whichever is more
reliably measurable.
(k) CONCENTRATION OF RISK AND FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist of accounts receivable.
The Company's customers are geographically dispersed throughout the United
States with no one customer accounting for more than 10% of sales during 1996,
1997 or 1998 or of accounts receivable at December 31, 1997 or 1998. In
addition, the Company has not experienced any significant credit losses to date
from any one customer.
The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities at December 31, 1997 and
1998, 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, as discussed in note 5, are determined based on the
amount of future cash flows associated with the instrument, discounted at an
appropriate discount rate.
(l) LOSS PER SHARE
Loss per share is presented in accordance with the provisions of SFAS No.
128, "Earnings Per Share", (SFAS 128) and the Securities and Exchange Commission
(SEC) Staff Accounting Bulletin No 98. Under SFAS 128, basic EPS excludes
dilution for common stock equivalents and is computed by dividing income or loss
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted and resulted in the issuance of common stock.
Basic earnings per share are computed using the weighted average number of
common shares outstanding during the period. Pursuant to SEC Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of an IPO, are required
to be included in the calculation of basic and diluted earnings per share, as if
they were outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration.
Diluted loss per share has not been presented separately, as the
outstanding stock options, warrants and convertible debentures are anti-dilutive
for each of the periods presented.
F-9
<PAGE> 71
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Anti-dilutive potential common shares outstanding were 1,489,099, 829,545,
and 653,400 for the years ended December 31, 1996, 1997, and 1998, respectively.
(m) 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 131). SFAS 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. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. The Company has determined that it does not have any
separately reportable business segments.
(n) COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" (SFAS 130) during 1998. SFAS 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. There were no differences between the
Company's comprehensive loss and its net loss as reported.
(o) 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. Actual results could differ from those estimates.
(p) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company does not believe that the
adoption of SOP 98-1 will have a material impact on its results of operations or
financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (SFAS 133) which establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to have a material impact on the Company's
results of operation or financial position.
F-10
<PAGE> 72
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Purchased software............................... $105,910 $ 109,849
Equipment, and furniture and fixtures............ 244,562 482,438
Leasehold improvements........................... 7,673 7,673
-------- ---------
Subtotal.................................... 358,145 599,960
Less accumulated depreciation.................... (71,473) (188,240)
-------- ---------
$286,672 $ 411,720
======== =========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1996, 1997 and 1998 was $17,688, $55,334 and $116,767, respectively.
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1997 and 1998.
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Accounts payable.......................................... $614,417 $328,764
Compensation and related benefits......................... 8,771 17,240
Interest.................................................. 57,463 27,304
Other..................................................... 45,476 22,400
-------- --------
$726,127 $395,708
======== ========
</TABLE>
(5) NOTES PAYABLE
Notes payable consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Convertible Debenture(a)................................ $ -- $ 914,410
Promissory notes -- related party(b).................... 500,000 500,000
Promissory notes(c)..................................... 101,697 59,448
--------- ----------
Total notes payable........................... 601,697 1,473,858
Less:
Current portion....................................... (601,697) (59,448)
--------- ----------
Notes payable, long-term................................ $ -- $1,414,410
========= ==========
</TABLE>
- -------------------------
(a) In July 1998, the Company received $1,000,000 in exchange for a $1,000,000
Convertible Debenture due July 2001 with interest accruing at 10% in years
two and three. The terms of this financing enable the lender to convert the
debenture into 670,000 shares of the Company's
F-11
<PAGE> 73
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
common stock. The lender also received a warrant, expiring July 23, 1999, to
purchase an additional 666,667 shares of the Company's common stock at $1.50
per share.
The Company has estimated the fair value of the warrant at the date of issue
and recorded $102,708 of the consideration received as a credit to
additional paid-in capital. Interest expense for 1998 includes $17,118 of
accretion of the debt discount resulting from the fair value of the warrants
and $33,333 relating to the year one interest holiday.
As part of the agreement, the Company has agreed to obtain hosting and other
Internet services at market prices for a period of five years from the
investor.
The fair value of the Convertible Debenture is estimated to approximate its
carrying value at December 31, 1998 as the debt was recorded at fair value
in July 1998 and there has been no significant change in the underlying
market rate or credit worthiness of the Company since that date.
(b) In January 1997, the Company entered into an agreement with a stockholder
for a $500,000 line of credit which was originally due on December 31, 1997,
but has been extended to February 28, 2000. Interest accrues at 12% of the
face amount annually. All borrowings are guaranteed by a principal
stockholder of the Company.
The agreement originally provided that the outstanding borrowings could be
converted at the sole discretion of the lending stockholder into common
stock at a conversion rate of $1.50 worth of common stock for each $1.00 of
borrowings converted. The favorable conversion rate represented a beneficial
conversion feature and, accordingly, $250,000 has been recorded as a credit
to additional paid-in capital at the issue date. Additional interest expense
of $250,000 has been included in 1997, as the original maturity of the
borrowing was December 31, 1997. In July 1998, the conversion feature was
deleted in connection with the issuance of the Convertible Debenture.
The fair value of the note at December 31, 1998 is estimated at
approximately $452,000 based on the amount of future cash flows associated
with the investment, discounted using an appropriate interest rate.
(c) In connection with a $100,000 loan under a line of credit established in
December 1995 in 1996, the Company has arranged with the lender to apply a
portion of the proceeds of credit card payments processed by the lender for
the Company to the loan balance. The loan is further reduced by the
offsetting of balances due from the lender for its monthly subscription
charge for use of the Company's Internet service. Interest accrues at 2%
over the prime rate established by a financial institution (10.25% at
December 31, 1998).
The loan is guaranteed by one of the principal stockholders and certain
Company common stock owned by the stockholder are pledged as collateral.
Outstanding amounts at December 31, 1997 and 1998 were $76,697 and $59,448,
respectively.
In 1997, the Company issued a noninterest bearing note and 40,001 warrants
exercisable at $1.25 per share in exchange for $25,000. The note was repaid
with services during the year ended December 31, 1998. The estimated value
of the warrants at the date of issuance is deemed insignificant.
At December 31, 1997 and 1998, the fair value of these notes payable
approximates their carrying value based on the amount of future cash flows
associated with the instrument, discounted using an appropriate interest
rate.
F-12
<PAGE> 74
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense and other financing charges for the years ended December
31, 1996, 1997, and 1998 totaled $72,547, $298,561, and $137,909, respectively.
(6) INCOME TAXES
Since its inception, the Company has incurred net operating losses and has
incurred no federal or state income tax expense. The provision for income taxes
for the years ended December 31, 1996, 1997 and 1998 consists entirely of the
State of Connecticut minimum tax. At December 31, 1998, the Company has
approximately $2,500,000 in federal and state operating loss carryforwards,
which are available to offset future taxable income, through 2012.
The Company's tax provision differed from the amount computed using the
federal statutory rate of 34% as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected federal income tax benefit at 34%...... $(284,105) $(509,201) $(765,650)
State taxes, net of federal expense............. (58,367) (73,749) (134,280)
Non-deductible interest expense................. 12,750 85,000 --
Other permanent differences..................... 4,226 5,610 3,882
Valuation allowance............................. 325,746 492,590 896,298
--------- --------- ---------
$ 250 $ 250 $ 250
========= ========= =========
</TABLE>
The Company's deferred tax assets and liabilities and related valuation
allowance as December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards....................... $ 644,652 $ 1,003,915
Deferred compensation.................................. 240,000 314,231
Accruals and other, net................................ (1,680) 7,924
Stock compensation expense............................. -- 453,200
Valuation allowance...................................... (882,972) (1,779,270)
--------- -----------
$ -- $ --
========= ===========
</TABLE>
Realization of the net operating loss carryforward benefit is dependent on
the Company being able to generate sufficient taxable income prior to the
expiration of the operating loss carryforwards. Due to the Company's short
operating history, a valuation allowance has been recorded for the entire amount
of the net deferred tax asset as the Company has concluded that it is not more
likely than not that there will be future taxable income sufficient to realize
the future taxable temporary differences and operating loss carryforwards prior
to their expiration.
F-13
<PAGE> 75
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) DUE TO OFFICERS
The Company has entered into compensation agreements with its two founding
stockholders that provide for combined annual compensation of $300,000
commencing in January 1996, payment of which is dependent upon the availability
of cash and other factors. Compensation expense of $300,000 has been recorded in
each of the years ended December 31, 1996, 1997 and 1998.
Due to officers represents deferred compensation of $300,000 for 1996,
$300,000 for 1997 and $185,577 for 1998 offset by other amounts due from the
officers of $51,114 and $141,554 at December 31, 1997 and 1998, respectively.
The entire liability is classified as long-term as the founding stockholders
have waived payment of these amounts until after January 1, 2000.
(8) STOCKHOLDERS' EQUITY
COMMON STOCK
On March 24, 1997, the Board of Directors of the Company declared and
approved a 4 for 1 stock split on its common shares. All share and per share
data has been retroactively adjusted to reflect this common stock split.
Upon the formation of the Company, the founders were issued 4,000,000
shares of the Company's common stock. In 1996, the Company sold 400,000 shares
of its common stock to an investor for $462,500. In 1998, the Company sold an
additional 103,333 shares of common stock for $145,000 in cash, net of related
offering expenses and issued 100,000 shares of common stock in satisfaction of
$125,000 of indebtedness.
STOCK WARRANTS
Since its inception, the Company has occasionally issued warrants to
purchase Company common stock in return for various services rendered or in
connection with certain debt financings.
Warrants issued in exchange for services totaled 104,000 and 63,333 for the
years ended December 31, 1996 and 1998, respectively. Based on estimated fair
values at the respective dates of issuance the Company has recorded professional
services expense and additional paid-in capital of $26,000 in 1996 and $33,630
in 1998.
Warrants issued in connection with debt financings totalled 666,667 in 1998
and have also been fair valued at their date of issuance. Additional interest
expense has been recorded for the year ended December 31, 1998 of $17,118. The
credit to additional paid-in-capital relating to the fair value of warrants
issued in connection with the debt financing during 1998 was $102,708.
F-14
<PAGE> 76
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Warrant activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WARRANTS WEIGHTED AVERAGE
GRANTED EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995......................... 1,570,000 $0.01
Granted.................................................. 117,956 0.01
Exercised................................................ (400,000) 0.01
Canceled................................................. -- --
----------
Outstanding at December 31, 1996......................... 1,287,956 0.01
Granted.................................................. -- --
Exercised................................................ (1,274,000) 0.01
Canceled................................................. -- --
----------
Outstanding at December 31, 1997......................... 13,956 0.00
Granted.................................................. 770,001 1.45
Exercised................................................ (53,957) 0.93
Canceled................................................. -- --
----------
Outstanding at December 31, 1998......................... 730,000 $1.46
==========
</TABLE>
Included in the above table are 13,956 warrants outstanding at December 31,
1996 and 1997 that were granted pursuant to certain anti-dilution provisions of
the original warrant grant and accordingly have a $0.00 exercise price.
The weighted average contractual life of warrants outstanding at December
31, 1998 was .81 years. The warrants outstanding at December 31, 1997 have no
expiration.
(9) 1996 STOCK OPTION PLAN
In November, 1998, the Company adopted the 1996 Stock Option Plan (the 1996
Plan) whereby the Company's Board of Directors may grant stock options to
officers, employees, directors and consultants. The 1996 Plan authorizes the
issuance of options to purchase up to 800,000 shares of the Company's common
stock. Options granted may be either Incentive Stock Options (ISOs) or
Non-Qualified Stock Options. The exercise price and vesting schedule of the
options will be established on the grant date. However, the established exercise
price for ISOs may not be less than the fair market value of the Company's
common stock on the grant date. The 1996 Plan also provides that no options will
have a term of longer than ten years.
In November 1998, the Company formally granted 385,000 and 15,000
fully-vested options to purchase common stock to employees at exercise prices of
$0.25 and $1.25 per share, respectively, with a weighted average exercise price
of $0.29. The Company has recorded $1,133,000 of compensation expense in 1998
calculated as the difference between the exercise price and $3.12 per share, the
estimated fair market value of the Company's common stock at the grant date, as
determined by independent valuation. All of the options are exercisable at
December 31, 1998. There was no other option activity in 1998. At December 31,
1998, 800,000 shares of Company common stock were reserved for issuance under
the Plan.
As discussed in note 2, the Company has elected to continue to use APB 25
to measure compensation expense related to employee stock options and has
recorded compensation expense where the exercise price of the option was less
than the fair value of the stock on the date of grant.
F-15
<PAGE> 77
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had the Company determined compensation expense based on the fair value of the
option on the grant date under SFAS 123, the Company's results of operations
would have been as follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Net loss -- as reported..................................... $(2,221,474)
Net loss -- pro forma....................................... $(3,004,873)
Basic and diluted net loss per share -- as reported......... $ (0.36)
Basic and diluted net loss per share -- pro forma........... $ (0.49)
</TABLE>
The fair value of the options granted to employees in 1998, as calculated
under SFAS 123, ranged from $1.57 to $2.45 with a weighted average fair value of
$1.96 using the modified Black Scholes option pricing model, excluding
volatility assumption, using the following weighted average assumptions:
<TABLE>
<S> <C>
Risk free interest.......................................... 6.5%
Expected life............................................... 10 years
Expected dividend yield..................................... 0.0%
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
The Company leases space in Norwalk, Connecticut for its primary offices.
The cost of the office space which is shared by a co-tenant which is also a
stockholder of the Company is $6,600 per month. The Company also has rent
expense related to space leased from the Company's founding stockholders. Rent
expense totaled $17,775, $44,086 and $57,983 for the years ended December 31,
1996, 1997 and 1998, respectively of which $17,775, $24,286 and $18,383,
respectively, related to space leased from the Company's founding stockholder.
Future minimum lease payments under noncancelable operating leases and
capital leases (with initial or remaining lease terms in excess of one year) as
of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
Year ending December 31,:
1999....................................................... $50,525 $ 63,195
2000....................................................... 15,805 63,195
2001....................................................... -- 26,076
------- --------
Total................................................. $66,330 $152,466
=======
Amount representing interest.......................... (16,996)
--------
Net capital leases obligation....................... $135,470
========
</TABLE>
The amount currently payable under the capital lease at December 31, 1998
is $52,477.
(11) RELATED PARTY TRANSACTIONS
The Company provides services to two shareholders. Revenues from these
related parties totaled $6,000, $38,000 and $69,600 in 1996, 1997 and 1998,
respectively. Of the revenues received, $6,000, $12,000, and $17,250 were used
to satisfy a note payable to one shareholder. The Company also
F-16
<PAGE> 78
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
purchased services from a shareholder, which totaled $209,463, $423,836, and
$610,073 in 1996, 1997 and 1998, respectively.
(12) LIQUIDITY
As shown in the accompanying financial statements, the Company incurred a
loss of $835,853, $1,497,899 and $2,221,474, for the years ended December 31,
1996, 1997 and 1998 and had negative shareholders' equity of $2,220,946 at
December 31, 1998.
Subsequent to December 31, 1998, the Company successfully raised $1,055,250
in equity capital (see note 13) and the Company expects to be able to raise
additional capital either through private placement of debt or equity securities
or through an Initial Public Offering (IPO) of its common stock. While there can
be no assurances that the Company will be successful in securing such additional
private or public capital, the Company believes it has sufficient working
capital to satisfy its obligations through at least December 31, 1999.
(13) SUBSEQUENT EVENTS (UNAUDITED)
(a) 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.
On March 25, 1999, the Company adopted the 1999 Stock Option Plan (the 1999
Plan) and the 1999 Outside Directors Stock Option Plan (the 1999 Directors
Plan). The 1999 Plan authorizes the issuance of options to purchase up to
600,000 shares of the Company's common stock under the same provisions as the
1996 Plan. The 1999 Directors Plan authorizes the issuance of options to
purchase up to 100,000 shares of the Company's common stock. No grants have been
made under the 1999 Plan or the 1999 Directors Plan.
On March 25, 1999, the Company granted 340,000 and 60,000 options at $4.50
and $4.00, respectively under the 1996 Plan. The Company will recognize $30,000
in compensation expense over the three year vesting period for options granted
with exercise prices less than fair market value at the grant date.
(b) On March 30, 1999, the Company completed the sale of an aggregate of
240,000 shares to three investors at $4.50 per share resulting in net proceeds
of $1,055,250. In addition to the shares, the investors also received 240,000
warrants which are exercisable at $1.50 per warrant if the Company does not
complete an IPO by December 31, 1999. These warrants will be automatically
cancelled following the closing of an IPO.
(c) On March 30, 1999, the Company filed a registration statement on Form
S-1 for the sale of its common stock to the public. In connection with this
filing the Company, its underwriters and the holder of the Convertible Debenture
agreed to convert the Convertible Debenture into 670,000 shares of the Company's
common stock upon the close of an IPO. In addition, certain holders of warrants
to purchase Company common stock also agreed to exercise the warrants into
696,667 shares upon the close of an IPO.
(d) On May 11, 1999, the holder of the Company's $1,000,000 face amount
Convertible Debenture exercised its right to convert the Convertible Debenture
into 670,000 shares of Company common stock. In addition, the holder exercised
their warrant to purchase 666,667 shares of Company common stock at $1.50 per
share.
F-17
<PAGE> 79
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) PRO FORMA BASIC AND DILUTED LOSS PER SHARE
The pro forma basic and diluted loss per share gives effect to the
conversion of the Convertible Debenture into 670,000 shares of Company common
stock as if the conversion took place in July 1998.
F-18
<PAGE> 80
EDGAR ONLINE, INC
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, MARCH 31,
1999 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 216,003 216,003
Accounts receivable, less allowance for doubtful accounts
of $48,572............................................. 153,554 153,554
Deferred offering costs................................... 304,260 304,260
Other..................................................... 1,000 1,000
----------- ----------
Total current assets.............................. 674,817 674,817
Property and equipment, net............................... 380,036 380,036
Deferred financing costs.................................. 69,566 0
Other assets.............................................. 31,760 31,760
----------- ----------
Total assets...................................... $ 1,156,179 1,086,613
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of notes payable.......................... $ 40,698 40,698
Accounts payable and accrued expenses..................... 772,231 772,231
Deferred revenues......................................... 208,740 208,740
Due to employee........................................... 19,575 19,575
Capital lease payable, current portion.................... 53,493 53,493
----------- ----------
Total current liabilities......................... 1,094,737 1,094,737
Notes payable, long-term.................................... 1,422,969 500,000
Capital lease obligation, long-term......................... 69,621 69,621
Accrued interest payable.................................... 165,619 115,619
Due to officers, net........................................ 644,023 644,023
----------- ----------
Total liabilities................................. 3,396,969 2,424,000
Stockholders' equity (deficit):
Common stock, $.01 par value, 30,000,000 shares
authorized, 6,571,290 shares issued and outstanding
(7,241,290, pro forma)................................. 65,713 72,413
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding............ 0 0
Additional paid-in capital................................ 3,541,413 4,457,682
Stock subscription receivable............................. (515,000) (515,000)
Accumulated deficit....................................... (5,332,916) (5,352,482)
----------- ----------
Total stockholders' deficit....................... (2,240,790) (1,337,387)
----------- ----------
Total liabilities and stockholders' deficit....... $ 1,156,179 1,086,613
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 81
EDGAR ONLINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Individual subscription revenue........................... $ 184,245 273,603
Corporate contract revenue................................ 24,972 151,844
Advertising revenue....................................... 80,118 83,734
Barter advertising revenue................................ 82,626 96,775
Other barter revenue...................................... 12,500 35,501
---------- ----------
384,461 641,457
---------- ----------
Cost of revenues:
Software and Web site development......................... 128,506 223,847
Barter advertising expense................................ 82,626 96,775
---------- ----------
211,132 320,622
---------- ----------
Gross profit...................................... 173,329 320,835
Operating expenses:
Selling, general and administrative....................... 295,195 816,177
Advertising costs......................................... 48,737 52,670
Stock compensation expense................................ -- 165
---------- ----------
343,932 869,012
---------- ----------
Loss from operations.............................. (170,603) (548,177)
Interest expense and other, net............................. 17,610 38,029
---------- ----------
Loss before income taxes.......................... (188,213) (586,206)
Income tax expense.......................................... 50 250
---------- ----------
Net loss.......................................... $ (188,263) (586,456)
========== ==========
Basic and diluted net loss per share........................ $ (0.03) (0.09)
========== ==========
Basic and diluted weighted average shares outstanding....... 6,074,000 6,367,290
========== ==========
Pro forma basic and diluted loss per share.................. -- $ (0.08)
==========
Number of shares used in computing pro forma basic and
diluted loss per share.................................... -- 7,037,290
==========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 82
EDGAR ONLINE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK STOCK
------------------- PAID-IN- ACCUMULATED SUBSCRIPTION
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
--------- ------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998....... 6,331,290 $63,313 2,462,201 (4,746,460) -- (2,220,946)
Issuance of common stock
(Unaudited)...................... 240,000 2,400 1,052,850 -- (515,000) 540,250
Stock compensation (Unaudited)..... -- -- 165 -- -- 165
Issuance of warrants for services
provided (Unaudited)............. -- -- 26,197 -- -- 26,197
Net loss (Unaudited)............... -- -- -- (586,456) -- (586,456)
--------- ------- --------- ---------- -------- ----------
Balance at March 31, 1999
(Unaudited)...................... 6,571,290 $65,713 3,541,413 (5,332,916) (515,000) (2,240,790)
========= ======= ========= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 83
EDGAR ONLINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(188,263) (586,456)
--------- --------
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock compensation expense............................. -- 165
Depreciation and amortization.......................... 24,683 31,684
Accretion and amortization of debt discount............ -- 8,559
Provisions for bad debts............................... -- 17,030
Noncash service expenses............................... -- 26,197
Noncash service revenue................................ -- (18,750)
Changes in assets and liabilities:
Accounts receivable.................................. (39,462) (35,769)
Deferred offering costs.............................. -- (304,260)
Deferred financing costs............................. -- 7,452
Other assets......................................... 249 (19,750)
Accounts payable and accrued expenses................ 71,126 376,523
Accrued interest..................................... -- 31,815
Due to employee...................................... -- 5,000
Due to officers, net................................. 51,529 0
Deferred revenues.................................... 132,671 289
--------- --------
Total adjustments................................. 240,796 126,185
--------- --------
Net cash provided by (used in) operating
activities..................................... 52,533 (460,271)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... -- 565,000
Costs incurred in connection with the sale of common
stock.................................................. -- (24,750)
Principal payments on notes payable....................... (28,000) 0
Payments on capital lease obligations..................... -- (12,356)
--------- --------
Net cash (used in) provided by financing
activities..................................... (28,000) 527,894
--------- --------
Net increase in cash.............................. 24,533 67,623
Cash at beginning of period................................. 16,809 148,380
--------- --------
Cash at end of period....................................... $ 41,342 216,003
========= ========
Supplemental disclosure of cash flow information:
Notes payable settled in exchange for services provided..... $ -- 18,750
Stock warrants issued in exchange for services provided..... $ -- 19,065
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 84
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(1) INTERIM FINANCIAL STATEMENTS
The interim financial statements contained herein are unaudited, but in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented. Results of
operations for the periods presented herein are not necessarily indicative of
results of operations for the entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's (SEC) rules and regulations. Reference is made to the Company's
audited financial statements as of and for the year ended December 31, 1998,
included elsewhere herein.
Inherent in the Company's mission are various risks and uncertainties,
including its limited operating history, unproven business model and the limited
history of commerce on the Internet. The Company's success may depend in part
upon the emergence and acceptance of the Internet as a communication and
information medium, prospective project development efforts and the acceptance
by the market place of the Company's products and services.
(2) LOSS PER SHARE
Loss per share is presented in accordance with the provisions of SFAS No.
128, "Earnings Per Share" (SFAS 128) and SEC Staff Accounting Bulletin No 98.
Under SFAS 128, Basic EPS excludes dilution for common stock equivalents and is
computed by dividing income or loss available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted and resulted in the
issuance of common stock.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Pursuant to SEC Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of an IPO, are required
to be included in the calculation of basic and diluted earnings per share, as if
they were outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration.
Diluted loss per share has not been presented separately, as the
outstanding stock options, warrants and convertible debentures are anti-dilutive
for each of the periods presented.
Anti-dilutive potential common shares outstanding were 399,286 and
1,545,264 for the quarters ended March 31, 1998 and 1999, respectively.
F-23
<PAGE> 85
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1999 is summarized as follows:
<TABLE>
<S> <C>
Purchased software......................................... $ 109,849
Equipment, and furniture and fixtures...................... 482,438
Leasehold improvements..................................... 7,673
---------
Subtotal.............................................. 599,960
Less accumulated depreciation.............................. (219,924)
---------
$ 380,036
=========
</TABLE>
Depreciation and amortization expense for the three months ended March 31,
1998 and 1999 was $24,683 and $31,684, respectively.
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at March 31,
1999.
<TABLE>
<S> <C>
Accounts payable........................................... $ 608,347
Compensation and related benefits.......................... 130,000
Interest................................................... 29,289
Other...................................................... 4,595
---------
$ 772,231
=========
</TABLE>
(5) NOTES PAYABLE
Notes payable consist of the following at March 31, 1999.
<TABLE>
<S> <C>
Convertible Debenture..................................... $ 922,969
Promissory notes -- related party......................... 500,000
Promissory notes.......................................... 40,698
----------
Total notes payable.................................. 1,463,667
Less: Current portion..................................... (40,698)
----------
Notes payable, long-term.................................. $1,422,969
==========
</TABLE>
(6) STOCKHOLDERS' EQUITY
COMMON AND PREFERRED 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 were no preferred shares
outstanding at March 31, 1999.
On March 30, 1999, the Company completed the sale of an aggregate of
240,000 shares to three investors at $4.50 per share resulting in net proceeds
of $1,055,250. Of the total, $515,000 was
F-24
<PAGE> 86
EDGAR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
included in stock subscriptions receivable at March 31, 1999 and was
subsequently collected on April 3, 1999. In addition to the shares, the
investors also received 240,000 warrants which are exercisable at $1.50 per
warrant if the Company does not complete an IPO by December 31, 1999. These
warrants will be automatically cancelled following the closing of an IPO.
STOCK WARRANTS
Warrants issued in exchange for services totaled 5,167 for the three months
ended March 31, 1999. Based on estimated fair values at the date of issuance,
the Company has recorded professional services expense and additional paid-in
capital of $26,197.
In addition, The Company issued 12,000 warrants with an exercise price of
$4.50 per warrant in consideration for services rendered in connection with the
sale of the 240,000 shares of common stock discussed in note 6. The value of
these warrants has been netted against the proceeds.
Warrant activity during the three months ended March 31, 1999 is as
follows:
<TABLE>
<CAPTION>
WARRANTS WEIGHTED AVERAGE
GRANTED EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Outstanding at December 31, 1998...................... 730,000 $1.46
Granted............................................... 257,167 1.64
-------
Outstanding at March 31, 1999......................... 987,167 $1.51
=======
</TABLE>
(7) STOCK OPTION PLANS
On March 25, 1999, the Company granted 340,000 and 60,000 options at $4.50
and $4.00, respectively under the 1996 Plan and recorded $30,000 in deferred
compensation for options granted with exercise prices less than fair market
value at the grant date, to be recognized as expense over the three year vesting
period. Compensation expense related to these options was $165 for the three
months ended March 31, 1999. Deferred compensation of $29,835 is included within
additional paid-in-capital at March 31, 1999.
(8) INITIAL PUBLIC OFFERING (IPO)
On March 30, 1999, the Company filed a registration statement on Form S-1
for the sale of its common stock to the public. In connection with this filing,
the Company, its underwriters and the holder of the Convertible Debenture agreed
to convert the Convertible Debenture into 670,000 shares of the Company's common
stock upon the close of an IPO. In addition, certain holders of warrants to
purchase Company common stock also agreed to exercise the warrants into 696,667
shares upon the close of an IPO.
At March 31, 1999, the Company had incurred approximately $304,260 of costs
in connection with its IPO. These costs are recorded as deferred offering costs
in the accompanying balance sheet.
(9) PRO FORMA FINANCIAL INFORMATION
The pro forma balance sheet at March 31, 1999 gives effect to the
conversion of the Convertible Debenture into 670,000 shares of Company common
stock. The pro forma Basic and Diluted loss per share gives effect to the
conversion as if the conversion took place on January 1, 1999.
F-25
<PAGE> 87
[DESCRIPTION OF ARTWORK]
<PAGE> 88
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EDGAR
ONLINE, INC. OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EDGAR ONLINE, INC. SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Forward-Looking Statements............ 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 29
Management............................ 39
Certain Relationships and Related
Party Transactions.................. 48
Principal Stockholders................ 50
Description of the Capital Stock...... 52
Shares Eligible for Future Sale....... 53
Underwriting.......................... 55
Legal Matters......................... 57
Experts............................... 58
Additional Information................ 58
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL JUNE 20, 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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3,600,000 SHARES
[EDGAR ONLINE LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
C.E. UNTERBERG, TOWBIN
FAHNESTOCK & CO. INC.
------------------------
DLJdirect INC.
MAY 26, 1999
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