Attached files

file filename
EX-10.4 - INDEMNITY AGREEMENT ENTERED INTO BETWEEN THE COMPANY AND JEFFREY SCHWARTZ - EDGAR ONLINE INCdex104.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - EDGAR ONLINE INCdex311.htm
EX-10.5 - AMENDMENT TO EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 25, 2010 - EDGAR ONLINE INCdex105.htm
EX-10.3 - INDEMNITY AGREEMENT ENTERED INTO BETWEEN THE COMPANY AND JOHN M. CONNOLLY - EDGAR ONLINE INCdex103.htm
EX-10.6 - SEPARATION OF EMPLOYMENT AND GENERAL RELEASE AGREEMENT - EDGAR ONLINE INCdex106.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - EDGAR ONLINE INCdex312.htm
EXCEL - IDEA: XBRL DOCUMENT - EDGAR ONLINE INCFinancial_Report.xls
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - EDGAR ONLINE INCdex321.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - EDGAR ONLINE INCdex322.htm
Table of Contents

 

 

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: MARCH 31, 2010

 

¨ 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)

 

 

001-32194

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ¨    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   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

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 May 17, 2010: 26,952,352 shares.

 

 

 


Table of Contents

EDGAR ONLINE, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2010

Forward Looking Statements

The discussions set forth in this Quarterly Report on Form 10-Q contain statements concerning potential future events. Such forward-looking statements are based upon assumptions by our management, as of the date of this Quarterly Report, including assumptions about risks and uncertainties faced by us. In addition, management 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 our other filings with the U.S. Securities and Exchange Commission (the “SEC”). Readers can identify these forward-looking statements by the use of such verbs as expects, anticipates, believes or similar verbs or conjugations of such verbs. If any of management’s assumptions prove incorrect or should unanticipated circumstances arise, our 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 Part II, Item 1A, “Risk Factors” of this report, as well as our other periodic reports on Forms 10-K, 10-Q and 8-K filed with the SEC, from time to time. Readers are strongly encouraged to consider those factors when evaluating any forward-looking statements concerning us. We 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. Unless otherwise indicated, all references to the “Company,” “we,” “us,” “our,” and “EDGAR Online” include reference to our subsidiaries as well.

Index

 

     Page No.
PART I. FINANCIAL INFORMATION   

Item 1. Financial Statements

   3

Condensed Consolidated Balance Sheets at December 31, 2009 and March 31, 2010 (unaudited)

   3

Condensed Consolidated Statements of Operations for the Three Months Ended March  31, 2009 and 2010 (unaudited)

   4

Condensed Consolidated Statements of Common Stockholders’ Equity for the Three Months Ended March  31, 2009 and 2010 (unaudited)

   5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2009 and 2010 (unaudited)

   6

Notes to Condensed Consolidated Financial Statements (unaudited)

   7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   14

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   19

Item 4. Controls and Procedures

   19
PART II. OTHER INFORMATION   

Item 1. Legal Proceedings

   20

Item 1A. Risk Factors

   20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

   22

Item 3. Defaults Upon Senior Securities

   22

Item 4. Removed and Reserved

   22

Item 5. Other Information

   22

Item 6. Exhibits

   23

Signatures

   24

 

2


Table of Contents

PART 1. FINANCIAL INFORMATION

 

Item 1. Financial Statements

EDGAR ONLINE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

 

     December 31,
2009
    March 31,
2010
 
           (unaudited)  

ASSETS

    

Cash and cash equivalents

   $ 2,101      $ 12,039   

Short-term investments

     222        226   

Accounts receivable, less allowance of $344 at December 31, 2009 and $381 at March 31, 2010

     2,360        2,053   

Other current assets

     248        135   
                

Total current assets

     4,931        14,453   

Property and equipment, net

     2,726        3,218   

Goodwill

     2,189        2,189   

Other intangible assets, net

     1,706        1,394   

Other assets

     631        576   
                

Total assets

   $ 12,183      $ 21,830   
                

LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS’ EQUITY

    

Accounts payable and accrued expenses

   $ 2,546      $ 1,998   

Deferred revenues

     3,370        3,183   

Current portion of long-term debt

     500        1,789   
                

Total current liabilities

     6,416        6,970   

Long-term debt

     1,408        —     

Other long-term liabilities

     250        246   
                

Total liabilities

     8,074        7,216   
                

Commitments and contingencies

     —          —     

Redeemable preferred stock - Series B, convertible, $100 par value, no shares authorized or outstanding at December 31, 2009 and 1,000,000 shares authorized and 120,000 shares outstanding at March 31, 2010. Face value of $12,236 and liquidation preference of $20,468 at March 31, 2010

     —          11,386   
                

Common stockholders’ equity:

    

Preferred stock - Series A, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding

     —          —     

Common stock, $0.01 par value, 50,000,000 shares authorized at December 31, 2009 and March 31, 2010, 27,846,902 shares issued and 26,855,150 shares outstanding at December 31, 2009 and 27,865,532 shares issued and 26,878,542 shares outstanding at March 31, 2010

     279        279   

Additional paid-in capital

     74,347        74,410   

Accumulated deficit

     (68,786     (69,737

Treasury stock, at cost, 991,752 shares at December 31, 2009 and 986,990 shares at March 31, 2010

     (1,731     (1,724
                

Total common stockholders’ equity

     4,109        3,228   
                

Total liabilities, redeemable preferred stock and common stockholders’ equity

   $ 12,183      $ 21,830   
                

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

EDGAR ONLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended March 31,  
     2009     2010  

Revenues:

    

XBRL filings

   $ 242      $ 950   

Data and solutions

     2,163        1,923   

Subscriptions

     1,830        1,493   
                

Total revenues

     4,235        4,366   

Cost of revenues

     1,151        1,430   
                

Gross profit

     3,084        2,936   
                

Operating expenses:

    

Sales and marketing

     929        704   

Product development

     558        409   

General and administrative

     2,030        1,811   

Severance costs

     57        227   

Depreciation and amortization

     497        664   
                
     4,071        3,815   
                

Loss from operations

     (987     (879

Interest expense, net

     (110     (72
                

Net loss

     (1,097     (951

Dividends on preferred stock

     —          (236

Accretion on preferred stock

     —          (2
                

Net loss to common shareholders

   $ (1,097   $ (1,189
                

Weighted average shares outstanding—basic

     26,659        26,874   
                

Net loss per common share—basic

   $ (0.04   $ (0.04
                

Weighted average shares outstanding— diluted

     26,659        26,874   
                

Net loss per common share—diluted

   $ (0.04   $ (0.04
                

See accompanying notes to condensed consolidated financial statements.

 

4


Table of Contents

EDGAR ONLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

     COMMON STOCK    TREASURY STOCK     ADDITIONAL
PAID-IN
    ACCUMULATED        
     SHARES    AMOUNT    SHARES     AMOUNT     CAPITAL     DEFICIT     TOTAL  

Balance at December 31, 2008

   27,554,713    $ 276    1,048,895      $ (1,828 )   $ 73,092      $ (67,836 )   $ 3,704   

Net loss

   —        —      —          —          —          (1,097 )     (1,097 )

Exercise of stock options

   20,000      —      —          —          16        —          16   

Stock-based compensation

   —        —      —          —          465        —          465   

Restricted stock issued

   208,630      2    —          —          (2 )     —          —     

Treasury stock issued

   —        —      (4,762 )     9        (9 )     —          —     
                                                  

Balance at March 31, 2009

   27,783,343    $ 278    1,044,133      $ (1,819 )   $ 73,562      $ (68,933 )   $ 3,088   
                                                  

Balance at December 31, 2009

   27,846,902    $ 279    991,752      $ (1,731 )   $ 74,347      $ (68,786 )   $ 4,109   

Net loss

   —        —      —          —          —          (951 )     (951 )

Accrued dividends on Series B Preferred Stock

   —        —      —          —          (236     —          (236

Accretion of issuance costs and beneficial conversion discount on Series B Preferred Stock

   —        —      —          —          (2     —          (2

Fair value of beneficial conversion discount on Series B Preferred Stock

   —        —      —          —          84        —          84   

Equity based severance charges

   —        —      —          —          28        —          28   

Stock-based compensation

   —        —      —          —          196        —          196   

Restricted stock issued

   18,630      —      —          —          —          —          —     

Treasury stock issued

   —        —      (4,762 )     7        (7 )     —          —     
                                                  

Balance at March 31, 2010

   27,865,532    $ 279    986,990      $ (1,724 )   $ 74,410      $ (69,737 )   $ 3,228   
                                                  

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

EDGAR ONLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

     Three Months Ended March 31,  
     2009     2010  

Cash flows from operating activities:

    

Net loss

   $ (1,097   $ (951
                

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation

     185        352   

Amortization of intangible assets

     312        312   

Stock-based compensation

     465        196   

Equity based severance charges

     —          28   

Provision for losses on trade accounts receivable

     135        135   

Amortization of capitalized product costs

     55        55   

Amortization of deferred financing costs and discount

     17        17   

Changes in assets and liabilities:

    

Accounts receivable

     250        172   

Other assets, net

     101        102   

Accounts payable and accrued expenses

     (73     (548

Deferred revenues

     1        (187

Long-term payables

     (69     (4
                

Total adjustments

     1,379        630   
                

Net cash provided by (used in) operating activities

     282        (321
                

Cash flows from investing activities:

    

Capital expenditures

     (139     (354

Capitalized product development costs

     (425 )     (490

Short-term investments

     (3     (4
                

Net cash used in investing activities

     (567     (848
                

Cash flows from financing activities:

    

Proceeds from issuance of Series B Preferred Stock

     —          12,000   

Proceeds from the exercise of stock options

     16        —     

Costs incurred in connection with issuance of Series B Preferred Stock

     —          (768

Payments of notes payable

     (63 )     (125
                

Net cash (used in) provided by financing activities

     (47 )     11,107   
                

Net (decrease) increase in cash and cash equivalents

     (332     9,938   

Cash and cash equivalents at beginning of period

     2,062        2,101   
                

Cash and cash equivalents at end of period

   $ 1,730      $ 12,039   
                

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 50      $ 40   

Cash paid for income taxes

   $ —        $ —     

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

EDGAR ONLINE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

(1) BASIS OF PRESENTATION

EDGAR Online, Inc. was incorporated in the State of Delaware in November 1995 under the name Cybernet Data Systems, launched its EDGAR Online website in January 1996, and went public in May 1999 under its current name. The Company creates and distributes financial data and public filings for equities, mutual funds, and a variety of other publicly traded assets. The highly detailed data produced by the Company assists in the analysis of the financial, business and ownership conditions of a company or investment vehicle. The Company has also developed high volume distribution techniques for managing and delivering regulatory filings. In addition, the Company has developed proprietary automated data parsing, tagging and processing systems that allow for rapid conversion of unstructured data into structured financial data sets. The Company specializes in the use of the financial reporting standard called eXtensible Business Reporting Language (“XBRL”) and leverages its automated processing platform and expertise in XBRL to produce both standard and custom data sets and to assist companies with the creation of their own XBRL financial reports. The Company also creates tools and web sites for easy viewing and analysis of this XBRL data. Consumers of our information 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 or individual investors.

The unaudited interim financial statements of the Company as of March 31, 2010 and for the three months ended March 31, 2009 and 2010 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 March 31, 2010 and the results of its operations and cash flows for the three months ended March 31, 2009 and 2010. The results for the three months ended March 31, 2010 are not necessarily indicative of the expected results for the full 2010 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, 2009, filed with the SEC in March 2010. The condensed consolidated balance sheet information as of December 31, 2009 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 concern the allowance for doubtful accounts, the fair values of goodwill and other intangible assets and the estimated useful lives of intangible assets.

(2) REVENUE RECOGNITION

We derive revenues from three primary sources: subscriptions to our web services, data and solutions and XBRL filings. Revenue from subscriptions is recognized ratably over the subscription period, which is typically twelve months. Subscriptions revenue also includes ancillary advertising and e-commerce revenue which are recognized as the services are provided. Revenue from data licenses is recognized over the term of the contract. Our data solutions sometimes involve upfront one-time customization fees along with more traditional data licensing arrangements for the ongoing delivery of the data solution. In addition, some of our data solutions are billed on a time and materials basis, per service level agreements or for delivery of data. Upfront customization fees are recognized systematically over the expected customer relationship period. Revenue from time and materials based agreements and data delivery is recognized as the services and data are provided. We recognize XBRL filings revenue from fixed fees on a ratable basis as well as per-filing fees as the services are provided.

 

7


Table of Contents

EDGAR ONLINE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

Revenue is recognized provided acceptance and delivery, if applicable, has occurred, collection of the resulting receivable is probable and no significant obligations remain. If amounts are received in advance of the services being performed, the amounts are recorded and presented as deferred revenues. Revenue is recognized net of any related state sales taxes charged and sales taxes payable are included in accrued expenses.

(3) INCOME (LOSS) PER COMMON SHARE

Income (loss) per share information is determined using the two-class method, which includes the weighted-average number of common shares outstanding during the period and other securities that participate in dividends (“participating security”). The Company considers the Series B Preferred Stock a participating security because it includes rights to participate in dividends with the common stock on a one for one basis, with the holders of Series B Preferred Stock deemed to have common stock equivalent shares based on a conversion price of $1.10. In applying the two-class method, earnings are allocated to both common stock shares and Series B Preferred Stock common stock equivalent shares based on their respective weighted-average shares outstanding for the period. Since losses are not allocated to Series B Preferred Stock shares, the two-class method results in the same loss per common share calculated using the basic method for the periods presented in these financial statements.

Basic loss per common share excludes dilution for common stock equivalents and is computed by dividing the net loss, after deducting preferred stock dividends and the accretion of the beneficial conversion feature discount, by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is calculated using the treasury stock method and 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 net loss per common share is the same as basic net loss per common share amounts for the three months ended March 31, 2009 and 2010 as the Company reported a net loss and therefore all outstanding stock options, convertible securities, unvested restricted stock grants and warrants are anti-dilutive. Diluted net loss per share does not include the effect of outstanding stock options, unvested restricted stock grants and warrants for the three months ended March 31, 2009 and 2010 of 3,952,797 and 3,762,990, respectively, nor does it include 11,123,636 common shares issuable under the conversion provisions of our Series B Preferred Stock at March 31, 2010.

(4) SOFTWARE DEVELOPMENT COSTS

The Company capitalizes software development costs in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 985-20 (previously Statement of Financial Accounting Standards (“SFAS”) No. 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 $198 and $143 at December 31, 2009 and March 31, 2010, respectively. Related amortization expense, included in cost of revenues, totaled $55 for both the three months ended March 31, 2009 and 2010.

The Company capitalizes internal-use software development costs in accordance with ASC Topic 350-40 (previously Statement of Position No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”). The Company capitalizes internal-use software development costs once certain criteria are met. Once the internal-use software is ready for its intended use, the capitalized internal-use software costs will be amortized over the related software’s estimated economic useful life 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. Net capitalized internal-use software costs (included in property and equipment) were $1,784 and $2,065 at December 31, 2009 and March 31, 2010, respectively. Related depreciation expense totaled $44 and $209 in the three months ended March 31, 2009 and 2010, respectively.

 

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Table of Contents

EDGAR ONLINE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

(5) LONG-TERM DEBT

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 original principal amount of $2,500 to the Company and 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, as amended most recently on March 13, 2009, terminates on March 30, 2011 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 pursuant to the Financing Agreement. On April 22, 2008, these amounts were amended effective as of December 31, 2007. On March 13, 2009, these amounts were amended effective as of December 31, 2008. The Company was in compliance with the amended terms at March 31, 2010.

In connection with the Financing Agreement, the Company issued to Rosenthal 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) which warrant expired unexercised 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, as amended, 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 March 31, 2010, the entire balance of $1,789 was classified as the current portion of long-term debt and there were $44 of unamortized deferred financing costs included in other assets. The Company has not received any funding under the revolving line of credit as of March 31, 2010. Interest expense under the Agreement totaled $96 and $69 for the three months ended March 31, 2009 and 2010, respectively, and included $17 of amortization of deferred financing costs and warrant discount in both the three months ended March 31, 2009 and 2010.

(6) STOCK-BASED COMPENSATION

Stock Compensation Expense

The Company records stock-based compensation expense under the provisions of FASB ASC Topic 718 (previously SFAS No. 123 (R), “Share-Based Payment”). Stock-based compensation expense for the three months ended March 31, 2009 and 2010 was recognized in the following income statement expenses:

 

     Three Months Ended
March 31,
     2009    2010

Cost of revenues

   $ 11    $ 10

Sales and marketing

     111      38

Product development

     35      23

General and administrative

     308      125
             

Total stock compensation expense

   $ 465    $ 196
             

 

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EDGAR ONLINE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

This expense increased the Company’s net loss to common shareholders by $0.02 in the three months ended March 31, 2009 and $0.01 in the three months ended March 31, 2010.

The estimated per share weighted-average grant-date fair values of stock options granted during the three months ended March 31, 2009 was $1.01. There were no shares granted during the three months ended March 31, 2010. Amounts were determined using the Black-Scholes-Merton option pricing model based on the following assumptions:

 

     Three Months Ended
March 31,
 
     2009  

Expected dividend yield

   0.0

Expected volatility

   74.46

Risk-free interest rate

   2.04

Expected life in years

   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 as the weighted average period that the stock option awards are expected to remain outstanding based on historical experience.

Stock Options and Restricted Stock Grants as of March 31, 2010

In May 2005, the Company adopted the 2005 Stock Award and Incentive 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 since the Company’s inception. All remaining available shares under the Company’s prior stock option plans became available under the 2005 Plan upon its adoption. In addition, the 2005 Plan, when adopted, authorized 1,087,500 new shares of common stock for equity awards. The 2005 Plan authorizes a broad range of awards, including stock options, stock appreciation rights, restricted stock, non-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. At the Annual Meeting of Stockholders held on June 10, 2009, the 2005 Plan was amended to increase the number of shares available for grant by an additional 1,000,000 shares. The 2009 amendment also makes clear that under the 2005 Plan the Company may not reprice stock options or stock appreciation rights without shareholder approval.

Option awards are generally granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant. Option awards generally vest over three years and have ten year contractual terms.

 

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EDGAR ONLINE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

Option activity for the three months ended March 31, 2010 is as follows:

 

     NUMBER OF
OPTIONS
    WEIGHTED
AVERAGE
EXERCISE
PRICE
   WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
TERM
   AGGREGATE
INTRINSIC
VALUE

Outstanding at December 31, 2009

   3,618,362      $ 2.12      

Granted

   —          —        

Exercised

   —          —        

Cancelled

   (101,666   $ 7.25      
              

Outstanding at March 31, 2010

   3,516,696      $ 1.96    5.88 years    $ 913
              

Exercisable at March 31, 2010

   2,859,052      $ 2.06    5.49 years    $ 666
              

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 March 31, 2010. During the three months ended March 31, 2010, no options were exercised under the Company’s stock option plans.

In addition, the Company has historically granted restricted shares under the 2005 Plan. 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 is as follows:

 

     NUMBER OF
SHARES
    WEIGHTED
AVERAGE
GRANT-DATE
FAIR VALUE
   AGGREGATE
INTRINSIC
VALUE

Non-vested at December 31, 2009

   169,686      $ 2.47   

Granted

   —          —     

Vested

   (23,392   $ 2.81   

Cancelled

   —          —     
           

Non-vested at March 31, 2010

   146,294      $ 2.41    $ 269
           

The aggregate intrinsic value was calculated based on the market price of the Company’s common stock at March 31, 2010. During the three months ended March 31, 2010, the aggregate intrinsic value of shares vested was $30, determined based on the market price of the Company’s common stock on the respective vesting dates.

At March 31, 2010, 1,524,851 shares were available for grant under the 2005 Plan.

(7) CONCENTRATION OF RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of accounts receivable. R.R. Donnelley & Sons accounted for 27% of accounts receivable at December 31, 2009 and 20% of accounts receivable at March 31, 2010. There was no other one customer that accounted for more than 10% of accounts receivable at December 31, 2009 or March 31, 2010.

R.R. Donnelley & Sons comprised 6% and 22% of the Company’s total revenue for the three months ended March 31, 2009 and 2010, respectively. The Company’s other customers are geographically dispersed throughout the United States with no one customer accounting for more than 10% of revenues during the three months ended March 31, 2009 and 2010, In addition, the Company has not experienced any significant credit losses to date from any one customer.

 

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EDGAR ONLINE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

The financial statement carrying value of the Company’s cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities at December 31, 2009 and March 31, 2010, approximate their fair value because of the immediate or short-term maturity of these instruments. The Company maintains a cash balance at one financial institution with balances insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, the balance at such financial institution exceeds the FDIC insured limits. The financial statement carrying value of the Company’s long-term debt approximates its fair value based on interest rates currently available to the Company for borrowings with similar characteristics and maturities.

(8) SEVERANCE COSTS

On March 31, 2010, our former Chief Financial Officer, resigned from the Company. As part of the separation and release agreement, the Company will pay $187 and continue medical benefits for a ten-month period. In addition, as part of the agreement, 50,000 options immediately vested. As a result, the Company recorded severance costs totaling $227 which are included in accrued expenses at March 31, 2010 and additional paid-in capital was increased by $28 to recognize previously unrecognized stock compensation expense remaining from the original grant date valuations of the options.

(9) REDEEMABLE PREFERRED STOCK

On January 28, 2010, The Company entered into an agreement providing for the issuance of 120,000 shares of Series B Preferred Stock to Bain Capital Venture Integral Investors, LLC (“Bain”) at $100 per share for total proceeds of $12,000. The carrying value of the Series B Preferred Stock at March 31, 2010 is as follows:

 

Original face value plus accrued dividends

   $ 12,236   

Issuance costs and beneficial conversion feature discount

     (852

Accretion on preferred stock

     2   
        
   $ 11,386   
        

The carrying value of the Series B Preferred Stock is reduced by the issuance stock costs and any beneficial conversion feature discounts and is then accreted back to redemption value over the eight year redemption period.

Each share of Series B Preferred Stock is convertible into a number of shares of the Company’s common stock determined by dividing the purchase price per share plus accrued dividends by an initial conversion price of $1.10 per share, subject to standard antidilution adjustments. However, the shares of Series B Preferred Stock are not convertible to the extent that such conversion would result in the Purchaser and its affiliates owning in excess of 19.9% of the shares of the Company’s voting power. The holders of Series B Preferred Stock are entitled to the number of votes equal to the number of shares of common stock into which such holder’s Series B Preferred Stock are convertible, subject to the same limitations on conversion as set forth in the preceding sentence. The Series B Preferred Stock contains a compounding, cumulative 11.44037% per annum dividend. Following the fifth anniversary of the issuance of the Series B Preferred Stock, the dividend will no longer accrue unless declared by the Board of Directors of the Company. The dividends will be cumulative, whether or not declared, accrue daily and compound annually.

On or at any time after the eighth anniversary of the Purchase Agreement (January 28, 2018), if requested by holders of at least a majority of the then outstanding Series B Preferred Stock, each holder of Series B Preferred Stock shall have the right to require the Company to redeem all the Series B Preferred Stock, for cash, at a redemption price equal to the original purchase price plus all accrued and unpaid dividends thereon.

In the event of a liquidation, dissolution or wind up of the Company, the holders of the Series B Preferred Stock are entitled to a liquidation preference equal to the greater of (i) the original purchase price plus all accrued and unpaid dividends thereon, or (ii) the amount that would be payable in respect of a share of common stock if all outstanding shares of Series B Preferred Stock were converted into common stock immediately prior to such liquidation. The amount of liquidation preference calculated in accordance with the provisions of item (ii) of this paragraph at March 31, 2010 is approximately $20,468 based on the market price of the Company’s common stock on March 31, 2010.

In the event of a change in control of the Company as defined in the agreement, each holder of Series B Preferred Stock shall have the right to require the Company to redeem all or a portion of such holder’s Series B Preferred Stock for cash, if the consideration in such change of control transaction is cash, but otherwise for consideration in the same form as all other stockholders will receive in such transaction, at a redemption price per share of Series B Preferred Stock equal to the greater of (i) the fair market value per share valued as of the date of the change of control determined on as-converted to common stock basis (without regard as to whether sufficient shares of common stock are available out of the Company’s authorized but unissued stock, for the purpose of effecting the conversion of the Series B Preferred Stock) and (ii) the original purchase price plus all accrued and unpaid dividends thereon, provided, however, that in the event of a change of control prior to the fifth anniversary of the issue date, accrued and unpaid dividends will include all dividends that would have accrued thereon from the issue date through and including the fifth anniversary of the issue date.

 

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EDGAR ONLINE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

 

The amount payable to the Series B stockholders calculated in accordance with the provisions of item (ii) of this paragraph at March 31, 2010 would have been approximately $34,500 based on the market price of the Company’s common stock on March 31, 2010.

The redemption value of the Series B Preferred Stock, representing the original purchase price plus accrued and unpaid dividends, and the number of common shares issuable in the event the conversion provisions are excercised, at December 31 of each of the succeeding five year periods and at the fifth anniversary of the Agreement is expected to be as follows:

 

YEAR

   REDEMPTION VALUE    COMMON SHARES ISSUABLE
UPON CONVERSION

2010

   $ 13,267    12,061,364

2011

   $ 14,785    13,441,182

2012

   $ 16,481    14,983,182

2013

   $ 18,367    16,697,273

2014

   $ 20,468    18,607,545

January 28, 2015

   $ 20,625    18,750,000

(10) RELATED PARTY TRANSACTIONS

The Company reimbursed Bain $154 for costs related to the issuance of the Series B Preferred Stock. Two principals of Bain were appointed to our Board of Directors in accordance with the terms of the Series B Preferred Stock, and representatives of Bain from time to time have, or will, provide consulting services to us. There were no fees paid to the Bain Board Members or consultants for the period ended March 31, 2010.

(11) INCOME TAXES

Since its inception, the Company has incurred net operating losses and has incurred no federal or state income tax expense. At December 31, 2009, the Company had approximately $40,000 in federal net operating losses which will expire between 2011 and 2029, and approximately $38,000 of state net operating loss carry forwards which will expire between 2010 and 2027. Under Section 382 of the Internal Revenue Code of 1986, as amended, the utilization of net operating loss carry forwards is subject to annual limitations based on past and future changes in ownership of the Company. The Company has determined that it has experienced multiple ownership changes since inception, but does not believe that these changes in ownership will restrict its ability to use its losses and credits within the carry forward period. Approximately $13,000 of the total federal net operating loss is currently subject to an annual limitation of approximately $1,400 per year. If we have further ownership changes, additional annual limitations on the use of our net operating loss carry-forwards may be imposed.

(12) RECENT ACCOUNTING PRONOUNCEMENTS

In September 2009, the Financial Accounting Standards Board issued authoritative guidance on revenue arrangements with multiple deliverables that are not covered by software revenue guidance. This guidance provides another alternative for establishing fair value for a deliverable when vendor specific objective evidence or third-party evidence for deliverables in an arrangement cannot be determined. Under this guidance, companies will be required to develop a best estimate of the selling price for separate deliverables. Arrangement consideration will need to be allocated using the relative selling price method as the residual method will no longer be permitted. This guidance is effective January 1, 2011, and early adoption is permitted. The Company is currently evaluating the impact, if any, of this guidance on its consolidated financial statements.

Other recently issued accounting pronouncements are not expected to have a material impact on the Company’s financial position or results of operations.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS)

OVERVIEW

We create and distribute 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, and use our automated processing platform and our expertise in XBRL to produce both datasets and tools to assist organizations with the creation, management and distribution of XBRL financial reports. We launched our EDGAR Online web site and began selling our subscription services and establishing contractual relationships with business and financial information web sites to supply EDGAR content in January 1996.

We went public in May 1999. In September 1999, we acquired all of the outstanding equity of Partes Corporation, owner of the Freeedgar.com web site for $9,900. The purchase price consisted of the issuance of common stock, stock options and warrants, the assumption of liabilities and acquisition related expenses. In October 2000, we acquired all the outstanding equity of Financial Insight Systems, Inc. for approximately $28,100. The purchase price included the issuance of common stock and notes, a cash payment and acquisition related expenses.

We recognize revenue from providing the following services:

XBRL Filings. One of our data solutions provides partners and customers with a mechanism for converting financial statements into XBRL for filing with the SEC and potentially other regulators. R.R. Donnelley & Sons is one of our partners in this channel, whereby we provide services to their customer base for compliance with existing and upcoming SEC regulations mandating the submission of XBRL tagged company reports. This XBRL filing solution leverages our data processing engine and proprietary business rules that we have developed for tagging US GAAP financials with the appropriate XBRL tags. Our process combines our XBRL knowledge and expertise with data-tagging automation and workflow. We recognize revenue from fixed fees on a ratable basis as well as per-filing fees as the services are provided. As of December 30, 2009, our relationship with R.R. Donnelley & Sons became non-exclusive for both parties. We are now exploring other potential XBRL partnerships and distribution agreements. We plan to structure our future agreements on the model we signed with other financial printers in which we receive both filings fees and minimum conversions, however we may on occasion sign contracts without minimums where we believe the relationship will not be material to our capacity or revenues, or where doing so would otherwise be advantageous to our interests.

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, full access to SEC filings in multiple formats, standardized and as-reported fundamental financial 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-cancelable, 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. In addition, some of our data solutions are billed on a time and materials basis, per service level agreements or for delivery of data. We review each contract in connection with the respective governing accounting literature to determine revenue recognition on a case-by-case basis. Revenue from time and materials based agreements and data delivery is recognized as the data and services are provided. Upfront customization fees are recorded systematically over the expected customer relationship period.

 

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Subscriptions. Our end-user subscription services include I-Metrix and I-Metrix Professional, EDGAR Pro and EDGAR Access. I-Metrix delivers a web only service while I-Metrix Professional 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 via the web and a Microsoft Excel add-in. EDGAR Pro offers financial data, stock ownership, public offering data sets and advanced search tools for corporate reports filed via the EDGAR system. 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. Subscriptions also includes 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 web sites. Revenue from subscription services is recognized ratably over the subscription period, which is typically one year. 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, 2009.

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
MARCH 31,
 
     2009     2010  

Total revenues

   100   100

Cost of revenues

   27      33   
            

Gross profit

   73      67   

Operating expenses:

    

Sales and marketing

   22      16   

Product development

   13      9   

General and administrative

   48      41   

Severance costs

   1      5   

Amortization and depreciation

   12      15   
            

Loss from operations

   (23   (20 )

Interest and other, net

   (3   (2
            

Net loss

   (26 )%    (22 )% 
            

REVENUES

Total revenues for the three months ended March 31, 2010 increased 3% to $4,366, from $4,235 for the three months ended March 31, 2009. The net increase in revenues was primarily attributable to a $708, or 293%, increase in XBRL filings revenues which was partially offset by a $337, or 18%, decrease in subscriptions revenues and a $240, or 11%, decrease in data and solutions revenues.

XBRL FILINGS

 

     THREE MONTHS ENDED
MARCH 31,
 
     2009     2010  

Revenues (in $000s)

   $ 242      $ 950   

Percentage of total revenues

     6     22

The increase in XBRL filings revenues for the three months ended March 31, 2010 from the three months ended March 31, 2009 was directly related to the SEC rules that require certain companies to file their documents in XBRL beginning with the quarter ended after June 15, 2009, as well as XBRL conversions from companies that were not required to file with the SEC.

 

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DATA AND SOLUTIONS

 

     THREE MONTHS ENDED
MARCH  31,
 
     2009     2010  

Revenues (in $000s)

   $ 2,163      $ 1,923   

Percentage of total revenues

     51     44

Number of contracts

     283        296   

Data and solutions revenues decreased for the three months ended March 31, 2010 from the three months ended March 31, 2009 primarily due to a decrease in data solutions revenues resulting in reductions from one contract. Although the number of data license contracts has increased, the revenues from data licenses is relatively consistent with prior year as there were several large cancellations in 2009.

SUBSCRIPTIONS

 

     THREE MONTHS ENDED
MARCH 31,
 
     2009     2010  

Revenues (in $000s)

   $ 1,830      $ 1,493   

Percentage of total revenues

     43     34

Number of subscribers

     10,700        9,500   

Average price per subscriber

   $ 684      $ 629   

Subscription revenues for the three months ended March 31, 2010 decreased from the three months ended March 31, 2009 due to decreased sales of our premium products, EDGAR Pro and I-Metrix Professional, as well as decreased sales of EDGAR Access, our retail service. Our subscription business has been impacted by unprecedented business and workforce reductions in the financial services community over the past year and the recent and continuing economic downturn in general. While we continue to add new subscribers to all of our subscription products, cancellations exceeded these new sales during the referenced periods.

COST OF REVENUES

Cost of revenues primarily consists of salaries and benefits of operations employees to produce data sets and create XBRL filings, fees paid to acquire data and the amortization of costs related to developing our I-Metrix products that were previously capitalized. Total cost of revenues for the three months ended March 31, 2010 increased $279, or 24%, to $1,430 from $1,151 for the three months ended March 31, 2009. The net increase in cost of revenues was primarily due to a $220 increase in payroll related expenses and a $61 increase in XBRL related production costs.

GROSS PROFIT

Gross profit for the three months ended March 31, 2010 decreased $148, or 5%, to $2,936 from $3,084 for the three months ended March 31, 2009. The gross profit percentage decreased to 67% for the three months ended March 31, 2010 from 73% for the three months ended March 31, 2009. The decreases in the gross profit percentages were due to the higher cost of revenues related to XBRL filings revenues which have increased as a percentage of total revenues. We expect our gross profit percentages will decline as we increase our XBRL business since the gross profit margins related to the XBRL business are lower than our historical gross profit margins from our data and subscription businesses.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses consist primarily of salaries and benefits, sales commissions, advertising expenses, and costs of marketing materials. Sales and marketing expenses for the three months ended March 31, 2010 decreased $225, or 24%, to $704 from $929 for the three months ended March 31, 2010. The net decrease was primarily due to an $87 decrease in advertising and marketing expenses, a $73 decrease in stock compensation expenses and a $31 decrease in professional fees.

 

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Development. Development expenses, which consist primarily of salaries and benefits and outside development costs, for the three months ended March 31, 2010 decreased $149, or 27%, to $409 from $558 for the three months ended March 31, 2009. The decrease was primarily due to a $93 decrease in professional fees and a $43 decrease in payroll costs.

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 March 31, 2010 decreased $219, or 11%, to $1,811 from $2,030 for the three months ended March 31, 2009. The net decrease was primarily due to a $183 decrease in stock compensation expense and an $86 decrease in professional fees which were partially offset by a $29 increase in insurance expenses and a $13 increase in rent.

Severance Costs. In the three months ended March 31, 2010, we accrued $227 of severance costs related to the resignation of our former Chief Financial Officer. As part of the severance agreement, 50,000 options immediately vested. As a result, additional paid-in capital was increased by $28 to recognize previously unrecognized stock compensation expense remaining from the original grant date valuations of the options. In the three months ended March 31, 2009, we accrued $57 of severance costs related to workforce reductions.

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 March 31, 2010 increased $167, or 34%, to $664 from $497 for the three months ended March 31, 2010. The increases were primarily due to increased capital expenditures and the addition of amortization expense related to capitalized XBRL development costs.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operating activities was $321 for the three months ended March 31, 2010 compared to net cash provided of $282 for the three months ended March 31, 2009, primarily due to the decrease in accounts payable and accrued expenses resulting from payments made in the first quarter of March 31, 2010.

Net cash used in investing activities was $848 for the three months ended March 31, 2010 compared to net cash used in investing activities of $567 for the three months ended March 31, 2009. The increase for the three months ended March 31, 2010 was due to a $215 increase in capital expenditures and a $65 increase in capitalized product development costs.

Net cash provided by financing activities was $11,107 for the three months ended March 31, 2010 compared to net cash used of $47 for the three months ended March 31, 2009. On January 28, 2010 we issued 120,000 shares of our Series B Preferred Stock for $12,000, offset by fees incurred of $768. Generally, each Series B Preferred Share is convertible into shares of our common stock determined by dividing the purchase price per share plus accrued dividends by a conversion price of $1.10 per share. Under certain conditions, we may be required to redeem all or part of the Series B Preferred Shares at fair value (see Note 9, Redeemable Preferred Stock of the accompanying notes to unaudited financial statements). We expect to use a substantial portion of the proceeds from the issuance to support investment in personnel, infrastructure, training and other costs related to our XBRL filings business.

We are party to a Financing Agreement with Rosenthal and Rosenthal, Inc. (“Rosenthal”) for additional working capital. Under the Financing Agreement, Rosenthal made a term loan in the original principal amount of $2,500 to us and has provided a revolving line of credit of up to $2.5 million. 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, as amended. On April 22, 2008, the ratios and covenants were amended effective as of December 31, 2007. On March 13, 2009, the ratios and covenants were further amended effective December 31, 2008. In addition, the maturity date was extended to March 30, 2011 and the renewal date was extended to March 31, 2011. We were in compliance with these ratios and covenants, as amended, at March 31, 2010. At March 31, 2010 we had sufficient cash to repay the outstanding indebtedness under the term loan. The Financing Agreement, as amended, terminates on March 30, 2011 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 expired unexercised 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.

 

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At March 31, 2010, we had cash and cash equivalents on hand of $12,039. We have no off-balance sheet arrangements at March 31, 2010. We believe that our existing capital resources will be sufficient to meet our anticipated cash needs for funding working capital needs, capital expenditures and debt obligations for at least the next 12 months. Thereafter, if the remaining cash from the proceeds from our Series B preferred stock issuance and 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.

 

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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, 2009.

 

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 Interim 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 Interim 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 Exchange Act, 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 Exchange Act, 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.

Changes in Internal Control over Financial Reporting

Our Chief Financial Officer resigned effective March 31, 2010 and we hired an Interim Chief Financial Officer effective April 14, 2010. There were no other changes in our internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control 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.

 

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PART II. OTHER INFORMATION.

 

ITEM 1. LEGAL PROCEEDINGS.

None

 

ITEM 1A. RISK FACTORS.

The risk factors, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, 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, 2009. Please refer to Item I of our Annual Report for 2009 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 2010, and may incur additional losses in 2011. At March 31, 2010, we had an accumulated deficit of approximately $70 million. 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 and development 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 and increase our intellectual property portfolio which reduces 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 have increased from $14.2 million in 2005 to $19.2 million in 2009, 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 three months ended March 31, 2010 totaled $4.4 million. We cannot assure you that our revenues will grow or that we will achieve or maintain profitability in the future.

In 2009, we derived a significant portion of our total revenue from our partnership with R.R. Donnelley & Sons. We cannot guarantee the continuance of this revenue stream or, if it does continue, that it will remain as significant.

Sales to R.R. Donnelley & Sons accounted for 22% of our total revenues for the three months ended March 31, 2010 and for the year ended December 31, 2009 due to our partnership in which we jointly offer public companies a compliance solution for financial reporting in XBRL. Although our agreement with R.R. Donnelley & Sons is for an initial term of three years, if we and R.R. Donnelley & Sons cannot agree on annual and other fees each year, the services agreement may not continue as we originally anticipated. The second year of the services agreement began on October 1, 2009 and fees for the second year of the agreement were amended as of December 30, 2009. Fees for the third year of the agreement shall be agreed to prior to October 1, 2010. When we negotiate year three fees, we cannot assure you that we will agree on new pricing or other terms that will be attractive us.

On December 30, 2009, we amended our service agreement to make the relationship between us and R.R. Donnelley & Sons non-exclusive for both parties. As such, we cannot guarantee that R.R. Donnelley & Sons will continue to provide us with all of their XBRL clients, or will not chose another outside organization to translate its XBRL filings. In addition, because R.R. Donnelley & Sons recently announced an intention to purchase Bowne & Co., Inc., a provider of shareholder and marketing communications services, and Bowne & Co., Inc. has an in-house XBRL solution, we cannot assure you that R.R. Donnelley & Sons will continue to use any external XBRL provider.

In addition, our costs relating to our joint XBRL compliance solution, including personnel and other resources dedicated to XBRL conversion, may make the R.R.Donnelley & Sons partnership not as profitable as we expected. Also any variance or uncertainty in R.R. Donnelley & Sons’ position as one of the market leaders in the printing industry could compromise our position in the compliance market. The loss or decrease in business of the significant relationship we have with R.R. Donnelley & Sons, a decline in the success of R.R. Donnelley & Sons as an industry leader, or if the partnership is not as long or lucrative as we expected could have a material adverse effect on our financial results.

 

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Future delays or changes to the SEC mandate may impact the growth of our XBRL filings business.

Revenues generated from our XBRL filings business are based on a number of factors, including the SEC mandate. The SEC has currently mandated phased-in XBRL filing; filers with over $5 billion in market capital in 2009, large accelerated filers in 2010, and all remaining filers in 2011. Each of the groups must start tagging their primary financial statements in their first year of filing and expand their tagging to include detailed footnotes in the second year of the filing. The SEC, in its final adoption of XBRL as a regulatory standard, initially delayed the implementation of the mandate for U.S. filers from what we originally expected. If the SEC changes or delays the mandate as it now stands, our revenue opportunity could be significantly restricted. Such a restriction would have a materially negative impact on our revenues and financial results.

The adoption of XBRL may potentially commoditize large parts of our business.

The XBRL mandate could commoditize some of our key revenue sources. As data comes out in native format from more companies, there is the potential that our customers may find less of a need for our XBRL dataset, analysis tools or solutions products. There will likely also be more competitors entering the market as the cost of collection is reduced. Any of these market forces could reduce our revenues, inhibit our growth, or increase our costs as we have to build or acquire additional innovations.

In connection with the XBRL conversion services that we offer, we are made aware of information regarding our clients prior to it becoming public. If we fail to keep this information confidential, our business and reputation could be significantly and adversely affected.

Part of our business involves the conversion of materials to XBRL format for filing with the SEC before the information contained in the materials is made public. As such, we are frequently in possession of confidential information and documentation regarding our clients before it is made public. Securities laws and regulations in the US and elsewhere contain penalties for misuse of material nonpublic information of the type we often possess, and violation of these laws and regulations could result in civil and criminal penalties. If we do not keep this information confidential, or misuse it in violation of the aforementioned laws and regulations, we could be subject to civil claims by our clients or other third parties or criminal investigations by appropriate authorities. We could also damage our relationships with existing clients or harm our ability to attract new clients.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Information required by this item is incorporated here by reference to the Company’s 8-K filing with the SEC on January 29, 2010 (Commission File Number 001-32194).

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

 

ITEM 4. REMOVED AND RESERVED.

 

 

ITEM 5. OTHER INFORMATION.

None.

 

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ITEM 6. EXHIBITS

a. Exhibits:

 

Exhibit

Number

 

Description

    3.1   Certificate of Designation of Series B Convertible Preferred Stock of the Company. (1)
    3.2   Amended and Restated Bylaws of the Company, dated January 28, 2010. (1)
    4.1   Investor Rights Agreement, dated January 28, 2010. (1)
  10.1   Series B Preferred Stock Purchase Agreement, dated January 28, 2010. (1)
  10.2   Amendment to Rights Plan, dated January 27, 2010. (1)
  10.3   Indemnity Agreement entered into between the Company and John M. Connolly.*+
  10.4   Indemnity Agreement entered into between the Company and Jeffrey Schwartz.*+
  10.5   Amendment to Employment Agreement, dated as of January 25, 2010, between the Company and Stefan Chopin.*+
  10.6   Separation of Employment and General Release Agreement, dated as of March 19, 2010 and effective as of March 31, 2010, between the Company and John C. Ferrara.*+
  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*
  32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS   XBRL Instance Document.**
101.SCH   XBRL Taxonomy Extension Schema Document.**
101.CAL   XBRL Taxonomy Calculation Linkbase Document.**
101.LAB   XBRL Taxonomy Label Linkbase Document.**
101.PRE   XBRL Taxonomy Presentation Linkbase Document.**

 

101.DEF

  XBRL Taxonomy Extension Definition Linkbase Document.**

 

(1) Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on January 29, 2010, and incorporated by reference herein.
+ Compensatory plan or arrangement.
* filed or furnished herewith, as the case may be
** submitted electronically herewith

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009, (ii) Condensed Consolidated Balance Sheets at March 31, 2010 and December 31, 2009, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 and (iv) Notes to Condensed Consolidated Financial Statements. Users of these 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. In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 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.

 

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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 thereunto duly authorized.

 

Date: May 17, 2010     EDGAR ONLINE, INC.
    By:   /S/    PHILIP D. MOYER        
      Philip D. Moyer
      Chief Executive Officer and President
    By:   /S/    RONALD P. FETZER        
      Ronald P. Fetzer
      Interim Chief Financial Officer

 

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