<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000
Commission file number 000-26225
---------------------
WIT SOUNDVIEW GROUP, INC.
(exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3900397
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Industrial Identification No.)
</TABLE>
826 BROADWAY, NEW YORK, NEW YORK 10003
(Address of Principal Executive Offices) (Zip Code)
(212) 253-4400
(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 and (2) has been subject to such filing
requirements for the past ninety days: Yes /X/ No / /
As of November 6, 2000, there were 115,575,747 shares of the Registrant's
common stock outstanding and 11,666,666 shares of the Registrant's Class B
Common Stock Outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
WIT SOUNDVIEW GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Financial Condition as
of September 30, 2000 and December 31, 1999............... 2
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999... 3
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999.................. 4
Notes to Condensed Consolidated Financial Statements........ 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................. 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities and Use of Proceeds................... 18
Item 3. Default upon Senior Securities.............................. 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 19
Signatures........................................................... 20
</TABLE>
<PAGE>
PART I
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
ASSETS ------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $116,350,891 $ 12,447,885
RECEIVABLE FROM CLEARING BROKER............................. 56,857,248 681,807
SECURITIES OWNED, at market or fair value................... 6,674,436 114,468,173
INVESTMENT BANKING FEES RECEIVABLE.......................... 26,669,046 3,570,176
INVESTMENTS................................................. 65,421,601 540,535
INVESTMENTS IN AFFILIATES................................... 24,373,556 16,970,868
INTANGIBLE ASSETS, net of accumulated amortization of
$10,997,600
at September 30, 2000
Goodwill................................................ 193,678,812 --
Institutional client relationships...................... 62,483,339 --
Other................................................... 8,697,770 --
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of
accumulated depreciation and amortization of $7,031,987
and $1,110,369
at September 30, 2000 and December 31, 1999,
respectively.............................................. 14,502,679 6,312,242
COMPUTER SOFTWARE, net of accumulated amortization of
$1,611,872 and $1,212,907 at September 30, 2000 and
December 31, 1999, respectively........................... 1,225,775 3,706,112
PREPAID EXPENSES............................................ 2,228,425 1,610,628
OTHER ASSETS................................................ 42,430,352 3,309,750
------------ ------------
Total assets.......................................... $621,593,930 $163,618,176
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Securities sold but not yet purchased, at market value.... $ 1,085,020 $ 39,234
Accounts payable and accrued expenses..................... 8,113,217 5,130,675
Accrued compensation...................................... 87,334,522 13,506,087
Deferred tax liabilities.................................. 30,607,880 --
Other liabilities......................................... 6,691,202 540,647
------------ ------------
Total liabilities..................................... 133,831,841 19,216,643
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value, 30,000,000 shares
authorized, no shares issued or outstanding at September
30, 2000 and December 31, 1999.......................... -- --
Common Stock, $.01 par value, 500,000,000 shares
authorized, 79,021,068 and 61,629,828 shares issued and
outstanding at September 30, 2000 and December 31,
1999, respectively...................................... 790,210 616,298
Common Stock, Class B, $.01 par value, 75,000,000 shares
authorized, 11,666,666 shares issued and outstanding at
September 30, 2000 and December 31, 1999,
respectively............................................ 116,667 116,667
Additional paid-in capital................................ 558,084,796 196,777,759
Notes receivable from stockholders........................ (22,833,068) (15,333,070)
Deferred compensation..................................... (17,708,555) (3,311,765)
Accumulated deficit....................................... (30,687,961) (34,464,356)
------------ ------------
Total stockholders' equity............................ 487,762,089 144,401,533
------------ ------------
Total liabilities and stockholders' equity............ $621,593,930 $163,618,176
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
2
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Investment banking.................... $33,617,252 $ 8,401,027 $148,124,247 $ 19,770,061
Brokerage............................. 37,414,259 2,144,121 112,841,376 4,145,912
Asset management fees................. 4,955,520 -- 12,603,383 --
Interest and investment income........ 3,143,060 1,807,704 7,790,572 3,175,973
Unrealized gains on investments....... 1,725,417 43,130 2,372,734 487,461
Other income.......................... -- -- (155,140) --
----------- ----------- ------------ ------------
Total revenues.................... 80,855,508 12,395,982 283,577,172 27,579,407
----------- ----------- ------------ ------------
EXPENSES:
Compensation and benefits............. 40,520,911 9,862,396 161,168,036 25,008,981
Brokerage and clearance............... 6,270,612 1,698,484 19,029,068 3,262,709
Marketing and business development.... 3,625,168 577,527 11,246,802 1,634,613
Amortization of intangible assets and
goodwill............................ 4,124,100 -- 10,997,600 --
Professional services................. 2,267,607 1,650,102 6,745,966 3,416,913
Data processing and communications.... 2,282,674 1,153,096 6,623,694 2,336,750
Write-off of computer software and
equipment........................... -- -- 1,339,772 --
Discontinuance of retail brokerage
operations.......................... 11,605,401 -- 11,605,401 --
Depreciation and amortization......... 1,666,317 364,967 4,443,853 864,020
Technology development................ 1,454,590 844,957 4,044,791 1,706,840
Occupancy............................. 1,141,157 299,606 3,010,727 603,109
Other................................. 2,427,976 1,011,970 6,587,110 1,510,628
----------- ----------- ------------ ------------
Total expenses.................... 77,386,513 17,463,105 246,842,820 40,344,563
----------- ----------- ------------ ------------
Net income (loss) before provision
for income taxes and equity in net
loss of affiliates................ 3,468,995 (5,067,123) 36,734,352 (12,765,156)
Provision for income taxes.............. 2,492,680 -- 19,784,235 --
----------- ----------- ------------ ------------
Net income (loss) before equity in
net loss of affiliates............ 976,315 (5,067,123) 16,950,117 (12,765,156)
Equity in net loss of affiliates........ (6,982,963) (24,348) (13,173,722) (24,348)
----------- ----------- ------------ ------------
Net income (loss)................... $(6,006,648) $(5,091,471) $ 3,776,395 $(12,789,504)
=========== =========== ============ ============
Net income (loss) per share:
Basic................................. $ (0.08) $ (0.08) $ 0.05 $ (0.40)
Diluted............................... $ (0.08) $ (0.08) $ 0.04 $ (0.40)
Weighted average shares used in the
computation of net income (loss) per
share:
Basic................................. 79,903,946 63,345,889 77,446,328 31,902,168
Diluted............................... 79,903,946 63,345,889 98,243,967 31,902,168
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 3,776,395 $(12,789,504)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Deferred tax expense.................................... 10,604,053 --
Depreciation and amortization........................... 15,441,453 864,020
Equity in net loss of affiliates........................ 13,173,722 --
Non-cash charges related to discontinuance of brokerage
operations............................................. 2,630,255
Write-off of computer software and equipment............ 1,339,772 --
Compensation expense on restricted stock awards......... 6,219,199 106,772
Tax benefit from non-qualified stock option exercises... (7,083,424)
(Increase) decrease in operating assets-
Receivable from clearing broker......................... (37,784,709) (1,679,897)
Securities owned........................................ 6,658,271 (537,155)
Investment banking fees receivable...................... (436,946) (3,055,273)
Investments............................................. (4,516,196) --
Prepaid expenses........................................ 101,569 (933,597)
Other assets............................................ (16,429,125) (2,504,446)
Increase (decrease) in operating liabilities-
Securities sold but not yet purchased................... 353,109 --
Accounts payable and accrued expenses................... (40,386,916) 2,809,006
Accrued compensation.................................... 73,828,435 5,624,049
Other liabilities....................................... (4,078,689) (149,326)
------------ ------------
Net cash provided by (used in) operating activities... 23,410,228 (12,245,351)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investment securities............. (37,427,651) (121,042,410)
Sales of short-term investment securities................. 141,393,616 --
Acquisition of SoundView, net of cash received............ (6,773,571) --
Investment in Wit Capital Japan........................... (18,919,083) --
Computer software purchases............................... (2,452,094) (2,847,225)
Payments for purchases of furniture, equipment and
leasehold improvements.................................. (6,561,600) (3,735,662)
------------ ------------
Net cash provided by (used in) investing activities... 69,259,617 (127,625,297)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments and issuances of notes receivable from
stockholders............................................ 292,196 (615,833)
Net proceeds from initial public offering of common
stock................................................... -- 72,782,731
Repurchase of common stock................................ (250,000) --
Proceeds from issuance of common stock.................... 11,190,965 2,535,673
Net proceeds from issuance of preferred stock............. -- 56,434,742
------------ ------------
Net cash provided by financing activities............. 11,233,161 131,137,313
------------ ------------
Net increase (decrease) in cash and cash
equivalents.......................................... 103,903,006 (8,733,335)
CASH AND CASH EQUIVALENTS, beginning of period.............. 12,447,885 18,110,146
------------ ------------
CASH AND CASH EQUIVALENTS, end of period.................... $116,350,891 $ 9,376,811
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Taxes................................................... $ 12,992,277 $ 18,000
NON-CASH TRANSACTIONS:
Issuance of common stock to stockholders for notes
receivable.............................................. 7,979,688 8,784,488
Repurchase of common stock for note receivable............ (187,494) --
Investment in enba plc for common stock................... 30,996,834 --
Issuance of restricted stock to employees................. 18,628,489 105,310
Issuance of common stock for consulting services.......... -- 40,613
Acquisition of SoundView Technology Group, Inc.
Fair value of net assets acquired, net of cash received... 44,431,499 --
Intangible assets and goodwill............................ 275,857,420 --
Issuance of common stock.................................. 291,003,482 --
Deferred tax asset........................................ 16,770,000 --
Deferred tax liabilities.................................. 32,465,000 --
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Wit SoundView Group, Inc. (the "Company", formerly Wit Capital Group, Inc.)
was incorporated on March 27, 1996 and commenced operations in September 1997.
On June 6, 2000, the company changed its name to Wit SoundView Group, Inc. The
accompanying unaudited condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Wit SoundView
Corporation ("WSV", formerly SoundView Technology Group, Inc.), Wit Capital
Corporation ("WCC"), SoundView Asset Management, Inc., SoundView Capital
Management, Inc. and Wit SoundView Ventures Corp. (formerly Wit VC LLC). All
material intercompany balances and transactions have been eliminated in
consolidation.
These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") and, in the
opinion of management, reflect all adjustments necessary for a fair presentation
of the results for the periods presented in conformity with accounting
principles generally accepted in the United States. These financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's Annual Report on Form 10-K filed with the SEC on
March 30, 2000 and with other interim financial statements filed with the SEC.
Results of the interim periods are not necessarily indicative of results to be
obtained for a full fiscal year.
Certain amounts in the prior year's financial statements have been
reclassified to conform with current period presentation.
2. MERGER
On January 31, 2000, the Company completed its merger with SoundView
Technology Group, Inc. ("SoundView"), a Connecticut-based private broker-dealer
and investment banking firm focused exclusively on technology. The total
consideration was $320 million consisting of Wit SoundView Group, Inc. common
stock and cash. The merger was accounted for using the purchase method of
accounting. The excess of the purchase price over the estimated fair value of
the net assets acquired was allocated to certain identifiable intangible assets
and goodwill, a total of $275.9 million, which is being amortized on a straight
line basis over periods between 3 and 20 years. Pro forma results for the nine
months ended September 30, 2000 are not presented as the merger closed on
January 31, 2000, and the pro forma results for the year ended December 31, 2000
will not be materially different from the Company's actual results. Subsequent
to the closing of the merger, SoundView Technology Group, Inc. changed its name
to Wit SoundView Corporation.
5
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NET INCOME (LOSS) PER SHARE
The following table sets forth the calculation of shares used in the
computation of basic and diluted net income (loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares used in computations:
Weighted average common shares used in
computation of basic net income (loss) per
share..................................... 79,903,946 63,345,889 77,446,328 31,902,168
Dilutive effect of common stock
equivalents............................... -- -- 20,797,639 --
---------- ---------- ---------- ----------
Weighted average common shares used in
computation of diluted net income (loss)
per share................................. 79,903,946 63,345,889 98,243,967 31,902,168
========== ========== ========== ==========
</TABLE>
Because the Company reported a net loss in the three month periods ended
September 30, 2000 and 1999 and for the nine months ended September 30, 1999,
the calculation of diluted earnings per share in those periods does not include
convertible preferred stock, options, warrants and common stock collateralizing
the notes receivable from stockholders, as they are anti-dilutive and would
result in a reduction of net loss per share. If the Company had reported net
income, there would have been an additional 17,914,261 and 21,911,174 shares for
the three months ended September 30, 2000 and 1999, respectively and an
additional 14,739,989 shares for the nine months ended September 30, 1999
included in the calculation of diluted earnings per share.
4. STOCK OPTION PLAN
The Company has adopted a stock incentive plan (the "Plan") that permits the
granting of stock options, restricted stock and other awards to employees,
directors and certain consultants of the Company. The exercise price of any
share covered by an option granted to a person owning more than 10% of the
voting power of all classes of stock of the Company cannot be less than 110% of
the fair market value on the day of the grant. The exercise price of any share
covered by an option granted to any person cannot be less than 85% of the fair
value on the day of the grant. Options expire five or ten years from the date of
grant, with the majority of the options expiring in the year 2009.
As part of the Company's merger with SoundView, on January 31, 2000, the
Company adopted SoundView's Stock Option Plan, although no additional options to
purchase common stock will be granted under SoundView's plan.
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") the Company has
accounted for options granted to employees using the intrinsic value method
prescribed by Accounting Practice Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has granted options with exercise
prices that are equal to or greater than the fair market value of such common
stock at the date of grant, and accordingly, the Company has recorded no related
compensation expense. For restricted stock issued with future service
requirements, compensation expense is recognized over the relevant vesting
period.
6
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of September 30, 2000, the Company has 20,734,717 outstanding options
with a range of exercise prices between $0.35 and $34.88 per share and a
weighted average exercise price of $5.69.
5. WARRANTS
The Company has 5,796,405 outstanding warrants as of September 30, 2000 with
a range of exercise prices between $1.43 and $5.57 and a weighted average
exercise price of $5.46. These warrants are exercisable for 159,110 shares of
common stock and 5,637,295 shares of Class B common stock.
6. INVESTMENTS IN AFFILIATE
In September 2000, the Company made an additional $8.4 million investment in
Wit Capital Japan, Inc. ("Wit Capital Japan"). Wit Capital Japan, Inc had
another round of financing in the third quarter, as a result the Company's
equity interest in Wit Capital Japan decreased from 39.8% to 39.5%. The Company
accounts for its investment in Wit Capital Japan under the equity method of
accounting.
The Company's equity investment in Wit Capital Europe was written off during
August 2000 as a result of the Company's pro rata share of Wit Capital Europe's
net losses since inception exceeding the carrying value of the Company's
investment. The Company has continued to accrue its pro rata share of Wit
Capital Europe's net losses incurred subsequent to August 2000, as the Company
believes that it is probable that it will make future investments in Wit Capital
Europe.
7. COMMITMENTS AND CONTINGENCIES
The Company is currently subject to claims and legal proceedings arising in
the normal course of its business. In the opinion of management, the resolution
of such legal proceedings should not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
A person formerly associated with the Company has asserted a right to
purchase 560,000 shares of common stock at $1.43 per share. In the opinion of
management, such assertion is without merit, and the Company intends to contest
any lawsuit filed against it. These 560,000 shares of common stock have been
reported as forfeited stock options in 1998.
8. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting For Income Taxes," which requires the recognition of deferred tax
assets and liabilities at tax rates expected to be in effect when these balances
reverse. Future tax benefits attributable to temporary differences are
recognized to the extent that realization of such benefits is more likely than
not. The Company files consolidated Federal and combined state and local income
tax returns with its wholly-owned subsidiaries.
7
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the Company's income tax expense for the periods ended
September 30, 2000 and September 30, 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal................. $ (260,711) $ -- $ (166,884) $ --
State and local......... 6,077,130 -- 9,347,066 --
----------- ----------- ----------- -----------
5,816,419 -- 9,180,182 --
----------- ----------- ----------- -----------
Deferred:
Federal................. (4,401,638) -- 6,690,516 --
State and local......... 1,077,899 -- 3,913,537 --
----------- ----------- ----------- -----------
(3,323,739) -- 10,604,053 --
----------- ----------- ----------- -----------
$ 2,492,680 $ -- $19,784,235 $ --
=========== =========== =========== ===========
</TABLE>
The Company's effective tax rate differs from the Federal statutory rate due
to the amortization of intangible assets and goodwill and state and local income
taxes.
The Company has recorded deferred tax assets of $21,255,462 primarily
related to net operating loss carryforwards, deferred compensation and tax
benefits related to the exercise of non qualified stock options by the Company's
employees, offset by deferred tax liabilities resulting from unrealized
appreciation on investments. The Company has also recorded deferred tax
liabilities as a result of the difference between the accounting and tax basis
of intangible assets acquired in the merger with SoundView, other than goodwill.
9. NET CAPITAL REQUIREMENTS
WSV and WCC are subject to the SEC's Uniform Net Capital Rule 15c3-1. WSV's
net capital, as defined, is required to be the greater of $250,000 or an amount
determinable based on the market prices and number of securities in which WSV
acts as a market maker. As of September 30, 2000, WSV's net capital was
$61,693,809, which was $61,078,809 in excess of the minimum net capital
requirement. WCC's net capital, as defined, is required to be the greater of
$100,000 or the minimum net capital required based on aggregate indebtedness. As
of September 30, 2000 and December 31, 1999, WCC's ratio of aggregate
indebtedness to net capital was .41 to 1 and .51 to 1 and its net capital was
$2,533,779 and $23,914,930, which was $2,433,779 and $23,095,740 in excess of
the minimum net capital requirements, respectively.
10. DISCONTINUANCE OF RETAIL BROKERAGE OPERATIONS
On September 29, 2000, in connection with the Company's pending merger with
E*OFFERING Corp. ("E*OFFERING"), the Company transferred its online retail
brokerage accounts to E*TRADE Group Inc. ("E*TRADE"). The Company recorded a
corresponding expense of $11.6 million related to this discontinuance of its
online retail brokerage operations. This charge includes a payment to the
Company's clearing agent to terminate its contract, an accrual for severance
payments to be made to certain employees whose services will no longer be
required, and a write-off of all brokerage related assets that the Company will
not employ in its business in the future.
8
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS
On October 16, 2000, the Company completed its merger with E*OFFERING. The
Company issued approximately 27,700,000 shares of its common stock and options
and warrants to purchase shares of its common stock with an approximate value of
$302 million as consideration for the merger. The merger will be accounted for
using the purchase method of accounting. The Company also entered into an
amended and restated Strategic Alliance Agreement with E*TRADE which provides
that the Company will be the exclusive source of retail equity or equity related
securities in initial public offerings, follow-on offerings and in certain
private placements to the 3.3 million retail customers of E*TRADE. In connection
with the distribution of equity securities to retail customers of E*TRADE,
E*TRADE will receive a portion of the dealer selling concession received by the
Company. E*TRADE's percentage of such revenue will depend on the number of
shares allocated to E*TRADE's customers and whether Wit SoundView acts as lead
managing underwriter or in another capacity. As consideration for this
agreement, the Company issued 4,025,948 shares of its common stock to E*TRADE
and issued a warrant to purchase an additional 2 million shares.
Also in October 2000, in connection with the transactions described above,
the Company completed the sale of a total of 4 million shares of its common
stock to E*TRADE and certain affiliates of General Atlantic Partners for an
aggregate purchase price of $41 million.
Additionally, as part of the Company's merger with E*OFFERING, the 1998
Stock Option Plan, the 2000 Stock Option/Issuance Plan and the Restricted Stock
Plan of E*OFFERING will be assumed by the Company although no additional options
to purchase common stock or issuance of common stock will be granted under these
plans.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Wit SoundView Group, Inc. (the "Company" or "Wit SoundView", formerly Wit
Capital Group, Inc.) was incorporated on March 27, 1996 and commenced operations
in September 1997. The accompanying unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries, Wit SoundView Corporation ("WSV", formerly SoundView Technology
Group, Inc.), Wit Capital Corporation ("WCC"), SoundView Asset
Management, Inc., SoundView Capital Management, Inc. and Wit SoundView Ventures
Corp. (formerly Wit VC LLC). Through its broker-dealer subsidiaries, Wit
SoundView, an investment banking group, focuses exclusively on the technology
and Internet sectors. Wit SoundView offers a strong complement of investment
banking services, including public offerings, M&A advisory and private equity
placements. With one of the largest research teams in the sector, Wit SoundView
produces comprehensive sell-side research on over 285 Internet and technology
companies, developed for our online and institutional audiences. It offers a
variety of sales and trading services to its institutional client base and
operates a market making operation. Wit SoundView's venture capital operation,
Wit SoundView Ventures, has established and currently manages a number of
venture capital funds that provide investors with the opportunity to participate
in technology and internet related investments.
The results presented below for the nine month period ended September 30,
2000 reflect the results of the combined company after completion of the
Company's merger with SoundView Technology Group, Inc. ("SoundView") on
January 31, 2000. In March 2000, SoundView changed its name to Wit SoundView
Corporation.
The results presented in the discussion of the three and nine months ended
September 30, 1999 reflect the results of Wit Capital Group, Inc. and its
broker-dealer subsidiary, Wit Capital Corporation. During the first nine months
of 1999, Wit Capital Corporation was in an early stage of its operations and
generated only minimal revenues from its investment banking and brokerage
activities. Accordingly, the Company does not believe that the period to period
comparisons of its operating results below are necessarily meaningful and should
not be relied upon as indicators of future performance.
MERGERS
On January 31, 2000, the Company completed its merger with SoundView
Technology Group, Inc., a Connecticut-based private broker-dealer and investment
banking firm focused exclusively on technology. The total consideration was
$320 million consisting of Wit SoundView Group, Inc. common stock and cash. The
merger was accounted for using the purchase method of accounting. The excess of
the purchase price over the estimated fair value of the net assets acquired was
allocated to certain identifiable intangible assets and goodwill, a total of
$275.9 million, which is being amortized on a straight line basis over periods
between 3 and 20 years.
On October 16, 2000, the Company completed its merger with E*OFFERING Corp.
("E*OFFERING"). The Company issued approximately 27,700,000 shares of its common
stock and options and warrants to purchase shares of E*OFFERING's common stock
with an approximate value of $302 million as consideration for the merger. The
merger will be accounted for using the purchase method of accounting.
Additionally, effective September 29, 2000, the Company transferred its online
retail brokerage accounts to E*TRADE Group Inc. ("E*TRADE"). Accordingly, future
results of operations of the Company will not include the revenues and expenses
associated with our online retail brokerage operations. The Company also entered
into an amended and restated Strategic Alliance Agreement with E*TRADE which
provides that Wit SoundView will be the exclusive source of retail equity or
equity related securities in initial public offerings, follow-on offerings and
in certain private placements to the 3.3 million retail customers of E*TRADE. In
connection with the distribution of equity securities to retail customers of
E*TRADE, E*TRADE will receive a portion of the dealer
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selling concession received by Wit SoundView. E*TRADE's percentage of such
revenue will depend on the number of shares allocated to E*TRADE's customers and
whether Wit SoundView acts as lead managing underwriter or in another capacity.
As consideration for this agreement, the Company issued 4,025,948 shares of its
common stock to E*TRADE and issued a warrant to purchase an additional
2 million shares. Additionally, under the provisions of the amended and restated
Strategic Alliance Agreement, at Wit SoundView's request, E*TRADE will use its
commercially reasonable efforts to direct all secondary market orders with
respect to each security for which Wit SoundView acts as market maker to Wit
SoundView. Wit SoundView has agreed to pay E*TRADE a competitive market rate for
the order flow it directs to Wit SoundView.
Also in October 2000, in connection with the transactions described above,
the Company completed the sale of a total of 4 million shares of its common
stock to E*TRADE and certain affiliates of General Atlantic Partners for an
aggregate purchase price of $41 million.
CURRENT MARKET ENVIRONMENT
Commencing in mid April 2000, the market for public equity offerings slowed
from the levels and strength experienced in the fourth quarter of 1999 and the
first quarter of 2000. For the majority of the second and third quarters of
2000, Wit SoundView was operating under market conditions that were unfavorable
to potential issuers. The volatility of the equity markets, and in particular
the market for technology companies, has the potential to influence the strength
of the Company's business operations. On a sequential basis, the Company
participated as co-manager in a total of 31 deals in the first quarter of 2000
and 16 and 19 in the second and third quarters of 2000, respectively.
Sequentially, from the first to the third quarters of 2000, the Company has
experienced a decline in investment banking revenues as a result of unfavorable
market conditions for technology companies. During the second and third quarters
of 2000, when the market for new public issues had slowed, the Company
experienced contributions from both its mergers and acquisitions and private
equity operations which helped to offset the decline in revenues recognized from
public equity issuances.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AS
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999.
REVENUES
The Company's revenues for the three months ended September 30, 2000 were
$80.9 million compared to $12.4 million for the three months ended
September 30, 1999. The Company's revenues for the nine months ended
September 30, 2000, which include revenues of SoundView after January 31, 2000,
were $283.6 million compared to $27.6 million for the nine months ended
September 30, 1999.
Investment banking revenue for the three months ended September 30, 2000
increased to $33.6 million from $8.4 million for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, revenue from
investment banking increased to $148.1 million from $19.8 million for the nine
months ended September 30, 1999. Investment banking revenue is primarily derived
from the public offering of equity securities, and also from Internet-strategic
advisory, venture capital and private equity placements, and M&A advisory
services. The Company participated in a total of 127 securities offerings during
the first nine months of 2000, 66 as co-manager and 61 as syndicate member
compared to the first nine months of 1999 during which the Company participated
in 94 securities offerings, 45 as co-manager and 49 as syndicate member. Of the
127 securities offerings the Company participated in during 2000, 61 were
offered in the first quarter, 27 were offered in the second quarter and 39 were
offered in the third quarter compared to 19, 42 and 33 in the first, second and
third quarters of 1999, respectively. The growth in investment banking revenue
in the third quarter of 2000 as compared to the third quarter of 1999 is
attributable to the Company's acquisition of SoundView as well as increased
economics in public offerings in which the Company participated in
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and an increased contribution from our mergers and acquisitions and private
equity services. As previously mentioned, the Company has experienced a
sequential decrease in its revenue derived from investment banking operations
from the first to the third quarters of 2000 as a result of unfavorable market
conditions for technology companies.
Brokerage revenue for the three months ended September 30, 2000 increased to
$37.4 million from $2.1 million for the three months ended September 30, 1999.
For the nine months ended September 30, 2000, revenue from brokerage increased
to $112.8 million from $4.1 million for the nine months ended September 30,
1999. Revenues derived from brokerage operations are related to the Company's
institutional equity and online, or individual trading operations. For the three
and nine months ended September 30, 2000, the Company's institutional and online
operations contributed $35.6 million and $1.8 million, and $104.4 million and
$8.4 million respectively, to total brokerage revenue. Comparing the quarter
ended September 30, 2000, with the quarter ended September 30, 1999, brokerage
revenues have increased as a result of the contribution of our institutional
brokerage operations which are now part of the Company's operations as a result
of the merger with SoundView. For the quarter ended September 30, 2000, average
daily institutional trading commissions rose 74% compared to average daily
commissions earned by SoundView in the third quarter of 1999, prior to the
merger. This revenue has increased as a result of increased trading volumes, an
increase in the number of companies under research coverage and an increase in
the number of stocks for which the Company makes a market. The number of stocks
the Company makes markets in increased to 249 as of September 30, 2000 compared
to 165 stocks which SoundView made markets in as of September 30, 1999, prior to
the merger. The increase in revenue derived from the Company's online business
for the nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999 resulted primarily from an increase in the number of active
customer accounts and an increase in the number of trades executed for online
customers. On a sequential basis, revenue related to retail brokerage has
consistently decreased from the first quarter through the third quarter of 2000
and has decreased for the three months ended September 30, 2000 compared to the
three months ended September 30, 1999 as a result of lower market volumes and
the announcement of the Company's strategic alliance with E*TRADE, including the
transfer of its online accounts to E*TRADE. The average daily number of trades
executed for the three and nine month periods ended September 30, 2000 was 1,368
and 2,137 compared to 1,833 and 1,217 for the three and nine month periods ended
September 30, 1999.
On September 29, 2000, as part of the strategic alliance with E*TRADE, the
Company transferred approximately 100,000 online retail brokerage accounts to
E*TRADE. As a result of this transfer, Wit SoundView's online customers will no
longer execute secondary market transactions through the Company and we will not
derive further brokerage revenue from these operations. For the three and nine
months ended September 30, 2000 this revenue totaled $1.8 million and
$8.4 million, respectively. Additionally, the Company expects to reduce its
direct and indirect expenses related to its online retail brokerage operations.
As mentioned above, the amended and restated Strategic Alliance Agreement
provides, at Wit SoundView's request, that E*TRADE will use its commercially
reasonable efforts to direct all secondary market orders in each security for
which Wit SoundView acts as market maker to Wit SoundView. During the fourth
quarter of 2000 and the first quarter of 2001, the Company anticipates enhancing
its existing market making operation to accommodate for this increase in order
flow. The Company has agreed to pay E*TRADE a competitive market rate for this
order flow.
Asset management fees for the three months ended September 30, 2000
increased to $5 million from $0 for the three months ended September 30, 1999.
For the nine months ended September 30, 2000, revenue from asset management fees
increased to $12.6 million from $0 for the nine months ended September 30, 1999.
This revenue is derived from management and syndication fees received from the
Company's series of Dawntreader II venture capital funds, which closed during
the first
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quarter of 2000, and from incentive royalties from hedge funds that were
formerly managed by SoundView. During the three and nine months ended
September 30, 1999, the Company had not yet commenced its venture capital fund
operations and had no hedge fund incentive royalty fees until the Company closed
its merger with SoundView, and accordingly, derived no revenue from this
business.
Interest and investment income for the three months ended September 30, 2000
increased to $3.1 million from $1.8 million for the three months ended
September 30, 1999. The Company earns interest income from the investment of
cash balances raised through financing activities and from its results of
operations until the funds are used in its business. For the nine months ended
September 30, 2000, revenue from interest income increased to $7.8 million from
$3.2 million for the nine months ended September 30, 1999. During the first nine
months of 2000, the Company's average monthly cash balance was $170 million as
compared to a monthly average of $82.5 million for the first nine months of
1999. It is the Company's current policy to pay bonuses and other compensation
related payments to its employees on a semi-annual basis. Accordingly, the
Company expects its cash balance and the related interest income to decrease
once such payments are made subsequent to December 31, 2000.
Unrealized gains on investments for the three months ended September 30,
2000 increased to $1.7 million from $43,000 for the three months ended
September 30, 1999. Unrealized gains on investments for the nine months ended
September 30, 2000 increased to $2.4 million from $487,000 for the nine months
ended September 30, 1999. Unrealized gains on investments primarily consist of
the net realized and unrealized gains and losses on the mark to market and sale
of equity securities that the Company receives as consideration for financial
advisory services and from investment gains and losses from the Company's
investments in equity securities and investment partnerships focused on the
technology sector.
Other income remained $0 for the three months ended September 30, 2000 and
decreased by ($155,000) from $0 for the nine months ended September 30, 2000.
This decrease is due to an adjustment to estimated advertising revenue related
to the sale of banner advertisements on the Company's website that had been
recorded in 1999.
EXPENSES
Compensation and benefits expense for the three months ended September 30,
2000 increased to $40.5 million from $9.9 million for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, compensation
and benefits expense increased to $161.2 million from $25 million for the nine
months ended September 30, 1999. Compensation and benefits expense consists of
salaries, bonuses and other benefits paid or provided to the Company's
employees. The increase in compensation expense primarily relates to higher
incentive compensation accrued on higher revenues and an increase in the number
of employees from 216 as of September 30, 1999 to 469 as of September 30, 2000.
Compensation and benefits expense as a percentage of total revenues was 57% for
the nine months ended September 30, 2000, which represents an improvement from
100% for the nine months ended September 30, 1999. For the nine months ended
September 30, 1999, compensation expense included $2.6 million related to those
portions of contractual upfront payments to several professionals for which no
future service by the employees was required. In connection with the transfer of
our online retail brokerage accounts to E*TRADE, the Company expects a reduction
of staff employed in its retail brokerage operations by approximately 75 people,
but also expects to gain approximately 75 new employees as a result of its
merger with E*OFFERING. As the Company continues to hire more investment banking
and research professionals as well as increase the capacity of its market making
operation to receive additional order flow from E*TRADE, it expects compensation
expense to grow.
Additionally, as part of its merger with E*OFFERING, immediately prior to
the closing of the merger, E*OFFERING issued 500,000 shares of restricted stock
to designated E*OFFERING
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employees which have been converted into Wit SoundView shares using the
applicable exchange ratio, the value of which will be recorded as compensation
expense over the three year vesting period, as well as agreed to a cash
retention bonus pool of up to $5,000,000 to be paid to designated former
E*OFFERING employees, who are now employed by Wit SoundView, no later than
March 31, 2001. In future periods, compensation expense will also include the
amortization of deferred compensation related to the portion of the intrinsic
value of Wit SoundView unvested options replacing E*OFFERING options at the
closing of the merger for which future service by the employee is required.
Brokerage and clearance expense for the three months ended September 30,
2000 increased to $6.3 million from $1.7 million for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, brokerage and
clearance expense increased to $19.0 million from $3.3 million for the nine
months ended September 30, 1999. This expense primarily consists of fees paid to
independent floor brokers on the New York Stock Exchange for the execution of
institutional customer agency business, as well as, amounts paid to the
Company's clearing brokers for processing and clearing customers' trades. The
increase in brokerage and clearance expense reflects the increased transactional
volume and growth of the Company's institutional brokerage operations. As a
result of the transfer of the Company's online retail brokerage accounts to
E*TRADE, the Company will no longer incur expenses related to processing and
clearing online retail customer's trades. These charges totaled $860,000 and
$4.3 million for the three and nine months ended September 30, 2000,
respectively. Additionally, in connection with the distribution of equity
securities to retail customers of E*TRADE, E*TRADE will receive a portion of the
dealer selling concession received by Wit SoundView. E*TRADE's percentage of
such revenue will depend on the number of shares allocated to E*TRADE's
customers and whether Wit SoundView acts as lead managing underwriter or in
another capacity. Under the amended and restated Strategic Alliance Agreement,
the Company has also agreed to pay E*TRADE a competitive market rate for the
order flow it directs to us. Accordingly, the Company expects an increase in its
brokerage related expenses as a result of these provisions in the Strategic
Alliance with E*TRADE.
Marketing and business development expense for the three months ended
September 30, 2000 increased to $3.6 million from $578,000 for the three months
ended September 30, 1999. For the nine months ended September 30, 2000,
marketing and business development expense increased to $11.2 million from
$1.6 million for the nine months ended September 30, 1999. Marketing and
business development expense consists primarily of travel, entertainment, costs
associated with the Company's conferences and a focused print advertising
campaign that the Company commenced in 2000. Marketing expense in 1999 primarily
consisted of travel, entertainment and other costs associated with developing
the Company's investment banking business. The Company expects these expenses to
continue to increase as it continues to expand its business.
Amortization of intangible assets and goodwill for the three months ended
September 30, 2000 increased to $4.1 million from $0 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, amortization
of intangible assets and goodwill increased to $11.0 million from $0 million for
the nine months ended September 30, 1999. This expense results from the
amortization of intangible assets and goodwill related to the Company's merger
with SoundView on January 31, 2000. The Company expects these expenses to
increase as a result of its merger with E*OFFERING.
Professional services expense for the three months ended September 30, 2000
increased to $2.3 million from $1.7 million for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, professional
services expense increased to $6.7 million from $3.4 million for the nine months
ended September 30, 1999. Professional services expense includes legal,
consulting, accounting, and recruiting fees which have increased as the Company
continues to make strategic
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<PAGE>
investments, expand its business internationally, make improvements to its
infrastructure, hire additional personnel, and increase its investment banking
operations.
Data processing and communications expense for the three months ended
September 30, 2000 increased to $2.3 million from $1.2 million for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
data processing and communications expense increased to $6.6 million from
$2.3 million for the nine months ended September 30, 1999. Data processing and
communications expense includes costs related to market data services,
transaction processing and telephone and other communication charges. These
expenses have increased as a result of an increased volume of transactions
processed. The Company expects these costs will continue to grow as transaction
volume increases.
For the nine months ended September 30, 2000, the Company recorded an
expense of approximately $11.6 million related to the transfer of its online
retail brokerage accounts to E*TRADE and the corresponding discontinuance of its
retail brokerage operations. This charge includes a payment to Wit Capital
Corporation's clearing agent to terminate its contract, an accrual for severance
payments to be made to certain employees whose services will no longer be
required, and an expense for all brokerage related assets that the Company will
not employ in our business in the future.
For the nine months ended September 30, 2000, the Company wrote-off
approximately $1.3 million in computer software and hardware originally
developed or purchased to operate an after-hours trading system. In light of
information that became available during the first quarter regarding
redeployment of those assets, the Company wrote-off approximately $1.3 million
of previously capitalized costs representing management's estimate of the
impairment in the value of the assets.
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Depreciation and amortization for the three months ended September 30, 2000
increased to $1.7 million from $365,000 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, depreciation
and amortization increased to $4.4 million from $864,000 for the nine months
ended September 30, 1999. Depreciation and amortization consists primarily of
depreciation and amortization of property, equipment and leasehold improvements
and amortization of computer software. The increases in depreciation and
amortization reflect the increased investments the Company has made in its
technology, equipment and facilities. The Company expects these expenses to
continue to grow as it continues to invest in technology and infrastructure.
Technology development expense for the three months ended September 30, 2000
increased to $1.5 million from $845,000 for the three months ended
September 30, 1999. Technology development expense for the nine months ended
September 30, 2000 increased to $4.0 million from $1.7 million for the nine
months ended September 30, 1999. This increase resulted from continued
enhancements to the Company's technology infrastructure, primarily related to
the development of Vostock, the Company's online auction system for secondary
and follow-on offerings and its online brokerage operations. The Company expects
technology development expense to increase as operations continue to grow and as
the Company continues to invest in its infrastructure and new business
initiatives.
Occupancy expense for the three months ended September 30, 2000 increased to
$1.1 million from $300,000 for the three months ended September 30, 1999. For
the nine months ended September 30, 2000, occupancy expense increased to
$3.0 million from $603,000 for the nine months ended September 30, 1999. Wit
SoundView now leases several floors in its New York location and operates an
office in Stamford, Connecticut and an office in San Francisco. As the Company
continues to grow and expand its business, it expects occupancy expense to
increase.
Other expenses for the three months ended September 30, 2000 increased to
$2.4 million from $1 million for the three months ended September 30, 1999. For
the nine months ended September 30, 2000, other expenses increased to
$6.6 million from $1.5 million for the nine months ended September 30, 1999.
Other expenses include office supplies, registrations and other general and
administrative expenses which have all increased as the Company continues to
expand its business and operations.
Equity in net loss of affiliates for the three months ended September 30,
2000 increased to $7.0 million from $24,000 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, equity in net
loss of affiliates increased to $13.2 million from $24,000 for the nine months
ended September 30, 1999. Equity in net loss of affiliates represents the
Company's proportional share of the losses incurred by Wit Capital Japan and Wit
Capital Europe based on our ownership interest in each joint venture. The
Company expects these losses to increase as Wit Capital Japan and Wit Capital
Europe commence or prepare to commence operations in 2000. The Company's equity
investment in Wit Capital Europe was written-off during August 2000 as a result
of the Company's pro rata share of Wit Capital Europe's net losses since
inception exceeding the carrying value of the Company's investment. The Company
has continued to accrue its pro rata share of Wit Capital Europe's net losses
incurred subsequent to August 2000, as the Company believes that it is probable
that it will make future investments in Wit Capital Europe.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Company's initial public offering of common stock in
June 1999, the Company satisfied its cash requirements primarily through private
placements of common stock and convertible preferred stock. In June 1999, Wit
Capital Group, Inc. completed an initial public offering in which it issued
8,740,000 shares of its common stock at $9.00 per share. The Company received
approximately $72.8 million in cash proceeds, net of underwriting discounts and
offering costs. In October 2000, in connection with the merger with E*OFFERING
and our strategic alliance with E*TRADE described
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<PAGE>
above, the Company completed the sale of a total of 4 million shares of its
common stock to E*TRADE and certain affiliates of General Atlantic Partners for
an aggregate purchase price of $41 million. The Company believes that its
existing cash balances will be sufficient to meet anticipated cash requirements
for at least the next twelve months. We may, nonetheless, seek additional
financing to support our activities during the next twelve months or thereafter.
There can be no assurance, however, that additional capital will be available on
reasonable terms, if at all, when needed or desired.
Net cash provided by operating activities was $23.4 million for the nine
months ended September 30, 2000, compared to net cash used in operating
activities of $12.2 million during the same period in the preceding year. Net
cash provided by operating activities for the nine months ended September 30,
2000 was primarily from net income of $3.8 million, an increase in net operating
assets of $52.4 million offset by a net increase in operating liabilities of
$29.7 million. Cash used in operating activities for the nine months ended
September 30, 1999 was primarily from a net loss of $12.8 million, a net
increase in operating assets of $8.7 million, offset by an increase in operating
liabilities of $8.3 million.
Cash provided by investing activities was $69.3 million for the nine months
ended September 30, 2000, compared to cash used of $127.6 million for the nine
months ended September 30, 1999. Cash provided by investing activities for the
nine months ended September 30, 2000 was primarily for net purchases and sales
of short-term investments of $104.0 million, the net cash payment for the
acquisition of SoundView of $6.8 million ($22.5 million of cash paid,
representing the cash portion of merger consideration, net of cash received of
$15.7 million), an additional investment in Wit Capital Japan of $18.9 million,
fixed asset purchases of $6.6 million and purchases of computer software of
$2.5 million. Cash used in investing activities for the nine months ended
September 30, 1999 was primarily for the purchase of short-term investment
securities of $121 million, purchases of fixed assets of $3.7 million and from
purchases of computer software of $2.8 million.
Cash provided by financing activities was $11.2 million for the nine months
ended September 30, 2000, compared to $131.1 million for the nine months ended
September 30, 1999. Cash provided by financing activities for the nine months
ended September 30, 2000 resulted primarily from $11.2 million in proceeds
received from the issuance of common stock for exercise of options and warrants.
Cash provided by financing activities for the nine months ending September 30,
1999 resulted primarily from net proceeds of $72.8 million received from the
initial public offering of our common stock and, to a lesser extent,
$24.9 million in net proceeds received from the issuance of Series E Preferred
Stock, now Class B Common Stock, and the grant of warrants to the Goldman Sachs
Group, Inc. and from $31.5 million received from issuance of our Series D
Preferred Stock, now Common Stock, to accredited investors.
The Company continues to use the net proceeds from its IPO for working
capital purposes. In January 2000, Wit Capital paid approximately $22.5 million
to shareholders of SoundView in connection with its merger with SoundView and in
March 2000, the Company invested $10 million in Internet HealthCare Group, a
business-to-business e-commerce company focused on e-healthcare and e-insurance.
In August 2000, the Company invested an additional $8.4 million in Wit Capital
Japan. The Company expects to continue to use the proceeds for working capital
purposes and for strategic acquisitions or investments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no material change from the Item 305 information included in
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Certain claims and legal proceedings are described in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999 and in the
Registrant's Report on Form 10-Q for the period ended June 30, 2000.
We are currently subject to other claims and legal proceedings arising in
the normal course of our business. We do not believe that the resolution of such
claims and legal proceedings should have a material adverse effect on us.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company continues to use the net proceeds from its IPO for working
capital purposes. The Company expects to continue to use the proceeds for
working capital purposes and for strategic acquisitions or investments.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of Stockholders on September 26, 2000. At
that meeting, our stockholders voted to adjourn the meeting prior to taking any
other actions. At this meeting, we announced that the adjourned meeting would be
reconvened on October 16, 2000.
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
The Company has included in this Form 10-Q filing, and from time to time its
management may make, statements which may constitute forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are not
historical facts but instead represent only the Company's beliefs regarding
future events, many of which, by their nature, are inherently uncertain and
outside of the Company's or its management's control. It is possible that its
actual results may differ, possibly materially, from the anticipated results
indicated in these forward-looking statements. Important factors that could
cause actual results to differ from those in the Company's specific
forward-looking statements include:
- a decline in general economic conditions or the United States securities
markets;
- the inability to secure share allotments in underwritten offerings in
which the Company participates sufficient to satisfy its customers' demand
and generate revenue;
- the inability to ensure sufficient revenue to cover its costs and create
profits; and
- increasing competitive pressures.
Additional information regarding these and other important factors that
could cause actual results to differ from those in the Company's forward-looking
statements is contained under the section entitled "Risk Factors" in the
Company's Registration Statements on Form S-4 (No. 333-92887 and No. 333-42062)
as filed with the SEC in connection with the company's mergers with SoundView
Technology Group, Inc. and E*OFFERING Corp., respectively. The Company hereby
incorporates by reference those risk factors into this Form 10-Q.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<C> <S>
2.2 Amendment Agreement by and among Wit SoundView Group, Inc.,
Wit SoundView Corporation and E*OFFERING Corp., dated as of
September 26, 2000 (Incorporated by reference to
exhibit 2.2 to Post Effective Amendment Number 1 to the
Registration Statement on Form S-4 (File No. 333-42062) of
Wit SoundView Group, Inc.)
10.14(b)++ Amended and Restated Strategic Alliance Agreement dated as
of September 26, 2000. By and between E*TRADE Group Inc.,
and Wit SoundView Group, Inc. (Incorporated by reference to
exhibit 10.14 (b) to Post Effective Amendment Number 1 to
the Registration Statement on Form S-4 (File No. 333-42062)
of Wit SoundView Group, Inc.)
27.1 Financial Data Schedule
</TABLE>
------------------------
++ Confidential treatment has been requested for certain portions of this
document.
(b) Reports on Form 8-K:
On September 26, 2000, Wit SoundView Group, Inc. filed a report on Form 8-K
announcing that it reached an agreement with E*TRADE Group, Inc. to expand their
strategic alliance. The expanded strategic alliance includes increased duration
of exclusivity, increased volume of trading flow to Wit SoundView and enhanced
international opportunities.
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SIGNATURES
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.
<TABLE>
<S> <C> <C>
WIT SOUNDVIEW GROUP, INC.
Dated: November 14, 2000
By: /s/ ROBERT H. LESSIN
-----------------------------------------
Robert H. Lessin
CHIEF EXECUTIVE OFFICER
By: /s/ CURTIS L. SNYDER
-----------------------------------------
Curtis L. Snyder
CHIEF FINANCIAL OFFICER
</TABLE>
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