SECURITIES AND 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 MARCH 31, 1999
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 0-22895
OMEGA RESEARCH, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2223464
-------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8700 WEST FLAGLER STREET, MIAMI, FLORIDA 33174
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(305) 485-7000
----------------------------------------------------
(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 [ ]
AS OF MAY 4, 1999 THERE WERE 22,345,461 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
<PAGE>
OMEGA RESEARCH, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets
March 31, 1999 (unaudited) and December 31, 1998 (audited)....3
Statements of Income
Three months ended March 31, 1999 and 1998 (unaudited)........4
Statements of Cash Flows
Three months ended March 31, 1999 and 1998 (unaudited)........5
Notes to 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......12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................13
Item 2. Changes in Securities and Use of Proceeds.......................13
Item 6. Exhibits and Reports on Form 8-K................................13
Signature.....................................................................14
Exhibit Index.................................................................15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMEGA RESEARCH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,113,218 $ 7,436,980
Marketable securities 5,736,958 5,736,958
Accounts receivable, net 10,955,234 9,246,474
Inventories 14,628 131,659
Other current assets 546,554 692,273
Deferred income taxes 6,509,000 4,541,000
----------- -----------
Total current assets 32,875,592 27,785,344
PROPERTY AND EQUIPMENT, net
1,970,605 1,670,925
OTHER ASSETS 377,304 185,854
----------- -----------
Total assets $35,223,501 $29,642,123
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,558,904 $ 1,082,521
Accrued expenses 1,292,414 962,464
Deferred revenue 1,105,046 105,035
Income taxes payable 2,382,260 --
----------- -----------
Total current liabilities 6,338,624 2,150,020
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 25,000,000 shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value; 100,000,000
shares authorized, 22,337,092 and 22,269,964
issued and outstanding at March 31, 1999
and December 31, 1998, respectively 223,371 222,700
Additional paid-in capital 24,095,364 23,913,877
Retained earnings 4,566,142 3,355,526
----------- -----------
Total shareholders' equity 28,884,877 27,492,103
----------- -----------
Total liabilities and shareholders' equity $35,223,501 $29,642,123
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part
of these balance sheets.
3
<PAGE>
OMEGA RESEARCH, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1999 1998
------------ -------------
<S> <C> <C>
NET REVENUES:
Licensing fees $ 7,820,127 $ 5,645,903
Other revenues 1,620,661 1,384,891
------------ -------------
Total net revenues 9,440,788 7,030,794
------------ -------------
OPERATING EXPENSES:
Cost of licensing fees 482,791 451,252
Product development 1,064,747 715,019
Sales and marketing 3,849,881 3,321,596
General and administrative 2,228,456 1,397,256
------------ -------------
Total operating expenses 7,625,875 5,885,123
------------ -------------
Income from operations 1,814,913 1,145,671
OTHER INCOME, net 109,703 105,283
------------ -------------
Income before income taxes 1,924,616 1,250,954
INCOME TAX PROVISION 714,000 449,000
------------ -------------
Net income $ 1,210,616 $ 801,954
============ =============
EARNINGS PER SHARE (Note 3):
Basic $ 0.05 $ 0.04
============ =============
Diluted $ 0.05 $ 0.04
============ =============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
4
<PAGE>
OMEGA RESEARCH, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,210,616 $ 801,954
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 177,221 81,205
Provision for doubtful accounts 1,100,000 480,835
Compensation expense on stock option grants 42,781 40,062
Deferred income tax benefit (1,968,000) (687,000)
(Increase) decrease in:
Accounts receivable (2,808,760) (635,951)
Inventories 117,031 39,774
Other current assets 145,719 (80,725)
Other assets (106,450) --
Increase (decrease) in:
Accounts payable 476,383 (30,537)
Accrued expenses 329,950 117,367
Deferred revenue 1,000,011 235,408
Income taxes payable 2,382,260 1,136,000
------------ ------------
Net cash provided by operating activities 2,098,762 1,498,392
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (476,901) (200,278)
Acquisition of data rights (85,000) --
------------ ------------
Net cash used in investing activities (561,901) (200,278)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 139,377 800
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,676,238 1,298,914
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,436,980 12,323,515
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,113,218 $ 13,622,429
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ --
============ ============
Cash paid for income taxes $ 300,000 $ --
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
5
<PAGE>
OMEGA RESEARCH, INC
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying financial statements should be read in conjunction with
the Financial Statements and Notes to Financial Statements included in the
Company's Annual Report on Form 10-K dated December 31, 1998. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position as of March 31, 1999, the
results of operations for the three months ended March 31, 1999 and 1998 and
cash flows for the three months ended March 31, 1999 and 1998 have been made.
The results of operations and cash flows for an interim period are not
necessarily indicative of the results of operations or cash flows which may be
reported for the year or for any subsequent period.
1. ACCOUNTS RECEIVABLE
Accounts receivable are principally from individuals and distributors of
the Company's products. The Company performs periodic credit evaluations and
maintains allowances for potential credit losses of approximately $4.8 million
and $3.7 million at March 31, 1999 and December 31, 1998, respectively, and
allowances for potential returns of approximately $10.2 million and $7.4 million
at March 31, 1999 and December 31, 1998, respectively.
2. DEFERRED REVENUE
Deferred revenue is comprised of deferrals for (i) registration fees and
sponsorship and exhibitor deposits for OmegaWorld, the Company's annual
conference, designed to highlight the benefits of system trading and
development, scheduled for the second quarter of 1999, and (ii) licensing fees
revenue for which obligations have not yet been fulfilled (such as committed
upgrades) and amounts not due within the next twelve months. Deferred revenue at
March 31, 1999 and December 31, 1998 consists of the following:
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
OmegaWorld $ 294,441 $ 56,585
Licensing fees revenue 810,605 48,450
---------- ------------
$1,105,046 $ 105,035
========== ============
3. EARNINGS PER SHARE
Weighted average shares outstanding for the three months ended March 31,
1999 and 1998 are calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
Weighted average shares outstanding (basic) 22,296,961 22,246,308
Impact of dilutive options after applying the treasury
stock method 2,078,975 445,352
----------------- -----------------
Weighted average shares outstanding (diluted) 24,375,936 22,691,660
----------------- -----------------
Options outstanding which are not included in the calculation
of diluted earnings per share because their impact is
antidilutive 61,750 303,650
================= =================
</TABLE>
6
<PAGE>
4. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in a business enterprise's
equity during a period arising from transactions, events or circumstances
relating to non-owner sources, such as foreign currency translation adjustments
and unrealized gains or losses on available-for-sale securities. It includes all
changes in equity during a period except those resulting from investments by or
distributions to owners. Comprehensive income is equal to net income for all
periods presented.
5. CONTINGENCIES
On January 28, 1998, a class action lawsuit, captioned RICHARD M. RHODES V.
WILLIAM R. CRUZ; RALPH L. CRUZ; OMEGA RESEARCH, INC.; BANCAMERICA ROBERTSON
STEPHENS; LEHMAN BROTHERS; AND HAMBRECHT & QUIST (Case No. 98-0174-CIV-Lenard),
was filed in the United States District Court for the Southern District of
Florida. The suit alleged that the defendants violated Sections 11 and 12 of the
Securities Act of 1933 by allegedly making misrepresentations and omissions of
material facts in connection with the initial public offering of the Company's
Common Stock.
On March 1, 1999, the court dismissed all of the claims in the suit, most
with prejudice. The plaintiffs were granted the right to replead, within ten
days following the date of the order, the claims that were dismissed without
prejudice. The plaintiffs did not replead any claims, but filed a notice of
appeal. The Company then filed a motion to recover its attorneys' fees and
costs. The Company withdrew its motion to recover attorneys' fees and costs
based upon the plaintiffs' agreement to dismiss their appeal. On April 23, 1999,
the parties entered a stipulation for the dismissal of the appeal with
prejudice, which was submitted to the United States Court of Appeals for the
Eleventh Circuit.
In addition to the above, from time to time the Company may become engaged
in ordinary routine litigation incidental to its business. The Company does not
believe that such ordinary routine litigation would have a material adverse
effect on its financial position or results of operations.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Financial Statements
and the Notes to Financial Statements contained herein. The results of
operations for an interim period may not give a true indication of results for
the year, or for any subsequent period.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items in
the Company's statement of income reflected as a percentage of total revenues
and as a percentage of licensing fees:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
AS A PERCENTAGE OF TOTAL NET REVENUES:
Net revenues:
Licensing fees 82.8% 80.3%
Other revenues 17.2 19.7
----- -----
Total net revenue 100.0 100.0
Operating expenses:
Cost of licensing fees 5.1 6.4
Product development 11.3 10.2
Sales and marketing 40.8 47.2
General and administrative 23.6 19.9
----- ----
Total operating expenses 80.8 83.7
----- ----
Income from operations 19.2% 16.3%
===== ====
AS A PERCENTAGE OF LICENSING FEES:
Operating expenses:
Cost of licensing fees 6.2% 8.0%
Product development 13.6 12.7
Sales and marketing 49.2 58.8
General and administrative 28.5 24.7
----- -----
Total operating expenses 97.5% 104.2%
===== =====
</TABLE>
QUARTERS ENDED MARCH 31, 1999 AND 1998
NET REVENUES
TOTAL NET REVENUES. The Company's total net revenues increased 34% from
$7.0 in the three months ended March 31, 1998 to $9.4 million in the comparable
period of 1999.
LICENSING FEES. Licensing fees increased 39% from $5.6 million in the three
months ended March 31, 1998 to $7.8 million in the comparable period of 1999,
primarily due to an increase in gross sales resulting from the release, on
February 22, 1999, of the Company's 2000I software products. No assurances can
be given that such trend will continue or whether the marketplace will accept
the Company's 2000I software products. The Company has provided what it believes
are appropriate provisions for returns, in light of its 30-day right of return
policy, but no assurance can be given that the rate of returns will not increase
beyond the reserved levels.
8
<PAGE>
OTHER REVENUES. Other revenues increased 17% from $1.4 million in the three
months ended March 31, 1998 to $1.6 million in the comparable period of 1999,
primarily due to an increase in minimum royalties under the Company's license
agreement with Telerate, Inc. ("Bridge Telerate"), a subsidiary of Bridge
Information Systems, Inc.
OPERATING EXPENSES
COST OF LICENSING FEES. Cost of licensing fees consists primarily of
product media, packaging and storage and inventory costs. Cost of licensing fees
was approximately $483,000 in the three months ended March 31, 1999 and
$451,0000 in the comparable period of 1998. Cost of licensing fees as a
percentage of licensing fees decreased from 8% in the three months ended March
31, 1998 to 6% in the comparable period of 1999, primarily due to a shift in
product mix to higher priced products during the first quarter of 1999.
PRODUCT DEVELOPMENT. Product development expenses include expenses
associated with the development of new products, enhancements to existing
products, testing of products and the creation of documentation, and consist
primarily of salaries, other personnel costs and depreciation of computer and
related equipment. Product development expenses increased 49% from $715,000 in
the three months ended March 31, 1998 to $1.1 million in the comparable period
of 1999, primarily due to an increase in the number of individuals employed in
product development. Product development expenses as a percentage of licensing
fees increased from 13% in the three months ended March 31, 1998 to 14% in the
comparable period of 1999, primarily due to increased personnel and related
expenses offset by increased licensing fees. The Company anticipates that the
absolute dollar amount of product development expense will increase for the
foreseeable future as the Company seeks to develop new products and enhance
existing products.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
marketing programs, including advertising, brochures, direct mail programs and
seminars to promote the Company's products to investors, sales commissions,
salaries for the customer support center and marketing personnel, other
personnel costs, web site design and administration costs, and shipping
expenses. Sales and marketing expenses increased from $3.3 million in the three
months ended March 31, 1998 to $3.8 million in the comparable period of 1999,
primarily due to increased marketing and sales personnel, increased travel costs
and increased shipping costs, offset by decreased advertising (including print
advertising, television advertising and direct mailers). Sales and marketing
expenses as a percentage of licensing fees decreased from 59% in the three
months ended March 31, 1998 to 49% in the comparable period of 1999, primarily
as a result of increased licensing fees. The Company expects the level of sales
and marketing expenses, including advertising and promotional costs, to vary
with the level of sales; however, in the near term, sales and marketing expenses
are expected to increase as the Company continues to promote its 2000I product
line.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of provision for bad debt, employee-related costs for administrative
personnel such as executive, human resources, finance and information technology
employees, as well as professional fees, rent and other facilities expense.
General and administrative expenses increased from $1.4 million in the three
months ended March 31, 1998 to $2.2 million in the comparable period of 1999,
primarily due to increased bad debt expense and increased personnel and related
costs. General and administrative expenses as a percentage of licensing fees
increased from 25% in the three months ended March 31, 1998 to 28% in the
comparable period of 1999 primarily as a result of the increase in those
expenses offset by increased licensing fees. The Company believes that the
absolute dollar amount of its general and administrative expenses in the future
will depend, to a large extent, on the level of provision required for bad debt,
the level of hiring of additional personnel to support the expected growth of
the Company, and the extent, if any, to which the Company enters new markets or
related businesses.
9
<PAGE>
OTHER INCOME, NET
Other income, net consists primarily of investment income from cash and
cash equivalents and marketable securities. The Company generally invests in
overnight investments, tax exempt commercial paper and investment grade
short-term municipal bonds. The amount of interest income fluctuates based on
the amount of funds available for investment and the prevailing interest rates.
Other income, net increased from $105,000 in the three months ended March 31,
1998 to $110,000 in the comparable period of 1999.
INCOME TAXES
The Company recorded a provision for income taxes of $714,000 and $449,000
for the three months ended March 31, 1999 and 1998, respectively, based upon the
effective annual income tax rate. The effective tax rates for three months ended
March 31, 1999 and 1998 were 37% and 36%, respectively, and are below the 39%
statutory rate as a result of the impact of tax-free investment income.
VARIABILITY OF RESULTS
The operating results for any quarter are not necessarily indicative of
results for any future period or for the full year. This is particularly
important in the first quarter of 1999 when licensing fees revenue reflects what
the Company believes is some pent-up demand for its 2000I line of products as
well as significant upgrade revenue. The Company's quarterly revenues and
operating results have varied in the past and are likely to vary from quarter to
quarter in the future. Such fluctuations may result in volatility in the price
of the Common Stock. As budgeted expenses are based upon expected revenues, if
actual revenues on a quarterly basis are below management's expectations, then
results of operations are likely to be adversely affected because a relatively
small amount of the Company's expenses varies with its revenues in the short
term. In addition, operating results may fluctuate based upon the timing, level
and rate of acceptance of releases of new products and/or enhancements,
increased competition, variations in the mix of sales, and announcements of new
products and/or enhancements (such as the 2000I products) by the Company or its
competitors and other factors. Such fluctuations may result in volatility in the
price of the Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash and cash equivalents of
approximately $9.1 million, investments in short term marketable securities of
$5.7 million, and working capital of approximately $26.5 million. Marketable
securities consist of investment grade municipal bonds maturing, on average,
within a year.
Cash provided by operating activities totaled $2.1 million and $1.5 million
in the three months ended March 31, 1999 and 1998, respectively. The increase in
net cash provided by operations in the three months ended March 31, 1999 was
primarily attributable to higher net income, deferred revenue and the timing of
certain payments for liabilities offset by increases in accounts receivable and
deferred income tax benefit.
The Company's investing activities used cash of $562,000 and $200,000 in
the three months ended March 31, 1999 and 1998, respectively. The principal use
of cash in investing activities in the three months ended March 31, 1999 and
1998 was primarily for capital expenditures related to the acquisition of
computer and related equipment and software required to support expansion of the
Company's operations.
The Company's financing activities provided cash of $139,000 and $800 in
the three months ended March 31, 1999 and 1998, respectively. Cash provided was
from the issuance of common stock from the exercise of stock options under the
Company's Amended and Restated 1996 Incentive Stock Plan.
Assuming there is no significant change in the Company's business, the
Company believes that existing cash and liquid asset balances and cash flows
from operations will be sufficient to meet its normal working capital and
capital expenditure requirements for at least the next 12 months.
10
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-1, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1").
SOP 98-1 establishes criteria for determining which costs of developing or
obtaining internal-use computer software should be charged to expense and which
should be capitalized. The Company adopted SOP 98-1 prospectively effective
January 1, 1999, and such adoption did not have a material effect on the
Company's financial position or results of operations.
YEAR 2000 COMPLIANCE
The 2000I versions of the Company's products are year 2000 compliant. The
most recent prior shipping versions of the Company's products, TRADESTATION 4,
OPTIONSTATION 1.2, TRADESTATION PROSUITE 4 and SUPERCHARTS 4 (which is the
current shipping version until SUPERCHARTS 2000I is released) all utilize Julian
dating, in which each day is identified sequentially, as opposed to being
identified as a 2-digit date for a particular year. The use of Julian dating,
accordingly, does not raise any Year 2000 issues. However, these versions do
permit users to enter dates using the 2-digit year format. Therefore, 2-digit
years, such as 01 and 02, that are input are currently read by those programs as
1901 and 1902, even though 2001 and 2002 is what is likely intended. Further,
futures contracts with expiration dates beyond December 31, 1999 are not
currently identified as post Year 2000 dates by those programs. The Company
expects to offer at no charge, on or before June 30, 1999, to all registered
customers in good-payment standing of those versions, an appropriate solution to
such Year 2000 issues. It is possible that such solution may eliminate a user's
ability to analyze data prior to 1920. The Company currently offers on its web
site a "work-around" solution that may be used until such solution is delivered.
The Company also expects to offer at no charge an appropriate Year 2000 solution
to registered users of PORTFOLIO MAXIMIZER on or prior to June 30, 1999. The
Company has not incurred any material expenditures to date specifically to
provide Year 2000 solutions for its products. During the second quarter of 1999,
the Company expects to utilize internal resources having an approximate
aggregate value of under $100,000 to provide all requisite Year 2000 solutions.
As stated above, the Company expects to complete its Year 2000 solution for
TRADESTATION 4, OPTIONSTATION 1.2, TRADESTATION PROSUITE 4, SUPERCHARTS 4 and
PORTFOLIO MAXIMIZER by no later than June 30, 1999. However, there can be no
assurance that unanticipated difficulties will not delay the Company's Year 2000
efforts, or that modifications made will not adversely affect existing
functionality of those products in ways not currently anticipated by the
Company. There will be no Year 2000 modifications or solutions for any versions
of the Company's products introduced prior to those versions specifically
mentioned above, or for any other products not specifically named above, or any
discontinued products, such as WALL STREET ANALYST and SYSTEM WRITER.
In November 1998, Bridge Telerate expressed to the Company concerns as to
whether the Bridge Telerate subscribers using TRADESTATION would receive, in a
timely fashion, the Year 2000 compliant TRADESTATION 2000I upgrade, and made
certain demands in this regard. As a result, the parties discussed in November
1998 that delivery to Bridge Telerate of TRADESTATION 2000I by the end of
January should be sufficient time for the parties to develop and test
compatibility between TRADESTATION 2000I and the latest Bridgefeed technology on
which Bridge Telerate data is to be delivered, and for Bridge Telerate to
install such upgrade on all existing Bridge Telerate terminals using
TRADESTATION. The Company in fact delivered the TRADESTATION 2000I upgrade to
Bridge Telerate on Monday, February 1, 1999 and, at Bridge Telerate's request,
development of compatibility commenced February 16, 1999. Notwithstanding the
Company's adherence to Bridge Telerate's timetable, no assurances can be given
that development or installation delays, should they occur, would not result in
Bridge Telerate deciding to implement, in whole or in part, an alternative Year
2000 solution for its TRADESTATION clients (e.g., not implementing the
TRADESTATION 2000I upgrade and replacing TRADESTATION with Bridge Telerate's or
other third-party software), which, if that occurred, could have a material
adverse effect on the Company's financial expectations under its agreement with
Bridge Telerate.
In general, the Company's failure to deliver appropriate Year 2000
solutions in a timely fashion, or at all, would render all pre-2000I versions of
the Company's products, including those for which the Company has
11
<PAGE>
decided to provide no solutions, essentially useless, which could result in
material adverse effects on the Company and its financial condition, results of
operations and prospects. However, the Company does not expect to encounter any
material difficulties in providing acceptable Year 2000 solutions in a timely
fashion for TRADESTATION 4, OPTIONSTATION 1.2, TRADESTATION PROSUITE 4,
SUPERCHARTS 4 OR PORTFOLIO MAXIMIZER. Inasmuch as the Year 2000 solutions
described above are, the Company believes, the only viable and practical
solutions, and are achievable in a timely manner, the Company has no contingency
plans.
During the fourth quarter of 1998, the Company implemented a new customer
integrated support and general ledger system and a new telephone system, each of
which, according to the respective vendors, complies or will timely comply with
all known Year 2000 requirements. Although the Company has not undertaken
further evaluation of Year 2000 compliance issues with respect to its vendors,
and does not intend to, the Company does not believe that it will encounter
significant difficulties with respect to Year 2000 compliance issues that its
vendors may experience because the products and services that the Company
obtains from its vendors are generally not Year 2000 date sensitive, other than
telecommunications services. Nevertheless, to the extent the Company's vendors
experience Year 2000 difficulties with their internal billing and shipping
systems or otherwise, the Company may face delays in obtaining certain products
and services. In the event that the Company's telecommunications services are
materially disrupted as a result of Year 2000 difficulties (which would be
applicable to businesses using telecommunications services generally), material
adverse effects to the Company's financial condition and results of operations
would likely be suffered. Other than general Year 2000 compliance failures
relating to telecommunications services, which the Company has no reason to
believe will occur and are, in any event, not within the Company's control, the
Company does not expect that its vendors' Year 2000 difficulties, to the extent
they exist, will have a significant effect on the Company's business or
operations. Accordingly, the Company has not developed, and has no current plans
to develop, any contingency plans relating to its vendors' potential Year 2000
difficulties.
FORWARD-LOOKING STATEMENTS
This report contains statements that are forward-looking within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. When used in this report, the words "believes," "estimates," "plans,"
"expects," "intends," "anticipates," "may," "prospect," "should," "looking
forward" and similar expressions as they relate to the Company or its management
are intended to identify the forward-looking statements. These statements are
based on current expectations and beliefs concerning future events that are
subject to risks and uncertainties. Actual results may differ materially from
the results suggested herein and from the results historically experienced.
Factors that may cause or contribute to such differences and impact future
events include, but are not limited to, lower-than-expected upgrade orders over
the next three quarters, lower-than-expected new product orders over future
quarters, failure of customer acceptance of the new products (due to technical
difficulties or errors in the products, increased hardware or software
requirements to use the products, unfavorable critical reviews, increased
competition, or other reasons), the level of returns and bad debt, the
timeliness and success of the Company's marketing of upgrades to its customer
base, the timeliness and success of the expected 1999 release of SUPERCHARTS
2000I, the number, timing and significance of additional new product
introductions by the Company and its competitors, the level of product and price
competition, changes in the Company's sales incentive or marketing strategies,
changes in demand for the Company's products, changes in operating expenses,
attempts by the Company to enter new markets or expand into related businesses
and the cost, timing and success thereof, general economic and market factors,
including changes in the securities and financial markets, as well as those
discussed in other sections of this report and in the Company's press releases
and its filings with the Securities and Exchange Commission including, but not
limited to, the Company's December 31, 1998 Annual Report on Form 10-K
(including in the section titled "Forward Looking Statements; Business Risks" in
Item 7 thereof), any of which could have a material adverse effect on the
results of operations and financial condition of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of the lawsuit captioned RICHARD M. RHODES V. WILLIAM R.
CRUZ; RALPH L. CRUZ; OMEGA RESEARCH, INC.; BANCAMERICA ROBERTSON STEPHENS;
LEHMAN BROTHERS; AND HAMBRECHT & QUIST (Case No. 98-0174-CIV-Lenard), see the
first two paragraphs of Note 5 of the Notes to Financial Statements in Item 1
of Part I of this report, which are incorporated by reference into this Item 1
of Part II.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) SALES OF UNREGISTERED SECURITIES
During the three months ended March 31, 1999, the Company issued to 43
employees options to purchase an aggregate of 241,500 shares of Common Stock,
all of which vest ratably over a five-year period. Of that total, 225,250 of
such options are exercisable at prices from $2.82 to $7.66 per share, which was
the fair market value of the Company's Common Stock on the respective dates on
which those options were granted, and 16,250 of such options were issued at
$1.66, or $97,500 in the aggregate below fair market value at the date of grant
based upon the fair market value of the Company's Common Stock on the date which
those 16,250 options were granted. This difference is being amortized over the
five-year vesting period of the related stock options. All of the options were
granted under the Company's Amended and Restated 1996 Incentive Stock Plan, as
amended, and expire, if they remain unexercised, on the tenth anniversary of the
date on which they were granted.
All the foregoing options were issued by the Company in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act.
Other than as described above, the Company did not issue or sell any
unregistered securities during the first quarter of 1999.
(d) USE OF PROCEEDS
The Company effected an initial public offering pursuant to a Registration
Statement on Form S-1 (File No. 333-3207) which was declared effective by the
Securities and Exchange Commission on September 30, 1997. For a description of
the Company's use of proceeds from such offering, see Item 2(d) of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three months
ended March 31, 1999.
13
<PAGE>
SIGNATURE
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.
OMEGA RESEARCH, INC.
Registrant
MAY 14, 1999 /s/ SALOMON SREDNI
- ------------ -----------------------------
Date Salomon Sredni
Vice President of Operations, Chief
Financial Officer and Treasurer
(Signing both in his capacity as an
authorized officer and as Principal
Financial and Accounting Officer
of the Registrant)
14
<PAGE>
OMEGA RESEARCH, INC.
EXHIBIT INDEX
EXHIBIT
NO. DOCUMENT DESCRIPTION
- ---------- ---------------------
27.1 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S FINANCIAL
STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,113,218
<SECURITIES> 5,736,958
<RECEIVABLES> 25,928,234
<ALLOWANCES> 14,973,000
<INVENTORY> 14,628
<CURRENT-ASSETS> 32,875,592
<PP&E> 3,771,598
<DEPRECIATION> 1,800,993
<TOTAL-ASSETS> 35,223,501
<CURRENT-LIABILITIES> 6,338,624
<BONDS> 0
0
0
<COMMON> 223,371
<OTHER-SE> 28,661,506
<TOTAL-LIABILITY-AND-EQUITY> 35,223,501
<SALES> 7,820,127
<TOTAL-REVENUES> 9,440,788
<CGS> 482,791
<TOTAL-COSTS> 6,043,084
<OTHER-EXPENSES> (109,703)
<LOSS-PROVISION> 1,100,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,924,616
<INCOME-TAX> 714,000
<INCOME-CONTINUING> 1,210,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,210,616
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
