SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): OCTOBER 26, 1999
OMEGA RESEARCH, INC.
(Exact name of registrant as specified in its charter)
FLORIDA
(State or other jurisdiction of incorporation or organization)
0-22895 59-2223464
(Commission File Number) (I.R.S. Employer 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)
NOT APPLICABLE
(Former name or former address, if changed since last report)
Page 1 of 37
<PAGE>
This Amendment No. 1 to the Registrant's Current Report on Form 8-K dated
October 26, 1999 and filed on November 8, 1999 with the Securities and Exchange
Commission (the "Report") is being filed to include and incorporate in the
Report Item 7(a) (Financial Statements of Business Acquired) and Item 7(b) (Pro
Forma Financial Information) within the requisite time period permitted under
and in accordance with paragraph (4) of Item 7(a) and paragraph (2) of Item 7(b)
of Form 8-K, respectively.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective with the filing of Articles of Merger on October 26, 1999 with the
Secretary of State of the State of Texas (the "Effective Time"), Omega Research,
Inc., a Florida corporation (the "Company"), acquired Window on WallStreet Inc.,
a privately-held Texas corporation ("Window on WallStreet"). The acquisition was
made pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
as of October 25, 1999 among the Company, Window on WallStreet and WOW
Acquisition Corporation, a Texas corporation and wholly-owned subsidiary of the
Company ("Merger Sub"). Pursuant to the Merger Agreement, Merger Sub was merged
with and into Window on WallStreet (the "Merger"), the separate corporate
existence of Merger Sub ceased, and Window on WallStreet continued as the
surviving corporation and became a wholly-owned subsidiary of the Company. The
Merger is intended to qualify as a tax-free reorganization under the Internal
Revenue Code and as a pooling of interests for financial accounting purposes. A
copy of the Merger Agreement is filed herewith as Exhibit 2.1 and is
incorporated herein by reference.
In consideration of the Merger, the shareholders of Window on WallStreet
received an aggregate of 1,999,995 shares (collectively, the "Shares") of the
common stock, $.01 par value, of the Company ("Company Common Stock") in
exchange for the cancellation of all of the outstanding shares of capital stock
of Window on WallStreet ("WOW Stock"). The Shares, post Merger, represent
approximately 8.2% of the outstanding Company Common Stock. Based on 9,479,845
shares of WOW Stock outstanding at the Effective Time, the exchange ratio (the
"Exchange Ratio") was .210974 shares of Company Common Stock for one share of
WOW Stock. No fraction of a share of Company Common Stock was issued in the
Merger, but, in lieu thereof, each holder of WOW Stock who was entitled to a
fraction of a share of Company Common Stock received cash from the Company in
lieu of such fractional share. In addition, the Company (i) repaid in accordance
with its terms the indebtedness (including accrued and unpaid interest) of
Window on WallStreet owed to two of its shareholders in the approximate
aggregate amount of $4,085,000, which was funded from the Company's available
working capital, and (ii) assumed all outstanding stock options to purchase WOW
Stock ("WOW Options") which, based on the Exchange Ratio, will be exercisable
for an aggregate of 182,529 shares of Company Common Stock (82,783 shares of
Company Common Stock at an exercise price of $.48 per share and 99,746 shares of
Company Common Stock at an exercise price of $8.06 per share).
Since the Shares were not registered under the Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, are restricted securities
subject to the Securities Act and Rule 144 thereunder, the Company also entered
into a Registration Rights Agreement with Window on WallStreet and its
shareholders pursuant to which the Company will file, within six months of the
closing date of the Merger, a shelf registration statement on Form S-3 covering
the Shares. The Company also granted piggyback registration rights to the
shareholders of Window on WallStreet for a period of two years from the closing
date of the Merger. In addition, the Company will be filing as soon as
practicable a registration statement on Form S-8 in order to register the WOW
Options.
As a condition to the Company consummating the Merger, (i) six of the nine
shareholders of Window on WallStreet (including its three principal
shareholders, John R. Jennings, T. Keith Black and Alan Moore, who collectively
owned approximately 97% of the outstanding WOW Stock) entered into a Shareholder
Non-Competition and Non-Disclosure Agreement in favor of the Company and Window
on WallStreet which provides, among other things, for non-disclosure of
confidential information, non-solicitation of employees, independent contractors
and consultants and a covenant not-to-compete for four years from the closing
date of the Merger and (ii) four employees of Window on WallStreet (John R.
Jennings, T. Keith Black, David Barnes and Sean Davis) entered into an Agreement
Regarding Employment with Window on WallStreet (as the
2
<PAGE>
surviving corporation) providing for, among other things, a one-year employment
term (except for Sean Davis, who received a two-year employment term).
The Company also granted options to purchase an aggregate of 335,000 shares
of Company Common Stock pursuant to its 1996 Amended and Restated Incentive
Stock Plan, as amended (the "Incentive Stock Plan") to employees of Window on
WallStreet, including options covering 75,000 shares of Company Common Stock to
each of John R. Jennings and T. Keith Black, its Co-Presidents. The date of
grant of such options was the Effective Time, the exercise price was $4.53 per
share, which was equal to the fair market value of Company Common Stock on such
date of grant as determined under and in accordance with the Incentive Stock
Plan, and the options will vest 20% per year on each anniversary date of the
date of grant over a five-year period and have a term of ten years.
Window on WallStreet is a leading Internet-based provider of streaming
real-time and historical quotes through its Financial Data Cast Network ("FDCN")
and a developer of award-winning, on-line investment analysis tools, including
Internet Trader (formerly Window on WallStreet) and Day Trader. FDCN is a
subscription service that delivers streaming real-time quotes and historical
intraday and daily price data for charting on demand. FDCN includes Nasdaq Level
II bid and ask quotes, fundamental financial information and real-time streaming
news.
There were no material relationships prior to the Merger between Window on
WallStreet (or any of its shareholders) and the Company (or any of its
affiliates, any director or officer of the Company or any associate of any such
director or officer).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(1) Window On WallStreet Inc. Report of Independent Accountants
(2) Window On WallStreet Inc. Consolidated Balance Sheets as of
December 31, 1998 and 1997
(3) Window On WallStreet Inc. Consolidated Statements of Operations
and Accumulated Deficit for the years ended December 31, 1998 and
1997
(4) Window On WallStreet Inc. Consolidated Statements of Cash Flows
for the years ended December 31, 1998 and 1997
(5) Window On WallStreet Inc. Notes to Consolidated Financial
Statements
UNAUDITED INTERIM FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(1) Window On WallStreet Inc. Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998
(2) Window On WallStreet Inc. Consolidated Statements of Operations
and Accumulated Deficit for the nine months ended September 30,
1999 and 1998
(3) Window On WallStreet Inc. Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999 and 1998
(4) Window On WallStreet Inc. Notes to Unaudited Consolidated Interim
Financial Statements
(B) UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(1) Pro Forma Combined Balance Sheet as of September 30, 1999
(2) Pro Forma Combined Statements of Operations for the nine months
ended September 30, 1999 and 1998
(3) Pro Forma Combined Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
3
<PAGE>
(C) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Agreement and Plan of Merger, dated as of October 25, 1999, by and
among Omega Research, Inc., WOW Acquisition Corporation and Window
on WallStreet Inc., together with the following exhibits thereto:
(i) Articles of Merger; (ii) Form of Company Affiliate Agreement;
(iii) Form of Agreement Regarding Employment; (iv) Form of
Shareholder Non-Competition and Non-Disclosure Agreement; (v) Form
of Stock Option Agreement (All Employees); (vi) Form of Stock
Option Agreement (Jennings and Black); (vii) Form of Investment
Acknowledgment Agreement; (viii) Registration Rights Agreement;
and (ix) Opinion Letter Matters *
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants **
________________________________________________________________________________
* Previously filed as part of the Report.
** Filed herewith.
4
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WINDOW ON WALLSTREET INC.
FINANCIAL STATEMENT INDEX
________________________________________________________________________________
PAGE
Report of Independent Accountants 6
Consolidated Financial Statements:
Consolidated Balance Sheets 7
Consolidated Statements of Operations and Accumulated Deficit 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10
5
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Window on WallStreet Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and accumulated deficit and of cash flows
present fairly, in all material respects, the financial position of Window on
WallStreet Inc. and its subsidiary at December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
September 10, 1999, except as to Note 10, which is as of October 21, 1999
6
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WINDOW ON WALLSTREET INC.
CONSOLIDATED BALANCE SHEETS
________________________________________________________________________________
As of December 31,
--------------------------
1998 1997
----------- -----------
ASSETS
Current assets:
Cash $ 123,385 $ 452,533
Restricted cash 89,406 50,877
Accounts receivable 413,226 566,779
Prepaid expense 4,167 7,523
Inventory 151,406 269,047
----------- -----------
Total current assets 781,590 1,346,759
Property and equipment, net 349,907 314,059
Other assets 822 22,741
----------- -----------
Total assets $ 1,132,319 $ 1,683,559
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 404,607 $ 392,968
Notes payable 600,000 --
Accrued expenses 208,988 109,301
Deferred revenue 275,098 31,235
----------- -----------
Total current liabilities 1,488,693 533,504
Long-term liabilities 2,640,925 2,365,260
----------- -----------
Stockholders' equity (deficit):
Common stock - authorized, 50,000,000 shares
of no par value; issued and outstanding,
8,283,265 shares and 7,858,265,
respectively 1,000 1,000
Additional paid-in capital 754,896 152,896
Accumulated deficit (1,150,633) (364,242)
Net loss (2,384,094) (786,391)
Less treasury stock at cost, 179,404 shares (218,468) (218,468)
----------- -----------
Accumulated deficit (2,997,299) (1,215,205)
----------- -----------
Total liabilities and accumulated deficit $ 1,132,319 $ 1,683,559
=========== ===========
The accompanying notes are an integral part of these financial statements.
7
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WINDOW ON WALLSTREET INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
________________________________________________________________________________
For the Year Ended
December 31,
--------------------------
1998 1997
----------- -----------
Net sales $ 3,494,248 $ 3,724,174
Cost of sales 696,367 839,284
----------- -----------
Gross profit 2,797,881 2,884,890
Operating expenses:
Marketing 1,191,863 944,827
Research and development 683,671 465,324
General and administrative expenses 2,410,465 2,045,182
----------- -----------
Total operating expenses 4,285,999 3,455,333
----------- -----------
Loss from operations (1,488,118) (570,443)
----------- -----------
Other income (expense):
Interest expense (907,196) (265,469)
Interest and other income 11,220 49,521
----------- -----------
Total other expense (895,976) (215,948)
----------- -----------
Net loss (2,384,094) (786,391)
Accumulated deficit at beginning of period (1,150,633) (364,242)
----------- -----------
Accumulated deficit at end of period $(3,534,727) $(1,150,633)
=========== ===========
The accompanying notes are an integral part of these financial statements.
8
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WINDOW ON WALLSTREET INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
________________________________________________________________________________
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,384,094) $ (786,391)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 130,423 90,348
Amortization of warrants on loan 145,915 19,915
Stock issued in conjunction with loan 476,000 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 153,551 (11,095)
(Increase) decrease in prepaid expenses and other assets 3,356 (629)
(Increase) decrease in inventory 117,641 (221,428)
Increase in accounts payable 11,639 305,913
Increase in deferred revenue 243,863 --
Increase in accrued expenses 99,687 112,026
----------- -----------
Net cash used in operating activities (1,002,019) (491,341)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (144,350) (182,102)
Payments for software development costs -- (19,336)
----------- -----------
Net cash used in investing activities (144,350) (201,439)
----------- -----------
Cash flows from financing activities:
Proceeds from (payments on) short-term borrowings 600,000 (1,594)
Proceeds from long-term borrowing 255,750 238,712
Proceeds from issuance of warrants -- 3,222
----------- -----------
Net cash provided by financing activities 855,750 240,340
----------- -----------
Net decrease in cash (290,619) (452,439)
Cash at beginning of year 503,410 955,849
----------- -----------
Cash at end of year $ 212,791 $ 503,410
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
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WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Window on WallStreet Inc. (the "Company"), a Texas corporation, develops
and markets WINDOWS -- based Internet Financial Solutions and Financial
Market data. The Company is a provider of integrated financial solutions,
applications and services to consumers, private investors, the financial
community and corporate enterprise markets. The Company's products are
used to track, analyze, research, and manage securities and market
indices, as well as portfolios of securities.
The Company's subsidiary, Direct XChange Securities, Inc. ("DXSI"), was
incorporated on February 28, 1997 in the state of Texas. DXSI is
registered as a broker-dealer with the Securities and Exchange Commission
and is a member of the National Association of Securities Dealers, Inc.
DXSI did not have significant operations during 1998 and 1997, but
expects to be engaged in the securities broker-dealer industry serving
customers throughout the United States and plans to clear equity
securities trades through a correspondent broker-dealer.
REVENUE RECOGNITION
The Company derives its revenues from the sales of software products to
individuals or to professional brokers either through distributors or
direct sales via the internet or telephone.
Revenue also consists of sales of software products to retail
establishments through various distributors. The Company also had
significant revenue sharing and royalties associated with joint marketing
arrangements.
Revenue is recognized upon shipment, with provisions made for anticipated
returns. The accrual for product returns at December 31, 1998 and 1997 is
$196,525 and $46,838, respectively. The Company also provides real-time
Data Feed of current and historical information via the internet through
the Financial Data Cast Network ("FDCN"). Revenue is recognized on a
monthly basis as the service is provided. Payments received in advance of
service is deferred and reconciled on a monthly basis as the services are
provided.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Restricted cash represents amounts held by DXSI and is legally restricted
by a Clearing Account Agreement between DXSI and a clearing broker-dealer
that meets all requirements of the Securities Exchange Commission. The
agreement provides for a minimum balance to be maintained in the clearing
deposit account of $50,000.
10
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WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The Company maintains its cash balances in two financial institutions
which are insured either by the Federal Deposit Insurance Corporation or
by the Security Investor Protection Corporation up to $100,000. The
Company has not experienced any losses in such accounts and believes it
is not exposed to any significant credit risk on cash and cash
equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from distributors,
direct sales via the Internet and recurring monthly revenue from the
FDCN. The Company considers the majority of accounts receivable to be
collectible; accordingly, no allowance for doubtful accounts is required.
If amounts become uncollectible, they will be charged to operations in
the period that such determination is made.
INVENTORY
The costs incurred for duplicating the computer software and
documentation from the product masters and for physically packaging the
products for distribution are capitalized as inventory and charged to
cost of sales when revenue from the sale of those units is recognized.
Inventories are carried at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Contracts with distributors allow for the return of products under stock
balancing arrangements, which returns are estimated and provided for in
the financial statements.
RESEARCH AND DEVELOPMENT, INCLUDING SOFTWARE DEVELOPMENT COSTS
Research and development costs are expensed when incurred.
The Company capitalizes software development costs in accordance with the
Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED (FAS
86). Software development costs incurred prior to establishing
technological feasibility are charged to operations as research and
development expense. Software development costs incurred after
establishing technological feasibility are capitalized and amortized on a
product-by-product basis when the product is available for general
release to customers.
Annual amortization, charged to cost of sales, is the greater of the
amount computed using the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for
that product, or the straight-line method over the remaining estimated
economic life of the product. Total computer software development costs
capitalized in fiscal 1998 and 1997 were $0 and $33,701, respectively.
Total costs amortized and charged to operations in fiscal 1998 and 1997
were $21,847 and $11,854, respectively.
11
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WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
INCOME TAXES
The Company computes and presents income taxes pursuant to Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (FAS
109). FAS 109 uses an asset and liability approach to account for income
taxes, wherein deferred taxes are provided for book and tax basis
differences for assets and liabilities. In the event differences between
the financial reporting basis and the tax basis of the Company's assets
and liabilities result in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by
such assets is required. A valuation allowance is provided for a portion
or all of the deferred tax assets when there is sufficient uncertainty
regarding the Company's ability to recognize the benefits of the assets
in future years.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated
principally on the straight-line method over the estimated useful lives
of the related assets which range from three to seven years.
USE OF ESTIMATES
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.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are estimated to approximate the
related book values based on market information available to the Company.
2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 and 1997 consist primarily of
the following:
1998 1997
-------- --------
Distributors $207,836 $492,889
Direct Sales 138,864 --
Other 66,526 73,890
-------- --------
$413,226 $566,779
======== ========
12
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WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
3. INCOME TAXES
The components of the provision for income taxes are as follows:
Federal
----------------
1998 1997
---- ----
Current provision/(benefit) $ -- $ --
Deferred provision/(benefit) -- --
---- ----
$ -- $ --
==== ====
Deferred taxes are provided for those items reported in different periods
for income tax and financial reporting purposes. The tax effects of
temporary differences that give rise to significant portions of the
deferred tax assets are presented below:
1998 1997
----------- -----------
Deferred tax assets:
Net operating loss carryforward $ 961,213 $ 343,991
Price protection reserve 4,665 16,393
Accrued vacation 15,002 11,741
Accrued professional fees 5,250 --
Tax credit carryforward 102,528 73,323
----------- -----------
Gross deferred tax assets 1,088,668 445,448
----------- -----------
Deferred tax liabilities:
Depreciation (32,047) (26,717)
----------- -----------
Gross deferred tax liabilities (32,047) (26,717)
----------- -----------
Net deferred tax asset 1,056,621 418,731
Valuation allowance (1,056,621) (418,731)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
Given the Company has experienced losses since its incorporation and has
not yet reached a level of profitable operation, a valuation allowance
representing 100% of the total deferred tax asset has been established as
of December 31, 1998 and 1997.
13
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WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The provision for income taxes is different than the amount computed
using the applicable statutory federal income tax rate at December 31,
with the difference summarized below:
Federal
-----------------
1998 1997
------- -------
Federal tax benefit at statutory rate (35%) (35%)
Permanent differences 11.86% 4%
Research and development credits (1.11%) (8%)
Change in valuation on allowance 24.25% 39%
------- -------
-- --
======= =======
The Company has available net operating loss carryforwards totaling
approximately $2,726,000 which expire beginning in 2012. The Company also
has tax credit carryforwards totaling approximately $102,000 which begin
to expire in 2012. Future utilization of net operating loss and tax
credits may be limited if the Company experiences an ownership change.
The Company maintains a September 30 year-end for tax filing purposes.
4. PROPERTY AND EQUIPMENT
Major classifications of property and equipment at December 31 are as
follows:
1998 1997
--------- ---------
Computers and equipment $ 546,780 $ 409,997
Furniture and fixtures 34,973 32,696
Leasehold improvements 21,566 16,274
--------- ---------
603,319 458,967
Less: accumulated depreciation (253,412) (144,908)
--------- ---------
$ 349,907 $ 314,059
========= =========
Depreciation expense charged to operations for the years ended December
31, 1998 and 1997 was $108,504 and $78,284 respectively.
14
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WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
5. NOTES PAYABLE TO RELATED PARTIES
SHORT-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Short-term debt consists of the following at December 31:
Note payable to Red Oak Capital dated June 11, 1998,
collateralized by all company assets including cash, accounts
receivables, inventories, equipment, and intangibles, bearing
interest at 10%, due December 31, 1998 $495,000 $ --
Note payable to individual dated June 11, 1998, collateralized
by all company assets including cash, accounts receivable,
inventories, equipment, and intangibles, bearing interest
at 10%, due December 31, 1998 5,000 --
Note payable to Red Oak Capital dated December 23, 1998,
collateralized by all company assets including cash,
accounts receivable, inventories, equipment, and intangibles,
bearing interest at 10%, due February 28, 1999 100,000 --
-------- -------
$600,000 $ --
======== =======
</TABLE>
The above notes dated June 11, 1998 were issued along with detachable
warrants which entitle the holder to purchase 425,000 shares of the
Company's common stock, no par value, at $2.48 per share. Furthermore,
the debt agreement provided for the conversion of all warrants into
shares of the Company's common stock at zero cost to the holder of the
note if the notes are not paid as of December 31, 1998. As the notes were
not paid as of December 31, 1998, under the terms of the note, the holder
converted 425,000 warrants into shares of the Company's common stock at
zero cost. Accordingly, a charge reflected in interest expense was
recorded by the Company at December 31, 1998 in the amount of $476,000.
15
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WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Notes payable to Red Oak Capital dated August 14, 1996,
collateralized by all company assets including cash, accounts
receivables, inventories, equipment, and intangibles, bearing
interest at 10%, payable at various dates beginning
September, 2000 net of unamortized discount of $52,035
in 1998 and $71,857 in 1997. Amounts includes accrued
interest recharacterized as notes payable $2,631,167 $2,355,594
Note payable to individual dated August 14, 1996,
collateralized by all company assets including cash,
accounts receivable, inventories, equipment, and
intangibles, bearing interest at 10%, payable at various
dates beginning September, 2000 unamortized discount
of $242 in 1998 and $334 in 1997. Amount includes
accrued interest recharacterized as notes payable 9,758 9,666
---------- ----------
$2,640,925 $2,365,260
========== ==========
</TABLE>
6. OTHER CURRENT LIABILITIES
At December 31, 1998 and 1997, other current liabilities consisted of the
following:
1998 1997
-------- --------
Accrued marketing expenses $ 81,899 $ 56,838
Accrued salaries and payroll taxes 112,665 33,546
Accrued professional fees and other 14,424 18,917
-------- --------
$208,988 $109,301
======== ========
7. STOCK OPTIONS
The Company adopted the Window on WallStreet Inc. Long-Term Incentive
Plan ("Plan"), under which 2,000,000 shares of the Company's common stock
are reserved for issuance to officers, key employees and consultants of
the Company. The objectives of the Plan are to attract and retain
qualified personnel for positions of substantial responsibility, and to
provide additional incentives to employees to promote the success of the
Company's business. Options granted under the Plan may be incentive or
nonqualified stock options. The Plan also authorized the Company to grant
other forms of long-term compensation to qualified individuals including
stock appreciation rights, restrictive stock awards, performance share
awards or stock value equivalent awards. The Plan is administered by the
board of directors of the Company. Options are granted at the discretion
of the board of directors at option prices not less than fair market
value of the underlying common stock, as determined by the board of
directors, at the date of grant.
16
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WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCKED-BASED
COMPENSATION (FAS 123). The information set forth below represents pro
forma net loss as if the Company had accounted for its employee stock
options under the fair value method as prescribed by FAS 123.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1998 and 1997: no dividend yield,
expected volatility of 0%, a risk-free interest rate of 6% and an
expected life of ten years for each nonqualified stock option.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
pro forma information for the Company is as follows:
For the Year Ended
December 31,
-------------------------
1998 1997
---------- ----------
Net loss as reported $2,630,594 $ 786,391
Pro forma net loss 2,651,685 799,578
Stock options activity is summarized as follows:
Nonqualified Stock Options
--------------------------
Number of Exercise
Shares Price Range
------- -------------
Balance as of December 31, 1996 496,747 $0.10 - $1.70
Granted 111,000 1.70
Exercised -- --
Canceled (60,000) 1.70
------- -------------
Balance at December 31, 1997 547,747 $0.10 - $1.70
Granted 218,100 1.70
Exercised -- --
Canceled (44,000) 1.70
------- -------------
Balance at December 31, 1998 721,847 $0.10 - $1.70
======= =============
17
<PAGE>
WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The following table summarizes information about stock options
outstanding and available under the Plan at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------------- ------------------------------
Outstanding Exercisable Outstanding Exercisable
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Number of options 721,847 458,825 547,747 304,237
Range of exercise price $0.10 - $1.70 $0.10 - $1.70 $0.10 - $1.70 $0.10 - $1.70
Weighted average
continuing contractual life in years 10 7.9 10 8.1
Weighted average exercise price $ 0.86 $ 0.44 $ 0.59 $ 0.33
</TABLE>
8. LEASE COMMITMENTS
The Company leases certain assets under noncancelable, operating leases
and has the following commitment. Future minimum lease payments required
under these leases as of December 31, 1998:
Year Ending
December 31,
------------
1999 $180,137
2000 57,540
2001 13,337
2002 3,201
2003 --
--------
Total minimum lease payments $254,215
========
Rent expense was $109,641 and $86,826 during the years ended December 31,
1998 and 1997, respectively.
9. RELATED PARTY TRANSACTIONS
The Company purchases most of its computer equipment from a computer
wholesaler owned and operated by one of the Company's shareholders.
Payments to this shareholder for computer equipment totaled $73,045 and
$62,225 for the years ended December 31, 1998 and 1997, respectively.
On August 14, 1996, the Company issued 10% Senior Secured Notes due
August 14, 2001 in the aggregate principal amount of $2,167,000,
including warrants entitling the holders to purchase 1,284,820 shares of
the Company's no par common stock at an exercise price of $0.0025 per
share. Holders of the notes are related parties.
18
<PAGE>
WINDOW ON WALLSTREET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
On June 11, 1998, the Company issued 10% Senior Secured Notes due
December 31, 1998 in the aggregate principal amount of $500,000,
including warrants entitling the holders to purchase 425,000 shares of
the Company's no par common stock at an exercise price of $2.48 per
share. Furthermore, the debt agreement provided for the conversion of all
warrants into shares of the Company's common stock at zero cost to the
holder of the note if the notes are not paid as of December 31, 1998.
Holders of the notes are related parties.
On December 23, 1998, the Company issued a 10% Senior Secured Note due
February 28, 1999 in the aggregate principal amount of $100,000,
including a stock grant entitling the holder to 120,000 shares of the
Company's no par common stock at zero cost as of December 31, 1998. The
holder of the note is a related party.
Total interest expenses for the year ended December 31, 1998 and 1997 was
$907,196 and $265,469, respectively.
As mentioned above, the holder of the 10% senior secured note due
December 31, 1998 converted 425,000 warrants into shares of the Company's
common stock at no cost. As a result the Company recorded a charge for
the issuance of these shares at the fair value of the Company's common
stock at the date of conversion in the amount of $476,000.
10. SUBSEQUENT EVENTS
On April 13, 1999 the Company signed a Second Additional Securities
Purchase Agreement with the holders of the notes in footnote 9 of these
financial statements. The Agreement consolidated all existing debt
agreements of the Company into one note agreement in the principal amount
of $3,868,954. This Agreement bears interest at 10% and is due September
2001. The holder of this note is a related party.
Management of the Company is expecting to sign a combination agreement to
merge with Omega Research, Inc. ("Omega") in October 1999. This
transaction is structured to be accounted for as a pooling of interests
and is subject to approval by the stockholders of each Company. Under the
terms of the agreement, shareholders of the Company will receive
2,000,000 shares of Omega common stock for all of the outstanding shares
of the Company's common stock. These financial statements reflect no
adjustments for the pending transaction.
19
<PAGE>
WINDOW ON WALLSTREET INC.
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS - INDEX
________________________________________________________________________________
Page
----
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 .................................................. 21
Consolidated Statements of Operations and Accumulated
Deficit for the nine months ended September 30, 1999 and 1998 ...... 22
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 .................................. 23
Notes to Unaudited Consolidated Interim Financial Statements ......... 24
20
<PAGE>
WINDOW ON WALLSTREET INC.
CONSOLIDATED BALANCE SHEETS
________________________________________________________________________________
<TABLE>
<CAPTION>
As of
----------------------------
September 30, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 136,893 $ 123,385
Restricted cash 50,165 89,406
Accounts receivable 115,916 413,226
Prepaid expense 23,409 4,167
Inventory 9,897 151,406
----------- -----------
Total current assets 336,280 781,590
Property and equipment, net 257,640 349,907
Other assets 1,114 822
----------- -----------
Total assets $ 595,034 $ 1,132,319
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 197,439 $ 404,607
Notes payable -- 600,000
Accrued expenses 1,363,069 208,988
Deferred revenue 379,178 275,098
----------- -----------
Total current liabilities 1,939,686 1,488,693
Long-term liabilities 4,056,347 2,640,925
----------- -----------
Stockholders' equity (deficit):
Common stock - authorized, 50,000,000 shares of no
par value; issued and outstanding, 9,404,203 shares
and 8,283,265, respectively 1,000 1,000
Additional paid-in capital 2,010,347 754,896
Accumulated deficit (3,534,727) (1,150,633)
Net loss (3,659,151) (2,384,094)
Less treasury stock at cost, 179,404 shares (218,468) (218,468)
----------- -----------
Accumulated deficit (5,400,999) (2,997,299)
----------- -----------
Total liabilities and accumulated deficit $ 595,034 $ 1,132,319
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
WINDOW ON WALLSTREET INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
________________________________________________________________________________
For the Nine Months Ended
September 30,
---------------------------------
1999 1998
----------- -----------
Net sales $ 2,331,531 $ 2,023,771
Cost of sales 1,085,916 372,200
----------- -----------
Gross profit 1,245,615 1,651,571
Operating expenses:
Marketing 806,647 906,150
Research and development 403,268 515,740
General and administrative expenses 2,139,405 1,686,421
----------- -----------
Total operating expenses 3,349,320 3,108,311
----------- -----------
Loss from operations (2,103,705) (1,456,740)
----------- -----------
Other income (expense):
Interest expense (1,578,915) (258,798)
Interest and other income 23,469 10,545
----------- -----------
Total other expense (1,555,446) (248,253)
----------- -----------
Net loss (3,659,151) (1,704,993)
Accumulated deficit at beginning of period (3,534,727) (1,150,633)
----------- -----------
Accumulated deficit at end of period $(7,193,878) $(2,855,626)
=========== ===========
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
WINDOW ON WALLSTREET INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,659,151) $(1,704,993)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 87,224 95,505
Amortization of warrants on loan 22,300 77,936
Stock issued in conjunction with loans 1,255,451 --
Provision for doubtful accounts 144,857 --
Write-off of software 19,648 --
(Increase) decrease in:
Accounts receivable 152,453 (148,012)
Prepaid expenses and other assets (19,534) (14,073)
Inventory 141,509 22,973
Increase (decrease) in:
Accounts payable (207,168) (8,732)
Accrued expenses 1,154,081 475,915
Deferred revenue 104,080 559,646
----------- -----------
Net cash used in operating activities (804,250) (643,835)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (14,605) (113,158)
----------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowings -- 500,000
Proceeds from long-term borrowing 793,122 154,475
----------- -----------
Net cash provided by financing activities 793,122 654,475
----------- -----------
Net decrease in cash (25,733) (102,518)
Cash at beginning of period 212,791 503,410
----------- -----------
Cash at end of period $ 187,058 $ 400,892
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
WINDOW ON WALLSTREET INC.
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
________________________________________________________________________________
The accompanying unaudited consolidated interim financial statements should
be read in conjunction with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in Window On WallStreet's
Consolidated Financial Statements for the years ended December 31, 1998 and
1997. In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1999, the results of operations for the nine months ended
September 30, 1999 and 1998 and cash flows for the nine months ended September
30, 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. NOTES PAYABLE TO RELATED PARTIES
SHORT-TERM DEBT
Short-term debt consists of the following as of September 30, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
1999 1998
---- --------
<S> <C> <C>
Note payable to Red Oak Capital dated June 11, 1998,
collateralized by all company assets including cash, accounts
receivables, inventories, equipment, and intangibles, bearing
interest at 10%, due December 31, 1998 $ -- $495,000
Note payable to individual dated June 11, 1998, collateralized
by all company assets including cash, accounts receivable,
inventories, equipment, and intangibles, bearing interest
at 10%, due December 31, 1998 -- 5,000
Note payable to Red Oak Capital dated December 23, 1998,
collateralized by all company assets including cash,
accounts receivable, inventories, equipment, and intangibles,
bearing interest at 10%, due February 28, 1999 -- 100,000
---- --------
$ -- $600,000
==== ========
</TABLE>
The above notes dated June 11, 1998 were issued along with detachable
warrants which entitle each holder to purchase 425,000 shares of the Company's
common stock, no par value, at $2.48 per share. Furthermore, the debt agreement
provided for the conversion of all warrants into shares of the Company's common
stock at zero cost to each holder of the notes if the notes are not paid as of
December 31, 1998. As the notes were not paid as of December 31, 1998, under the
terms of the note, the holders converted 425,000 warrants into shares of the
Company's common stock at zero cost. Accordingly, a charge reflected in interest
expense was recorded by the Company at December 31, 1998 in the amount of
$476,000.
Furthermore, as the above notes dated June 11, 1998 were not paid through
the end of March 1999, the Company issued 75,000 shares of the Company's common
stock, no par value, at zero cost, in accordance with the agreement. In
addition, in accordance with the terms of the above note dated December 23,
1998, the Company issued 120,000 shares of the Company's common stock, no par
value, at zero cost, to the holder of the note. Accordingly, a charge reflected
in interest expense was recorded by the Company through September 30, 1999 in
the aggregate amount of approximately $218,000.
See below for discussion of consolidation of the above referenced notes.
24
<PAGE>
WINDOW ON WALLSTREET INC.
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
________________________________________________________________________________
LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Notes payable to Red Oak Capital dated April 13, 1999
collateralized by all company assets including cash, accounts
receivables, inventories, equipment, and intangibles, bearing
interest at 10%, payable at various dates beginning
April 30, 1999. Amounts include accrued interest
recharacterized as notes payable $4,037,708 $ --
Notes payable to individual dated April 13, 1999
collateralized by all company assets including cash, accounts
receivables, inventories, equipment, and intangibles, bearing
interest at 10%, payable at various dates beginning
April 30, 1999. Amounts include accrued interest
recharacterized as notes payable 18,639 --
Notes payable to Red Oak Capital dated August 14, 1996,
collateralized by all company assets including cash, accounts
receivables, inventories, equipment, and intangibles, bearing
interest at 10%, payable at various dates beginning
September, 2000 net of unamortized discount of $52,035
in 1998. Amounts includes accrued interest -- 2,631,167
recharacterized as notes payable
Note payable to individual dated August 14, 1996,
collateralized by all company assets including cash,
accounts receivable, inventories, equipment, and
intangibles, bearing interest at 10%, payable at various
dates beginning September, 2000 unamortized discount
of $242 in 1998. Amount includes accrued interest
recharacterized as notes payable -- 9,758
---------- ----------
$4,056,347 $2,640,925
========== ==========
</TABLE>
On April 13, 1999 the Company signed a Second Additional Securities Purchase
Agreement ("New Senior Notes") with the holders of the notes discussed above.
The Agreement consolidated all existing debt agreements of the Company into two
notes in the aggregate principal amount of $3,868,954.
The New Senior Notes accrue interest of 10% per annum in cash plus one fully
paid and non-assessable share of Company Common Stock, no par value, for each
$45.26 of principal amount outstanding (rounded up
25
<PAGE>
WINDOW ON WALLSTREET INC.
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
________________________________________________________________________________
to the nearest share) at the end of each month and are due September 2001. The
holders of these notes are related parties.
As part of the refinancing of debt, the Company issued 400,000 shares of the
Company's common stock, no par value at zero cost. In addition, during the first
nine months of 1999, the Company issued 525,938 shares of the Company's common
stock to the holders of the New Senior Notes. Accordingly, the Company recorded
additional charges reflected in interest expense of $448,000 for the financing
fee and $589,000 for the common stock component of interest expense.
2. SUBSEQUENT EVENTS
Effective October 26, 1999, the Company was acquired by Omega Research, Inc.
("Omega") pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of October 25, 1999. The Merger qualified as a tax-free reorganization
under the Internal Revenue Code and as a pooling of interests for financial
accounting purposes. In consideration of the Merger, the shareholders of the
Company received an aggregate of 1,999,995 shares (collectively, the "Shares")
of the common stock, $.01 par value, of Omega ("Omega Common Stock") in exchange
for the cancellation of all of the outstanding shares of capital stock of Window
on WallStreet.
In addition, upon closing of the Merger, the merged company repaid in
accordance with its terms the indebtedness (including accrued and unpaid
interest) of Window on WallStreet owed to two of its shareholders in the
approximate aggregate amount of $4,085,000.
26
<PAGE>
OMEGA RESEARCH, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
INDEX
Page
----
Introduction to Unaudited Pro Forma Combined Financial Data ............ 28
Pro Forma Combined Balance Sheet as of September 30, 1999 .............. 29
Pro Forma Combined Statement of Operations for the nine months
ended September 30, 1999 ............................................. 30
Pro Forma Combined Statement of Operations for the nine months
ended September 30, 1998 ............................................. 31
Pro Forma Combined Statement of Operations for the year ended
December 31, 1998 .................................................... 32
Pro Forma Combined Statement of Operations for the year ended
December 31, 1997 .................................................... 33
Pro Forma Combined Statement of Operations for the year ended
December 31, 1996 .................................................... 34
27
<PAGE>
OMEGA RESEARCH, INC.
INRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
Effective October 26, 1999, Omega Research, Inc. acquired by merger
privately held Window On WallStreet Inc. ("Window On WallStreet"), an
Internet-based provider of streaming real-time and historical quotes and a
developer of on-line investment analysis tools. Under the terms of the merger
agreement, Window On WallStreet shareholders received 1,999,995 newly issued
shares of Omega Research, Inc.'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 related accrued interest and (ii) assumed all outstanding stock options
to purchase Window On WallStreet common stock which, based on an exchange ratio
of 0.210974, are exercisable for an aggregate of 182,529 shares of Omega
Research's common stock. Following the merger, which is being accounted for as a
pooling of interests, Window On WallStreet shareholders own approximately 8.2
percent of Omega Research's outstanding common stock.
It is anticipated that nonrecurring merger expenses in the amount of
approximately $1.3 million will be incurred in connection with the merger. Such
expenses are not reflected in the Pro Forma Combined Statements of Operations.
The following tables set forth certain unaudited pro forma combined
financial information for Omega Research, Inc. after giving effect to the merger
with Window on WallStreet as if it had been consummated, with respect to
statement of operations data, at the beginning of the periods presented, or,
with respect to the balance sheet data, as of the date presented. The tables
reflect the merger being accounted for as a pooling of interests. Omega
Research, Inc.'s historical and quarterly financial information included herein
has been derived from its respective historical and quarterly financial
statements which have not been restated for the effect of the merger with Window
On WallStreet. The pro forma combined financial information has been prepared
for comparative purposes only and does not purport to indicate what necessarily
would have occurred had the entities merged at the beginning of the periods
presented, or what results may be in the future.
28
<PAGE>
OMEGA RESEARCH, INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Omega
Omega Research
Research Window on Pro Forma Pro Forma
As Reported WallStreet Adjustments Combined
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,697,071 $ 136,893 $ - $ 6,833,964
Restricted cash - 50,165 - 50,165
Marketable securities 4,473,143 - - 4,473,143
Accounts receivable, net 13,666,315 115,916 - 13,782,231
Inventory 86,001 9,897 - 95,898
Other current assets 864,739 23,409 - 888,148
Deferred income taxes 8,279,000 - - 8,279,000
----------- ---------- --------- -----------
Total current assets 34,066,269 336,280 - 34,402,549
----------- ---------- --------- -----------
PROPERTY, PLANT & EQUIPMENT, net 2,138,096 257,640 - 2,395,736
OTHER ASSETS 413,535 1,114 - 414,649
----------- ---------- --------- -----------
Total assets $36,617,900 $ 595,034 $ - $37,212,934
=========== ========== ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,426,529 $ 197,439 $ - $ 1,623,968
Accrued expenses 1,289,296 1,363,069 - 2,652,365
Deferred revenue 1,390,375 379,178 - 1,769,553
----------- ---------- --------- -----------
Total current liabilities 4,106,200 1,939,686 - 6,045,886
----------- ---------- --------- -----------
LONG TERM DEBT - 4,056,347 - 4,056,347
----------- ---------- --------- -----------
Total liabilities 4,106,200 5,996,033 - 10,102,233
----------- ---------- --------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock - - - -
Common stock 224,634 1,000 19,000 (A) 244,634
Additional paid-in capital 24,437,214 2,010,347 (237,468) (A) 26,210,093
Treasury Stock - (218,468) 218,468 (A) -
Retained earnings (deficit) 7,849,852 (7,193,878) - 655,974
----------- ---------- --------- -----------
Total shareholders' equity 32,511,700 (5,400,999) - 27,110,701
----------- ---------- --------- -----------
Total liabilities & shareholders' equity $36,617,900 $ 595,034 $ - $37,212,934
=========== ========== ========= ===========
</TABLE>
________________________________________________________________________________
(A) To reflect the common stock issued by Omega Research, Inc. in connection
with the merger including the retirement of the Window On WallStreet
treasury stock.
29
<PAGE>
OMEGA RESEARCH, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Omega
Omega Research
Research Window on Pro Forma Pro Forma
As Reported WallStreet Adjustments Combined
----------- ------------ ------- -----------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $25,576,728 $ 939,331 $ - $26,516,059
Other revenues 5,633,784 1,392,200 - 7,025,984
----------- ------------ --------- -----------
Total net revenues 31,210,512 2,331,531 - 33,542,043
OPERATING EXPENSES:
Cost of licensing fees and services 1,397,818 1,085,916 - 2,483,734
Product development 3,301,462 403,268 - 3,704,730
Sales and marketing 12,826,516 806,647 - 13,633,163
General and administrative expense 6,790,801 2,139,405 - 8,930,206
----------- ------------ --------- -----------
Total operating expenses 24,316,597 4,435,236 - 28,751,833
----------- ------------ --------- -----------
Income (loss) from operations 6,893,915 (2,103,705) - 4,790,210
OTHER INCOME (EXPENSE), net:
Interest expense - (1,578,915) - (1,578,915)
Other income, net 321,411 23,469 - 344,880
----------- ------------ --------- -----------
Total other income (expense), net 321,411 (1,555,446) - (1,234,035)
----------- ------------ --------- -----------
Income (loss) before income taxes 7,215,326 (3,659,151) - 3,556,175
INCOME TAX PROVISION 2,721,000 - - 2,721,000
----------- ------------ --------- -----------
Net income (loss) $ 4,494,326 $ (3,659,151) $ - $ 835,175
=========== ============ ========= ===========
Earnings per share:
Basic $ 0.20 $ 0.03
=========== ===========
Diluted $ 0.18 $ 0.03
=========== ===========
Weighted average common stock:
Basic 22,374,055 1,999,995 (A) 24,374,050
=========== ========= ===========
Diluted 24,423,913 2,083,617 (B) 26,507,530
=========== ========= ===========
</TABLE>
________________________________________________________________________________
(A) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger.
(B) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger, including the dilutive effect of Window on
WallStreet's stock options.
30
<PAGE>
OMEGA RESEARCH, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Omega
Omega Research
Research Window on Pro Forma Pro Forma
As Reported WallStreet Adjustments Combined
----------- ------------ ------- -----------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $16,341,669 $ 1,801,881 $ - $18,143,550
Other revenues 4,810,194 221,890 - 5,032,084
----------- ------------ --------- -----------
Total net revenues 21,151,863 2,023,771 - 23,175,634
OPERATING EXPENSES:
Cost of licensing fees and services 1,282,650 372,200 - 1,654,850
Product development 2,405,400 515,740 - 2,921,140
Sales and marketing 10,791,122 906,150 - 11,697,272
General and administrative expense 4,196,995 1,686,421 - 5,883,416
----------- ------------ --------- -----------
Total operating expenses 18,676,167 3,480,511 - 22,156,678
----------- ------------ --------- -----------
Income (loss) from operations 2,475,696 (1,456,740) - 1,018,956
OTHER INCOME (EXPENSE), net:
Interest expense - (258,798) - (258,798)
Other income, net 349,875 10,545 - 360,420
----------- ------------ --------- -----------
Total other income (expense), net 349,875 (248,253) - 101,622
----------- ------------ --------- -----------
Income (loss) before income taxes 2,825,571 (1,704,993) - 1,120,578
INCOME TAX PROVISION 990,500 - - 990,500
----------- ------------ --------- -----------
Net income (loss) $ 1,835,071 $ (1,704,993) $ - $ 130,078
=========== ============ ========= ===========
Earnings per share:
Basic $ 0.08 $ 0.01
=========== ===========
Diluted $ 0.08 $ 0.01
=========== ===========
Weighted average common stock:
Basic 22,253,175 1,999,995 (A) 24,253,170
=========== ========= ===========
Diluted 22,838,260 2,070,990 (B) 24,909,250
=========== ========= ===========
</TABLE>
________________________________________________________________________________
(A) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger.
(B) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger, including the dilutive effect of Window on
WallStreet's stock options.
31
<PAGE>
OMEGA RESEARCH, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Omega
Omega Research
Research Window on Pro Forma Pro Forma
As Reported WallStreet Adjustments Combined
----------- ----------- ------- ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $22,005,324 $ 3,051,774 $ - $ 25,057,098
Other revenues 6,211,181 442,474 - 6,653,655
----------- ----------- --------- ------------
Total net revenues 28,216,505 3,494,248 - 31,710,753
OPERATING EXPENSES:
Cost of licensing fees and services 1,798,078 696,367 - 2,494,445
Product development 3,318,310 683,671 - 4,001,981
Sales and marketing 14,381,923 1,191,863 - 15,573,786
General and administrative expense 6,134,608 2,410,465 - 8,545,073
----------- ----------- --------- ------------
Total operating expenses 25,632,919 4,982,366 - 30,615,285
----------- ----------- --------- ------------
Income (loss) from operations 2,583,586 (1,488,118) - 1,095,468
OTHER INCOME (EXPENSE), net: -
Interest expense - (907,196) - (907,196)
Other income, net 423,961 11,220 - 435,181
----------- ----------- --------- ------------
Total other income (expense), net 423,961 (895,976) - (472,015)
Income (loss) before income taxes 3,007,547 (2,384,094) - 623,453
INCOME TAX PROVISION 1,052,000 - - 1,052,000
----------- ----------- --------- ------------
Net income (loss) $ 1,955,547 $(2,384,094) $ - $ (428,547)
=========== =========== ========= ============
Earnings per share:
Basic $ 0.09 $ (0.02)
=========== ============
Diluted $ 0.09 $ (0.02)
=========== ============
Weighted average common stock:
Basic 22,255,627 1,999,995 (A) 24,255,622
=========== ========= ============
Diluted 22,757,913 1,999,995 (A) 24,255,622 (B)
=========== ========= ============
</TABLE>
________________________________________________________________________________
(A) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger.
(B) Impact of common stock equivalents is antidilutive to the pro forma
combined results of operations.
32
<PAGE>
OMEGA RESEARCH, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Omega
Omega Research
Research Window on Pro Forma Pro Forma
As Reported WallStreet Adjustments Combined
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 24,364,990 $ 3,364,559 $ - $ 27,729,549
Other revenues 4,861,284 359,615 - 5,220,899
------------ ------------ ---------- ------------
Total net revenues 29,226,274 3,724,174 - 32,950,448
OPERATING EXPENSES:
Cost of licensing fees and services 1,848,993 839,284 - 2,688,277
Product development 1,890,392 465,324 - 2,355,716
Sales and marketing 11,272,290 944,827 - 12,217,117
General and administrative expense 5,420,760 2,045,182 - 7,465,942
------------ ------------ ---------- ------------
Total operating expenses 20,432,435 4,294,617 - 24,727,052
------------ ------------ ---------- ------------
Income (loss) from operations 8,793,839 (570,443) - 8,223,396
OTHER INCOME (EXPENSE), net:
Interest expense - (265,469) - (265,469)
Other income, net 146,474 49,521 - 195,995
------------ ------------ ---------- ------------
Total other income (expense), net 146,474 (215,948) - (69,474)
Income (loss) before income taxes 8,940,313 (786,391) - 8,153,922
INCOME TAX PROVISION (BENEFIT) (934,000) - - (934,000)
------------ ------------ ---------- ------------
Income (loss) before pro forma income tax adjustment 9,874,313 (786,391) - 9,087,922
PRO FORMA INCOME TAX ADJUSTMENTS:
Pro forma income taxes for periods prior to
September 30, 1997 3,255,731 - - 3,255,731
Non-recurring tax credit 1,167,000 - - 1,167,000
------------ ------------ ---------- ------------
Pro forma net income $ 5,451,582 $ (786,391) $ - $ 4,665,191
============ ============ ========== ============
Earnings per share:
Basic $ 0.27 $ 0.21
============ ============
Diluted $ 0.26 $ 0.20
============ ============
Weighted average common stock:
Basic 20,171,527 1,999,995 (A) 22,171,522
========== ========= ==========
Diluted 20,884,675 2,077,607 (B) 22,962,282
========== ========= ==========
</TABLE>
________________________________________________________________________________
(A) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger.
(B) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger, including the dilutive effect of Window on
WallStreet's stock options.
33
<PAGE>
OMEGA RESEARCH, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Omega
Omega Research
Research Window on Pro Forma Pro Forma
As Reported WallStreet Adjustments Combined
-------------- ------------ ------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 13,943,234 $ 2,050,740 $ - $ 15,993,974
Other revenues 3,876,928 241,351 - 4,118,279
-------------- ------------ --------- ------------
Total net revenues 17,820,162 2,292,091 - 20,112,253
OPERATING EXPENSES:
Cost of licensing fees and services 1,716,884 669,976 - 2,386,860
Product development 1,041,131 166,736 - 1,207,867
Sales and marketing 5,617,931 666,499 - 6,284,430
General and administrative expense 2,421,638 1,315,088 - 3,736,726
-------------- ------------ --------- ------------
Total operating expenses 10,797,584 2,818,299 - 13,615,883
-------------- ------------ --------- ------------
Income (loss) from operations 7,022,578 (526,208) - 6,496,370
OTHER INCOME (EXPENSE), net:
Interest expense - (79,802) - (79,802)
Other income, net 59,436 11,056 - 70,492
-------------- ------------ --------- ------------
Total other income (expense), net 59,436 (68,746) - (9,310)
Income (loss) before pro forma income
tax adjustments 7,082,014 (594,954) - 6,487,060
PRO FORMA INCOME TAX ADJUSTMENT:
Pro forma income taxes for periods prior
to September 30, 1997 2,797,396 - - 2,797,396
-------------- ------------ --------- ------------
Pro forma net income (loss) $ 4,284,618 $ (594,954) $ - $ 3,689,664
============== ============ ========= ============
Earnings per share:
Basic $ 0.22 $ 0.17
============== ============
Diluted $ 0.21 $ 0.16
============== ============
Weighted average common stock:
Basic 19,480,000 1,999,995 (A) 21,479,995
========== ========= ==========
Diluted 20,541,000 2,077,607 (B) 22,618,607
========== ========= ==========
</TABLE>
________________________________________________________________________________
(A) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger.
(B) To reflect the conversion of Window on WallStreet's weighted average
shares outstanding to shares of Omega Research, Inc.'s common stock in
connection with the merger, including the dilutive effect of Window on
WallStreet's stock options.
34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to the Report to be signed on
its behalf by the undersigned thereunto duly authorized.
OMEGA RESEARCH, INC.
Registrant
JANUARY 7, 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)
35
<PAGE>
OMEGA RESEARCH, INC.
EXHIBIT INDEX
EXHIBIT
NO. DOCUMENT DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of October 25, 1999, by and among
Omega Research, Inc., WOW Acquisition Corporation and Window on
WallStreet Inc., together with the following exhibits thereto: (i)
Articles of Merger; (ii) Form of Company Affiliate Agreement; (iii) Form
of Agreement Regarding Employment; (iv) Form of Shareholder
Non-Competition and Non-Disclosure Agreement; (v) Form of Stock Option
Agreement (All Employees); (vi) Form of Stock Option Agreement (Jennings
and Black); (vii) Form of Investment Acknowledgment Agreement; (viii)
Registration Rights Agreement; and (ix) Opinion Letter Matters *
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants **
________________________________________________________________________________
* Previously filed as part of the Report.
** Filed herewith.
36
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-40881) of Omega Research, Inc. of our report
dated September 10, 1999, except as to Note 10, which is as of October 21, 1999,
relating to the financial statements of Window on WallStreet Inc., which appears
in the Current Report on Form 8-K/A of Omega Research, Inc. dated January 7,
2000.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
January 7, 2000
