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, 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 0-22895
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 8, 2000 THERE WERE 24,566,734 SHARES OF THE REGISTRANT'S
COMMON STOCK OUTSTANDING.
<PAGE>
OMEGA RESEARCH, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999.............................. 3
Consolidated Statements of Operations
Three months ended March 31, 2000 and 1999 (unaudited)........................ 4
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 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........................ 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................................... 14
Item 6. Exhibits and Reports on Form 8-K.................................................. 14
Signature................................................................................. 15
Exhibit Index............................................................................. 16
</TABLE>
2
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,537,436 $ 2,175,852
Marketable securities 1,695,304 1,695,304
Accounts receivable, net 10,619,733 13,695,059
Inventory 131,355 67,371
Income tax receivable 5,307,105 436,106
Other current assets 690,853 1,033,277
Deferred income taxes 6,133,000 9,192,000
------------ ------------
Total current assets 26,114,786 28,294,969
PROPERTY AND EQUIPMENT, net 2,659,199 2,611,454
OTHER ASSETS 1,023,771 473,344
------------ ------------
Total assets $ 29,797,756 $ 31,379,767
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 3,297,198 $ 2,786,739
Accrued expenses 2,081,738 1,861,321
Deferred revenue 1,621,062 1,256,824
------------ ------------
Total current liabilities 6,999,998 5,904,884
------------ ------------
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, 24,557,010 and 24,475,104
issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 245,570 244,751
Additional paid-in capital 26,844,275 26,560,893
Accumulated deficit (4,292,087) (1,330,761)
------------ ------------
Total shareholders' equity 22,797,758 25,474,883
------------ ------------
Total liabilities and shareholders' equity $ 29,797,756 $ 31,379,767
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
NET REVENUES:
Licensing fees $ 5,547,296 $ 8,445,460
Subscription services 902,834 322,904
Other revenues 1,950,445 1,667,020
------------ ------------
Total net revenues 8,400,575 10,435,384
------------ ------------
OPERATING EXPENSES:
Cost of licensing fees and services 811,669 842,788
Product development 1,827,503 1,192,647
Sales and marketing 7,572,860 4,067,341
General and administrative 2,996,211 2,907,159
------------ ------------
Total operating expenses 13,208,243 9,009,935
------------ ------------
(Loss) income from operations (4,807,668) 1,425,449
------------ ------------
OTHER INCOME (EXPENSE), net:
Interest expense -- (170,494)
Other income, net 34,342 109,146
------------ ------------
Total other income (expense), net 34,342 (61,348)
------------ ------------
(Loss) income before income taxes (4,773,326) 1,364,101
INCOME TAX (BENEFIT) PROVISION (1,812,000) 714,000
------------ ------------
Net (loss) income $ (2,961,326) $ 650,101
============ ============
(LOSS) EARNINGS PER SHARE (Note 3):
Basic $ (0.12) $ .03
============ ============
Diluted $ (0.12) $ .02
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income $(2,961,326) $ 650,101
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 332,360 213,729
Provision for doubtful accounts 1,274,000 1,184,857
Compensation expense on stock option grants 38,418 42,781
Noncash interest associated with the conversion of
detachable warrants into common stock by pooled
company upon nonpayment of notes -- 77,804
Deferred income tax benefit 3,059,000 (1,968,000)
(Increase) decrease in:
Accounts receivable 1,801,326 (2,915,040)
Inventory (63,984) 176,103
Other current assets 342,425 59,346
Other assets (564,572) (106,450)
Income tax receivable (4,871,000) --
Increase (decrease) in:
Accounts payable 510,459 839,555
Accrued expenses 220,417 2,665,793
Deferred revenue 364,238 1,043,486
----------- -----------
Net cash (used in) provided by operating activities (518,239) 1,964,065
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (365,960) (482,347)
Acquisition of data rights and customer lists -- (85,000)
----------- -----------
Net cash used in investing activities (365,960) (567,347)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 245,783 139,377
Proceeds from borrowings of debt -- 64,061
----------- -----------
Net cash provided by financing activities 245,783 203,438
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (638,416) 1,600,156
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,175,852 7,649,771
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,537,436 $ 9,249,927
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ --
=========== ===========
Cash paid for income taxes $ -- $ 300,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL NOTES AND RELATED DISCLOSURES APPLICABLE TO THE THREE MONTHS ENDED MARCH
31, 2000 AND 1999 ARE UNAUDITED)
The accompanying financial statements should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 2000, the results of operations for the three months ended March
31, 2000 and 1999 and cash flows for the three months ended March 31, 2000 and
1999 have been made. Certain amounts included in the prior year's consolidated
financial statements have been reclassified to conform to the current year's
presentation. 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 $7.6 million
and $6.3 million at March 31, 2000 and December 31, 1999, respectively, and
allowances for potential returns of approximately $8.7 million and $23.2 million
at March 31, 2000 and December 31, 1999, respectively.
2. DEFERRED REVENUE
Deferred revenue is comprised of deferrals for (i) payments received in
advance of service provided or bundled with client software purchases, (ii)
licensing fees revenue for which amounts are not due within the next twelve
months and (iii) registration fees and sponsorship and exhibitor deposits for
OmegaWorld, the Company's annual conference, designed to highlight the benefits
of trading strategy development, held during the second quarter of each year.
Deferred revenue consists of the following as of March 31, 2000 and December 31,
1999:
March 31, December 31,
2000 1999
---------- ----------
Subscription services revenue $1,206,537 $ 290,300
Licensing fees revenue 138,000 842,000
OmegaWorld 276,525 124,524
---------- ----------
$1,621,062 $1,256,824
========== ==========
3. (LOSS) EARNINGS PER SHARE
Weighted average shares outstanding for the three months ended March 31,
2000 and 1999 are calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Weighted average shares outstanding (basic) 24,539,324 24,060,338
Impact of dilutive options after applying the treasury
stock method -- 2,159,377
---------- ----------
Weighted average shares outstanding (diluted) 24,539,324 26,219,715
---------- ----------
Options outstanding which are not included in the
calculation of diluted (loss) earnings per share
because their impact is antidilutive 4,181,927 303,650
========== ==========
</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. BUSINESS COMBINATIONS
Effective October 26, 1999, the Company acquired Window On WallStreet Inc.
("Window On WallStreet"), a leading provider of Internet-based streaming
real-time market data and a developer of client software and on-line trading
strategy tools. Under the terms of the merger agreement, Window On WallStreet
shareholders received 1,999,995 newly issued shares of the Company's common
stock for all of the issued and outstanding shares of Window On WallStreet's
common stock. In addition, the Company (i) repaid in accordance with its terms
approximately $4.1 million of debt and (ii) assumed all outstanding stock
options to purchase Window On WallStreet common stock which, based on an
exchange ratio of 0.210974, were exercisable for an aggregate of 182,529 shares
of the Company's common stock.
The acquisition of Window On WallStreet was accounted for as a
pooling-of-interests. Accordingly, the financial statements herein have been
restated to give retroactive effect to this acquisition. There were no material
relationships or intercompany transactions between the Company and Window On
WallStreet prior to the merger.
On January 19, 2000, the Company signed a definitive, 100% share-exchange
merger agreement with onlinetradinginc.com corp. ("OnlineTrading.com"), an
online broker. OnlineTrading.com provides order execution technology that
directly accesses electronic communications networks ("ECN's"), and
electronically-centered exchanges and market makers, in order to provide
OnlineTrading.com's customers with prompt and efficient order execution that
avoids traditional market maker participation and brokerage order-flow
arrangements.
Pursuant to an Agreement and Plan of Merger and Reorganization, as amended
(the "Merger Agreement"), and subject to closing, a newly-formed holding company
named OnlineTrading.com Group, Inc. ("OnlineTrading.com Group") will own 100% of
the issued and outstanding capital stock of Omega Research and
OnlineTrading.com. Upon completion of the merger, as a result of share exchanges
between OnlineTrading.com Group and each of Omega Research and
OnlineTrading.com, and the listing of OnlineTrading.com Group shares,
OnlineTrading.com Group will be the sole publicly-traded company in the group
with its outstanding shares of common stock listed on The Nasdaq National
Market. OnlineTrading.com Group will initially be owned between 62% and
approximately 57% (on a fully diluted basis) by Omega Research's shareholders
and between 38% and approximately 43% (on a fully diluted basis) by
OnlineTrading.com's shareholders. The precise percentages will be determined by
the formula set forth in the Merger Agreement. Closing of the Merger Agreement
is conditioned upon and subject to the effectiveness of a registration statement
on Form S-4 (which was filed on April 17, 2000), the approval of the
shareholders of each of Omega Research and OnlineTrading.com, and the
satisfaction of other conditions precedent. Accordingly, the financial
statements herein have not been restated to give effect to this pending merger.
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.
RECENT DEVELOPMENTS
On January 19, 2000, the Company signed a definitive, 100% share-exchange
merger agreement (the "Merger Agreement") with onlinetradinginc.com corp.
("OnlineTrading.com"), an online broker. OnlineTrading.com provides order
execution technology that directly accesses electronic communications networks
("ECN's"), and electronically-centered exchanges and market makers, in order to
provide OnlineTrading.com's customers with prompt and efficient order execution
that avoids traditional market maker participation and brokerage order-flow
arrangements. Closing of the Merger Agreement is conditioned upon and subject to
the effectiveness of a registration statement on Form S-4 (which was filed on
April 17, 2000), the approval of the shareholders of each of Omega Research and
OnlineTrading.com, and the satisfaction of other conditions precedent.
The Company is in the process of changing its business model. The Company has
taken steps, one of which is the pending merger with OnlineTrading.com, to
transform itself from a trading strategy client software company to one that
includes an on-line brokerage firm - a company which intends to provide to
active traders a trading platform that incorporates and seamlessly integrates
powerful trading strategy development tools, historical and streaming real-time
market data and news, and high-speed access directly to an electronic order
execution system. The Company's historical business model has consisted of sales
of client software products, payment for which is committed to in full by the
customer at the time of sale. Under the new business model, the Company will
seek to derive recurring revenues from customers by offering monthly
subscription services for trading strategy tools integrated with streaming
real-time market data and news for which a monthly fee is payable, and by
offering through OnlineTrading.com (subject to completion of the merger) on-line
brokerage services for which commissions are payable. The Company believes that
it will be able to leverage its historical success in selling trading strategy
tools to build a subscriber base of active traders that will, assuming
completion of the merger, use the on-line brokerage services of
OnlineTrading.com or, at a minimum, its trading strategy subscription services.
To support the change in the business model, the Company expects to increase
significantly its sales and marketing, product development and infrastructure
expenditures. As a result, the Company expects to incur net losses through the
year 2000. These anticipated losses could reduce the Company's available cash
resources, increase its capital requirements and require the Company to seek
debt and/or equity financing. See "Liquidity and Capital Resources" below.
On January 25, 2000, the Company launched WINDOWONWALLSTREET.COM, its first
Internet subscription service. WINDOWONWALLSTREET.COM offers streaming real-time
charts, quotes and news powered by some of the Company's trading tools. On
February 29, 2000, the Company announced that it was accelerating its transition
to its new business model by focusing its marketing efforts and resources on
WINDOWONWALLSTREET.COM (as opposed to its client software products, which
through 1999 substantially most of the Company's licensing fees were derived).
It should be noted that the results of operations and liquidity and capital
resources discussions below do not give effect to the pending merger with
OnlineTrading.com. See Item 6 (b) in Part II of this report for the current
reports on Form 8-K filed by the Company with respect to the pending merger with
OnlineTrading.com.
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 net
revenues:
8
<PAGE>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------ ------
Net revenues:
Licensing fees 66.0 % 80.9 %
Subscription services 10.8 3.1
Other revenues 23.2 16.0
------ ------
Total net revenues 100.0 100.0
------ ------
Operating expenses:
Cost of licensing fees and services 9.7 8.0
Product development 21.7 11.4
Sales and marketing 90.1 39.0
General and administrative 35.7 27.9
------ ------
Total operating expenses 157.2 86.3
------ ------
(Loss) income from operations (57.2)% 13.7 %
------ ------
QUARTERS ENDED MARCH 31, 2000 AND 1999
NET REVENUES
TOTAL NET REVENUES. The Company's total net revenues decreased 19% from
$10.4 million in the three months ended March 31, 1999 to $8.4 million in the
comparable period of 2000.
LICENSING FEES. Licensing fees decreased from $8.4 million in the three
months ended March 31, 1999 to $5.5 million in the comparable period of 2000
primarily due to a decrease in sales of the Company's client software products.
Licensing fees are expected to continue to decrease as the Company focuses its
efforts on promoting its Internet subscription services such as
WINDOWONWALLSTREET.COM and it is difficult to predict when, if at all, or to
what extent, the Company's Internet subscription services will offset such
reductions. The Company has provided what it believes are appropriate provisions
for returns, in light of its 30-day right of return policy and the transition of
its business, but no assurance can be given that the rate of returns will not be
higher than the reserved levels.
SUBSCRIPTION SERVICES. Subscription services increased from $323,000 in the
three months ended March 31, 1999 to $903,000 for the same period of 2000
primarily due to the January 25, 2000 launch of WINDOWONWALLSTREET.COM.
OTHER REVENUES. Other revenues increased 17% from $1.7 million in the three
months ended March 31, 1999 to $2.0 million in the comparable period of 2000,
primarily due to an increase in minimum royalties under the Company's license
agreement with Telerate, Inc., a subsidiary of Bridge Information Systems, Inc.
OPERATING EXPENSES
COST OF LICENSING FEES AND SERVICES. Cost of licensing fees and services
consists primarily of expenses related to the maintenance and support of the
Company's server farm, data acquisition and exchange fees, product media,
packaging and inventory costs. Cost of licensing fees decreased from $843,000 in
the three months ended March 31, 1999 to $812,000 in the comparable period of
2000. Cost of licensing fees and services as a percentage of revenue increased
from 8% in the three months ended March 31, 1999 to 10% in the comparable period
of 2000, primarily due to increased costs related to the Company's subscription
business during the first quarter of 2000. Cost of services related to the
Company's subscription business is expected to increase assuming that the
Company is successful in continuing to build its subscriber base.
9
<PAGE>
PRODUCT DEVELOPMENT. Product development expenses include expenses
associated with the development of new products and services (including Internet
based products and services), enhancements to existing products and services,
testing of products and services and the creation of documentation. Such costs
consist primarily of personnel costs and depreciation of computer and related
equipment and other facilities expenses. Product development expenses increased
53% from $1.2 million in the three months ended March 31, 1999 to $1.8 million
in the comparable period of 2000, primarily due to an increase in the number of
individuals employed in product development. 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 services and
enhance existing products and services.
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, sales commissions, personnel costs
for the customer support center and marketing personnel, web site design and
administration costs, and shipping expenses. Sales and marketing expenses
increased from $4.0 million in the three months ended March 31, 1999 to $7.6
million in the comparable period of 2000, primarily due to increased television
advertising, marketing and sales personnel and promotional expenses.
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, as well as professional fees, rent and other facilities expense.
General and administrative expenses increased from $2.9 million in the three
months ended March 31, 1999 to $3.0 million in the comparable period of 2000.
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 and the level of hiring of additional
personnel to support the expected growth of the Company as it transforms itself
from a client software company to an Internet-based trading platform that
includes on-line brokerage services.
OTHER INCOME (EXPENSE), NET
INTEREST EXPENSE. Interest expense of $170,000 during the three months
ended March 31, 1999 was primarily due to noncash interest expense associated
with the conversion of detachable warrants by the pooled company (Window On
WallStreet) into common stock upon non-payment of certain debt with related
parties. There was no interest expense in the comparable period of 2000 as the
debt of the pooled company was paid off at the time of the merger.
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 decreased from $109,000 in the
three months ended March 31, 1999 to $34,000 in the comparable period of 1999
due to decreases in cash and cash equivalents and marketable securities.
INCOME TAXES
The Company recorded a benefit for income taxes of $1.8 million for the
three months ended March 31, 2000 as compared to a provision for income taxes of
$714,000 for the comparable period of 1999, based upon the effective annual
income tax rate. The effective tax rates for three months ended March 31, 2000
and 1999 were 38% and 52%, respectively. The increase during the three months
ended March 31, 1999 as compared to the 38.6 % statutory rate is primarily due
to an increase in the valuation allowance established at the pooled Company
(Window On WallStreet) during 1999 to offset net operating loss carryforwards.
VARIABILITY OF RESULTS
The operating results for any quarter are not necessarily indicative of
results for any future period or for the full year. The Company's quarterly
revenues and operating results have varied in the past, and are likely to vary
even further from quarter to quarter in the future due to the Company's
transition to a new business
10
<PAGE>
model. Such fluctuations may result in volatility in the price of the Company's
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 services and/or enhancements,
increased competition, variations in the revenue mix, and announcements of new
products and services and/or enhancements by the Company or its competitors and
other factors. Such fluctuations may result in volatility in the price of the
Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently anticipates that its available cash resources and
cash flows from operations will be sufficient to meet its presently anticipated
working capital and capital expenditure requirements for approximately the next
12 months. However, the Company is experiencing a period of net losses which is
expected to continue at least through the year 2000. Further, as the Company
transitions to its new business model, it may need to raise additional funds in
order to execute that transition, support more rapid expansion, develop new or
enhanced services and products, respond to competitive pressures, to acquire
complementary businesses or technologies and/or take advantage of unanticipated
opportunities. The Company has also recently substantially increased its rental
obligations under real property, facilities and equipment leases. The Company's
future liquidity and capital requirements will depend upon numerous factors,
including the period of time it takes the Company to execute its transition to
its new business model, and customer acceptance thereof, costs and timing of
expansion of research and development and marketing efforts and the success of
such efforts, the success of the Company's existing and new product and service
offerings, and competing technological and market developments. The Company's
forecast of the period of time through which its financial resources will be
adequate to support its operations involves risks and uncertainties, and actual
results could vary. The factors described earlier in this paragraph, as well as
other factors, will impact the Company's future capital requirements and the
adequacy of its available funds. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the shareholders of
the Company will be reduced, shareholders may experience additional dilution in
net book value per share or such equity securities may have rights, preferences
or privileges senior to those of the holders of the Company's common stock.
There can be no assurance that additional financing (debt or equity), if
required, will be available when needed on terms favorable to the Company, if at
all. If adequate funds are not available on acceptable terms, the Company may be
unable to complete effectively its transition to its new business model, develop
or enhance its services and products, take advantage of future opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on the Company's business, financial condition, results of operations and
prospects.
As of March 31, 2000, the Company had cash and cash equivalents of
approximately $1.5 million, investments in short term marketable securities of
$1.7 million, and working capital of approximately $19.1 million. Marketable
securities consist of investment grade municipal bonds maturing, on average,
within a year.
Cash used in operating activities during the three months ended March 31,
2000 totaled approximately $518,000, compared to cash provided by operating
activities of approximately $2.0 million in the comparable period of 1999. The
decrease in net cash provided by operations in 2000 was primarily due to an
increase in net loss during the first quarter of 2000.
The Company's investing activities used cash of approximately $366,000 and
$567,000 in the three months ended March 31, 2000 and 1999, respectively. The
principal use of cash in investing activities 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 approximately $246,000
and $203,000 in the three months ended March 31, 2000 and 1999, respectively.
Cash provided was primarily from the issuance of common stock from the exercise
of stock options under the Company's Amended and Restated 1996 Incentive Stock
Plan.
11
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF FASB
STATEMENT NO. 133. SFAS No. 137 defers for one year the effective date of SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 will now apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 will require the Company to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. The Company will adopt SFAS No. 133 effective for the year ended
December 31, 2001. The Company believes that the adoption of SFAS No. 133 will
not have a material impact on its consolidated financial statements, as it has
entered into no derivative contracts and has no current plans to do so in the
future.
YEAR 2000 COMPLIANCE
Omega Research's most recent versions of its client software products,
TRADESTATION 2000I, RADARSCREEN 2000I, OPTIONSTATION 2000I and OMEGA RESEARCH
PROSUITE 2000I are Year 2000 compliant in all material respects.
WINDOWONWALLSTREET.COM is also Year 2000 compliant in all material respects, as
are Window On WallStreet's 6.5, 7.0 and 7.5 versions of Internet Trader,
Internet Trader Deluxe, Internet Trader Pro, Day Trader and Professional
Investor.
With respect to the shipping versions of Omega Research's client software
products immediately prior to the 2000I line, TRADESTATION 4, OPTIONSTATION 1.2,
TRADESTATION PROSUITE 4 and SUPERCHARTS 4, Omega Research offered, in June 1999,
to all registered customers in good-payment standing of those versions, as a
courtesy, an appropriate solution to those products' Year 2000 compliance
issues. No versions prior to version 6.0 of any Window On WallStreet product,
all of which are discontinued products, are Year 2000 compliant. With respect to
the 5.0 shipping versions of those discontinued client software products, Window
On WallStreet offered, in December 1999, to all registered customers of version
5.0 products in good-payment standing, as a courtesy, a free upgrade to a Year
2000 compliant Window On WallStreet product. The Company did not incur any
material expenditures specifically to provide Year 2000 solutions for its
products. During 1999, the Company utilized internal resources having an
approximate aggregate value of under $200,000 to provide all requisite Year 2000
solutions.
There have not been, and will not be, any 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 other discontinued products.
The Company has not encountered any significant difficulties with respect to
Year 2000 compliance issues with respect to its customer integrated support and
general ledger system, its telephone system, or any vendor products or services.
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, "believes," "plans," "estimates," "expects,"
"intends," "anticipates," "may," "will," "should," "could," "upcoming,"
"potential" and similar expressions, if and to the extent used, are intended to
identify forward-looking statements. All forward-looking statements are based
largely on current expectations and beliefs concerning future events that are
subject to substantial risks and uncertainties. Actual results may differ
materially from the results suggested herein. Factors that may cause or
contribute to such differences include, but are not limited to, the failure to
consummate the pending merger with OnlineTrading.com at all (or on a timely
basis) due to regulatory issues or other reasons; difficulty integrating the two
companies from technology, operational and marketing aspects; potential NASD or
other broker-dealer regulatory issues arising from the merger and/or the conduct
of a brokerage business focused on active traders; the success (and cost) of new
marketing strategies as a result of the merger; the pace of
12
<PAGE>
WindowOnWallStreet.com paid subscriptions decreasing; the Company's ability to
continue to effectuate its Internet strategy and to develop and successfully
market the products and services described in this report (and the costs
associated therewith); their acceptance in the marketplace; technical
difficulties or errors in the products and/or services; market pressure to lower
substantially or eliminate pricing on the types of Internet subscription
services described as a result of such services being provided at low or no
additional costs by brokerages, financial institutions and other financial
companies to their customers, or for other market reasons; the Company's
customer and active prospect base containing a substantially lower number of
interested subscribers and/or brokerage clients than the Company anticipates;
the Company's future participation in any merger or other strategic alliance;
unfavorable critical reviews; increased competition (including product and price
competition); the level of market demand for real-time decision support tools,
real-time data and/or online brokerage services and/or website services
generally; the scalability, performance failures and reliability of the
Company's real-time market data network; the entrance of new competitors into
the market; timing and significance of additional new product and service
introductions by the Company and its competitors; general economic and market
factors, including changes in securities and financial markets; the adequacy of
working capital, cash flows and available financing to fund the new business
model and sustain expected operating losses; as well as those set forth in other
sections of this report and the Company's other filings with the Securities and
Exchange Commission including, but not limited to, the Company's December 31,
1999 Annual Report on Form 10-K (including in the section titled "Forward
Looking Statements; Business Risks" in Item 7 thereof), its registration
statement on Form S-4 filed on April 17, 2000, and in the Company's press
releases, particularly those released during and subsequent to the 1999 third
quarter, 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.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(C) SALES OF UNREGISTERED SECURITIES
During the three months ended March 31, 2000, the Company issued to 184
employees, options to purchase an aggregate of 562,545 shares of Common Stock
pursuant to the Company's Amended and Restated 1996 Incentive Stock Plan (the
"Incentive Plan"). All such options vest ratably over a five-year period and are
exercisable at prices ranging from $6.38 to $6.63 per share, which was the fair
market value of the Company's Common Stock on the respective dates on which the
options were granted. The options 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 2000.
(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) in Part II of
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997 and Item 5 in Part II of the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
(i) On January 7, 2000, the Company filed a Current Report on Form
8-K/A, dated January 7, 2000, which amended the Current Report on Form 8-K dated
and previously filed on November 8, 1999 to include and incorporate therein Item
7(a) (Financial Statements of Business Acquired) and Item 7(b) (Pro Forma
Financial Information).
(ii) On January 28, 2000, the Company filed a Current Report on Form
8-K, dated January 28, 2000, reporting in Item 5 thereof that the Company
entered into an Agreement and Plan of Merger and Reorganization on January 19,
2000 with OnlineTrading.com, under which Omega Research and OnlineTrading.com
are proposed to be merged in a 100% stock transaction, and in Item 7 thereof the
filing, among other documents, of a copy of the Merger Agreement.
(iii) On April 28, 2000, the Company filed a Current Report on Form
8-K/A, dated April 28, 2000, which amended the Current Report on Form 8-K dated
and previously filed on January 28, 2000 (as noted above) to include therein as
part of Item 5 the audited financial statements of OnlineTrading.com as of
January 31, 2000 and 1999 and for each of the two years in the period ended
January 31, 2000 and unaudited pro forma combined financial statements as of
December 31, 1999 giving effect to, and assuming the completion of, the pending
merger between the Company and OnlineTrading.com on a pooling-of-interests
basis.
14
<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 15, 2000 /S/ GREGG F. STEWART
- ------------ ----------------------------------------------
Date Gregg F. Stewart
Chief Financial Officer, Vice President of
Finance and Treasurer
(Signing both in his capacity as an authorized
officer and as Principal Financial and
Accounting Officer of the Registrant)
15
<PAGE>
OMEGA RESEARCH, INC.
EXHIBIT INDEX
EXHIBIT DOCUMENT
NO. DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,537,436
<SECURITIES> 1,695,304
<RECEIVABLES> 26,905,392
<ALLOWANCES> 16,285,659
<INVENTORY> 131,355
<CURRENT-ASSETS> 26,114,786
<PP&E> 5,722,260
<DEPRECIATION> 3,063,061
<TOTAL-ASSETS> 29,797,756
<CURRENT-LIABILITIES> 6,999,998
<BONDS> 0
0
0
<COMMON> 245,570
<OTHER-SE> 22,552,188
<TOTAL-LIABILITY-AND-EQUITY> 29,797,756
<SALES> 5,547,296
<TOTAL-REVENUES> 8,400,575
<CGS> 811,669
<TOTAL-COSTS> 11,122,574
<OTHER-EXPENSES> (34,342)
<LOSS-PROVISION> 1,274,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,773,326)
<INCOME-TAX> (1,812,000)
<INCOME-CONTINUING> (2,961,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,961,326)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
