- 1997: Volume 6, No. 2 EDGAR and the Internet: What's In It For You?

A visit to the World Wide Web, courtesy of the Internet, is now a compulsory task for any knowledgeable investor. Nearly every day a search of the Web will turn up a new and useful investment information resource. A good example is EDGAR, the extremely popular U.S. government database of public company news. EDGAR ONLINE, a commercial version of the Federal database, has taken up the challenge of reformatting and re-distributing this vital information in ways that can be useful to the readers of CRB Trader.

EDGAR is an acronym for Electronic Data Gathering, Analysis and Retrieval-a project completed in May 1996 by the SEC after 13 years of development. All companies with publicly traded stocks as well as their "inside investors" are now required by federal law to file certain reports to the SEC electronically. The purpose of the electronic filing requirement is to assure that these reports are immediately accessible to all interested parties at the same time, creating a level playing field for professional and private investors alike.

Examples of the information found in EDGAR are periodic reports (such as form 10Q-the quarterly report of company earnings and future operating plans), insider stockholder transactions (such as form 13D-changes of ownership by 5 percent or more equity owners) and investment company filings (such as reports of mutual fund changes in holdings).

The SEC requirement that filing companies prepare their documents under a rigid set of instructions is meant to force out material facts that informed investors should evaluate instantly. The Internet and the software developed by EDGAR ONLINE provides a unique delivery mechanism that features speedy access to important information at an extremely low cost.

The EDGAR ONLINE Web site (HYPERLINK www.edgar-online.com), was launched commercially during January 1996, giving its users information directly from the real-time EDGAR data feed, as opposed to the SEC's own site which is 24-hour-old information. The EDGAR ONLINE service notifies subscribers immediately by E-mail alert when a company, or insider investor, on a "watch list" has filed new information. The full-text copy of this document can then be viewed and printed directly from the EDGAR ONLINE Web site.

This information was previously available only through a very limited number of information giants who charge megabucks to obtain and redistribute the same information that EDGAR ONLINE sells-for under $10 per month.

EDGAR is recognized by investment professionals as the most important source of U.S. public company news. Christopher Byron, a well known business writer, recently commented that "the public records of the SEC will beat an interview with a CEO every time" and "thanks to the Internet and the SEC's on-line EDGAR document retrieval system, sunlight shines on every corporate leader in America."

Why is EDGAR information so important? Says the Higher Returns news-letter, "An investor can feel more confidant about the accuracy of a public company's opinion or analysis of its own operations than about opinions from secondary sources." The sanctions imposed by the SEC on companies who might deliberately submit false or misleading information are so stiff they discourage the submission of misinformation.

The phase-in of all public companies into the EDGAR system was completed in May 1996. Now subscribers to EDGAR ONLINE can get copies of all IPO S-1's (a new company's first SEC filing) and 424Bs (final prospectus) as well as "small cap" information found in most-recent quarterly reports (10Q's); financial intelligence that in the past has been difficult to obtain.

EDGAR ONLINE is now or soon will be available on the sites of most of the financial titans of the Web, such as Hoover's, Market Guide, Quote.com, Pointcast, Yahoo, Individual, Wall Street Research Net, Stock Smart and USA Today.

A key feature of EDGAR ONLINE is the "Glimpse" function, a FREE and timesaving way for subscribers to screen filings by looking at the "Management's Discussion" section of 10Q's and 10K's before deciding to view the often voluminous entire document.

And coming soon-a search engine application now being developed in partnership with Verity, Inc. which provides real-time notification when a SEC EDGAR filing contains a financial concept such as the "resignation of key employees," a "disagreement with accountants," a "default in credit facility covenants" or that there has been an "increase/decrease in company liquidity." This accurate and user-friendly new product is a powerful new tool designed to help investors peel away the layers of verbiage found in SEC filings in order to uncover the specific kernel of information required for timely decision making.

Examples of how information found in EDGAR influences investment decisions can be found daily in financial headlines in tomorrow's newspapers. The release of changes in a company's operations, as reported in EDGAR, can frequently be the harbinger of a re-appraisal of a company's future. The decision by America Online, as reported in its filings to the SEC, to "expense" the cost of seeking new subscribers to its service rather than to "capitalize" these expenses resulted in a dramatic re-assessment by Wall Street of previously reported earnings, as well as future AOL projections. Also, the ownership moves by prominent investors are revealed in their mandated filings of Form 13D, a requirement whenever equity ownership exceeds five percent, is a well known technique for jumping aboard for a quick ride as a company goes into play.

EDGAR ONLINE now provides its $9.95 per month subscriber with the same timely information about changes in ownership, the basis of many possible trading strategies, that used to cost as much as $2,500 per month.

Another type of form available on EDGAR ONLINE (although not found on the SEC's own EDGAR system) is Form 144. This form must be filed by "insiders" prior to their intended sale of restricted stock (issued stock currently unregistered with the SEC). Filing this form results in each seller receiving an automatic exemption from SEC registration requirements for this one transaction. A Form 144 is NOT an EDGAR electronic filing; each 144 is filed by the seller in paper during the day at the SEC. EDGAR ONLINE cumulates and adds all of the current day's 144 paper filings to our electronic database at the END of each business day.

The value of the EDGAR ONLINE end-of-day listing of 144's is that the first notification of a 144 filing sometimes is the precursor of other 144 filings. One hundred forty-four sales frequently come in clusters caused by events such as the end of a "lock-up" period or stock options being exercised and can be used to successfully project the onset of increased "sell side" activity in the stock of the target company.

The above are just a few examples of how early awareness of information found in EDGAR filings can help influence trading decisions. EDGAR ONLINE and the Internet are now set up to help traders develop real-time proprietary algorithms relating to real-time analysis of corporate data and facts in digital form.

The Internet is a most amazing facility to reach this fascinating information, but it takes a fertile human mind to turn this information into useful intelligence.

If any readers have suggestions regarding slicing and dicing EDGAR in real-time, you can reach me by E-mail at the address listed below.

Marc Strausberg is Co-Chief Executive Officer of CYBERNET DATA SYSTEMS, Inc. He can be reached at marc@edgar-online.com