SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 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 August 9, 2000 there were 24,592,081 shares of the Registrant's
Common Stock outstanding.
<PAGE>
The undersigned Registrant hereby amends and restates in its entirety its
Quarterly Report on Form 10-Q for the three and six month periods ended June 30,
2000 pursuant to this Form 10-Q/A.
TEXT OF AMENDMENTS
Subsequent to the filing of Omega Research, Inc.'s consolidated financial
statements for the six months ended June 30, 2000 on Form 10-Q, 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 of Notes to Consolidated Financial Statements elsewhere in this report),
the Staff of the Securities and Exchange Commission ("SEC") expressed concern
about the method of accounting for revenue recognition of licensing fees used by
Omega Research, Inc. (the "Registrant" or 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.
As a result of the restatement: (i) beginning in 1999 revenues with respect to
the Company's sales of its 2000i products are recognized on an as due basis in
accordance with the payment terms of the sales; and (ii) the Company's October
1999 merger with Window On WallStreet was accounted for under the purchase
method of accounting.
Accordingly, the purpose of this amendment is to restate the Company's
historical consolidated financial statements to reflect these changes. The
Company is amending and restating its Form 10-Q for the fiscal quarter ended
June 30, 2000 in its entirety in order to amend those items that are affected by
the restatement adjustments listed above. The Form 10-Q/A still speaks as of
June 30, 2000 (except as otherwise expressly noted herein), and the items herein
have been modified or updated as required to reflect the effects of the
restatement adjustments to the consolidated financial statements.
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 and early 2000 net revenues and operating
income to 2000 and, to a lesser extent, to 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. See Note 1 of Notes to
Consolidated Financial Statements elsewhere in this report.
2
<PAGE>
OMEGA RESEARCH, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets June 30, 2000 (unaudited)
and December 31, 1999................................ 4
Consolidated Statements of Operations Three and six months
ended June 30, 2000 and 1999 (unaudited)............. 5
Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999 (unaudited).. 6
Notes to Consolidated Financial Statements (unaudited)......... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds...................... 19
Item 6. Exhibits and Reports on Form 8-K............................... 19
Signature.............................................................. 20
Exhibit Index.......................................................... 21
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Restated)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
-------
CURRENT ASSETS:
Cash and cash equivalents $ 3,998,678 $ 2,175,852
Marketable securities -- 1,695,304
Accounts receivable, net 946,811 1,976,000
Income tax receivable 7,493,106 589,106
Other current assets 671,751 1,100,648
Deferred income taxes 6,317,000 13,221,000
------------ ------------
Total current assets 19,427,346 20,757,910
PROPERTY AND EQUIPMENT, net 2,482,086 2,611,454
GOODWILL, net 1,360,832 1,564,958
OTHER INTANGIBLE ASSETS, net 11,680,555 14,151,389
OTHER ASSETS 1,411,050 473,344
------------ ------------
Total assets $ 36,361,869 $ 39,559,055
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 5,726,214 $ 2,786,739
Accrued expenses 2,077,865 1,861,321
Deferred revenue 1,143,530 414,824
------------ ------------
Total current liabilities 8,947,609 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, 24,589,891 and 24,475,104
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 245,899 244,751
Additional paid-in capital 35,013,730 34,618,412
Accumulated deficit (7,845,369) (366,992)
------------ ------------
Total shareholders' equity 27,414,260 34,496,171
------------ ------------
Total liabilities and shareholders' equity $ 36,361,869 $ 39,559,055
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Restated)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------ ------------ ------------ ------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 5,001,534 $ 3,795,060 $ 10,848,530 $ 7,792,809
Subscription services 2,007,791 -- 2,910,625 --
Other revenues 2,818,565 2,412,799 4,769,010 4,033,460
------------ ------------ ------------ ------------
Total net revenues 9,827,890 6,207,859 18,528,165 11,826,269
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees 190,403 455,389 462,698 938,180
Cost of subscription services 1,031,701 -- 1,571,075 --
Product development 2,025,278 1,119,820 3,852,781 2,184,567
Sales and marketing 6,038,126 4,536,311 13,610,986 8,386,192
General and administrative 2,168,811 1,123,246 3,891,022 2,251,702
Amortization of goodwill 102,063 -- 204,126 --
Amortization of other intangible assets 1,235,417 -- 2,470,834 --
------------ ------------ ------------ ------------
Total operating expenses 12,791,799 7,234,766 26,063,522 13,760,641
------------ ------------ ------------ ------------
Loss from operations (2,963,909) (1,026,907) (7,535,357) (1,934,372)
OTHER INCOME, net 22,638 127,972 56,980 237,675
------------ ------------ ------------ ------------
Loss before income taxes (2,941,271) (898,935) (7,478,377) (1,696,697)
INCOME TAX BENEFIT -- (352,000) -- (692,000)
------------ ------------ ------------ ------------
Net loss $ (2,941,271) $ (546,935) $ (7,478,377) $ (1,004,697)
============ ============ ============ ============
LOSS PER SHARE (Note 5):
Basic and diluted $ (0.12) $ (0.02) $ (0.30) $ (0.04)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Restated)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,478,377) $(1,004,697)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,372,977 405,739
Compensation expense on stock option grants 76,839 77,713
Deferred income tax provision (benefit) 8,431,000 (5,930,000)
(Increase) decrease in:
Accounts receivable 1,029,189 3,741,236
Other current assets 428,897 368,254
Other assets (981,193) (181,903)
Income tax receivable (8,431,000) 1,338,260
Increase (decrease) in:
Accounts payable 2,939,475 405,909
Accrued expenses 216,544 422,571
Deferred revenue 728,706 82,965
----------- -----------
Net cash provided by (used in) operating activities 333,057 (273,953)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (525,162) (829,571)
Redemption of/proceeds from maturity of
marketable securities 1,695,304 251,645
Acquisition of data rights and customer lists -- (85,000)
----------- -----------
Net cash provided by (used in) investing activities 1,170,142 (662,926)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 319,627 349,246
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,822,826 (587,633)
CASH AND CASH EQUIVALENTS, beginning of period 2,175,852 7,436,980
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,998,678 $ 6,849,347
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ --
=========== ===========
Cash paid for income taxes $ -- $ 3,900,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All notes and related disclosures applicable to the three and
six month periods ended June 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 June 30,
2000, the results of operations for the three and six month periods ended June
30, 2000 and 1999 and cash flows for the six months ended June 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 three and six month periods ended June 30, 2000 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 six
month periods ended June 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
Purchase Revenue
Previously Accounting Recognition As
Reported Adjustments Adjustments Restated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Three months ended June 30, 2000:
---------------------------------
Net revenues $ 5,357,407 $ -- $ 4,470,483 $ 9,827,890
Loss before income taxes (6,386,274) (1,337,480) 4,782,483 (2,941,271)
Net loss (3,944,274) (1,337,480) 2,340,483 (2,941,271)
Loss per share:
Basic and diluted (0.16) (0.05) 0.09 (0.12)
Three months ended June 30, 1999:
---------------------------------
Net revenues $ 11,624,035 $ (646,871) $ (4,769,305) $ 6,207,859
Income (loss) before income taxes 844,294 1,826,076 (3,569,305) (898,935)
Net loss (181,706) 1,826,076 (2,191,305) (546,935)
Loss per share:
Basic and diluted (0.01) 0.09 (0.10) (0.02)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Purchase Revenue
Previously Accounting Recognition As
Reported Adjustments Adjustments Restated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Six months ended June 30, 2000:
-------------------------------
Net revenues $ 13,757,982 $ -- $ 4,770,183 $ 18,528,165
Loss before income taxes (11,159,600) (2,674,960) 6,356,183 (7,478,377)
Net loss (6,905,600) (2,674,960) 2,102,183 (7,478,377)
Loss per share:
Basic and diluted (0.28) (0.11) 0.09 (0.30)
Six months ended June 30, 1999:
-------------------------------
Net revenues $ 22,059,419 $ (1,641,467) $ (8,591,683) $ 11,826,269
Income (loss) before income taxes 2,208,395 2,386,591 (6,291,683) (1,696,697)
Net income (loss) 468,395 2,386,591 (3,859,683) (1,004,697)
Earnings (loss) per share:
Basic 0.02 0.11 (0.17) (0.04)
Diluted 0.02 0.10 (0.16) (0.04)
</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 and early 2000 net revenues and
operating income to 2000 and, to a lesser extent, to 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 June 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 June 30, 2000 and December 31, 1999.
3. Restricted Cash
Cash and cash equivalents at June 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
June 30, 2000 and December 31, 1999:
June 30, December 31,
2000 1999
---------- ----------
Subscription services $1,028,530 $ 290,300
Licensing fees 115,000 --
OmegaWorld -- 124,524
---------- ----------
$1,143,530 $ 414,824
========== ==========
8
<PAGE>
5. Loss Per Share
Weighted average shares outstanding for the three and six month periods
ended June 30, 2000 and 1999 are calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding (basic) 24,567,668 22,373,533 24,554,362 22,338,531
Impact of dilutive options after applying
the treasury stock method -- -- -- --
---------- ---------- ---------- ----------
Weighted average shares
outstanding (diluted) 24,567,668 22,373,533 24,554,362 22,338,531
========== ========== ========== ==========
Options outstanding which are not
included in the calculation of diluted
loss per share because their
impact is antidilutive 4,334,829 3,176,940 4,334,829 3,176,940
========== ========== ========== ==========
</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
9
<PAGE>
provide OnlineTrading.com's customers with prompt and efficient order execution
that avoids traditional market maker participation and brokerage order-flow
arrangements.
Pursuant to an Agreement and Plan of Merger and Reorganization, as
amended (the "Merger Agreement"), and subject to closing, a newly-formed holding
company named 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 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 financial
statements 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 is not expected to have a material
impact on the financial statements of the Company.
10
<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 January 25, 2000, the Company launched WindowOnWallStreet.com, its
first Internet subscription service. WindowOnWallStreet.com offers streaming
real-time charts, quotes and news powered by some of the Company's trading
tools. On February 29, 2000, the Company announced that it was accelerating its
transition to its new business model by focusing its marketing efforts and
resources on WindowOnWallStreet.com (as opposed to its client software products,
from which, through June 2000, substantially all of the Company's licensing fees
were derived). The Company discontinued all advertising for its client software
products at the end of May 2000.
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; (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 reduce the
Company's available cash resources, increase its capital requirements and
require the Company to seek debt and/or equity financing. See "Liquidity and
Capital Resources" below.
11
<PAGE>
It should be noted that the results of operations discussion below does
not give effect to the pending merger with OnlineTrading.com. See Item 6(b) in
Part II of this report for the current report on Form 8-K filed by the Company
with respect to the pending merger with OnlineTrading.com.
RESULTS OF OPERATIONS
The results of operations for the three and six month periods ended
June 30, 2000 and 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 Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees 50.9% 61.1% 58.6% 65.9 %
Subscription services 20.4 -- 15.7 --
Other revenues 28.7 38.9 25.7 34.1
-------- -------- -------- --------
Total net revenues 100.0 100.0 100.0 100.0
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of licensing fees 2.0 7.3 2.5 8.0
Cost of subscription services 10.5 -- 8.5 --
Product development 20.6 18.0 20.8 18.5
Sales and marketing 61.4 73.1 73.5 70.9
General and administrative 22.1 18.1 21.0 19.0
Amortization of goodwill 1.0 -- 1.1 --
Amortization of other intangible assets 12.6 -- 13.3 --
-------- -------- -------- --------
Total operating expenses 130.2 116.5 140.7 116.4
-------- -------- -------- --------
Loss from operations (30.2)% (16.5)% (40.7)% (16.4)%
-------- -------- -------- --------
</TABLE>
Three Months Ended June 30, 2000 and 1999
Net Revenues
Total Net Revenues. The Company's total net revenues increased from
$6.2 million in the three months ended June 30, 1999 to $9.8 million in the
comparable period of 2000.
Licensing Fees. Licensing fees are derived from sales of the Company's
client software products. Licensing fees increased 32% from $3.8 million in the
three months ended June 30, 1999 to approximately $5.0 million in the comparable
period of 2000 primarily due to a change in the revenue recognition of sales of
the Company's client software products in 1999. 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). 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 revenues totaled $2.0
million for the three months ended June 30, 2000, primarily due to the January
25, 2000 launch of WindowOnWallStreet.com, which contributed revenues of $1.7
million during the period, and, to a lesser extent, revenue from the Financial
Data Cast Network ("FDCN"), the real time market data subscription service
acquired in the October 1999 acquisition of Window on WallStreet.
12
<PAGE>
Other Revenues. Other revenues increased 17% from $2.4 million in the
three months ended June 30, 1999 to $2.8 million in the comparable period of
2000, primarily due 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 and revenues generated from OmegaWorld,
the Company's annual conference.
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
$455,000 in the three months ended June 30, 1999 to approximately $190,000 in
the comparable period of 2000 due to decreased shipments of client software
during the three months ended June 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 12% in the three months ended June 30, 1999 to 4% in the
comparable period of 2000, primarily due to a shift in the recognition of 2000i
licensing fees 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 June 30, 2000 was approximately
$1.0 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 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
81% from $1.1 million in the three months ended June 30, 1999 to $2.0 million in
the comparable period of 2000, primarily resulting from an increase in personnel
and related costs of $719,000 due to the number of personnel in product
development increasing 75% from 51 at June 30, 1999 to 89 at June 30, 2000
(inclusive of 15 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 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 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
increased from $4.5 million in the three months ended June 30, 1999 to $6.0
million in the comparable period of 2000, primarily due to increased advertising
and promotional expenses of $1.9 million (primarily television advertising) and,
to a lesser extent, increased OmegaWorld expenses, offset by decreased personnel
costs related to the restructuring of the Company's sales team at the end of the
first quarter of 2000 and travel costs related to the Company's discontinued
sales seminars. The Company continues to evaluate its level of advertising
expenditures on a quarterly basis. During the third quarter of 2000, the Company
anticipates a reduction in advertising expense as compared to the 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 $1.1 million in the three months ended
June 30, 1999 to $2.2 million in the comparable period of 2000, primarily as a
result of increased facility expenses, consulting and professional fees and
travel costs, and the addition of administrative costs associated with Window on
WallStreet. 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
13
<PAGE>
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. 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. Amortization of goodwill and
other intangible assets for the three months ended June 30, 2000 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 $128,000 in the three months ended June 30,
1999 to $23,000 in the comparable period of 2000 due to decreases in cash and
cash equivalents and marketable securities.
Six Months Ended June 30, 2000 and 1999
Net Revenues
Total Net Revenues. The Company's total net revenues increased 57% from
$11.8 million in the six months ended June 30, 1999 to $18.5 million in the
comparable period of 2000.
Licensing Fees. Licensing fees increased 39% from $7.8 million in the
six months ended June 30, 1999 to $10.8 million in the comparable period of 2000
primarily due to recognition of 1999 sales during 2000 on an as due basis. 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 decrease. 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 $2.9
million in the six months ended June 30, 2000 primarily due to the January 25,
2000 launch of WindowOnWallStreet.com, which contributed $2.1 million during the
period, and, to a lesser extent, revenue from 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 $4.0 million in the
six months ended June 30, 1999 to $4.8 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 royalties from end-of-day data vendors and revenues generated from
OmegaWorld.
Operating Expenses
Cost of Licensing Fees. Cost of licensing fees decreased from
approximately $938,000 in the six months ended June 30, 1999 to approximately
$463,000 in the comparable period of 2000 due to decreased shipments of client
software during the six months ended June 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 12% in the six months ended June 30, 1999 to 4% in
the comparable period of 2000, primarily due to a shift in the recognition of
2000i licensing fee revenue from upon shipment to an as due basis in accordance
with the payment terms of the sale.
14
<PAGE>
Cost of Subscription Services. Cost of subscription services for the
six months ended June 30, 2000 was approximately $1.6 million or 54% 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 76% from
$2.2 million in the six months ended June 30, 1999 to $3.9 million in the
comparable period of 2000, primarily due to an increase in personnel and related
costs of $1.4 million due to the number of personnel in product development
increasing 75% from 51 at June 30, 1999 to 89 at June 30, 2000 (inclusive of 15
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 $8.4
million in the six months ended June 30, 1999 to $13.6 million in the comparable
period of 2000, primarily due to increased advertising of $4.1 million
(primarily television advertising), increased personnel and related expenses of
$630,000 (mainly related to the first quarter of 2000) and, to a lesser extent,
increased OmegaWorld expenses.
General and Administrative. General and administrative expenses
increased from $2.3 million in the six months ended June 30, 1999 to $3.9
million in the comparable period of 2000, primarily due to increased facility
costs and administrative costs associated with Window on WallStreet. 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. Amortization of
goodwill and other intangible assets for the six months ended June 30, 2000 was
approximately $204,000 and $2.5 million, respectively.
Other Income, Net
Other income, net decreased from $238,000 in the six months ended June
30, 1999 to $57,000 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 $352,000 and
$692,000 for the three and six months ended June 30, 1999, respectively,
resulting in an effective tax rate of 39% and 41%, respectively. The effective
tax rate of 41% for the six months ended June 30, 1999 was slightly higher than
the 38.6% statutory rate due primarily to the impact of tax free investment
income. For the three and six months ended June 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
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.
15
<PAGE>
Liquidity and Capital Resources
As of June 30, 2000, the Company believed that, after giving effect to
the pending merger with OnlineTrading.com, it would 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 June 30, 2000 are
approximately $19.0 million (approximately $4.0 million from the Company and
approximately $15.0 million from OnlineTrading.com). In addition, the Company
has an income tax receivable of $7.5 million as of June 30, 2000 related to
carry-back 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.
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.
As of June 30, 2000, the Company had cash and cash equivalents of
approximately $4.0 million, with working capital of approximately $10.5 million.
Cash provided by operating activities during the six months ended June
30, 2000 totaled approximately $333,000, compared to cash used in operating
activities of approximately $274,000 in the comparable period of 1999. The
increase in net cash provided by operations in 2000 compared to the same period
of 1999 was primarily due to a increases in accounts payable and deferred
revenues, partially offset by higher net losses during the six months ended June
30, 2000.
16
<PAGE>
The Company's investing activities provided cash of approximately $1.2
million during the six months ended June 30, 2000 compared to cash used in
investing activities of approximately $663,000 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
$320,000 and $349,000 in the six months ended June 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 is not expected to 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,"
"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
17
<PAGE>
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 pace of
WindowOnWallStreet.com paid subscriptions decreasing; the Company's ability to
continue to effectuate its Internet strategy and to develop and successfully
market the products and services described in this report (and the costs
associated therewith) 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, particularly those released during and subsequent to the 1999 third
quarter, any of which could have a material adverse effect on the results of
operations and financial condition of the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
18
<PAGE>
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
During the three months ended June 30, 2000, the Company issued to 53
employees options to purchase an aggregate of 306,750 shares of Common Stock
pursuant to the Company's Amended and Restated 1996 Incentive Stock Plan (the
"Incentive Plan"). All such options vest ratably over a five-year period and are
exercisable at prices ranging from $2.72 to $4.69 per share, which were the
respective fair market values of the Company's Common Stock on the respective
dates on which the options were granted. The options expire, if they remain
unexercised, on the tenth anniversary of the date on which they were granted.
All the foregoing options were issued by the Company in reliance upon
the exemption from registration available under Section 4(2) of the Securities
Act. Other than as described above, the Company did not issue or sell any
unregistered securities during the second quarter of 2000.
(d) Use of Proceeds
The Company effected an initial public offering pursuant to a Registration
Statement on Form S-1 (File No. 333-3207) which was declared effective by the
Securities and Exchange Commission on September 30, 1997. For a description of
the Company's use of proceeds from such offering, see Item 2(d) in Part II of
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997 and Item 5 in Part II of the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 28, 2000, the Company filed a Current Report on Form 8-K/A,
dated April 28, 2000, which amended the Current Report on Form 8-K dated and
previously filed on January 28, 2000 (which reported the Company entering into
the Merger Agreement with OnlineTrading.com) to include therein as part of Item
5 the audited financial statements of OnlineTrading.com as of January 31, 2000
and 1999 and for each of the two years in the period ended January 31, 2000 and
unaudited pro forma combined financial statements as of December 31, 1999 giving
effect to, and assuming the completion of, the pending merger between the
Company and OnlineTrading.com on a pooling-of-interests basis.
19
<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)
20
<PAGE>
OMEGA RESEARCH, INC.
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
27.1 Financial Data Schedule
21
