1
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2000
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM: _____________________ TO _____________________
COMMISSION FILE NUMBER: 0-26071
EDGAR ONLINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1447017
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
50 WASHINGTON ST., NORWALK, CT 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. [x] Yes [] No
Number of shares of common stock outstanding at November 10, 2000: 14,908,917
shares
2
EDGAR ONLINE, INC.
FORM 10-Q
FOR THE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 (unaudited) and December 31, 1999.................. 4
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000
(unaudited) and 1999 (unaudited)..................................... 3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000
(unaudited) and 1999 (unaudited)..................................... 5
Notes to Consolidated Financial Statements.................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 8
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk.................................................................18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.....................................................19
ITEM 2. Changes in Securities and Use of Proceeds.............................19
ITEM 3. Defaults Upon Senior Securities.......................................19
ITEM 4. Submission of Matters to a Vote of Security
Holders..............................................................19
ITEM 5. Other Information.....................................................19
ITEM 6. Exhibits and Reports on Form 8-K......................................19
Signatures....................................................................20
2
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Corporate contracts $ 1,093 $ 271 $ 2,754 $ 583
Individual subscriptions 577 387 1,619 992
Advertising 323 323 1,309 549
Barter advertising 228 346 1,012 686
Other barter -- 34 23 103
-------- -------- -------- -------
Total Revenues 2,221 1,361 6,717 2,913
Cost of revenues:
Web site costs 326 145 1,016 290
Barter advertising expense 228 346 1,012 686
-------- -------- -------- -------
554 491 2,028 976
Gross profit 1,667 870 4,689 1,937
Operating expenses:
Sales and marketing 931 747 3,676 1,411
Development expenses 589 302 1,676 571
General and administrative 1,677 952 4,906 2,481
Amortization of intangibles 548 109 1,557 109
-------- -------- -------- -------
3,745 2,110 11,815 4,572
Loss from operations (2,078) (1,240) (7,126) (2,635)
Interest and other income
(expense), net 280 376 905 378
Loss before income taxes (1,798) (864) (6,221) (2,257)
Income tax provision -- -- -- --
-------- -------- -------- -------
Net loss (1,798) (864) (6,221) (2,257)
======== ======== ======== =======
Basic and diluted weighted
average shares outstanding 12,459 11,736 12,459 8,922
Basic and diluted net loss per share ($ 0.14) ($ 0.07) ($ 0.50) ($ 0.25)
See accompanying notes to financial statements
3
4
EDGAR ONLINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, 2000 December 31, 1999
(unaudited)
Cash and cash equivalents $ 5,171 $ 10,109
Marketable securities 12,688 14,756
Accounts receivable, less allowance of $193 and $190 at September 30,
2000 and December 31, 1999, respectively 1,915 1,118
Other 201 129
-------- --------
Total current assets 19,975 26,112
Property and equipment, net 2,587 2,024
Intangibles 9,002 9,582
Other assets 296 21
-------- --------
Total assets $ 31,860 $ 37,739
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 2,076 $ 2,149
Deferred revenues 773 354
Capital lease payable, current portion 75 78
-------- --------
Total current liabilities 2,924 2,581
Capital lease payable, long-term 16 72
-------- --------
Total liabilities 2,940 2,653
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000 shares authorized, 12,458,917 and
12,457,989 shares issued and outstanding at September 30,
2000 and December 31, 1999, respectively, 125 125
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no
shares issued or outstanding -- --
Additional paid-in capital 43,925 43,915
Unrealized holding losses -- (45)
Accumulated deficit (15,130) (8,909)
-------- --------
Total stockholders' equity 28,920 35,086
-------- --------
Total liabilities and stockholders'
equity $ 31,860 $ 37,739
======== ========
See accompanying notes to financial statements
4
5
EDGAR ONLINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
Cash flows from operating activities:
Net loss ($ 6,221) ($ 2,257)
-------- --------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 684 135
Amortization of intangibles 1,557 109
Accretion and amortization of debt discount -- 14
Provisions for bad debts 4 57
Noncash services, net -- (30)
Stock compensation expense 8 6
Changes in assets and liabilities:
Accounts receivable (800) (347)
Other assets (347) (228)
Accounts payable and accrued expenses (73) (651)
Accrued interest -- (134)
Deferred revenues 419 46
Due to officers, net -- (644)
Other, net -- (15)
-------- --------
Total adjustments 1,452 (1,682)
-------- --------
Net cash used in operating activities (4,769) (3,939)
Cash used in investing activities:
Purchases of property and equipment (1,247) (204)
Net cash acquired from acquisition of FreeEDGAR -- 41
Purchase of other investments (978) --
Purchases of available-for-sale investments (12,201) (18,084)
Sales of available-for-sale investment 14,314 --
-------- --------
Net cash used in investing activities (112) (18,247)
Cash flows from financing activities:
Proceeds from issuances of common stock 2 35,280
Costs incurred in connection with issuances of common stock -- (3,725)
Proceeds from exercise of warrants -- 1,015
Principal payments on notes payable -- (1,459)
Payments on capital lease obligations (59) (55)
-------- --------
Net cash (used in) provided by financing
activities (57) 31,056
-------- --------
Net change in cash and cash equivalents (4,938) 8,870
Cash and cash equivalents at beginning of period 10,109 148
-------- --------
Cash and cash equivalents at end of period $ 5,171 $ 9,018
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 8 $ 153
Notes payable settled in exchange for services provided $ -- $ 56
Stock warrants issued in exchange for services provided $ -- $ 26
Equipment acquired under capital leases $ -- $ 84
Shares issued in acquisition of Partes corporation $ -- $ 7,805
See accompanying notes to financial statements
5
6
EDGAR ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
EDGAR Online, Inc. ("the Company"), formerly Cybernet Data Systems,
Inc., was incorporated in the State of Delaware in November 1995, and launched
its "EDGAR-Online" Internet Web site in January 1996. The Company is an
Internet-based commercial provider of business, financial and competitive
information contained in corporate filings made by public companies with the
Securities and Exchange Commission ("SEC").
In May 1999, the Company completed an initial public offering ("IPO") of
3,600,000 shares of the Company's common stock resulting in net proceeds of
approximately $30.4 million.
On September 10, 1999, the Company acquired Partes Corporation
("Partes"), owner of the FreeEDGAR.com Web site. Under the terms of the
agreement, the Company purchased all of the outstanding equity of Partes for
$9,880,298. The purchase included (1) the issuance of 908,877 shares of EDGAR
Online common stock valued at $7,804,981, (2) the issuance of 75,039 EDGAR
Online stock options, (3) the assumption of net liabilities totaling $846,786
and (4) $968,355 in fees and acquisition related expenses. The acquisition was
accounted for under the purchase method of accounting and accordingly the
estimate fair value of Partes' assets and liabilities and the operating results
of Partes from the effective date of the acquisition have been included in the
accompanying financial statements. Subsequent to the acquisition, the Company
repaid Partes Bank indebtedness of $919,879.
These financial statements should be read in conjunction with the
financial statements and related footnotes included in the Company's Form 10-K,
filed with the SEC in March 2000.
The Company has a limited operating history and its prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. These risks include general economic and business conditions (included
in the online business and financial information industry), actions of our
competitors, the extent to which we are able to develop new services and markets
for our services, the time and expense involved in such development activities,
the level of demand and market acceptance of our services and changes in our
business strategies. Inherent in the Company's mission are various risks and
uncertainties, including its limited operating history, unproven business model
and the limited history of commerce on the Internet. The Company's success may
depend in part upon the emergence and acceptance of the Internet as a
communication and information medium, prospective project development efforts
and the acceptance by the market place of the Company's products and services.
(2) UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim financial statements of the Company as of
September 30, 2000 and for the three and nine months ended September 30, 2000
and 1999, included herein have been prepared in accordance with the instructions
for Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article
10 of Regulation S-X under the Securities Act of 1933, as amended. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements.
In the opinion of management, 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, 2000, and the results of its operations for the
three and nine months ended September 30, 2000 and 1999, respectively and its
cash flows for the nine months ended September 30, 2000 and 1999, respectively.
The results for the nine months ended September 30, 2000 are not necessarily
indicative of the expected results for the full fiscal year or any future
period.
6
7
During the third quarter of 1999, development expenses were reclassified
to operating expenses from cost of revenues. In addition, during the first
quarter of 2000 the Company began recording certain advertising revenues net of
the related commissions. Prior comparative amounts have been reclassified to
conform to the year 2000 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) LOSS PER SHARE
Loss per share is presented in accordance with the provisions of SFAS
No. 128, "Earnings Per Share" (SFAS 128). Under SFAS 128, basic earnings per
share ("EPS") excludes dilution for common stock equivalents and is computed by
dividing income or loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted and resulted in the issuance of common
stock.
Diluted loss per share has not been presented separately, as the
outstanding stock options, warrants and convertible debentures are anti-dilutive
for each of the periods presented.
Anti-dilutive potential common shares outstanding were 459,963 and
689,771 for the three months ended September 30, 2000 and 1999, respectively and
567,861 and 1,187,339 for the nine months ended September 30, 2000 and 1999
respectively.
(4) STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
On March 25, 1999, the Board of Directors of the Company declared and
approved an increase in the number of authorized shares of common stock to
30,000,000, par value $0.01 per share, and authorized 1,000,000 shares of
preferred stock, par value $0.01 per share. There were no preferred shares
issued or outstanding at September 30, 2000.
On March 30, 1999, the Company completed the sale of an aggregate of
240,000 shares of its common stock to three investors at $4.50 per share
resulting in net proceeds of $1,055,250.
On May 26, 1999, the Company sold 3,600,000 shares of its common stock
to the public at $9.50 per share for net proceeds of approximately $30.4
million. In connection with this offering, the Company, its underwriters and the
holder of the Convertible Debenture agreed that such holders would convert the
Convertible Debenture into 670,000 shares of the Company's common stock prior to
the close of the IPO. In addition, certain holders of warrants to purchase
Company common stock also agreed to exercise the warrants into an aggregate of
696,667 shares of common stock prior to the close of the IPO.
(5) COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" (SFAS 130) during 1998. SFAS 130 requires the Company to
report in its financial statements, in addition to its net income (loss),
comprehensive income (loss), which includes all changes in equity during a
period from non-owner sources including, as applicable, foreign currency items,
minimum pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. There were no significant differences
between the Company's comprehensive loss and its net loss as reported for any of
the periods presented.
7
8
(6) RECENT ACCOUNTING ANNOUNCEMENTS
FASB interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation" ("FIN NO. 44") provides guidance for applying APB
Opinion No. 25, "Accounting for Stock Issued to Employees." With certain
exceptions, FIN No. 44 applies prospectively to new awards, exchanges of awards
in a business combination, modifications to outstanding awards and changes in
grantee status on or after July 1, 2000. The Company does not believe that the
implementation of FIN No. 44 will have a significant effect on its results of
operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101") which summaries
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company adopted
the accounting provisions of SAB No. 101 in the second quarter of 2000. The
implementation of SAB No. 101 had no significant effect on our results of
operations.
(7) SUBSEQUENT EVENT
On October 30, 2000, the Company acquired 100 percent of the
outstanding shares of common stock of Financial Insight Systems, Inc. (FIS) in
consideration of (i) the issuance of an aggregate of 2,450,000 restricted shares
of common stock of the Company (ii) $11,765,000 in cash and (iii) a series of
two-year 7.5% senior subordinated secured promissory notes in the aggregate
principal amount of $6,000,000. At the closing of the acquisition, Al Girod,
FIS' President and Chief Executive Officer, executed a two-year employment
agreement with the Company and was appointed as a director of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results and timing of certain events
could differ materially from those anticipated in these forward- looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors that May Affect Future Results and Financial
Condition" included elsewhere in this Quarterly Report.
OVERVIEW
EDGAR Online is an Internet-based commercial provider of business,
financial and competitive information contained in corporate filings made by
U.S. public companies with the SEC. We were founded in November 1995 as Cybernet
Data Systems, Inc. In January 1999, we changed our corporate name to EDGAR
Online, Inc.
We had no revenue in 1995. Our primary activities in 1995 related to
beginning development of our proprietary systems. In January 1996, we launched
our Web site and began selling our subscription services and establishing
contractual relationships with large Web portal and business and financial
information sites to supply EDGAR content for display on these sites. We started
selling advertising banners and sponsorships on our Web site in February 1997.
On September 10, 1999, the Company acquired Partes Corporation
("Partes"), owner of the FreeEDGAR.com Website. Under the terms of the
agreement, the Company purchased all of the outstanding equity of Partes for
$9,880,298. The purchase included (1) the issuance of 908,877 shares of EDGAR
Online common stock valued at $7,804,981, (2) the issuance of 75,039 EDGAR
Online stock options, (3) the assumption of net liabilities totaling $846,786
and (4) $968,355 in fees and acquisition related expenses. The acquisition was
accounted for under the purchase method of accounting and accordingly the
estimate fair value of Partes' assets and liabilities and the operating results
of Partes from the effective date of the acquisition have been included in the
accompanying financial statements. Subsequent to the acquisition, the Company
repaid Partes Bank indebtedness of $919,879.
On October 30, 2000 the Company acquired Financial Insight Systems,
Inc. Under the terms of the agreement, the Company purchased all of the
outstanding shares of common stock of FIS in exchange for (i) the issuance of
2,450,000 restricted shares of the common stock of the Company (ii) $11,765,000
in cash and (iii) a series of two-year 7.5% senior subordinated secured
promissory notes in the aggregate principal amount of $6,000,000. At the closing
of the acquisition, Al Girod, FIS' President and Chief Executive Officer,
executed a two-year employment agreement with the Company and was appointed as
a director of the Company.
8
9
We derive revenues from three primary sources: corporate contracts,
individual subscriptions, and advertising. Revenue from corporate contracts and
individual subscriptions is deferred and recognized as income over the
subscription period. Revenue from advertising is recognized as the services are
provided. Individual subscriptions are typically billed in advance to
subscribers' credit cards and are collected, net of credit card transaction fees
deducted by the credit card processing institution, within one week of the sale.
Services related to corporate contracts are typically billed quarterly in
advance. Advertising revenue is paid to us by DoubleClick Inc., net of
advertising placed and commission fees.
In addition, a portion of our revenues is derived from barter
transactions. Barter advertising revenue is a non-cash item and relates to
advertising placed on our Web sites by other Internet companies in exchange for
our advertising placed on their Web sites. Barter advertising revenue is
recorded in the month that banners are exchanged. The amount of barter
advertising revenue and expense is recorded at the estimated fair value of the
services received or provided, whichever is more objectively determinable.
Reference is made to recent cash advertising transactions of similar nature in
determining the estimated fair value of barter advertising revenue and expense.
Other barter revenue is also non-cash and relates to corporate contract sales
for which we received computer equipment or other non-cash consideration for
services provided. The amount of such revenues are recorded at the estimated
fair market value of the equipment or services received or services provided,
whichever is more objectively determinable. Barter expenses reflect the expense
offset to barter revenue.
We intend to increase our operating expenses to fund increased corporate
sales efforts, product development and, to enhance our Web sites and to continue
to establish relationships critical to our success.
We also have interest income from the investment of the net proceeds of
our initial public offering in short term, interest bearing investment grade
securities.
RESULTS OF OPERATIONS
Revenues
Revenues increased 63% to approximately $2.2 million in the three-month
period ended September 30, 2000, from $1.4 million for the comparable period in
1999. The growth in revenues is primarily attributable to a $822,000 or 303%,
increase in corporate contract revenues, a $190,000 or 49%, increase in
individual subscription revenues, offset by a decrease of $152,000 or 40% in
barter revenues. Advertising revenues for the three months ended September 30,
2000 were consistent with the comparable period in 1999. Revenues increased 131%
to $6.7 million for the nine month period ended September 30, 2000, from $2.9
million for the comparable period in 1999. The growth in revenue is primarily
attributable to a $2.2 million or 372% increase in corporate contract revenues,
a $627,000 or 63% increase in individual subscription revenues, a $760,000 or
138% increase in advertising revenues and an increase of $246,000 or 31% in
barter revenues. The increase in corporate contract revenue resulted from an
increase in the number of corporate contracts in excess of $500 per month from
approximately 35 at September 30, 1999 to approximately 85 at September 30,
2000. The number of individual subscriptions increased from approximately 11,200
subscriptions at September 30,1999 to approximately 16,000 subscriptions at
September 30, 2000. The increase in advertising revenues from prior year is
primarily due to the increase in the number of advertisers and ads delivered,
some of which has resulted from our acquisition of FreeEDGAR.com, offset by a
decrease in advertising rates. Revenue increases were primarily due to increased
marketing efforts, which resulted in an expanded customer base of individual
subscribers, a larger number of corporate contracts and additional content
distribution agreements with other Web sites. All of these increases contributed
to increased traffic on our Web sites. The increase in barter advertising
revenue from prior year is a result of additional exchange of advertising with
other Web sites, offset by the decrease in advertising rates noted above.
Cost of Revenues
Cost of revenues consist primarily of fees paid to acquire the Level I
EDGAR database feed from the SEC, Web site maintenance charges and the costs
associated with our computer equipment and communications lines used in
conjunction with our Web sites. In addition, for each period, online barter
advertising expense is recorded equal to the online barter advertising revenue
for that period. Total cost of revenues increased 13% to $554,000 in the
three-month period ended September 30, 2000, from $491,000 for the comparable
period in 1999. Total cost of revenues increased 108% to $2.0 million in the
nine month period ended September 30, 2000 from $976,000 for the comparable
period in 1999. The increase in cost of revenues is primarily attributable to
increases in software and Web site maintenance and communications lines needed
to handle increased traffic. Gross margins related to the sale of services were
75% in the three-month period ended September 30, 2000 and 64% for the
comparable
9
10
period in 1999. Gross margins related to the sale of services were 70% for the
nine-months period ended September 30, 2000 and 66% for the comparable period in
1999.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and benefits, advertising expenses, public relations, and costs of
marketing materials. Sales and marketing expenses increased 25% to $931,000 in
the three months ended September 30, 2000 from $747,000 in the equivalent period
in 1999. As a percentage of revenues, sales and marketing expenses decreased to
42% in the three months ended September 30, 2000 from 55% for the comparable
period in 1999. Sales and marketing expenses increased 161% to $3.7 million in
the nine months ended September 30, 2000 from $1.4 million in the equivalent
period in 1999. As a percentage of revenue, sales and marketing expenses
increased to 55% in the nine months ended September 30, 2000 from 48% for the
comparable period in 1999. The increase in sales and marketing expenses was due
to an expansion of our sales force and increased marketing activities.
Development. Development expenses increased 95% to $589,000 for the
three months ended September 30, 2000 from $302,000 in the comparable period in
1999. As a percentage of revenues, development expenses increased to 27% in the
three months ended September 30, 2000 from 22% for the comparable period in
1999. Development expenses increased 194% to $1.7 million for the nine months
ended September 30, 2000 from $571,000 to the comparable period in 1999. As a
percentage of revenues, development expenses increased to 25% for the nine
months ended September 30, 2000 from 20% for the comparable period in 1999. The
increase in development expenses is primarily due to the expansion of content on
our Web sites and development of corporate products.
General and Administrative. General and administrative expenses consist
primarily of salaries and benefits, fees for professional services, general
corporate expenses and facility expenses, including depreciation of assets.
General and administrative expenses increased 76% to $1.7 million in the three
months ended September 30, 2000 from $952,000 for the comparable period in 1999.
As a percentage of revenues, general and administrative expenses increased to
76% in the three months ended September 30, 2000 from 70% for the comparable
period in 1999. General and administrative expenses increased 98% to $4.9
million for the nine- month period ended September 30, 2000 from $2.5 million
for the comparable period in 1999. As a percentage of revenues, general and
administrative expenses decreased to 73% for the nine month period ended
September 30, 2000 from 85% for the comparable period in 1999. The increase in
general and administrative expenses was primarily due to increased personnel,
professional service fees and general corporate expenses necessary to support
our growth. We expect that general and administrative expenses will continue to
increase in future periods as we hire additional personnel and incur additional
costs related to the growth of our business and our operations as a public
company.
Amortization of intangibles. Amortization of intangibles relates
primarily to the amortization of intangible assets acquired in the Partes
acquisition in September, 1999.
LIQUIDITY AND CAPITAL RESOURCES
In May 1999, we completed an IPO of 3,600,000 shares of our common stock
resulting in net proceeds of approximately $30.4 million.
Net cash used in operating activities was $4.8 million and $3.9 million
for the nine months ended September 30, 2000 and 1999, respectively. We have
historically financed these activities through private debt placements and the
sale of equity instruments to investors.
Capital expenditures, primarily for computers, office and communications
equipment, totaled $1.2 million for the nine months ended September 30, 2000.
The purchases were required to support our expansion and increased
infrastructure.
At September 30, 2000, we had cash and cash equivalents on hand of
$5.2 million and marketable securities of $12.7 million. On October 30, 2000,
we acquired Financial Insight Systems, Inc. (FIS) for (i) the issuance
of 2,450,000 restricted shares of the Common Stock of the Company (ii)
$11,765,000 in cash and (ii) a series of two-year 7.5% senior subordinated
secured promissary notes in the aggregate principal amount of $6,000,000. We
believe that the acquisition of FIS will significantly contribute to our goal of
achieving profitability and generating positive cash flow. As a result, we
believe our remaining capital resources and cash generated from operations will
be sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. If, however, 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 to fund more and rapid expansion,
to develop new or enhance existing services, or to respond to competitive
pressures. 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
10
11
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.
YEAR 2000 ISSUE
We did not experience any significant problems as a result of the Year
2000. At January 1, 2000, our proprietary software, information technology
("IT") systems and non-IT systems recognized the 2000 date and processed
information related to the operation of our Web sites and provided value-added
services to our customers. We also have not experienced any problems related to
our suppliers or other parties on whom we rely in managing our Web sites or
providing value-added services to our customers.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
WE HAVE A LIMITED OPERATING HISTORY AND OUR FUTURE SUCCESS WILL DEPEND ON OUR
ABILITY TO INCREASE REVENUES.
As an early stage company in the new and rapidly evolving market for the
delivery of financial and business information over the Internet, we face
numerous risks and uncertainties in achieving increased revenues. We were
incorporated in November 1995 and launched our EDGAR Online Web site, located at
http://www.edgar-online.com in January 1996 and our IPO Express web site located
at http://www.ipoexpress.com in October, 1999. We began operating our Free EDGAR
Website, located at http://www.Freeedgar.com, following our acquisition of
Partes in September 1999. Accordingly, we have a limited operating history on
which you can evaluate our business and prospects. During this period, we have
invested heavily in our proprietary technologies to enable us to carry out our
business plan. These expenditures, in advance of revenues, have resulted in
operating losses in each of the last three years. In order to be successful, we
must increase our revenues from the sale of our services to corporate customers,
individual subscription fees and advertising sales. In order to increase our
revenues, we must successfully:
- create and successfully implement a marketing plan to (1)
attract more individual online users to our services, (2)
convert visitors to paying subscribers and (3) increase
corporate sales;
- continue to improve our market position as an Internet-based
commercial provider of information services based on EDGAR
filings;
- maintain our current, and develop new, content distribution
relationships with popular Web sites and providers of business
and financial information;
- maintain our current, and continue to increase, advertising
revenues by increasing traffic to our Web sites and by
increasing the number of advertisers;
- respond effectively to competitive pressures from other
Internet providers of EDGAR content;
- continue to develop and upgrade our technology; and
- attract, retain and motivate qualified personnel with Internet
experience to serve in various capacities, including sales and
marketing positions.
If we are not successful in addressing these uncertainties through the
execution of our business strategy, our business, results of operations and
financial condition will be materially adversely affected.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE THAT LOSSES WILL CONTINUE.
As of September 30, 2000, we had an accumulated deficit of $15,130,000.
We may not ever generate sufficient revenues to achieve profitability. We
incurred net losses of $1,497,899 for the year ended December 31, 1997,
$2,221,474 for the year ended December 31, 1998, $4,162,861 for the year ended
December 31, 1999 and $6,221,000 for the nine months ended September 30, 2000.
We expect operating losses to continue for the foreseeable future as we continue
to incur significant operating costs and
11
12
capital expenditures. As a result, we will need to generate significant
additional revenues to achieve and maintain profitability. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. In addition, if
revenues grow slower than we anticipate, or if operating expenses exceed our
expectations or cannot be adjusted accordingly, our business, results of
operations and financial condition will be materially adversely affected.
FUTURE ENHANCEMENTS TO THE SEC'S EDGAR SYSTEM MAY ERODE DEMAND FOR OUR SERVICES.
Our future success will depend on our ability to continue to provide
value-added services that distinguish our Web sites from the type of
EDGAR-information available from the SEC on its Web site. Through its Web site,
the SEC provides free access to EDGAR filings on a time-delayed basis of 24 to
72 hours. If the SEC, which has recently announced that it intends to modernize
the EDGAR system, were to make changes to its Web sites such as providing (1)
free real-time access to EDGAR filings or (2) value-added services comparable to
those provided on our Web sites, our business, results of operations and
financial condition would be materially adversely affected.
WE FACE INTENSE COMPETITION FROM OTHER PROVIDERS OF BUSINESS AND FINANCIAL
INFORMATION.
We compete with many providers of business and financial information,
including other Internet companies, for consumers' and advertisers' attention
and spending. Because our market poses no substantial barriers to entry, we
expect this competition to continue to intensify. The types of companies with
which we compete for users and advertisers include:
- traditional vendors of financial information, such as
Disclosure;
- proprietary information services and Web sites targeted to
business, finance and investing needs, including those
providing EDGAR content, such as Bloomberg and LIVEDGAR; and
- Web-based providers of free EDGAR information, such as 10K
Wizard.
Our future success will depend on our ability to maintain and enhance
our market position by: (1) using technology to add value to raw EDGAR
information, (2) keeping our pricing models below those of our competitors and
(3) signing high-traffic Web sites to distribution contracts.
Our potential commercial competitors include entities that currently
license our content, but which may elect to purchase a real-time EDGAR database
feed (called a Level I EDGAR feed) directly from the SEC and use it to create
value-added services, similar to services provided by us, for their own use or
for sale to others. This risk is particularly serious in light of the fact that
the SEC has, as part of the modernization of the EDGAR system, introduced a new
dissemination system effective November 1, 1998 that reduced the annual
subscription cost of a Level I feed by approximately 73%.
Effective January 1, 2000 the annual subscription costs were lowered by
an additional 42%.
Many of our existing competitors, as well as a number of potential
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may enable them to respond more quickly to new or
emerging technologies and changes in the types of services sought by users of
EDGAR-based information, or to devote greater resources to the development,
promotion and sale of their services than we can. These competitors and
potential competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to potential employees, subscribers and content distribution partners.
Our competitors may also develop services that are equal or superior to the
services offered by us or that achieve greater market acceptance than our
services. In addition, current and prospective competitors may establish
cooperative relationships among themselves or with third parties to improve
their ability to address the needs of our existing and prospective customers. If
these events occur, they could have a materially adverse effect on our revenue.
Increased competition could also result in price reductions, reduced margins or
loss of market share, any of which would adversely affect our business, results
of operations and financial condition.
12
13
WE MAY NOT BE SUCCESSFUL IN INCREASING BRAND AWARENESS.
Our future success will depend, in part, on our ability to increase the
brand awareness of our Web sites. In order to build our brand awareness, we must
succeed in our marketing efforts, provide high quality services and increase
traffic to our Web sites. We have devoted a significant portion of the proceeds
from our IPO to expand our sales and marketing efforts as part of our
brand-building efforts. These efforts may not be successful. If our marketing
efforts are unsuccessful or if we cannot increase our brand awareness, our
business, financial condition and results of operations would be materially
adversely affected.
WE MAY NOT BE SUCCESSFUL IN DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES
FOR OUR WEB SITES.
Our market is characterized by rapidly changing technologies, evolving
industry standards, frequent new product and service introductions and changing
customer demands. To be successful, we must adapt to our rapidly changing market
by continually enhancing our existing services and adding new services to
address our customers' changing demands. We could incur substantial costs if we
need to modify our services or infrastructure to adapt to these changes. Our
business could be adversely affected if we were to incur significant costs
without generating related revenues or if we cannot adapt rapidly to these
changes.
Our business could also be adversely affected if we experience
difficulties in introducing new or enhanced services or if these services are
not favorably received by users. We may experience technical or other
difficulties that could delay or prevent us from introducing new or enhanced
services. Furthermore, after these services are introduced, we may discover
errors in these services which may require us to significantly modify our
software or hardware infrastructure to correct these errors.
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF THE EMERGING MARKET FOR ONLINE
BUSINESS AND FINANCIAL INFORMATION.
The success of our business will depend on the growing use of the
Internet for the dissemination of business and financial information. The number
of individuals and institutions that use the Internet as a primary source of
business and financial information may not continue to grow. The market for the
distribution of business and financial information, including EDGAR-based
content, over the Internet has only recently begun to develop, is rapidly
evolving and is characterized by an increasing number of market entrants who
have introduced or developed electronic distribution services over the Internet
and private networks. As is typical of a rapidly evolving industry, demand and
market acceptance for new services are subject to a high level of uncertainty.
Because the market for our products and services is new and rapidly
evolving, it is difficult to predict with any certainty what the growth rate, if
any, and the ultimate size of this market will be. We cannot be certain that the
market for our services will continue to develop or that our services will ever
achieve a significant level of market acceptance. If the market fails to
continue to develop, develops more slowly than expected or becomes saturated
with competitors, or if our services do not achieve significant market
acceptance, or if pricing becomes subject to considerable competitive pressures,
our business, results of operations and financial condition would be materially
adversely affected.
MAINTAINING EXISTING AND ESTABLISHING NEW CONTENT DISTRIBUTION RELATIONSHIPS
WITH HIGH-TRAFFIC WEB SITES IS CRUCIAL TO OUR FUTURE SUCCESS.
Because our advertising revenues, which form a significant component of
our total revenues, depend to a great extent on the traffic to our Web sites,
our business could be adversely affected if we do not maintain our current, and
establish additional, content distribution relationships on commercially
reasonable terms or if a significant number of our content distribution
relationships do not result in increased use of our Web sites. We rely on
establishing and maintaining content distribution relationships with
high-traffic Web sites for a significant portion of the traffic on our Web
sites. There is intense competition for placements on high-traffic Web sites,
and we may not be able to maintain our present contractual relationships or
enter into any additional relationships on commercially reasonable terms, if at
all. Even if we maintain our existing relationships or enter into new content
distribution relationships with other Web sites, they themselves may not
continue to attract significant numbers of users. Therefore, our Web sites may
not continue to receive significant traffic or receive additional new users from
these relationships.
13
14
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A DOWNTURN IN THE FINANCIAL SERVICES
INDUSTRY.
We are dependent upon the continued demand for the distribution of
business and financial information over the Internet, making our business
susceptible to a downturn in the financial services industry. For example, a
decrease in the number of individuals investing their money in the equity
markets could result in a decrease in the number of subscribers utilizing our
Web site for real-time access to EDGAR filings. This downturn could have a
material adverse effect on our business, results of operations and financial
condition.
WE DEPEND ON DOUBLECLICK FOR ADVERTISING REVENUES.
We anticipate that our results of operations in any given period will
continue to depend to a significant extent upon advertising revenues generated
through our relationship with DoubleClick, Inc., which has provided us with a
full range of advertising services for the last two years. Historically, a
limited number of customers, all represented by DoubleClick, have accounted for
a significant percentage of our paid advertising revenues. For the nine months
ended September 30, 2000, our DoubleClick-related paid advertising revenue was
19% of our total revenues for this period. DoubleClick's failure to enter into a
sufficient number of advertising contracts during a particular period could have
a material adverse effect on our business, financial condition and results of
operations.
Our existing agreement with DoubleClick can be canceled by either party
on 90 days notice. In addition, this agreement does not prohibit DoubleClick
from selling the same type of service that we currently receive from them to Web
sites that compete with our Web site. If DoubleClick is unable or unwilling to
provide these advertising services to us in the future, we would be required to
obtain them from another provider or perform them ourselves. We would likely
lose significant advertising revenues while we are in the process of replacing
DoubleClick's services.
WE FACE INTENSE COMPETITION FOR ADVERTISING REVENUES AND THE VIABILITY OF THE
INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN.
We compete with both traditional advertising media, such as print, radio
and television, and other Web sites for a share of advertisers' total
advertising budgets. If advertisers do not perceive the Internet to be an
effective advertising medium, companies like ours will be unable to compete
successfully with traditional media for advertising revenues. In addition, if we
are unable to generate sufficient traffic on our Web sites, we could potentially
lose advertising revenues to other Web sites that generate higher user traffic.
Because advertising sales make up a significant component of our revenues,
either of these developments could have an material adverse effect on our
business, results of operations or financial condition.
WE MAY NOT BE ABLE TO CREATE AND DEVELOP AN EFFECTIVE DIRECT SALES FORCE.
Because a significant component of our growth strategy relates to
increasing our revenues from sales of our corporate services, our business would
be adversely affected if we were unable to develop and maintain an effective
sales force to market our services to this customer group. Until recently, we
had not employed any sales executives to sell our corporate services. From March
1999 to September 2000 we hired 10 salesmen whose task is to market and sell our
services to the corporate market. These efforts may not be successful.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH.
We have experienced and are currently experiencing a period of
significant growth. If we are unable to manage our growth effectively, our
business will be adversely affected. This growth has placed, and our anticipated
future growth will continue to place, a significant strain on our technical,
financial and managerial resources. As part of this growth, we may have to
implement new operational and financial systems and procedures and controls to
expand, train and manage our employees, especially in the areas of sales and
product development.
14
15
WE FACE RISKS IN CONNECTION WITH OUR RECENT ACQUISITIONS AND OTHER ACQUISITIONS
AND BUSINESS COMBINATIONS THAT WE MAY CONSUMMATE.
We plan to continue to expand our operations and market presence by
making acquisitions, such as our recent FIS Insight Systems and FreeEDGAR
acquisitions and entering into business combinations, investments, joint
ventures or other strategic alliances with other companies. These transactions
create risks such as:
- difficulty assimilating the operations, technology and personnel
of the combined companies,
- disruption of our ongoing business,
- problems retaining key technical and managerial personnel,
- expenses associated with amortization of goodwill and other
purchased intangible assets,
- additional operating losses and expenses of acquired businesses,
and
- impairment of relationships with existing employees, customers
and business partners.
We may not succeed in addressing these risks. In addition, the
businesses we have acquired, and in the future may acquire, may continue to
incur operating losses.
WE DEPEND ON KEY PERSONNEL.
Our future success will depend to a significant extent on the continued
services of our senior management and other key personnel, particularly Susan
Strausberg, Chief Executive Officer, Marc Strausberg, Chairman and Chief
Information Officer, Tom Vos, President and Chief Operating Officer, Greg Adams,
Chief Financial Officer and Albert E. Girod, Chief Technology Officer and
Executive Vice President, each of whom are parties to written employment
agreements. The loss of the services of these, or certain other key employees,
would likely have a material adverse effect on our business. We do not maintain
"key person" life insurance for any of our personnel. Our future success will
also depend on our continuing to attract, retain and motivate other highly
skilled employees. Competition for personnel in our industry is intense. We may
not be able to retain our key employees or attract, assimilate or retain other
highly qualified employees in the future. If we do not succeed in attracting new
personnel or retaining and motivating our current personnel, our business will
be adversely affected. In addition, the employment agreements with our key
employees contain restrictive covenants that restrict their ability to compete
against us or solicit our customers. These restrictive covenants, or some
portion of these restrictive covenants, may be deemed to be against public
policy and may not be fully enforceable. If these provisions are not
enforceable, these employees may be in a position to leave us and work for our
competitors or start their own competing businesses.
WE DEPEND ON THIRD PARTIES FOR IMPORTANT ASPECTS OF OUR BUSINESS OPERATIONS.
We depend on third parties to develop and maintain the software and
hardware we use to operate our Web sites. iXL Enterprises, Inc., an Internet
strategy consulting company, develops, maintains and upgrades our proprietary
software, which includes those features which enable users to locate and
retrieve data, as well as our database of EDGAR filings, Web-based customer
interfaces and customer support and billing systems. While our contract with iXL
is currently on a month-to-month basis, we are in negotiations with iXL to amend
our agreement to provide for a more definitive term. If iXL were unable or
unwilling to provide these services, we would need to find a suitable
replacement. The failure to find a suitable replacement or to come to an
agreement with an acceptable alternate provider on terms acceptable to us could
materially adversely affect our business, results of operations and financial
condition.
15
16
We also have a hosting contract with Globix Corporation, a provider of
Internet services, pursuant to which Globix operates and maintains the Web
servers owned by us in their New York City data center. Our hosting contract
with Globix expires in July 2003. If Globix were unable or unwilling to provide
these services, we would have to find a suitable replacement. Our operations
could be disrupted while we were in the process of finding a replacement for
Globix and the failure to find a suitable replacement or to reach an agreement
with an alternate provider on terms acceptable to us could materially adversely
affect our business, results of operations and financial condition.
WE FACE A RISK OF SYSTEM FAILURE.
Our ability to provide EDGAR content on a real-time basis depends on the
efficient and uninterrupted operation of our computer and communications
hardware and software systems. Similarly, our ability to track, measure and
report the delivery of advertisements on our Web sites depends on the efficient
and uninterrupted operation of a third-party system provided by DoubleClick.
These systems and operations are vulnerable to damage or interruption from human
error, natural disasters, telecommunication failures, break-ins, sabotage,
computer viruses, intentional acts of vandalism and similar events. Any system
failure, including network, software or hardware failure, that causes an
interruption in our service or a decrease in responsiveness of our Web sites
could result in reduced traffic, reduced revenue and harm to our reputation,
brand and relations with advertisers.
Our operations depend on Globix's ability to protect its and our systems
in its data center against damage from fire, power loss, water damage,
telecommunications failure, vandalism and similar unexpected adverse events.
Although Globix provides comprehensive facilities management services, including
human and technical monitoring of all production servers 24 hours-per-day, seven
days-per-week, Globix does not guarantee that our Internet access will be
uninterrupted, error-free or secure. Any disruption in the Internet access to
our Web sites provided by Globix could materially adversely affect our business,
results of operations and financial condition. Our insurance policies may not
adequately compensate us for any losses that we may incur because of any
failures in our system or interruptions in the delivery of our services. Our
business, results of operations and financial condition could be materially
adversely affected by any event, damage or failure that interrupts or delays our
operations.
THERE ARE RISKS OF INCREASED USERS STRAINING OUR SYSTEMS AND OTHER SYSTEM
MALFUNCTIONS.
In the past, our Web sites have experienced significant increases in
traffic when there have been important business or financial news stories and
during the seasonal periods of peak SEC filing activity. In addition, the number
of our users has continued to increase over time and we are seeking to further
increase the size of our user base and the frequency with which they use our
services. Therefore, our Web sites must accommodate an increasingly high volume
of traffic and deliver frequently updated information. Our Web sites have in the
past, and may in the future, experience slower response times or other problems
for a variety of reasons, including hardware capacity restraints and software
failures. These strains on our system could cause customer dissatisfaction and
could discourage visitors from becoming paying subscribers. We also depend on
the Level I EDGAR feed we purchases in order to provide SEC filings on a
real-time basis. Our Web sites could experience disruptions or interruptions in
service due to the failure or delay in the transmission or receipt of this
information.
These types of occurrences could cause users to perceive our Web sites
as not functioning properly and cause them to use other methods, including the
SEC's Web site or those of our competitors, to obtain EDGAR-based information.
WE LICENSE THE TERM EDGAR FROM THE SEC AND DEPEND ON OTHER INTELLECTUAL
PROPERTY.
Trademarks and other proprietary rights, principally our proprietary
database technology, are important to our success and our competitive position.
The SEC is the owner of a United States trademark registration covering the use
of the term EDGAR. We have obtained a non-exclusive, royalty-free license from
the SEC to use the term EDGAR in our trademarks, service marks and corporate
name. This license is due to expire in September 2008. Since we have built
significant brand recognition through the use of the term EDGAR in our service
offerings, company name and Web sites, our business, results of operations and
financial condition would be adversely affected if we were to lose the right to
use the term EDGAR in the conduct of our business.
We seek to protect our trademarks and other proprietary rights by
entering into confidentiality agreements with our employees, consultants and
content distribution partners, and attempting to control access to and
distribution of our proprietary
16
17
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, third parties may attempt to disclose, obtain or
use our proprietary information. The precautions we take may not prevent this
type of misappropriation. In addition, our proprietary rights may not be viable
or of value in the future since the validity, enforceability and scope of
protection of proprietary rights in Internet-related industries is uncertain and
still evolving.
Finally, third parties could claim that our database technology
infringes their proprietary rights. Although we have not been subjected to
litigation relating to these types of claims, such claims and any resultant
litigation, should it occur, could subject us to significant liability for
damages and could result in the invalidation of our proprietary rights. Even if
we prevail, such litigation could be time-consuming and expensive, and could
result in the diversion of our time and attention, any of which could materially
adversely affect our business, results of operations and financial condition.
Any claims or litigation could also result in limitations on our ability to use
our trademarks and other intellectual property unless we enter into license or
royalty agreements, which agreements may not be available on commercially
reasonable terms, if at all.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING.
We currently anticipate that our available cash resources combined with
cash generated from operations will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 6
months. We may need to raise additional funds, however, to fund more rapid
expansion, to develop new or enhance existing services, or to respond to
competitive pressures. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of unanticipated opportunities, develop or enhance
services or products or otherwise respond to competitive pressures would be
significantly limited. Our business, results of operations and financial
condition could be materially adversely affected by these financing limitations.
WE COULD BE LIABLE FOR OR ADVERSELY AFFECTED BY UNDETECTED YEAR 2000 PROBLEMS.
Our business may suffer as a result of defects relating to year 2000
compliance issues that have not yet been detected. Our products run in
conjunction with the systems of our customers, our products could fail to
function properly if our customers' systems encounter year 2000 compliance
problems. If this happens, it could result in liability to us or adversely
affect our results of operations.
WE ARE DEPENDENT ON THE INTERNET INFRASTRUCTURE.
Our future success will depend, in significant part, upon the
maintenance of the various components of the Internet infrastructure, such as a
reliable backbone network with the necessary speed, data capacity and security,
and the timely development of enabling products, such as high-speed modems,
which provide reliable and timely Internet access and services. To the extent
the Internet continues to experience increased numbers of users, frequency of
use or increased user bandwidth requirements, we cannot be sure that the
Internet infrastructure will continue to be able to support the demands placed
on it or that the performance or reliability of the Internet will not be
adversely affected. Furthermore, the Internet has experienced a variety of
outages and other delays as a result of damage to portions of its infrastructure
or otherwise, and such outages or delays could adversely affect our Web sites
and the Web sites of our co-branded partners, as well as the Internet service
providers and online service providers our customers use to access our services.
In addition, the Internet could lose its viability as a commercial medium due to
delays in the development or adoption of new standards and protocols that can
handle increased levels of activity. We cannot predict whether the
infrastructure and complementary products and services necessary to maintain the
Internet as a viable commercial medium will be developed or maintained.
WE ARE SUBJECT TO UNCERTAIN GOVERNMENT REGULATION AND OTHER LEGAL UNCERTAINTIES
RELATING TO THE INTERNET.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Any new laws or regulations relating
to the Internet could adversely affect our business. In addition, current laws
and regulations may be applied and new laws and regulations may be adopted in
the future that address issues such as user privacy, pricing, taxation and the
characteristics and quality of products and services offered over the Internet.
For example, several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service
17
18
providers in a manner similar to long distance telephone carriers and to impose
access fees on these companies. This could increase the cost of transmitting
data over the Internet, which could increase our expenses and discourage people
from using the Internet to obtain business and financial information. Moreover,
it may take years to determine the extent to which existing laws relating to
issues such as property ownership, libel and personal privacy are applicable to
the Internet.
WE FACE WEB SECURITY CONCERNS THAT COULD HINDER INTERNET COMMERCE.
Any well-publicized compromise of Internet security could deter more
people from using the Internet or from using it to conduct transactions that
involve transmitting confidential information, such as stock trades or purchases
of goods or services. Because a portion of our revenue is based on individuals
using credit cards to purchase subscriptions over the Internet and a portion
from advertisers who seek to encourage people to use the Internet to purchase
goods or services, our business could be adversely affected by this type of
development. We may also incur significant costs to protect against the threat
of security breaches or to alleviate problems, including potential private and
governmental legal actions, caused by such breaches.
WE COULD FACE LIABILITY AND OTHER COSTS RELATING TO OUR STORAGE AND USE OF
PERSONAL INFORMATION ABOUT OUR USERS.
Our policy is not to willfully disclose any individually identifiable
information about any user to a third party without the user's consent. This
policy statement is available to users of our subscription services when they
initially register. Despite this policy, however, if third persons were able to
penetrate our network security or otherwise misappropriate our users' personal
or credit card information, we could be subject to liability. These could
include claims for unauthorized purchases with credit card information,
impersonation or other similar fraud claims. They could also include claims for
other misuses of personal information such as for unauthorized marketing
purposes. These claims could result in litigation. In addition, the Federal
Trade Commission and several states have been investigating certain Internet
companies regarding their use of personal information. We could incur
additional expenses if new regulations regarding the use of personal information
are introduced or if these regulators chose to investigate our privacy
practices.
WE MAY BE LIABLE FOR INFORMATION DISPLAYED ON OUR WEB SITES.
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement, violation of securities laws or other claims relating to
the information that we publish on our Web sites, which may materially adversely
affect our business. These types of claims have been brought, sometimes
successfully, against online services as well as other print publications in the
past. We could also be subjected to claims based upon the content that is
accessible from our Web sites through links to other Web sites. Our general
liability insurance may not cover these claims and may not be adequate to
protect us against all liabilities that may be imposed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE FLUCTUATIONS. We are exposed to market risk primarily
through investments in available-for-sale investments. Our investment policy
calls for investment in short-term low risk investments. As of September 30,
2000, available-for-sale investments were $12.7 million. Due to the short-term
maturity of these investments, any decrease in interest rates would not have a
material effect on our financial statements.
CURRENCY RATE FLUCTUATIONS. Our results of operations, financial
position and cash flows are not materially affected by changes in the relative
values of non-U.S currencies to the U.S. dollar. We do not use derivative
financial instruments to limit our foreign currency risk exposure.
18
19
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our annual meeting of stockholders on August 1, 2000. At the
meeting, the following matters were submitted to a vote: (i) the election of
Marc H. Bell (FOR: 10,432,152 AGAINST OR ABSTENTIONS: 69,289) , Bruce Bezpa
(FOR: 10,419,952 AGAINST OR ABSTENTIONS: 81,489), Stefan Chopin (FOR: 10,047,877
AGAINST OR ABSTENTIONS: 453,564), Mark Maged (FOR: 10,420,452 AGAINST OR
ABSTENTIONS: 80,989), Marc Strausberg (FOR: 10,430,352 AGAINST OR ABSTENTIONS:
71,089), Susan Strausberg (FOR: 10,431,352 AGAINST OR ABSTENTIONS: 70,089) and
Tom Vos (FOR: 10,432,152 AGAINST OR ABSTENTIONS: 69,289), as directors of the
Company, to serve until the 2001 Annual Meeting of stockholders and until their
respective successors are duly elected and qualified; (ii) the ratification of
the appointment of KPMG LLP as the Company's independent public accountants
(FOR: 10,419,572 AGAINST OR ABSTENTIONS: 81,869); and (ii) the approval of a
proposed amendment to the Company's 1999 Stock Option Plan, increasing the
shares available for grants from 600,000 to 1,400,000 (FOR: 8,135,369 AGAINST OR
ABSTENTIONS: 2,366,072).
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits: There are no exhibits filed as part of this Report
on Form 10-Q.
b. Reports on Form 8-K: There were no reports on Form 8-K filed
during the quarter ended September 30, 2000.
19
20
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.
EDGAR ONLINE, INC.
(Registrant)
Dated: November 14, 2000 /s/ Greg D. Adams
-----------------
Greg D. Adams
Chief Financial Officer
Dated: November 14, 2000 /s/ Tom Vos
-----------
Tom Vos
President and Chief Operating Officer
20