SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2008
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE TRANSITION PERIOD FROM
TO
EDGAR Online, Inc.
(Exact name of registrant as specified in its charter)
0-26071
(Commission File Number)
|
|
|
|
|
Delaware
|
|
06-1447017
|
|
(State or other jurisdiction
of incorporation)
|
|
(IRS Employer
Identification Number)
|
50 Washington Street, Norwalk, Connecticut 06854
(Address of principal executive offices) (Zip Code)
(203) 852-5666
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
x
NO
¨
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
¨
NO
x
Number of shares of
common stock outstanding at November 6, 2008: 26,505,818 shares.
EDGAR ONLINE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2008
Forward Looking Statements
This Quarterly Report on Form 10-Q
contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended, regarding EDGAR Online, Inc.’s (“we,” “us,” “our” or the “Company”) plans, expectations,
estimates and beliefs. Such forward-looking statements are based upon assumptions by the Company’s management, as of the date of this Quarterly Report, including assumptions about risks and uncertainties faced by the Company. In addition, the
Company or persons acting on its behalf may make forward-looking statements orally or in other writings, including, but not limited to, in press releases, in the annual report to shareholders and in the Company’s other filings with the United
States Securities and Exchange Commission (the “SEC”). Forward-looking statements are typically identified by words such as “believes,” “anticipates,” “estimates,” “expects,” “intends,”
“will,” “may,” “potential,” “projects,” and other similar expressions. If any of management’s assumptions prove incorrect or should unanticipated circumstances arise, the Company’s actual results
could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors identified in this Quarterly Report, as
well as our other periodic reports filed with the SEC, from time to time. Readers are strongly encouraged to consider those factors when evaluating any forward-looking statements concerning the Company. The Company will not update any
forward-looking statements in this Quarterly Report to reflect future events or developments. Investors should also be aware that while we, from time to time, do communicate with securities analysts, it is against our policy to disclose to them any
material non-public information or other confidential commercial information. Investors should not assume that we agree with any report issued by any analyst or with any statements, projections, forecasts or opinions contained in any such report.
Index
2
PART 1. FINANCIAL INFORMATION
|
Item 1.
|
Financial Statements
|
EDGAR ONLINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
|
September 30,
2008
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,568
|
|
|
$
|
2,654
|
|
|
Short-term investments
|
|
|
210
|
|
|
|
220
|
|
|
Accounts receivable, less allowance of $255 and $294, respectively
|
|
|
2,799
|
|
|
|
2,577
|
|
|
Other current assets
|
|
|
233
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,810
|
|
|
|
5,738
|
|
|
Property and equipment, net
|
|
|
1,192
|
|
|
|
1,144
|
|
|
Goodwill
|
|
|
2,189
|
|
|
|
2,189
|
|
|
Other intangible assets, net
|
|
|
4,198
|
|
|
|
3,263
|
|
|
Other assets
|
|
|
1,232
|
|
|
|
1,281
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,621
|
|
|
$
|
13,615
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
3,422
|
|
|
$
|
2,222
|
|
|
Deferred revenues
|
|
|
4,116
|
|
|
|
4,704
|
|
|
Current portion of long-term debt
|
|
|
125
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,663
|
|
|
|
7,301
|
|
|
Long-term debt
|
|
|
2,281
|
|
|
|
2,000
|
|
|
Other long-term liabilities
|
|
|
637
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
10,581
|
|
|
|
9,699
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.01 par value, 50,000,000 authorized at December 31, 2007 and September 30, 2008, 27,378,804 shares issued and
26,260,861 shares outstanding at December 31, 2007 and 27,499,713 shares issued and 26,427,009 shares outstanding at September 30, 2008
|
|
|
274
|
|
|
|
275
|
|
|
Additional paid-in capital
|
|
|
71,902
|
|
|
|
72,836
|
|
|
Accumulated deficit
|
|
|
(65,177
|
)
|
|
|
(67,319
|
)
|
|
Treasury stock, at cost, 1,117,943 shares at December 31, 2007 and 1,072,704 shares at September 30, 2008
|
|
|
(1,959
|
)
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
5,040
|
|
|
|
3,916
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
15,621
|
|
|
$
|
13,615
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
EDGAR ONLINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
|
|
$
|
2,260
|
|
|
$
|
2,088
|
|
|
$
|
6,613
|
|
|
$
|
6,415
|
|
|
Data and solutions
|
|
|
2,226
|
|
|
|
2,513
|
|
|
|
5,938
|
|
|
|
7,770
|
|
|
Advertising and e-commerce
|
|
|
191
|
|
|
|
100
|
|
|
|
585
|
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,677
|
|
|
|
4,701
|
|
|
|
13,136
|
|
|
|
14,613
|
|
|
Cost of revenues
|
|
|
797
|
|
|
|
645
|
|
|
|
2,222
|
|
|
|
2,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,880
|
|
|
|
4,056
|
|
|
|
10,914
|
|
|
|
12,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,128
|
|
|
|
1,081
|
|
|
|
3,731
|
|
|
|
3,481
|
|
|
Product development
|
|
|
913
|
|
|
|
1,043
|
|
|
|
2,775
|
|
|
|
3,147
|
|
|
General and administrative
|
|
|
2,177
|
|
|
|
2,097
|
|
|
|
7,143
|
|
|
|
6,122
|
|
|
Severance costs
|
|
|
984
|
|
|
|
—
|
|
|
|
1,615
|
|
|
|
40
|
|
|
Amortization and depreciation
|
|
|
436
|
|
|
|
464
|
|
|
|
1,310
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,638
|
|
|
|
4,685
|
|
|
|
16,574
|
|
|
|
14,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,758
|
)
|
|
|
(629
|
)
|
|
|
(5,660
|
)
|
|
|
(1,795
|
)
|
|
Interest and other expense
|
|
|
(87
|
)
|
|
|
(121
|
)
|
|
|
(139
|
)
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,845
|
)
|
|
$
|
(750
|
)
|
|
$
|
(5,799
|
)
|
|
$
|
(2,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding—basic
|
|
|
26,048
|
|
|
|
26,407
|
|
|
|
25,962
|
|
|
|
26,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding—diluted
|
|
|
26,048
|
|
|
|
26,407
|
|
|
|
25,962
|
|
|
|
26,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share—basic
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share—diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
4
EDGAR ONLINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,799
|
)
|
|
$
|
(2,142
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
375
|
|
|
|
459
|
|
|
Amortization of intangible assets
|
|
|
935
|
|
|
|
935
|
|
|
Stock-based compensation
|
|
|
1,041
|
|
|
|
901
|
|
|
Provision for losses on trade accounts receivable
|
|
|
452
|
|
|
|
420
|
|
|
Amortization of capitalized product costs
|
|
|
164
|
|
|
|
164
|
|
|
Amortization of deferred financing costs
|
|
|
61
|
|
|
|
91
|
|
|
Non-cash severance costs
|
|
|
355
|
|
|
|
—
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(750
|
)
|
|
|
(198
|
)
|
|
Other assets, net
|
|
|
(86
|
)
|
|
|
(65
|
)
|
|
Accounts payable and accrued expenses
|
|
|
689
|
|
|
|
(1,200
|
)
|
|
Deferred revenues
|
|
|
519
|
|
|
|
588
|
|
|
Long-term payables
|
|
|
491
|
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
4,246
|
|
|
|
1,856
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,553
|
)
|
|
|
(286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(190
|
)
|
|
|
(411
|
)
|
|
Capitalized software development
|
|
|
—
|
|
|
|
(260
|
)
|
|
Purchases of held-to-maturity investments
|
|
|
(5
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(195
|
)
|
|
|
(681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable issued
|
|
|
2,500
|
|
|
|
—
|
|
|
Payments of notes payable
|
|
|
—
|
|
|
|
(63
|
)
|
|
Deferred financing costs
|
|
|
(238
|
)
|
|
|
—
|
|
|
Proceeds from exercise of stock options and warrants
|
|
|
235
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,497
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
749
|
|
|
|
(914
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,865
|
|
|
|
3,568
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
3,614
|
|
|
$
|
2,654
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
111
|
|
|
$
|
167
|
|
|
Warrant issued in connection with long-term debt
|
|
$
|
126
|
|
|
$
|
—
|
|
|
Supplemental disclosure of non-cash information:
|
|
|
|
|
|
|
|
|
|
Proceeds receivable from stock option exercises
|
|
$
|
1
|
|
|
$
|
—
|
|
See accompanying notes to condensed consolidated financial statements.
5
EDGAR ONLINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE
DATA)
(UNAUDITED)
|
(1)
|
BASIS OF PRESENTATION
|
The Company was incorporated in the State of
Delaware in November 1995, launched its EDGAR Online website in January 1996, and went public in May 1999. The Company creates and distributes fundamental financial data and public filings for equities, mutual funds, and a variety of other publicly
traded assets in the United States and elsewhere. The Company produces highly detailed data that helps in the analysis of the financial, business and ownership conditions of an investment. The Company has also developed proprietary automated data
parsing, tagging and processing systems that allows for the rapid conversion of unstructured data into eXtensible Markup Languages (“XML”), eXtensible Business Reporting Language (“XBRL”) and other formats, as well as tools for
the easy viewing and analysis of this data. The Company’s customers are generally financial, corporate and advisory professionals who work in financial institutions such as investment funds, asset management firms, insurance companies and
banks, stock exchanges and government agencies, as well as accounting firms, law firms, corporations and individual investors.
The unaudited interim
financial statements of the Company as of September 30, 2008 and for the three and nine months ended September 30, 2007 and 2008 included herein, have been prepared in accordance with the instructions for Form 10-Q under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and Article 10 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.
In the opinion of the Company, the accompanying unaudited interim financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of
September 30, 2008 and the results of its operations for the three and nine months ended September 30, 2007 and 2008 and cash flows for the nine months ended September 30, 2007 and 2008. The results for the three and nine months
ended September 30, 2008 are not necessarily indicative of the expected results for the full 2008 fiscal year or any future period.
These financial
statements should be read in conjunction with the financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC in March 2008. The condensed
consolidated balance sheet information was derived from the audited consolidated financial statements as of that date.
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States requires the Company 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. Significant estimates embedded in the condensed consolidated
financial statements for the periods presented consist of the allowance for doubtful accounts, the fair values of goodwill and other intangible assets and the estimated useful lives of intangible assets.
Basic loss per share excludes dilution for common
stock equivalents and is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects, in periods in which they have a dilutive effect, 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.
Diluted loss
per share is the same as basic loss per share amounts, as the outstanding stock options, unvested restricted stock grants and warrants are anti-dilutive for each of the periods presented. At September 30, 2007 and 2008, the number of
anti-dilutive securities outstanding were 3,089,904 and 3,885,714, respectively.
6
|
(3)
|
SOFTWARE DEVELOPMENT COSTS
|
The Company capitalizes product software
development costs in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86 (“SFAS 86”), “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” Software
development costs are capitalized after technological feasibility is established. Once the software products become available for general release to the public, the Company amortizes such costs over the related product’s estimated economic
useful life to cost of revenues. Net capitalized software development costs (included in other assets) totaled $634 and $470 at December 31, 2007 and September 30, 2008, respectively. Related amortization expense, included in cost of
revenues, totaled $55 for both the three months ended September 30, 2007 and 2008 and $164 for both the nine months ended September 30, 2007 and 2008. Any further software development costs incurred for these products are being expensed to
development expenses in accordance with SFAS 86.
The Company capitalizes internal-use software development costs in accordance with Statement of Position
(“SOP”) No. 98-1 (SOP 98-1), “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” SOP 98-1 requires that entities capitalize certain internal-use software costs once certain criteria are
met. Capitalized internal-use software costs (included in other assets) were $0 and $260 at December 31, 2007 and September 30, 2008, respectively. When the internal-use software is ready for its intended use, the capitalized internal-use
software costs will be amortized on a straight-line basis over 3 years in amortization and depreciation expense. Our computer software is also subject to review for impairment as events or changes in circumstances occur indicating that the amount of
the asset reflected in the Company’s balance sheet may not be recoverable.
On April 5, 2007, the Company entered into a
Financing Agreement (“Financing Agreement”) with Rosenthal & Rosenthal, Inc. (“Rosenthal”) for additional working capital. Under the Financing Agreement, Rosenthal made a term loan in the principal amount of $2,500 to
the Company and has additionally agreed to provide up to an additional $2,500 under a revolving line of credit. Interest on outstanding borrowings under the Financing Agreement is payable at variable rates of interest over the published JPMorgan
Chase prime rate (with a minimum prime rate of 6%), 2.5% on the term loan and 2% on borrowings under the revolving credit facility. The Company’s obligations under the term loan are evidenced by a secured Term Note and all of the Company’s
obligations to Rosenthal are secured by a first priority security interest in substantially all of the Company’s assets.
The Financing Agreement
terminates on March 30, 2010 unless sooner terminated by either party in accordance with the terms of the Financing Agreement. The terms include a provision that would allow the lender to accelerate the due date of the debt based on certain
circumstances. The Company is required to maintain certain levels of working capital and tangible net worth. On April 22, 2008, these amounts were amended effective as of December 31, 2007. The Company was in compliance with the amended
terms at September 30, 2008.
In connection with the Financing Agreement, the Company issued a warrant to purchase 100,000 shares of the
Company’s common stock at an exercise price equal to $2.81 (the market price of the Company’s common stock on the closing date of the transaction) to Rosenthal which expires on April 30, 2010. A discount related to the warrant
totaling $125 was recorded based on the Black-Scholes-Merton fair value of the warrant on the date of issue and is being amortized over the term of the Financing Agreement. Also in connection with this transaction, the Company paid its financial
advisor $125, which represents 3% of the gross principal amount of the term loan and 2% of the gross principal amount of the revolving credit. The term loan is due as follows: (i) $21 per month from July 1, 2008 through and including
March 1, 2009; (ii) $42 from April 1, 2009 through the maturity date and (iii) the entire remaining unpaid balance on the maturity date. At September 30, 2008, $375 was classified as the current portion of long-term debt and
$2,000 was classified as long-term debt. In addition, there were $119 of unamortized deferred financing costs included in other assets. The Company has not received any funding under the revolving line of credit as of September 30, 2008.
Interest expense under the Agreement totaled $194 and $254 for the nine months ended September 30, 2007 and 2008, respectively and included $61 and $91, respectively, of amortization of deferred financing costs and warrant discount.
7
|
(5)
|
STOCK-BASED COMPENSATION
|
Stock Compensation Expense
The Company records stock-based compensation expense under the provisions of SFAS No. 123 (R), “Share-Based Payment,” (“SFAS 123(R)”).
Stock-based compensation expense for the three and nine months ended September 30, 2007 and 2008 was recognized in the following income statement expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Cost of revenues
|
|
$
|
12
|
|
$
|
13
|
|
$
|
38
|
|
$
|
37
|
|
Sales and marketing
|
|
|
59
|
|
|
92
|
|
|
220
|
|
|
251
|
|
Product development
|
|
|
28
|
|
|
36
|
|
|
77
|
|
|
115
|
|
General and administrative
|
|
|
310
|
|
|
180
|
|
|
706
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock compensation expense
|
|
$
|
409
|
|
$
|
321
|
|
$
|
1,041
|
|
$
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This expense increased the Company’s net loss per share $0.02 and $0.01 in the three months ended
September 30, 2007 and 2008, respectively, and $0.04 and $0.03 in the nine months ended September 30, 2007 and 2008, respectively.
The estimated
per share weighted-average grant-date fair values of stock options granted during the three months ended September 30, 2007 and 2008 were $1.80 and $1.00, respectively. The estimated per share weighted-average grant-date fair values of stock
options granted during the nine months ended September 30, 2007 and 2008 were $2.35 and $1.51, respectively. Amounts were determined using the Black-Scholes-Merton option pricing model based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Expected dividend yield
|
|
0.0
|
%
|
|
0.0
|
%
|
|
Expected volatility
|
|
84-93
|
%
|
|
76
|
%
|
|
Risk-free interest rate
|
|
4.39-4.94
|
%
|
|
2.54-3.86
|
%
|
|
Expected life in years
|
|
6
|
|
|
6
|
|
The assumptions used in calculating the value of stock options, which involve inherent uncertainties and the
application of management judgment, were based on the following:
|
|
•
|
|
Expected dividend yield
— reflects the Company’s present intention to retain earnings, if any, for use in the operation and expansion of the
Company’s business;
|
|
|
•
|
|
Expected volatility
— determined considering historical volatility of the Company’s common stock over the preceding six years;
|
|
|
•
|
|
Risk-free interest rate
— based on the yield available on U.S. Treasury zero coupon issues with a remaining term approximating the expected life of the
stock option awards; and
|
|
|
•
|
|
Expected life
— calculated using the “simplified method” in accordance with the Securities and Exchange Commission’s Staff Accounting
Bulletin No. 107 for the three and nine months ended September 30, 2007 and calculated as the weighted average period that the stock option awards are expected to remain outstanding based on historical experience for the three and nine
months ended September 30, 2008.
|
Stock Options and Restricted Stock as of September 30, 2008
In May 2005, the Company adopted the 2005 Stock Plan (the “2005 Plan”) which replaced all previous stock option plans which in total had authorized the issuance
of options to purchase up to 4.1 million shares of the Company’s common stock. All remaining available shares under those plans were made available under the 2005 Plan. In addition, the 2005 Plan made 1,087,500 new shares of common stock
available for equity awards. The 2005 Plan authorizes a broad range of awards, including stock options, stock appreciation rights, restricted stock and deferred stock. At the Annual Meeting of Stockholders held on June 23, 2008, the 2005 Plan
was amended to increase the number of shares available for grant by 1,000,000.
8
Option awards are generally granted with an exercise price equal to the market price of the Company’s stock on the
date of grant. Option awards generally vest over three years and have ten year contractual terms.
Option activity for the nine months ended
September 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF
OPTIONS
|
|
|
WEIGHTED
AVERAGE
EXERCISE
PRICE
|
|
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
TERM
|
|
AGGREGATE
INTRINSIC
VALUE
|
|
Outstanding at December 31, 2007
|
|
2,894,924
|
|
|
$
|
2.57
|
|
|
|
|
|
|
Granted
|
|
786,500
|
|
|
$
|
2.19
|
|
|
|
|
|
|
Exercised
|
|
(86,742
|
)
|
|
$
|
1.34
|
|
|
|
|
|
|
Cancelled
|
|
(169,133
|
)
|
|
$
|
3.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
3,425,549
|
|
|
$
|
2.46
|
|
6.65 years
|
|
$
|
528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2008
|
|
2,207,389
|
|
|
$
|
2.51
|
|
5.36 years
|
|
$
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value represents the difference between the exercise price of the underlying awards and
the market price of the Company’s common stock for those awards that have an exercise price below the market price at September 30, 2008. During the nine months ended September 30, 2008, the aggregate intrinsic value of options
exercised under the Company’s stock option plans was approximately $88. Cash received from stock options exercised during the nine months ended September 30, 2008 was $116.
In addition, the Company granted restricted shares under the 2005 Plan during the nine months ended September 30, 2008. The Company also granted restricted shares out of treasury to Philip D. Moyer, our President
and CEO, in the year ended December 31, 2007, some of which have vested in the nine months ended September 30, 2008. Restricted shares have no exercise price and vest depending on the individual grants. The fair value of the restricted
shares is based on the market value of the Company’s common stock on the date of grant. Restricted share activity for the nine months ended September 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER
OF
SHARES
|
|
|
WEIGHTED
AVERAGE
GRANT-
DATE
FAIR VALUE
|
|
AGGREGATE
INTRINSIC
VALUE
|
|
Non-vested at December 31, 2007
|
|
343,667
|
|
|
$
|
2.92
|
|
|
|
|
Granted
|
|
95,904
|
|
|
$
|
2.55
|
|
|
|
|
Vested
|
|
(79,406
|
)
|
|
$
|
2.61
|
|
|
|
|
Cancelled
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2008
|
|
360,165
|
|
|
$
|
2.79
|
|
$
|
663
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value was calculated based on the market price of the Company’s common stock at
September 30, 2008. During the nine months ended September 30, 2008, the aggregate intrinsic value of shares vested was $208, determined based on the market price of the Company’s common stock on the respective vesting dates.
At September 30, 2008, 853,660 shares are available for grant under the Company’s 2005 Plan.
In 2007, the Company accrued $2,011 of severance costs
related to several executive and other employee terminations. As part of the employment and/or severance agreements, all options held by the terminated executives vested immediately. As a result, additional-paid-in-capital was increased by $465 in
the year ended December 31, 2007 to recognize previously unrecognized stock compensation remaining from the original grant date valuation of the options. At September 30, 2008, there were $454 of remaining severance cost accruals included
in accrued expenses and $195 in other long-term payables.
9
|
(7)
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
In October 2008, the FASB issued FASB
Staff Position (“FSP”) 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”). This FSP applies to financial assets within the scope of accounting
pronouncements that require or permit fair value measurements in accordance with SFAS 157. This FSP clarifies the application of SFAS 157 in determining the fair values of assets or liabilities in a market that is not active. This FSP is
effective upon issuance, including prior periods for which financial statements have not been issued. The adoption of this FSP did not have a material impact on our consolidated financial statements.
In February 2008, the FASB issued FSP 157-2 “Partial Deferral of the Effective Date of Statement 157” (“FSP 157-2”). FSP 157-2 delays the effective
date of FAS 157, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after
November 15, 2008. The Company does not expect the adoption to have a material effect on our results of operations or financial position.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(revised 2007)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS
160”). SFAS 141 (revised 2007) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the
excess value over the net identifiable assets acquired. This standard also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies. SFAS 141 (revised 2007) applies prospectively to
business combinations and is effective for fiscal years beginning on or after December 15, 2008. The impact that SFAS 141(revised 2007) will have on the Company’s consolidated financial statements when effective will depend upon the
nature, terms and size of the acquisitions, if any, completed after the effective date as well as the accounting for income taxes on prior acquisitions.
SFAS 160 requires that a noncontrolling interest in a subsidiary be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest
with disclosure of both amounts on the consolidated statement of income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. The presentation provisions of SFAS 160 are to be applied
retrospectively, and SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company does not expect the adoption to have a material effect on our results of operations or financial position.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in $000’s)
|
OVERVIEW
We create and distribute fundamental financial data and
public filings for equities, mutual funds and a variety of other publicly traded assets. We produce highly detailed data that helps in the analysis of the financial, business and ownership conditions of an investment. We are considered a pioneer and
leader in the rapidly emerging financial reporting standard—XBRL. We launched our EDGAR Online website in January 1996 and began selling our subscription services and establishing contractual relationships with business and financial
information websites to supply EDGAR content. Our primary focus was generating sales leads and building brand recognition.
We are continuing to focus on
growing our subscriptions and data and solutions revenues by offering the following:
Subscription Services
. Our end-user subscription services
include I-Metrix Professional, EDGAR Pro and EDGAR Access. I-Metrix Professional is our premium service which allows a user to do in-depth analysis of companies and industries by providing fundamental data and a suite of tools and models that allow
users to search, screen and evaluate the data. EDGAR Pro offers financial data, stock ownership, public offering data sets and advanced search tools. It is available via multi-seat and enterprise-wide contracts, and may also include add-on services
such as global annual reports and conference call transcripts. EDGAR Access, our retail product, has fewer features than EDGAR Pro and is available via single-seat, credit card purchase only. Revenue from subscription services is recognized ratably
over the subscription period, which is typically 12 months.
Data and Solutions
. We produce a specialized line of data feeds, products and solutions
based on content sets that we have extracted from SEC filings and other data providers. Both our data products and solutions consist of digital data feeds transmitted through various formats including hosted web pages, multiple application
programming interfaces, and other response mechanisms. Our data products include, but are not limited to, standardized and as-reported fundamental financial
10
data, annual and quarterly financial statements, insider trades, institutional holdings, initial and secondary public offerings, Form 8-K disclosures,
electronic prospectuses and other investment instrument disclosure information. Our data solutions include the customization of our data products, the conversion of data from unstructured content into multiple formats including XML, XBRL and PDF,
the storage and delivery of data and custom feeds and tools to access the information. Revenue from data licenses is recognized over the term of the contract, which are typically non-cancellable, one-year contracts with automatic renewal clauses.
Our data solutions sometimes involve some upfront customization fees along with more traditional annual data licensing arrangements for the ongoing delivery of the data solution. These customization fees, as well as the related costs, are deferred
and recognized over the estimated life of the customer relationship. In addition, some of our data solutions are billed on a time and materials basis, per service level agreements or for delivery of data. Revenue from time and materials based
agreements and data delivery are recognized as the data and services are provided.
Advertising and E-Commerce
. We also generate ancillary
advertising and e-commerce revenues through the sale of advertising banners, sponsorships and through e-commerce activities such as marketing third party services to the users of our websites. Advertising and e-commerce revenue is recognized as the
services are provided.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in our critical accounting policies and estimates from those disclosed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2007.
RESULTS OF OPERATIONS
The following table sets forth the percentage
relationships of certain items from our Condensed Consolidated Statements of Operations as a percentage of total revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
SEPTEMBER 30,
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Total revenues
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Cost of revenues
|
|
17
|
|
|
14
|
|
|
17
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
83
|
|
|
86
|
|
|
83
|
|
|
85
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
24
|
|
|
23
|
|
|
29
|
|
|
24
|
|
|
Product development
|
|
20
|
|
|
22
|
|
|
21
|
|
|
22
|
|
|
General and administrative
|
|
46
|
|
|
45
|
|
|
54
|
|
|
42
|
|
|
Severance costs
|
|
21
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
Amortization and depreciation
|
|
9
|
|
|
10
|
|
|
10
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(37
|
)
|
|
(14
|
)
|
|
(43
|
)
|
|
(13
|
)
|
|
Interest and other, net
|
|
(2
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(39
|
)%
|
|
(16
|
)%
|
|
(44
|
)%
|
|
(15
|
)%
|
REVENUES
Total revenues for the three months ended September 30, 2008 increased slightly to $4,701 compared to $4,677 for the three months ended September 30, 2007. A $287, or 13%, increase in data and solutions was partially offset by a
$172, or 8%, decrease in subscriptions and a $91, or 48%, decrease in advertising and e-commerce revenues. Total revenues for the nine months ended September 30, 2008 increased 11% to $14,613, from $13,136 for the nine months ended
September 30, 2007. The net increase in revenues was primarily attributable to a $1,832, or 31%, increase in data and solutions which was partially offset by a $198, or 3%, decrease in subscriptions and a $157, or 27%, decrease in advertising
and e-commerce revenues. We have experienced slower growth and higher than anticipated cancellations in 2008 due to the significant downturn in the financial services industry and the economy in general.
11
SUBSCRIPTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
SEPTEMBER 30,
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Revenues
|
|
$
|
2,260
|
|
|
$
|
2,088
|
|
|
$
|
6,613
|
|
|
$
|
6,415
|
|
|
Percentage of total revenue
|
|
|
48
|
%
|
|
|
44
|
%
|
|
|
50
|
%
|
|
|
44
|
%
|
|
Number of subscribers
|
|
|
12,264
|
|
|
|
11,981
|
|
|
|
12,264
|
|
|
|
11,981
|
|
Subscription revenues for the three and nine months ended September 30, 2008 decreased from the three and
nine months ended September 30, 2007. Our subscriptions business has been impacted by unprecedented reductions in the financial services community in 2008. While we did add new subscribers to all of our subscription products, cancellations
exceeded these new sales.
DATA AND SOLUTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
SEPTEMBER 30,
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Revenues
|
|
$
|
2,226
|
|
|
$
|
2,513
|
|
|
$
|
5,938
|
|
|
$
|
7,770
|
|
|
Percentage of total revenue
|
|
|
48
|
%
|
|
|
54
|
%
|
|
|
45
|
%
|
|
|
53
|
%
|
|
Number of contracts at September 30
|
|
|
262
|
|
|
|
277
|
|
|
|
262
|
|
|
|
277
|
|
Data and solutions revenues increased for the three and nine months ended September 30, 2008 compared to the
three and nine months ended September 30, 2007 due to an increase in the overall number of contracts as well as an increase in filings revenues in 2008. In the third quarter of 2007, we started to reorganize our sales team and added staff with
certified industry credentials to support sales of our products. With the reorganization of our sales team and continued increases in the sale of data and solutions, we expect to increase data and solutions revenues in the future.
ADVERTISING AND E-COMMERCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
SEPTEMBER 30,
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Revenues (in $000s)
|
|
$
|
191
|
|
|
$
|
100
|
|
|
$
|
585
|
|
|
$
|
428
|
|
|
Percentage of total revenue
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
5
|
%
|
|
|
3
|
%
|
The net decrease in advertising and e-commerce revenues for the three and nine months ended September 30,
2008 from the three and nine months ended September 30, 2007 was primarily due to decreased e-commerce revenues. In addition, advertising revenues for the three months ended September 30, 2008 decreased from the three months ended
September 30, 2007.
12
COST OF REVENUES
Cost of revenues consists primarily of fees paid to acquire the Level I EDGAR database feed from the SEC, other content feeds and costs, salaries and benefits of operations employees, commissions related to e-commerce revenues and the
amortization of costs related to developing our I-Metrix products that were previously capitalized. In addition, for each period, barter advertising expense is recorded equal to the barter advertising revenue for that period.
Total cost of revenues for the three months ended September 30, 2008 decreased $152, or 19%, to $645 from $797 for the three months ended September 30, 2007.
The net decrease in cost of revenues was primarily due to a $54 decrease in data costs, a $35 decrease in commissions related to e-commerce revenues and a $42 decrease in payroll costs. Total cost of revenues for the nine months ended
September 30, 2008 was $2,224 which was consistent with $2,222 for the nine months ended September 30, 2007. A $159 increase in data and staffing costs related to data solutions contracts in 2008 was offset by a $136 decrease in
commissions related to e-commerce revenues.
OPERATING EXPENSES
Sales and Marketing
. Sales and marketing expenses consist primarily of salaries and benefits, sales commissions, advertising expenses, public relations, and costs of marketing materials. Sales and marketing expenses for the three
months ended September 30, 2008 decreased $47, or 4%, to $1,081 from $1,128 for the three months ended September 30, 2007. Sales and marketing expenses for the nine months ended September 30, 2008 decreased $250, or 7%, to $3,481 from
$3,731 for the nine months ended September 30, 2007. The net decrease was primarily due to a $307 decrease in payroll and related expenses which was partially offset by a $74 increase in advertising expenses.
Development
. Development expenses, which consist primarily of salaries and outside development costs, for the three months ended September 30, 2008 increased
$130, or 14%, to $1,043 from $913 for the three months ended September 30, 2007. Development expenses for the nine months ended September 30, 2008 increased $372, or 13% to $3,147 from $2,775 for the nine months ended September 30,
2007. These increases were primarily due to increased XBRL-related development activities in 2008.
General and Administrative
. General and
administrative expenses consist primarily of salaries and benefits, insurance, fees for professional services, general corporate expenses and facility expenses. General and administrative expenses for the three months ended September 30, 2008
decreased $80, or 4%, to $2,097 from $2,177 for the three months ended September 30, 2007. The net decrease was primarily due to a $129 decrease in stock-based compensation which was partially offset by a $58 increase in rent. General and
administrative expenses for the nine months ended September 30, 2008 decreased $1,021, or 14%, to $6,122 from $7,143 for the nine months ended September 30, 2007. The net decrease was primarily due to a $385 decrease in tax expenses (there
was $390 recorded in relation to a sales tax audit in 2007), a $354 decrease in payroll and related expenses, a $208 decrease in stock-based compensation and a $108 decrease in insurance expenses.
Severance Costs
. In the second quarter of 2007, we accrued $631 of severance costs related to the resignations of our Executive Vice President of Sales and
Chairman of the Board. In the third quarter of 2007, we accrued additional severance costs totaling $984 related to our former CEO and workforce reductions. Also, non-cash compensation and additional paid-in capital were increased by $191 in the
second quarter of 2007 and $164 in the third quarter of 2007 to recognize previously unrecognized stock compensation remaining from the original grant date valuation of the options.
Depreciation and Amortization
. Depreciation and amortization expenses include the depreciation of property and equipment and the amortization of definite lived intangible assets. Depreciation and amortization
for the three months ended September 30, 2008 increased $28, or 6%, to $464 from $436 for the three months ended September 30, 2007. Depreciation and amortization for the nine months ended September 30, 2008 increased $84, or 6%, to
$1,394 from $1,310 for the nine months ended September 30, 2007. The increases were a result of capital expenditures.
13
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $286 for the nine months ended September 30, 2008 compared to $1,553 for the nine months ended September 30, 2007. The improvement was primarily due to a decrease in
net loss which was partially offset by a reduction in current and long-term payables.
Capital expenditures, primarily for computers and equipment, totaled
$411 for the nine months ended September 30, 2008 compared to $190 for the nine months ended September 30, 2007. The purchases were made to support our expansion and increased infrastructure.
On April 5, 2007, we entered into a Financing Agreement (“Financing Agreement”) with Rosenthal & Rosenthal, Inc. (“Rosenthal”) for
additional working capital. Under the Financing Agreement, Rosenthal made a term loan in the principal amount of $2,500 to us and has additionally agreed to provide up to an additional $2,500 under a revolving line of credit. Interest on outstanding
borrowings under the Financing Agreement is payable at variable rates of interest over the published JPMorgan Chase prime rate (with a minimum prime rate of 6%), 2.5% on the term loan and 2% on borrowings under the revolving credit facility. Our
obligations under the term loan are evidenced by a secured Term Note and are secured by a first priority security interest in substantially all of our assets. We are required to maintain certain collateral ratios and financial covenants under the
agreement. On April 22, 2008, the ratios and covenants were amended effective as of December 31, 2007. We were in compliance with these ratios and covenants at September 30, 2008 and we believe that we will be in compliance throughout
2008. The Financing Agreement terminates on March 30, 2010 unless sooner terminated by either party in accordance with the terms of the Financing Agreement. In connection with the Financing Agreement, we issued a warrant to purchase 100,000
shares of our common stock at an exercise price equal to $2.81 (the market price of our common stock on the closing date of the transaction) to Rosenthal. The Warrant expires on April 30, 2010. Also in connection with this transaction, we paid
our financial advisor $125, which represents 3% of the gross principal amount of the term loan and 2% of the gross principal amount of the revolving credit.
At September 30, 2008, we had cash and cash equivalents on hand of $2,654. We have no off-balance sheet arrangements at September 30, 2008. We believe that our existing capital resources will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next 12 months. Thereafter, if cash generated from operations is insufficient to satisfy our liquidity requirements, we may need to raise additional funds through public or
private debt or equity financings, strategic relationships or other arrangements. We may also consider such financings prior to such time if conditions suggest engaging in such a financing would be advantageous to us. 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.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
There
have been no material changes in our exposure to market risk from that disclosed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2007.
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
Conclusion Regarding Effectiveness of
Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the design and effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of Exchange Act, as of the end of the period covered by this Quarterly Report.
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective
to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principle
executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and can therefore only provide reasonable, not absolute, assurance that the design will succeed in achieving its stated goals.
14
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
Inherent Limitations of Controls
Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
15
PART II. OTHER INFORMATION.
|
ITEM 1.
|
LEGAL PROCEEDINGS.
|
None
|
ITEM 1A.
|
RISK FACTORS (dollars in 000s)
|
The following risk factors, which
were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and then updated in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008, have been updated with respect
to results from the period covered by this report. Other than those below, there were no other material changes from the risk factors previously reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as
supplemented by our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008. Please refer to Item IA of our Annual Report for 2007 for disclosures regarding other risks and uncertainties related to our
business.
We have a history of losses and we expect to incur losses for the foreseeable future. If we are unable to achieve profitability, our business
will suffer and our stock price is likely to decline.
We have never operated at a profit and we anticipate incurring a loss in 2008, and may incur
additional losses in 2009. At September 30, 2008, we had an accumulated deficit of $67,319. As a result, we will need to significantly increase our revenues to achieve and sustain profitability. If revenues grow more slowly than we anticipate,
or if operating expenses exceed our expectations or cannot be adjusted accordingly, we may incur further losses in the future. We are highly likely to incur additional costs as we expand our product offerings which reduce our chances of attaining
profitability. We cannot assure you that we will be able to achieve or sustain profitability.
If we fail to increase revenues, we will not achieve or
maintain profitability.
Even though our revenues increased from $14,235 in 2005 to $16,246 in 2006 and $17,908 in 2007, to achieve profitability, we
will need to continue to increase revenues substantially through implementation of our growth strategy and/or reduce expenses significantly. Revenues for the nine months ended September 30, 2008 totaled $14,613. We cannot assure you that our
revenues will grow or that we will achieve or maintain profitability in the future.
Our current financing relationship may be terminated and we may not
be able to obtain additional financing.
On April 5, 2007, we entered into a financing agreement (“Financing Agreement”) with
Rosenthal & Rosenthal, Inc. (“Rosenthal”) to provide us with additional working capital. We currently anticipate that our available cash resources, including the term loan, 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. Although we borrowed $2,500 under this agreement, we may need to draw down on the $2,500 revolving line of credit or raise
additional funds to fund potential acquisitions, more rapid expansion and to develop new or enhance existing services or to respond to competitive pressures. We cannot assure you that this additional financing will satisfy our operating requirements
or that additional financing will be available on terms favorable to us, or at all. In addition, there is no guarantee that Rosenthal will agree to amend the Financing Agreement or that the Company will not be in violation of the financial covenants
in the future. 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.
16
Nasdaq accounts for a significant portion of our total revenues and we expect this percentage to grow in the future.
A significant portion of our total revenues over the last three fiscal years has been attributable to the numerous work orders that we have performed
under our agreements with Nasdaq. Sales to Nasdaq accounted for 7% and 8% of our total revenue during the years ended December 31, 2006 and 2007, respectively. Sales to Nasdaq accounted for 11% of our total revenue during the nine months ended
September 30, 2008. We expect that Nasdaq will continue to be a significant customer as we continue to expand our business relationship. The loss of a significant customer such as Nasdaq would have a material adverse effect on our revenues.
Our business could be adversely affected by any adverse economic developments, such as those that have occurred thus far in 2008, in the financial
services industry and/or the economy in general.
We depend on the continued demand for the distribution of business and financial information.
Therefore, our business is susceptible to downturns in the financial services industry and the economy in general, such as the downturns that have occurred thus far in 2008 and may continue to occur or worsen. For example, we believe that decreases
in the expenditures that corporations and individuals are willing to make to purchase the types of information we provide could result in slower growth of new customers or an increase in the cancellation of existing customers, as we have experienced
in the past. We have already experienced slower growth and higher than anticipated cancellations in 2008. Any further significant downturn in the market or in general economic conditions would likely hurt our business.
We may be subject to liability for taxes by federal, state and foreign tax authorities.
In the normal course of business, our tax filings are subject to audit by federal, state and foreign tax authorities. A sales tax audit by New York State was settled in March 2008 and we began charging and remitting
sales tax going forward. There is no guarantee that we will not be subject to additional tax audits by New York State, other states, local municipalities or the federal government. There is inherent uncertainty in the audit process. If necessary, we
will record our best estimate of probable liabilities that may exist. We have no reason to believe that such audit would result in the payment of additional taxes or penalties or both that would have a material adverse effect on our results of
operations or financial position, beyond amounts that are probable and estimable.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
None.
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES.
|
None.
|
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
None.
|
ITEM 5.
|
OTHER INFORMATION.
|
None.
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
10.31
|
|
Services Agreement, dated as of September 30, 2008, between the Company and R.R. Donnelley & Sons Company+
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
17
|
|
|
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
|
100.INS
|
|
XBRL Instance Document.**
|
|
|
|
|
100.SCH
|
|
XBRL Taxonomy Extension Schema Document.**
|
|
|
|
|
100.PRE
|
|
XBRL Taxonomy Presentation Linkbase Document.**
|
|
|
|
|
100.LAB
|
|
XBRL Taxonomy Label Linkbase Document.**
|
|
|
|
|
100.CAL
|
|
XBRL Taxonomy Calculation Linkbase Document.**
|
|
**
|
submitted electronically herewith
|
|
+
|
confidential treatment has been requested as to certain portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended
|
Attached as Exhibit 100 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed
Consolidated Statement of Operations for the quarters ended September 30, 2008 and 2007, (ii) Condensed Consolidated Statement of Operations for the nine months ended September 30, 2008 and 2007, (iii) Condensed Consolidated
Balance Sheet at September 30, 2008 and December 31, 2007, (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2008 and 2007 and (v) Notes to Condensed Consolidated Financial Statements.
Users of this data are advised pursuant to Rule 401 of Regulation S-T that the information contained in the XBRL documents is unaudited and these are not the official publicly filed financial statements of the Company. The purpose of submitting
these XBRL formatted documents is to test the related format and technology and, as a result, investors should continue to rely on the official filed version of the furnished documents and not rely on this information in making investment decisions.
In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 100 to this Quarterly Report on Form 10-Q shall not be deemed to be
“filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act
or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
Date: November 6, 2008
|
|
|
|
EDGAR ONLINE, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Philip D. Moyer
|
|
|
|
|
|
|
|
|
|
Philip D. Moyer
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer and President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ John C. Ferrara
|
|
|
|
|
|
|
|
|
|
John C. Ferrara
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
19
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