Edgar Online (EDGR) 10-Q 2006 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2006

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, or a non–accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b–2 of the Exchange Act. (Check one)

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  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 November 14, 2006: 25,756,782 shares.

EDGAR ONLINE, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2006

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,” “approximately,” 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

	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets December 31, 2005 and September 30, 2006 (unaudited)	3
Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 2005 and 2006 (unaudited)	4
Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2005 and 2006 (unaudited)	5
Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3. Quantitative and Qualitative Disclosures About Market Risk	15
Item 4. Controls and Procedures	16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	17
Item 1A. Risk Factors	17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3. Defaults Upon Senior Securities	17
Item 4. Submission of Matters to a Vote of Security Holders	18
Item 5. Other Information	18
Item 6. Exhibits	18
Signatures	19

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

EDGAR ONLINE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

	December 31, 2005			September 30, 2006 (unaudited)
ASSETS
Cash and cash equivalents	$	5,334		$	3,662
Short-term investments		—			200
Accounts receivable, less allowance of $372 and $358, respectively		2,296			2,588
Other current assets		271			485
Total current assets		7,901			6,935
Property and equipment, net		1,238			1,047
Goodwill		2,189			2,189
Other intangible assets, net		6,690			5,755
Other assets		1,237			1,198
Total assets	$	19,255		$	17,124
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	2,439		$	1,802
Deferred revenues		3,450			4,079
Total current liabilities		5,889			5,881
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 shares authorized, 26,168,348 shares issued and 24,998,398 shares outstanding at December 31, 2005 and 26,987,586 shares issued and 25,756,782 shares outstanding at September 30, 2006		262			270
Additional paid-in capital		66,873			69,352
Accumulated deficit		(51,888	)		(56,247	)
Less: Treasury stock, at cost, 1,169,950 shares at December 31, 2005 and 1,230,804 shares at September 30, 2006		(1,881	)		(2,132	)
Total stockholders’ equity		13,366			11,243
Total liabilities and stockholders’ equity	$	19,255		$	17,124

See accompanying notes to condensed consolidated financial statements.

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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,
	2005			2006			2005			2006
Revenues:
Subscriptions	$	2,102		$	2,271		$	6,038		$	7,017
Data licenses		1,274			1,719			3,867			4,968
Technical services		47			—			376			—
Advertising and e-commerce		42			74			297			196
Total revenues		3,465			4,064			10,578			12,181
Cost of revenues		487			603			1,537			1,828
Gross profit		2,978			3,461			9,041			10,353
Operating expenses:
Sales and marketing		1,210			1,358			3,495			3,888
Development		697			926			1,783			2,846
General and administrative		2,124			2,234			6,137			6,746
Depreciation and amortization		500			443			1,445			1,346
		4,531			4,961			12,860			14,826
Loss from operations		(1,553	)		(1,500	)		(3,819	)		(4,473	)
Interest and other income, net		52			38			99			114
Net loss	$	(1,501	)	$	(1,462	)	$	(3,720	)	$	(4,359	)
Weighted average shares outstanding - basic and diluted		24,957			25,706			23,616			25,392
Net loss per share - basic and diluted	$	(0.06	)	$	(0.06	)	$	(0.16	)	$	(0.17	)

See accompanying notes to condensed consolidated financial statements.

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EDGAR ONLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	Nine Months Ended September 30,
	2005			2006
Cash flows from operating activities:
Net loss	$	(3,720	)	$	(4,359	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		510			411
Amortization of intangibles		935			935
Stock-based compensation expense		—			776
Amortization of capitalized product costs		15			135
Recovery of losses on trade accounts receivable		(125	)		(14	)
Changes in assets and liabilities:
Accounts receivable		(651	)		(278	)
Other assets, net		(895	)		(307	)
Accounts payable and accrued expenses		240			(540	)
Deferred revenues		1,095			629
Total adjustments		1,124			1,747
Net cash used in operating activities		(2,596	)		(2,612	)
Cash flows from investing activities:
Sales (purchases) of held-to-maturity investments		2,000			(200	)
Purchases of property and equipment		(394	)		(221	)
Net cash provided by/(used in) investing activities		1,606			(421	)
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants		4,521			1,361
Payments for warrant redemption		(15	)		—
Net cash provided by financing activities		4,506			1,361
Net change in cash and cash equivalents		3,516			(1,672	)
Cash and cash equivalents at beginning of period		2,678			5,334
Cash and cash equivalents at end of period	$	6,194		$	3,662
Supplemental disclosure of non-cash transactions:
Options granted in connection with settlement of litigation	$	—		$	97
Treasury stock acquired in lieu of option exercise proceeds	$	—		$	251

See accompanying notes to condensed consolidated financial statements.

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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 is a leading provider of value-added business and financial information on global companies to financial, corporate and advisory professionals.

The unaudited interim financial statements of the Company as of September 30, 2006 and for the three and nine months ended September 30, 2005 and 2006 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, 2006, the results of its operations for the three and nine months ended September 30, 2005 and 2006, and its cash flows for the nine months ended September 30, 2005 and 2006. The results for the nine months ended September 30, 2006 are not necessarily indicative of the expected results for the full 2006 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, 2005, filed with the SEC in March 2006.

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) LOSS PER SHARE

Basic loss per share excludes dilution for common stock equivalents and is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted loss 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 as the outstanding stock options and warrants are anti-dilutive for each of the periods presented. At September 30, 2005 and 2006, the number of options outstanding were 3,110,292 and 3,051,871, respectively. At September 30, 2005 and 2006, the number of warrants outstanding were 429,631 and 7,631, respectively.

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(3) SOFTWARE DEVELOPMENT COSTS

The Company capitalizes 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 that are being amortized totaled $837 and $703 at December 31, 2005 and September 30, 2006, respectively. Amortization of these costs amounted to $15 and $45 for the three months ended September 30, 2005 and 2006, respectively, and $15 and $135 for the nine months ended September 30, 2005 and 2006, respectively, and has been reflected in cost of revenues. Any further software development costs incurred for these products are being expensed to development expenses in accordance with SFAS 86. In addition, there are $89 of software development costs at September 30, 2006 which are not yet being amortized as the product has not become available for general release.

(4) STOCK-BASED COMPENSATION

Adoption of SFAS 123(R)

Prior to January 1, 2006, the Company accounted for stock-based compensation according to the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations, as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Accordingly, the Company did not recognize compensation expense for stock options granted to employees and directors with exercise prices equal to or in excess of the fair value of the underlying shares at the date of grant.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based Payment,” (“SFAS 123(R)”), using the modified prospective transition method. In addition, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107 “Share Based Payment” (“SAB 107”) in March 2005, which provides supplemental SFAS 123(R) application guidance based on the views of the SEC. Under SFAS 123(R), the Company is required to recognize compensation expense for all employee and director stock-based compensation awards, which have historically been solely comprised of stock options, based on estimated grant date fair values. Under the modified prospective transition method, compensation cost recognized in the three and nine months ended September 30, 2006, includes (a) compensation cost for all stock-based awards granted prior to, but not fully vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, and (b) compensation cost for all stock-based awards granted beginning January 1, 2006, based on the grant date fair value estimated in accordance with SFAS 123(R). In accordance with the modified prospective transition method, results for prior periods have not been restated.

The Company recognizes stock-based compensation expense on a straight-line basis over the applicable vesting period. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Additionally, SFAS 123(R) requires the estimated forfeiture rate be applied and the cumulative effect determined for all prior periods in which stock-based compensation costs have been recorded. Prior to the Company’s adoption of SFAS 123(R), the Company accounted for forfeitures as they occurred. Upon adopting SFAS 123(R), the Company estimated expected forfeitures over the life of each individual award and has included the impact of these expected forfeitures in stock-based compensation expense for the three and nine months ended September 30, 2006.

Stock-Based Compensation Expense

The adoption of SFAS 123(R), resulted in stock-based compensation expense for the three months ended September 30, 2006 totaling $249, of which $8 is included in cost of revenues, $71 is included in sales and marketing expenses, $14 is included in development expenses and $156 is included in general and administrative expenses. This expense increased the Company’s net loss per share for the three months ended September 30, 2006 by $0.01. The adoption of SFAS 123(R), resulted in stock-based compensation expense for the nine months ended September 30, 2006 totaling $776, of which $30 is included in cost of revenues, $213 is included in sales and marketing expenses, $47 is included in development expenses and $486 is included in general and administrative expenses. This expense increased the Company’s net loss per share for the nine months ended September 30, 2006 by $0.03.

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The following table illustrates the effect on net loss and net loss per share had the Company applied the fair value recognition provisions of SFAS 123(R) to stock-based compensation awards prior to January 1, 2006:

	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
	(in thousands)			(in thousands)
Net loss:
As reported	$	(1,501	)	$	(3,720	)
Deduct: Stock–based compensation expense determined under fair value based method for all employee awards		(175	)		(518	)
Pro forma net loss	$	(1,676	)	$	(4,238	)
Net loss per share—basic and diluted:
As reported	$	(0.06	)	$	(0.16	)
Pro forma	$	(0.07	)	$	(0.18	)

The estimated per share weighted average grant-date fair values of stock options granted during the three months ended September 30, 2005 and 2006, were $1.62 and $3.60, respectively. The estimated per-share weighted average grant-date fair values of stock options granted during the nine months ended September 30, 2005 and 2006, were $1.68 and $1.99 respectively. Amounts for the three and nine months ended September 30, 2005 and 2006 were determined using the Black-Scholes-Merton option pricing model based on the following assumptions:

	2005		2006
Expected dividend yield	0.0	%	0.0	%
Expected volatility	53-94	%	80-104	%
Risk-free interest rate	4.20-4.48	%	4.78-5.13	%
Expected life in years	10		6.5

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 and a half years;

• Risk-free interest rate— based on the yield available on United States 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 SAB 107.

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Stock Options as of September 30, 2006

In November 1998, the Company adopted the 1996 Stock Option Plan (the “1996 Plan”) whereby the Company’s Board of Directors could grant stock options to officers, employees, directors and consultants. The 1996 Plan authorized the issuance of options to purchase up to 800,000 shares of the Company’s common stock.

On March 25, 1999, the Company adopted the 1999 Stock Option Plan (the “1999 Plan”) and the 1999 Outside Directors Stock Option Plan (the “1999 Directors Plan”). The 1999 Plan originally authorized the issuance of options to purchase up to 600,000 shares of the Company’s common stock under the same provisions as the 1996 Plan. At the Annual Shareholder Meetings held on August 1, 2002, 2001 and 2000, the 1999 Plan was amended to increase the number of shares available for grant by 500,000, 500,000 and 800,000, respectively. At the Annual Meeting of Stockholders held on May 27, 2004, the 1999 Plan was amended to increase the number of shares available for grant by 800,000. The 1999 Directors Plan authorized the issuance of options to purchase up to 100,000 shares of the Company’s common stock.

In May 2005, the Company adopted the 2005 Stock Plan (the “2005 Plan”) which replaced the 1999 Plan, the FreeEDGAR Plan, the 1996 Plan and the 1999 Directors Plan. The remaining available shares under the 1999 Plan, the FreeEDGAR Plan, the 1996 Plan and the 1999 Directors Plan are 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.

Option activity for all plans for the nine months ended September 30, 2006 is as follows:

	NUMBER OF OPTIONS		WEIGHTED AVERAGE EXERCISE PRICE
Outstanding at December 31, 2005	3,042,883		$	2.21
Issued	944,500		$	2.43
Exercised	(819,238	)	$	1.97
Cancelled	(116,274	)	$	3.09
Outstanding at September 30, 2006	3,051,871		$	2.31

The total intrinsic value, or the difference between the exercise price and the market price on the date of exercise, of all options exercised during the nine months ended September 30, 2006, was approximately $2.0 million. Cash received from stock options exercised during the nine months ended September 30, 2006 was $1.4 million.

Stock options outstanding and currently exercisable at September 30, 2006 are as follows:

OPTIONS OUTSTANDING

RANGE OF EXERCISE PRICE	NUMBER OUTSTANDING	WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE	WEIGHTED AVERAGE EXERCISE PRICE
$ 0.25 to $ 1.00	392,447	4.25	$	0.57
$ 1.01 to $ 2.00	1,445,981	8.22	$	1.54
$ 2.01 to $ 3.00	314,543	7.49	$	2.50
$ 3.00 to $ 4.00	520,400	7.50	$	3.12
$ 4.01 to $ 5.00	264,500	2.91	$	4.50
$ 5.01 to $ 10.00	114,000	3.19	$	8.90
$ 0.25 to $ 10.00	3,051,871	6.86	$	2.31

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OPTIONS EXERCISABLE

RANGE OF EXERCISE PRICE	NUMBER EXERCISABLE	WEIGHTED AVERAGE EXERCISE PRICE
$ 0.25 to $ 1.00	335,647	$	0.51
$ 1.01 to $ 2.00	460,829	$	1.26
$ 2.01 to $ 3.00	147,878	$	2.50
$ 3.01 to $ 4.00	220,400	$	3.27
$ 4.01 to $ 5.00	249,500	$	4.50
$ 5.01 to $ 10.00	114,000	$	8.90
$ 0.25 to $ 10.00	1,528,254	$	2.61

At September 30, 2006, 928,202 options are available for grant under the 2005 Plan.

(5) SALE OF COMMON STOCK AND WARRANTS

In May 2004, the Company sold 2,500,000 units for $2.00 per unit in a public offering. Each unit consisted of two shares of common stock and one warrant to purchase one share of the Company’s common stock. An additional 375,000 units were sold to cover over-allotments. Of the 750,000 shares included in these units, 300,000 were offered by a selling stockholder and no related proceeds were received by the Company. The Company also issued a warrant to purchase 250,000 units for a price of $2.40 per unit to the underwriter of the offering. Net proceeds of $4.1 million were received by the Company in connection with this sale. Prior to the redemption described below, the warrants included in the units had an exercise price of $1.50 and were exercisable until May 29, 2009. Beginning November 26, 2004, the Company had the right to redeem some or all of the warrants at a price of $0.25 per warrant at anytime after the closing price for the Company’s stock equaled or exceeded $2.00 per share for any five consecutive trading days by giving certain notice to the then warrant holders.

In March 2005, the Company exercised its redemption right by sending notices of redemption to holders of all of its outstanding public warrants. Pursuant to the redemption notice, holders of the public warrants were given the opportunity to exercise their warrants until the close of business on April 28, 2005. After April 28, 2005, the Company redeemed any unexercised public warrants at a price of $0.25 per warrant. As a result, 360,675 warrants were exercised in March 2005 resulting in gross proceeds of $541 and 2,455,146 warrants were exercised in April 2005 resulting in gross proceeds of $3.7 million. The Company paid $15 to redeem 59,179 warrants which were not exercised during the redemption period. In addition, the underwriter exercised their warrant in a cashless transaction which resulted in 495,431 shares being issued in April 2005.

(6) RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the SEC staff issued SAB No. 108,Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. This statement is effective for fiscal years beginning after November 15, 2006. The Company does not expect the adoption of this standard to have a material effect on our financial position, results of operations or cash flows.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are a leading provider of value-added business and financial information on global companies to financial, corporate and advisory professionals. 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.

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We went public in May 1999. In September 1999, we acquired all of the outstanding equity of Partes Corporation, owner of the Freeedgar.com website (“FreeEDGAR”), for $9.9 million. In October 2000, we acquired all the outstanding equity of Financial Insight Systems (“FIS”) for approximately $28.1 million. We are continuing to focus on growing our subscription revenues and corporate data licenses and expect to generate positive cash flow from operations by offering the following products and services:

Subscriptions. Our subscription services include our I-Metrix suite of products, EDGAR Pro and EDGAR Access. The I-Metrix suite of products, launched in 2005, is designed solely for analyzing documents that have been formatted in XBRL and for use with Microsoft Excel and web-based systems. EDGAR Pro is sold online and by our sales force and is available via multi-seat and enterprise-wide contracts. Sales leads are primarily provided from the traffic to our websites from content partners like Yahoo! Finance and search engine marketing efforts with Google and others, and from the migration of users from EDGAR Access. The price of a new subscription is approximately $100 per month or $1,200 per year. Additional fees are applied when the customer requests additional, specific content such as conference call transcripts and global annual and interim reports. Our retail product is EDGAR Access, which has fewer features than EDGAR Pro. This product is available online for approximately $220 per year and is purchased annually or quarterly in advance with a credit card. Revenue from subscription services is recognized ratably over the subscription period, which is typically twelve months.

Data Licenses. Through EDGAR Explorer, we license services that integrate our products into our customers’ existing applications. The average annual price per contract was approximately $28,000 at September 30, 2006. Prices vary depending on such factors as the quantity, type and format of information provided. Revenue from data licenses is recognized over the term of the contracts, which are typically non-cancelable, one-year contracts with automatic renewal clauses, or, in the case of certain up-front fees, over the estimated customer relationship period.

I-Metrix Xcelerate. An additional part of our I-Metrix suite of products is I-Metrix Xcelerate. This service allows filing agents, exchanges and regulators to process content, including financial statements, into XBRL format. Customers can deliver XML or EDGAR formatted documents to us and receive formatted XBRL instance documents and taxonomies in return.

Other Services. 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. Revenue from technical services, consisting primarily of time and materials based contracts, is recognized in the period services are rendered. Advertising and e-commerce revenue is recognized as the services are provided. Through September 2005, Nasdaq was our sole technical services customer.

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, 2005.

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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,
	2005		2006		2005		2006
Total revenues	100	%	100	%	100	%	100	%
Cost of revenues	14		15		15		15
Gross profit	86		85		85		85
Operating expenses:
Sales and marketing	35		33		33		32
Product development	20		23		17		23
General and administrative	61		55		58		56
Amortization and depreciation	14		11		13		11
Loss from operations	(44	)	(37	)	(36	)	(37	)
Interest and other, net	1		1		1		1
Net loss	(43	)%	(36	)%	(35	)%	(36	)%

REVENUES

Total revenues for the three months ended September 30, 2006 increased 17% to $4.1 million from $3.5 million for the three months ended September 30, 2005. The net increase in revenues is primarily attributable to a $445, or 35%, increase in data licenses, a $169, or 8%, increase in subscriptions and a $32, or 76%, increase in advertising and e-commerce revenues which were partially offset by a $47, or 100%, decrease in technical services revenues. Total revenues for the nine months ended September 30, 2006 increased 15% to $12.2 million, from $10.6 million for the nine months ended September 30, 2005. The net increase in revenues is primarily attributable to a $979, or 16%, increase in subscriptions and a $1,101, or 28%, increase in data licenses which were partially offset by a $376, or 100%, decrease in technical services revenues and a $101, or 34%, decrease in advertising and e-commerce revenues.

SUBSCRIPTIONS

	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2005			2006			2005			2006
Revenues (in $000s)	$	2,102		$	2,271		$	6,038		$	7,017
Percentage of total revenue		61	%		56	%		57	%		58	%
Number of subscribers at September 30		20,600			18,200			20,600			18,200
Average annual price per subscriber	$	408		$	499		$	391		$	514

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The increase in subscription revenue for the three and nine months ended September 30, 2006 is primarily due to an over 20% increase in the average price per subscriber for the three months ended September 30, 2006 and over 30% increase in the average price per subscriber for the nine months ended September 30, 2006, which reflects sales of our I-Metrix suite of products in 2006. The increases in subscriptions to our premium product, EDGAR Pro, and I-Metrix were offset by subscriber cancellations and user migrations from our retail service, EDGAR Access, which caused the net decrease in the number of subscribers in 2006. During the first half of 2005, we expanded our sales, account management and marketing teams in order to sell EDGAR Pro and our I-Metrix suite of products to our existing and new customers and capitalize on our strategic initiatives and customer relationships. With an expanded sales team and continued increases in the sale of I-Metrix products, we expect to continue to increase subscription revenues and our average price per subscriber.

DATA LICENSES

	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2005			2006			2005			2006
Revenues (in $000s)	$	1,274		$	1,719		$	3,867		$	4,968
Percentage of total revenue		37	%		42	%		37	%		41	%
Number of subscribers at September 30		199			238			199			238
Average annual price per contract	$	25,608		$	28,891		$	25,910		$	27,831

Data licenses have increased due to the overall increase in the number of contracts and an increase in the average annual price per contract. In addition, data licenses in 2006 include revenues from Xcelerate, our I-Metrix data product which is being sold through our partnership with R.R. Donnelley which began in the first quarter of 2006.

TECHNICAL SERVICES

	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2005			2006			2005			2006
Revenues (in $000s)	$	47		$	—		$	376		$	—
Percentage of total revenue		1	%		—	%		3	%		—	%

Nasdaq was the sole client to which we provided technical services. Beginning in May 2003, Nasdaq reduced their technical services contract and all services under that contract ceased in 2005.

ADVERTISING AND E-COMMERCE

	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2005			2006			2005			2006
Revenues (in $000s)	$	42		$	74		$	297		$	196
Percentage of total revenue		1	%		2	%		3	%		1	%

The increase in advertising and e-commerce revenues for the three months ended September 30, 2006 is due to an increase in list sales. The decrease in advertising and e-commerce revenues for the nine months ended September 30, 2006 is primarily due to the decrease in advertising rates and impressions due to the migration of many of our users to our premium service that does not support ads.

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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, salaries and benefits of operations employees and the costs associated with our non-capitalizable computer equipment and communications lines used in conjunction with our websites. Beginning in the third quarter of 2005, cost of revenues also includes the amortization of costs related to developing our I-Metrix suite of products that were previously capitalized. These costs, which totaled $897,000, are being amortized over five years.

Total cost of revenues for the three months ended September 30, 2006 increased $116, or 24%, to $603 from $487 for the three months ended September 30, 2005. The net increase in the cost of revenues is primarily attributable to the addition of $30 of amortization related to the capitalized I-Metrix product development expenses, a $30 increase in data costs and a $25 increase in payroll related expenses. Total cost of revenues for the nine months ended September 30, 2006 increased $291 or 19%, to $1.8 million from $1.5 million for the nine months ended September 30, 2005. The net increase in cost of revenues is primarily attributable to a $129 increase in data costs, a $45 increase in payroll related expenses, a $120 increase in amortization related to the capitalized I-Metrix product development expenses and the addition of $30 non-cash stock-based compensation expense which were offset by the elimination of $46 related to barter expenses.

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, 2006 increased $148, or 12%, to $1.4 million from $1.2 million for the three months ended September 30, 2005. The net increase in sales and marketing expenses is primarily attributable to a $40 increase in travel and entertainment expenses as well as the addition of $71 of stock-based compensation expense. Sales and marketing expenses for the nine months ended September 30, 2006 increased $393, or 11%, to $3.9 million from $3.5 million for the nine months ended September 30, 2005. The net increase is primarily attributable to a $295 increase in payroll costs and the addition of $213 of stock-based compensation expense offset by a $137 decrease in marketing and advertising expenses.

Development. Development expenses for the three months ended September 30, 2006 increased $229, or 33%, to $926 from $697 for the three months ended September 30, 2005. The increase in development expenses is primarily attributable to the addition of $171 in outside development expenses related to the build out of the new I-Metrix suite of products which were not capitalized as they were incurred subsequent to the general release of the I-Metrix products, as well as $14 stock-based compensation expense. Development expenses for the nine months ended September 30, 2006 increased $1,063, or 60%, to $2.8 million from $1.8 million for the nine months ended September 30, 2005. The increase in development expenses is primarily attributable to the addition of $954 in outside development expenses related to the build out of the new I-Metrix suite of products which were not capitalized as they were incurred subsequent to the general release of the I-Metrix products, as well as $47 stock-based compensation expense.

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, 2006 increased $110, or 5%, to $2.2 million from $2.1 million for the three months ended September 30, 2005. The net increase is primarily attributable to a $214 increase in allowances for doubtful accounts and $156 of stock-based compensation expense which were offset by a $225 decrease in professional fees. General and administrative expenses for the nine months ended September 30, 2006 increased $609, or 10%, to $6.7 million from $6.1 million for the nine months ended September 30, 2005. The net increase is primarily attributable to a $317 increase in allowances for doubtful accounts, a $73 increase in payroll costs and a $76 increase in rent as well as $486 of stock-based compensation expense which were offset by a $346 decrease in professional fees.

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, 2006 decreased $57, or 11%, to $443 from $500 for the three months ended September

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30, 2005. Depreciation and amortization for the nine months ended September 30, 2006 decreased $99, or 7%, to $1.3 million from $1.4 million for the nine months ended September 30, 2005. The decrease is due to several fixed assets becoming fully depreciated.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations through private debt placements and the sale of equity securities to investors. We continue to focus on growing our subscription and corporate customer base while maintaining current operating cost levels.

Net cash used in operating activities was $2.6 million for the nine months ended September 30, 2006 and 2005. Net cash used in operating activities for the nine months ended September 30, 2006 reflects an increase in our loss from operations related to additional development expenditures due to the build out of the I-Metrix suite of products.

Capital expenditures, primarily for computers and equipment, totaled $394 for the nine months ended September 30, 2005 and $221 for the nine months ended September 30, 2006. The purchases were made to support our increased infrastructure.

In May 2004, we sold 2,500,000 units for $2.00 per unit in a public offering. Each unit consisted of two shares of our common stock and one warrant to purchase one share of our common stock. An additional 375,000 units were sold to cover over-allotments. Of the 750,000 shares of common stock included in the over-allotment units, 300,000 were offered by a selling stockholder and we did not receive any proceeds from that portion of the over-allotment. We also issued to the underwriter of the public offering a warrant to purchase 250,000 units for a price of $2.40 per unit. Prior to the redemption described below, the warrants issued as part of the units had an exercise price of $1.50 and were exercisable until May 29, 2009. Beginning November 26, 2004, we had the right to redeem some or all of the warrants at a price of $0.25 per warrant at anytime after the closing price for our common stock equaled or exceeded $2.00 per share for any five consecutive trading days by giving certain notice to the then warrant holders. In March 2005, we exercised our redemption rights by sending notices to holders of the outstanding public warrants issued in the May 2004 offering. Pursuant to the redemption notice, holders of the public warrants were given the opportunity to exercise their warrants until the close of business on April 28, 2005. After April 28, 2005, we redeemed any unexercised public warrants at a price of $0.25 per warrant. As a result, 360,675 warrants were exercised in March 2005 resulting in gross proceeds of $541,000 and 2,455,146 warrants were exercised in April 2005 resulting in gross proceeds of $3.7 million. We paid $15,000 to redeem 59,179 warrants which were not exercised during the redemption period.

At September 30, 2006, we had cash and cash equivalents and short term investments on hand of $3.9 million which includes a certificate of deposit (“CD”) for $2.5 million at 4.8% that matured in October 2006 and a CD for $200 at 4.96% which matured in November 2006. 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 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.

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, 2005.

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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. 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 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.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We expect to be a party, from time to time, to certain routine legal proceedings arising in the ordinary course of our business. Although we are not currently involved in any pending or threatening legal proceedings, we cannot accurately predict the outcome of any such proceedings if they arise in the future.

ITEM 1A. RISK FACTORS

The following risk factors, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, 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, 2005. Please refer to Item I of our Annual Report for 2005 for disclosures regarding the risks and uncertainties related to our business.

We have a history of losses and we expect to incur loses 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 2006, and may incur additional losses in 2007. At September 30, 2006, we had an accumulated deficit of $56.2 million. As a result, we will need to increase our revenues significantly 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 cannot assure you that we will be able to achieve or sustain profitability.

Our revenues have historical decreases. If we fail to increase revenues, we will not achieve or maintain profitability.

Our revenues decreased from approximately $14.3 million in 2003 to approximately $12.9 million in 2004. Revenues increased in 2005 to $14.2 million. Revenues for the nine months ended September 30, 2006 were $12.2 million. To achieve profitability, we will need to continue to increase revenues substantially through implementation of our growth strategy and/or reduce expenses significantly. We cannot assure you that our revenues will grow or that we will achieve or maintain profitability in the future.

Nasdaq accounts for a significant percentage of our total revenue. However, our Nasdaq related revenue has been decreasing over the last few years and we expect that this trend will continue.

A significant portion of our total revenues over the last two fiscal years has been attributable to the numerous work orders that we have performed under our agreements with Nasdaq. Sales to Nasdaq accounted for 8% and 7% of our total revenue during the three months ended September 30, 2005 and 2006, respectively, and 11% and 7% of our total revenue during the nine months ended September 30, 2005 and 2006, respectively. We expect that Nasdaq will continue to be a significant data license customer despite the termination of our technical services agreement. The loss of a significant customer such as Nasdaq would have a material adverse effect on our revenues.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

a. Exhibits:

Exhibit Number	Description
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*

* filed herewith

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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 hereunto duly authorized.

Date: November 14, 2006	EDGAR ONLINE, INC.
	By:	/s/ Susan Strausberg
		Susan Strausberg
		Chief Executive Officer, President and Secretary
	By:	/s/ Greg D. Adams
		Greg D. Adams
		Chief Financial Officer and Chief Operating Officer

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