OMEGA RESEARCH INC
10-Q, 2000-11-14
PREPACKAGED SOFTWARE
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                       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 September 30, 2000

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission file number 0-22895

                              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 November 8, 2000 there were 24,604,161 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
             September 30, 2000 (unaudited) and December 31, 1999.............................      3

           Consolidated Statements of Operations
             Three and nine months ended September 30, 2000 and 1999 (unaudited)..............      4

           Consolidated Statements of Cash Flows
             Nine months ended September 30, 2000 and 1999 (unaudited)........................      5

                  Notes to Consolidated Financial Statements (unaudited)......................      6

Item 2.    Management's Discussion and Analysis of Financial Condition and
             Results of Operations............................................................     10

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........................     17

PART II.  OTHER INFORMATION

Item 2.   Changes in Securities and Use of Proceeds...........................................     18
Item 6.   Exhibits and Reports on Form 8-K....................................................     18
Signature.....................................................................................     19
Exhibit Index.................................................................................     20
</TABLE>


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

                      OMEGA RESEARCH, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                   September 30,           December 31,
                                                                       2000                   1999
                                                                   -------------           ------------
                                                                  (Unaudited)               (Restated)
<S>                                                                <C>                    <C>
ASSETS:
-------

CURRENT ASSETS:
     Cash and cash equivalents                                     $  1,523,334           $  2,175,852
     Marketable securities                                                   --              1,695,304
     Accounts receivable, net                                           694,000              1,976,000
     Income tax receivable                                            8,242,105                589,106
     Other current assets                                               646,615              1,100,648
     Deferred income taxes                                            4,983,000             13,221,000
                                                                   ------------           ------------
         Total current assets                                        16,089,054             20,757,910

PROPERTY AND EQUIPMENT, net                                           2,146,603              2,611,454
GOODWILL, net                                                         1,258,769              1,564,958
OTHER INTANGIBLE ASSETS, net                                         10,445,138             14,151,389
OTHER ASSETS                                                          1,585,454                473,344
DEFERRED INCOME TAXES                                                   585,000                     --
                                                                   ------------           ------------

         Total assets                                              $ 32,110,018           $ 39,559,055
                                                                   ============           ============


LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------

CURRENT LIABILITIES:
     Accounts payable                                              $  3,685,472           $  2,786,739
     Accrued expenses                                                 1,978,788              1,861,321
     Deferred revenue                                                 1,005,915                414,824
                                                                   ------------           ------------
         Total current liabilities                                    6,670,175              5,062,884
                                                                   ------------           ------------

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, 24,603,081 and 24,475,104
         issued and outstanding at September 30, 2000 and
         December 31, 1999, respectively                                246,031                244,751
     Additional paid-in capital                                      35,078,519             34,618,412
     Accumulated deficit                                             (9,884,707)              (366,992)
                                                                   ------------           ------------

         Total shareholders' equity                                  25,439,843             34,496,171
                                                                   ------------           ------------

         Total liabilities and shareholders' equity                $ 32,110,018           $ 39,559,055
                                                                   ============           ============
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       3
<PAGE>

                      OMEGA RESEARCH, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                             Three Months Ended                      Nine Months Ended
                                                                September 30,                           September 30,
                                                      -----------------------------           -----------------------------
                                                          2000             1999                   2000             1999
                                                      ------------     ------------           ------------     ------------
                                                                        (Restated)                              (Restated)
<S>                                                   <C>              <C>                    <C>              <C>
NET REVENUES:
     Licensing fees                                   $  4,099,930     $  4,495,723           $ 14,948,460     $ 12,288,532
     Subscription services                               2,562,336               --              5,472,961               --
     Other revenues                                      1,885,961        1,600,324              6,654,971        5,633,784
                                                      ------------     ------------           ------------     ------------

         Total net revenues                              8,548,227        6,096,047             27,076,392       17,922,316
                                                      ------------     ------------           ------------     ------------

OPERATING EXPENSES:
     Cost of licensing fees                                 31,347          459,638                494,045        1,397,818
     Cost of subscription services                       1,195,937               --              2,767,012               --
     Product development                                 1,788,046        1,116,895              5,640,827        3,301,462
     Sales and marketing                                 4,194,929        4,440,324             17,805,915       12,826,516
     General and administrative                          2,068,816          627,099              5,959,838        2,878,801
     Amortization of goodwill                              102,063               --                306,189               --
     Amortization of other intangible assets             1,235,417               --              3,706,251               --
                                                      ------------     ------------           ------------     ------------

         Total operating expenses                       10,616,555        6,643,956             36,680,077       20,404,597
                                                      ------------     ------------           ------------     ------------

         Loss from operations                           (2,068,328)        (547,909)            (9,603,685)      (2,482,281)

OTHER INCOME, net                                           28,990           83,736                 85,970          321,411
                                                      ------------     ------------           ------------     ------------

         Loss before income taxes                       (2,039,338)        (464,173)            (9,517,715)      (2,160,870)

INCOME TAX BENEFIT                                              --         (204,000)                    --         (896,000)
                                                      ------------     ------------           ------------     ------------

         Net loss                                     $ (2,039,338)    $   (260,173)          $ (9,517,715)    $ (1,264,870)
                                                      ============     ============           ============     ============


LOSS PER SHARE (Note 5):
     Basic and diluted                                $      (0.08)    $      (0.01)          $      (0.39)    $      (0.06)
                                                      ============     ============           ============     ============
</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
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                       Nine Months Ended
                                                                         September 30,
                                                              -----------------------------------
                                                                  2000                   1999
                                                              ------------           ------------
                                                                                      (Restated)
<S>                                                           <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                 $ (9,517,715)          $ (1,264,870)
     Adjustments to reconcile net loss to net
       cash used in operating activities:
        Depreciation and amortization                            5,153,245                645,183
        Compensation expense on stock option grants                115,257                106,644
        Deferred income tax provision (benefit)                 10,458,000             (6,866,000)
        (Increase) decrease in:
          Accounts receivable                                    1,282,000              6,243,355
          Other current assets                                     454,033                347,298
          Other assets                                          (1,177,341)              (135,971)
          Income tax receivable                                (10,458,000)              (963,106)
        Increase (decrease) in:
          Accounts payable                                         898,733                344,008
          Accrued expenses                                         117,468                326,831
          Deferred revenue                                         591,091                 (1,660)
                                                              ------------           ------------
           Net cash used in operating activities                (2,083,229)            (1,218,288)
                                                              ------------           ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                         (610,723)            (1,084,063)
     Redemption of/proceeds from maturity of
       marketable securities                                     1,695,304              1,263,815
     Acquisition of data rights and customer lists                      --               (120,000)
                                                              ------------           ------------
           Net cash provided by investing activities             1,084,581                 59,752
                                                              ------------           ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of common stock, net                   346,130                418,627
                                                              ------------           ------------

NET DECREASE IN CASH AND
  CASH EQUIVALENTS                                                (652,518)              (739,909)

CASH AND CASH EQUIVALENTS, beginning of period                   2,175,852              7,436,980
                                                              ------------           ------------
CASH AND CASH EQUIVALENTS, end of period                      $  1,523,334           $  6,697,071
                                                              ============           ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid for interest                                   $         --           $         --
                                                              ============           ============
     Cash paid for income taxes                               $         --           $  6,933,366
                                                              ============           ============
</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 and nine month
            periods ended September 30, 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 Annual Report on Form 10-K/A of Omega Research, Inc. (the
"Company" or "Omega Research") 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 September 30,
2000, the results of operations for the three and nine month periods ended
September 30, 2000 and 1999 and cash flows for the nine months ended September
30, 2000 and 1999 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 that may be reported for the year or for any subsequent period.

1.  Restatement

    Subsequent to the filing of the Company's Consolidated Financial
Statements for the nine months ended September 30, 1999 and in connection with
its review of a registration statement on Form S-4 related to the proposed
merger with onlinetradinginc.com corp. ("OnlineTrading.com") (see Note 7), the
Staff of the Securities and Exchange Commission ("SEC") expressed concerns about
the method of accounting for revenue recognition of licensing fees used by the
Company and its method of accounting for the acquisition of Window On WallStreet
Inc. ("Window On WallStreet"). As a result of consultation with the Staff of the
SEC, the Company restated certain of its annual and quarterly financial
statements as discussed below.

    Beginning in 1999 with the launch of the Company's 2000i product line,
changes in the Company's client software product sales, including introduction
of a new, higher-priced product and longer financing terms, were deemed to alter
the predictability of return reserves and the future collectibility of
receivables. Accordingly, all 2000i product sales are recognized as they become
due (generally over a period of up to 12 to 16 months). Prior to 1999, sales of
client software products were recognized, net of anticipated returns, at the
time the product was shipped. In addition, the Company's acquisition of Window
On WallStreet has been restated to be accounted for under the purchase method of
accounting. A summary of the effects of the restatement for the three and nine
month periods ended September 30, 1999 follows:
<TABLE>
<CAPTION>
                                                               Purchase           Revenue
                                             Previously       Accounting        Recognition           As
                                              Reported        Adjustments       Adjustments        Restated
                                          ----------------  ---------------  ----------------  ---------------
<S>                                         <C>               <C>              <C>               <C>
Three months ended September 30, 1999:
--------------------------------------

Net revenues                                $   11,482,624    $    (690,064)   $   (4,696,513)   $   6,096,047
Income (loss) before income taxes                1,347,777        1,272,563        (3,084,513)        (464,173)
Net income (loss)                                  366,777        1,272,563        (1,899,513)        (260,173)
Earnings (loss) per share:
  Basic                                               0.02             0.05             (0.08)           (0.01)
  Diluted                                             0.01             0.06             (0.08)           (0.01)
</TABLE>


                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                               Purchase           Revenue
                                             Previously       Accounting        Recognition           As
                                              Reported        Adjustments       Adjustments        Restated
                                          ----------------  ---------------  ----------------  ---------------
<S>                                             <C>              <C>              <C>               <C>
Nine months ended September 30, 1999:
-------------------------------------

Net revenues                                    33,542,044       (2,331,532)      (13,288,196)      17,922,316
Income (loss) before income taxes                3,556,177        3,659,149        (9,376,196)      (2,160,870)
Net income (loss)                                  835,177        3,659,149        (5,759,196)      (1,264,870)
Earnings (loss) per share:
    Basic and diluted                                 0.03             0.17             (0.26)           (0.06)
</TABLE>

    The restatement, as it relates to revenue recognition, relates solely to the
timing thereof and has no impact on cash flow. The primary effect of this change
is to shift a portion of the 1999 net revenues and operating income to 2000 and,
to a lesser extent, to early 2001. This shift in timing of revenue recognition
does not change the Company's expectations that its change in business model
will result in net losses at least through the first quarter of 2001. The
revenue recognition timing changes do not impact revenue recognition for the
Company's Internet subscription services or other revenues, or any of the
Company's planned service offerings, which are expected to generate the majority
of the Company's revenues in the future.

2.  Accounts Receivable

    As of September 30, 2000 and December 31, 1999, accounts receivable were
primarily comprised of receivables earned under royalty agreements with entities
that market and sell financial market data subscriptions. The Company performs
periodic credit evaluations and maintains allowances for potential credit losses
of approximately $716,000 at September 30, 2000 and December 31, 1999.

3.  Restricted Cash

    Cash and cash equivalents at September 30, 2000 include $510,000 of
restricted cash held in trust for a credit card clearing agreement and a
stand-by letter of credit securing an equipment lease. There was no restricted
cash as of December 31, 1999.

4.  Deferred Revenue

    Deferred revenue is comprised of deferrals for (i) payments received in
advance of service provided or bundled with client software purchases, (ii)
payments received for licensing fees prior to the completion of the Company's
30-day trial period and (iii) registration fees and sponsorship and exhibitor
deposits for OmegaWorld, the Company's annual conference which is designed to
highlight the benefits of trading strategy development and held during the
second quarter of each year. Deferred revenue consists of the following as of
September 30, 2000 and December 31, 1999:

                                            September 30,        December 31,
                                                2000                1999
                                           ---------------    ----------------

          Subscription services            $       924,915    $        290,300
          Licensing fees                            81,000                  --
          OmegaWorld                                    --             124,524
                                           ---------------    ----------------
                                           $     1,005,915    $        414,824
                                           ===============    ================


                                       7
<PAGE>

5.  Loss Per Share

    Weighted average shares outstanding for the three and nine month periods
ended September 30, 2000 and 1999 are calculated as follows:
<TABLE>
<CAPTION>
                                                              Three Months Ended                  Nine Months Ended
                                                                 September 30,                      September 30,
                                                       -------------------------------    -------------------------------
                                                            2000              1999             2000              1999
                                                       --------------    -------------    --------------    -------------
<S>                                                        <C>              <C>               <C>              <C>
   Weighted average shares outstanding (basic)             24,596,486       22,445,105        24,568,404       22,374,055
   Impact of dilutive options after applying
     the treasury stock method                                     --               --                --               --
                                                       --------------    -------------    --------------    -------------
   Weighted average shares outstanding (diluted)           24,596,486       22,445,105        24,568,404       22,374,055
                                                       ==============    =============    ==============    =============

   Options outstanding which are not included
     in the calculation of diluted loss per share
     because their impact is antidilutive                   4,308,306        3,262,275         4,308,306        3,262,275
                                                       ==============    =============    ==============    =============
</TABLE>


6.  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 loss is equal to net loss for all periods
presented.

7.  Business Combinations

    Effective October 26, 1999, the Company acquired Window On WallStreet, a
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, (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 and
issued to employees 335,000 stock options to purchase the Company's common
stock, and (iii) paid fees and costs relating to the acquisition of $1.2
million. The acquisition has been accounted for under the purchase method of
accounting.

    At the acquisition date, the shares of the Company's common stock issued
were valued at $8.6 million. The options were valued at $1.5 million. The
resulting goodwill of $1.6 million and other identifiable intangible assets of
$15.0 million will be amortized over a period of three to four years.

    Under purchase accounting, the results of operations of the acquired company
are included from the acquisition date forward. Accordingly, the Consolidated
Financial Statements contained herein include the results of operations of
Window on WallStreet beginning October 26, 1999.

    There were no material relationships or intercompany transactions between
the Company and Window On WallStreet prior to the acquisition.

    On January 19, 2000, the Company signed a definitive, 100% share-exchange
merger agreement with 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.


                                       8
<PAGE>

    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 TradeStation Group, Inc. (f/k/a OnlineTrading.com Group, Inc.)
("TradeStation Group") will own 100% of the issued and outstanding capital stock
of Omega Research (which, upon consummation of the merger, is to be renamed
TradeStation Technologies, Inc.) and OnlineTrading.com. (which, as soon as
practicable after the consummation of the merger, is to be renamed TradeStation
Securities, Inc.). Upon completion of the merger, as a result of share exchanges
between TradeStation Group and each of Omega Research and OnlineTrading.com, and
the listing of TradeStation Group shares, TradeStation Group will be the sole
publicly-traded company in the group with its outstanding shares of common stock
listed on The Nasdaq National Market. TradeStation 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, originally filed with the SEC on April 17, 2000, as amended, 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.

8. Recently Issued Accounting Standards

    In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("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, as amended by SFAS No. 138, will require the Company to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that do not qualify for hedge accounting 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.

    In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), Revenue Recognition in Financial Statements, to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
Company will be required to adopt SAB 101 by the fourth quarter of 2000. The
adoption of SAB 101 is not expected to have a material impact on the
consolidated financial position or results of operations of the Company.

    In March 2000, the Emerging Issues Task Force reached a consensus on Issue
No. 00-2, Accounting for Web Site Development Costs, which applies to all web
site development costs incurred for the quarters beginning after June 30, 2000.
The consensus states that the accounting for specific web site development costs
should be based on a model consistent with AICPA Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The adoption of Issue No. 00-2 during the quarter ended September 30, 2000
did not have a material impact on the financial statements of the Company.


                                        9
<PAGE>

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

    This discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated 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 the Merger Agreement with
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, originally filed with
the SEC on April 17, 2000, as amended, the approval of the shareholders of each
of Omega Research and OnlineTrading.com, and the satisfaction of other
conditions precedent.

    On November 2, 2000, the Company announced the restatement of its financial
results for a six-quarter period from the first quarter of 1999 through the
second quarter of 2000. This restatement addresses: (1) the timing of revenue
recognition with respect to sales of the Company's 2000i product line for which
revenues will be recognized as they become due (generally over the 12 to 16
month financing terms for these sales, as monthly payments are due) as compared
to recognition of revenue, net of provision for anticipated returns, upon
shipment of these products; and (2) the Company's October 1999 merger with
Window On WallStreet accounted for under the purchase method of accounting and
not under the pooling-of-interests method of accounting. (See Notes 1 and 7 in
Notes to Consolidated Financial Statements).

    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 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.

    As a result of the change in the business model, the Company's licensing
fees are expected to decrease each quarter 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, revenues from the
Company's Internet subscription services will offset such reductions. To support
the change in the business model, the Company expects to increase significantly
its product development and infrastructure expenditures. As a result, the
Company expects to incur net losses through at least the first quarter of 2001.
These anticipated losses could further reduce the Company's limited available
cash resources, increase its capital requirements and require the Company to
seek debt and/or equity financing. See "Liquidity and Capital Resources" below.

    It should be noted that the results of operations discussion below does not
give effect to the pending merger with OnlineTrading.com.


                                       10
<PAGE>


RESULTS OF OPERATIONS

     The results of operations for the three and nine month periods ended
September 30, 1999 have been restated. See Note 1 of Notes to Consolidated
Financial Statements. The following table presents, for the periods indicated,
certain items in the Company's statements of operations reflected as a
percentage of total net revenues:
<TABLE>
<CAPTION>
                                                   Three Months Ended                        Nine Months Ended
                                                      September 30,                            September 30,
                                            -------------------------------           -------------------------------
                                                 2000              1999                    2000             1999
                                            --------------    -------------           -------------     -------------
<S>                                               <C>               <C>                     <C>              <C>
NET REVENUES:
   Licensing fees                                  48.0 %            73.7 %                  55.2 %           68.6 %
   Subscription services                           30.0                --                    20.2               --
   Other revenues                                  22.0              26.3                    24.6             31.4
                                            -----------       -----------             -----------       ----------
       Total net revenues                         100.0             100.0                   100.0            100.0
                                            -----------       -----------             -----------       ----------

OPERATING EXPENSES:
   Cost of licensing fees                           0.4               7.5                     1.8              7.8
   Cost of subscription services                   14.0                 -                    10.2               --
   Product development                             20.9              18.3                    20.9             18.4
   Sales and marketing                             49.1              72.9                    65.8             71.6
   General and administrative                      24.2              10.3                    22.0             16.1
   Amortization of goodwill                         1.2                 -                     1.1               --
   Amortization of other intangible assets         14.4                 -                    13.7               --
                                            -----------       -----------             -----------       -----------
       Total operating expenses                   124.2             109.0                   135.5            113.9
                                            -----------       -----------             -----------       ----------

       Loss from operations                       (24.2)%            (9.0)%                 (35.5)%          (13.9)%
                                            -----------       -----------             -----------       ----------
</TABLE>


Three Months Ended September 30, 2000 and 1999

Net Revenues

     Total Net Revenues. The Company's total net revenues increased 40% from
$6.1 million in the three months ended September 30, 1999 to $8.5 million in the
comparable period of 2000.

     Licensing Fees. Licensing fees are derived from sales of the Company's
client software products. Licensing fees decreased from $4.5 million in the
three months ended September 30, 1999 to approximately $4.1 million in the
comparable period of 2000 primarily due to a decrease in the number of new
licensing fee transactions resulting from the Company's change in its business
model. As the Company continues to focus on building its Internet subscriber
base, it is expected that licensing fees will decrease quarter over quarter. It
is difficult to predict when, if at all, or to what extent, revenues from the
Company's Internet subscription services will offset such reductions in
licensing fees.

     Subscription Services. Subscription services revenues totaled $2.6 million
for the three months ended September 30, 2000, primarily due to the January 25,
2000 launch of WindowOnWallStreet.com, which contributed revenues of $2.3
million during the period, and, to a lesser extent, revenues from the Financial
Data Cast Network ("FDCN"), the real time market data subscription service
acquired in the October 1999 acquisition of Window on WallStreet.

     Other Revenues. Other revenues increased 18% from $1.6 million in the three
months ended September 30, 1999 to $1.9 million in the comparable period of
2000, primarily due to minimum royalties under the Company's license agreement
with Telerate, Inc., a subsidiary of Bridge Information Systems, Inc. ("Bridge
Telerate"), increasing by $500,000 per quarter, partially offset by decreases in
royalties from end-of-day data vendors.


                                       11
<PAGE>

Operating Expenses

     Cost of Licensing Fees. Cost of licensing fees consists primarily of
product media, packaging and inventory costs that are recognized upon shipment
of client software products. Cost of licensing fees decreased from approximately
$460,000 in the three months ended September 30, 1999 to approximately $31,000
in the comparable period of 2000 due to decreased shipments of client software
products during the three months ended September 30, 2000 as compared to the
same period during the prior year. Cost of licensing fees as a percentage of net
licensing fees decreased from 10% in the three months ended September 30, 1999
to 1% in the comparable period of 2000, primarily due to a shift in the
recognition of 2000 licensing fee revenue from upon shipment to an as due basis
in accordance with the payment terms of the sale.

     Cost of Subscription Services. Cost of subscription services consists
primarily of expenses related to the operation, maintenance and support of the
Company's server farm, and data distribution and exchange fees. Total cost of
subscription services for the three months ended September 30, 2000 was
approximately $1.2 million or 47% of subscription service revenues due to the
launch of the Company's WindowOnWallStreet.com subscription service and FDCN.
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.

     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
60% from $1.1 million in the three months ended September 30, 1999 to $1.8
million in the comparable period of 2000, primarily resulting from an increase
in personnel and related costs of $564,000 due to the number of personnel in
product development increasing 84% from 50 at September 30, 1999 to 92 at
September 30, 2000 (inclusive of 17 product development employees at Window on
WallStreet). The Company anticipates that the absolute dollar amount of product
development expense will increase for the foreseeable future as the Company
develops new products and services in connection with its new business model and
enhances existing products and services, including completion of the development
of TradeStation.com and integration of TradeStation.com with direct access order
execution technology.

     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 maintenance
and administration costs, and shipping expenses. Sales and marketing expenses
decreased from $4.4 million in the three months ended September 30, 1999 to $4.2
million in the comparable period of 2000, primarily due to decreased personnel
and related costs of $714,000 related to the restructuring of the Company's
sales team at the end of the first quarter of 2000, and, to a lesser extent,
decreased shipping costs of $215,000 related to decreased shipments of client
software products and decreased travel costs of $176,000 related to the
Company's discontinued sales seminars, partially offset by increased advertising
expenses of $898,000 (primarily television advertising.) The Company continues
to evaluate its level of advertising expenditures on a quarterly basis. The
Company decreased advertising expenses for the quarter ended September 30, 2000
by $889,000, or 28%, as compared to the previous quarter ended June 30, 2000,
and it is not known what impact, if any, such reduction will have on its future
subscription services revenue.

    General and Administrative. General and administrative expenses consist
primarily of employee-related costs for administrative personnel such as
executive, human resources, finance and information technology, consulting and
professional fees, rent and other facilities expenses. General and
administrative expenses increased from $627,000 in the three months ended
September 30, 1999 to $2.1 million in the comparable period of 2000, primarily
as a result of increases in facility expenses of $464,000, consulting and
professional fees of $384,000 and personnel and related costs of $384,000.
Approximately 20% of the overall increase in general and administrative expenses
related to the addition of administrative costs associated with Window on
WallStreet's operations. 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 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.


                                       12
<PAGE>

     Amortization of Goodwill and Other Intangible Assets. The October 26, 1999
acquisition of Window on WallStreet was accounted for under the purchase method
of accounting. The excess purchase price paid (including acquisition costs of
$1.2 million) over the net book value of assets was allocated to goodwill and
other intangible assets (the value of which was determined by an independent
appraisal). Other intangible assets consist of purchased technology and
workforce, trademarks, patents, customer lists and non-compete agreements with
useful lives ranging from three to four years. For the three months ended
September 30, 2000, amortization of goodwill and other intangible assets was
approximately $102,000 and $1.2 million, respectively.

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 $84,000 in the three months ended September 30,
1999 to $29,000 in the comparable period of 2000 due to decreases in cash and
cash equivalents and marketable securities.

Nine Months Ended September 30, 2000 and 1999

Net Revenues

     Total Net Revenues. The Company's total net revenues increased 51% from
$17.9 million in the nine months ended September 30, 1999 to $27.1 million in
the comparable period of 2000.

     Licensing Fees. Licensing fees increased 22% from $12.3 million in the nine
months ended September 30, 1999 to $14.9 million in the comparable period of
2000 primarily due to a change in the recognition of revenue in 1999 offset by a
decrease in the number of new licensing fee transactions during 2000 as compared
to 1999 resulting from the Company's change in its business model. Prior to
1999, licensing fees were recognized in full (net of provision for anticipated
returns) upon shipment. In 1999, upon the release of the Company's 2000i product
line, the Company began recognizing sales on an as due basis in accordance with
the payment terms of the sale (generally over a period of up to 12 to 16
months). Licensing fees for the nine months ended September 30, 2000 was higher
than the comparable period of 1999 primarily due to the recognition of 1999
sales on an as due basis during 2000. In future quarters, as a result of the
Company's focus on building its Internet subscriber base, it is expected that
licensing fees will decrease quarter over quarter as the balance of the 1999
product sales are recognized during 2000 and the number of new licensing fee
transactions decreases. It is difficult to predict when, if at all, or to what
extent, revenues from the Company's Internet subscription services will offset
such reductions in licensing fees.

     Subscription Services. Subscription services revenue totaled $5.5 million
in the nine months ended September 30, 2000 primarily due to the January 25,
2000 launch of WindowOnWallStreet.com, which contributed $4.5 million during the
period, and, to a lesser extent, revenues from FDCN.

     Other Revenues. Other revenues increased 18% from $5.6 million in the nine
months ended September 30, 1999 to $6.7 million in the comparable period of
2000, primarily due to minimum royalties under the Company's license agreement
with Bridge Telerate increasing by $500,000 per quarter, partially offset by
decreases in end-of-day data vendor royalties and revenues generated from
OmegaWorld.

Operating Expenses

    Cost of Licensing Fees. Cost of licensing fees decreased from approximately
$1.4 million in the nine months ended September 30, 1999 to approximately
$494,000 in the comparable period of 2000 due to decreased shipments of client
software during the nine months ended September 30, 2000 as compared to the same
period during the prior year. Cost of licensing fees as a percentage of net
licensing fees decreased from 11% in the nine months ended September 30, 1999 to
3% in the comparable period of 2000, primarily due to a shift in the recognition
of 2000 licensing fee revenue from upon shipment to an as due basis in
accordance with the payment terms of the sale.


                                       13
<PAGE>

     Cost of Subscription Services. Cost of subscription services for the nine
months ended September 30, 2000 was approximately $2.8 million or 51% of
subscription service revenues due to the launch of the Company's
WindowOnWallStreet.com subscription service and FDCN. 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.

     Product Development. Product development expenses increased 71% from $3.3
million in the nine months ended September 30, 1999 to $5.6 million in the
comparable period of 2000, primarily due to an increase in personnel and related
costs of $1.9 million due to the number of personnel in product development
increasing 84% from 50 at September 30, 1999 to 92 at September 30, 2000
(inclusive of 17 product development employees at Window on WallStreet), and, to
a lesser extent, increased facility expenses and consulting fees. The Company
anticipates that the absolute dollar amount of product development expenses will
increase for the foreseeable future as the Company develops new products and
services and enhances existing products and services in connection with its new
business model, including completion of the development of TradeStation.com and
integration of TradeStation.com with direct access order execution technology.

     Sales and Marketing. Sales and marketing expenses increased from $12.8
million in the nine months ended September 30, 1999 to $17.8 million in the
comparable period of 2000, primarily due to increased advertising of $5.0
million (primarily television advertising).

    General and Administrative. General and administrative expenses increased
from $2.9 million in the nine months ended September 30, 1999 to $6.0 million in
the comparable period of 2000, primarily due to increases in facility expenses
of $971,000, personnel costs of $881,000 and, to a lesser extent, consulting and
professional fees. In addition, approximately 28% of the overall increase in
general and administrative expenses is related to the addition of administrative
costs associated with Window on WallStreet's operations. 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 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.

     Amortization of Goodwill and Other Intangible Assets. For the nine months
ended September 30, 2000, amortization of goodwill and other intangible assets
was approximately $306,000 and $3.7 million, respectively.

Other Income, Net

     Other income, net decreased from $321,000 in the nine months ended
September 30, 1999 to $86,000 in the comparable period of 2000 due to decreases
in cash and cash equivalents and marketable securities.

Income Taxes

     The Company recorded a benefit for income taxes of $204,000 and $896,000
for the three and nine months ended September 30, 1999, respectively, resulting
in an effective tax rate of 44% and 41%, respectively. The effective tax rates
were slightly higher than the 38.6% statutory rate due primarily to the impact
of tax-free investment income. For the three and nine months ended September 30,
2000, a valuation allowance was recognized to offset the tax benefit associated
with losses for the periods.

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 its new business and revenue models. 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


                                       14
<PAGE>

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 believes that, after giving effect to the pending merger with
OnlineTrading.com, it will have cash resources and cash flows from operations
sufficient to meet currently anticipated working capital and capital expenditure
requirements for at least the next twelve months. The merger has already been
approved, through agreements with each company's affiliated shareholders, by a
majority of the outstanding shares of each company, and has received regulatory
approval from the NASD. Closing of the merger is expected by the end of December
2000. The combined cash, cash equivalents and marketable securities of the
companies as of September 30, 2000 are approximately $17.9 million
(approximately $1.5 million from the Company and approximately $16.4 million
from OnlineTrading.com). In addition, the Company has an income tax receivable
of $8.2 million as of September 30, 2000 related to carryback claims for prior
periods that will be realized subsequent to the filing of the Company's 2000
federal income tax return.

     The Company is experiencing a period of net losses which is expected to
continue at least through the first quarter of 2001. As the Company transitions
to its new business model, it may need to raise additional funds in order to
execute that transition (including the completion of the development and
integration of TradeStation.com and order execution technology), support more
rapid expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies and/or
take advantage of unanticipated opportunities. The Company's future liquidity
and capital requirements will depend upon numerous factors, including the period
of time it takes the Company to close the merger and 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. See "Forward-Looking Statements" below.

    Given the regulatory approval of the merger by the NASD and the
contractually promised approval by the requisite shareholders and the recent
resolution, the Company believes, of certain accounting issues raised by the SEC
Staff, the Company does not believe that the merger will not close or that the
closing will be further delayed beyond December 2000. However, in the event this
should occur and/or the Company's limited available cash and cash equivalents
are depleted sooner than expected, the Company would likely reposition and
restructure its business strategies as necessary, such as appropriate marketing,
sales and general and administrative cost reductions and appropriate shifts of
focus on its available product and service offerings, and explore possible debt
and/or equity financing arrangements. These matters have been explored and
several implemented, and the Company is reasonably comfortable that, in the
event of a further delay, or failure, to close the merger and/or the depletion
of its current limited available cash and cash equivalents sooner than expected,
the Company should have cash resources and cash flows from operations sufficient
to meet currently anticipated working capital and capital expenditure
requirements for approximately the next twelve months. To further support the
transition to the business model, the Company is in the process of finalizing a
short-term revolving credit facility in the amount of $3.0 million to provide
the Company with additional liquidity, should it be required, prior to the
closing of the merger. The facility is expected to be a one-year loan that is
guaranteed by the Company's Co-Chief Executive Officers with an interest rate of
London Interbank Offered Rate plus 1.70% and contains no equity participation
rights or warrants of any kind.

     There can be no assurance that additional financing (debt or equity)
including the short-term revolving credit facility discussed above, if or to the
extent 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. 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. See
also "Forward-Looking Statements" below.


                                       15
<PAGE>

     As of September 30, 2000, the Company had cash and cash equivalents of
approximately $1.5 million, with working capital of approximately $9.4 million.

     Cash used in operating activities during the nine months ended September
30, 2000 totaled approximately $2.1 million compared to approximately $1.2
million in the comparable period of 1999. The increase in net cash used in
operating activities in 2000 compared to the same period of 1999 was primarily
due to higher net losses, net of non-cash charges for depreciation and
amortization, during the nine months ended September 30, 2000.

     The Company's investing activities provided cash of approximately $1.1
million during the nine months ended September 30, 2000 compared to
approximately $60,000 in the comparable period of 1999. Cash was provided from
the redemption or maturity of marketable securities partially offset by capital
expenditures related to the acquisition of computers and related equipment and
software required to support the transition by the Company into its new business
model.

     The Company's financing activities provided cash of approximately $346,000
and $419,000 in the nine months ended September 30, 2000 and 1999, respectively.
Cash provided was from the issuance of common stock upon the exercise of stock
options under the Company's Amended and Restated 1996 Incentive Stock Plan
during 1999 and 2000.

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, as amended by SFAS No. 138, will require the
Company to recognize all derivatives on the balance sheet as either assets or
liabilities measured at fair value. Derivatives that do not qualify for hedge
accounting 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.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), Revenue Recognition in Financial Statements, to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
Company will be required to adopt SAB 101 by the fourth quarter of 2000. The
adoption of SAB 101 is not expected to have a material impact on the
consolidated financial position or results of operations of the Company.

     In March 2000, the Emerging Issues Task Force reached a consensus on Issue
No. 00-2, Accounting for Web Site Development Costs, which applies to all web
site development costs incurred for the quarters beginning after June 30, 2000.
The consensus states that the accounting for specific web site development costs
should be based on a model consistent with AICPA Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The adoption of Issue No. 00-2 during the quarter ended September 30, 2000
did not have a material impact on the financial statements of the Company.

Year 2000 Compliance

     The Company has not encountered any material difficulties with respect to
Year 2000 compliance issues with respect to the 2000i versions of its products
or WindowOnWallStreet.com, or any of its Year 2000 solutions offered to
customers relating to prior product versions. In addition, the Company has not
encountered any material 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,"


                                       16
<PAGE>

"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 (including, without limitation, receipt of
further comments from the SEC Staff related to accounting or other matters, and
the nature and extent thereof, as a result of the SEC Staff's review of
Amendment No. 3 to the Registration Statement) or other reasons; the adequacy of
working capital, cash flows and available or adequate financing to fund the new
business model and sustain expected operating losses, including as a result of
failure by the Company to close its $3.0 million revolving credit facility or
receive all or part of its expected tax refunds; delays in the contemplated
time period for the Company to complete its transition to the new business
model; difficulty integrating the Company and OnlineTrading.com 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 decreasing pace of
WindowOnWallStreet.com new paid subscriptions; 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) and 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 web site 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; and other risks and uncertainties indicated
from time to time; as well as those set forth in other sections of this report
and the Company's other filings with the SEC including, but not limited to, the
Company's December 31, 1999 Annual Report on Form 10-K/A (including in the
section titled "Forward Looking Statements; Business Risks" in Item 7 thereof),
its registration statement on Form S-4 originally filed on April 17, 2000, as
amended, and in the Company's press releases, 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.


                                       17
<PAGE>

                           PART II - OTHER INFORMATION


Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

(c)      Sales of Unregistered Securities

     During the three months ended September 30, 2000, the Company issued to one
employee options to purchase 3,000 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
$2.93 per share, which was the fair market value of the Company's Common Stock
on the date 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 third 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. As of September 30, 2000, the balance
of net offering proceeds have been used by the Company for working capital
purposes.

Item 6.      EXHIBITS AND REPORTS ON FORM 8-K

(a)          Exhibits

             27.1     Financial Data Schedule

(b)          Reports on Form 8-K

     On November 2, 2000, the Company filed a Current Report on Form 8-K, dated
November 2, 2000 for an event on November 1, 2000, addressing in Item 5 thereof
the issues regarding the timing of revenue recognition and amendments to the
Company's historical financial statements as a result thereof that were
discussed by the Company in its Form 10-Q for the quarterly period ended June
30, 2000. The Form 8-K also addressed (i) the Company's accounting for its
October 1999 acquisition of Window On WallStreet Inc., (ii) the primary impact
that the Company's revised accounting methods were expected to have on net
revenues and operating income for the quarterly period ended September 30, 2000
and the nine-month period ended September 30, 2000, and (iii) the status of the
Company's pending merger with OnlineTrading.com.


                                       18
<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

November 14, 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)


                                       19
<PAGE>


                              OMEGA RESEARCH, INC.

                                  EXHIBIT INDEX

  Exhibit
     No.           Document Description
  -------          --------------------

    27.1           Financial Data Schedule


                                       20


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