<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-QSB
- --------------------------------------------------------------------------------
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 1999
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: 333-75119
onlinetradinginc.com corp.
(Exact name of small business issuer as specified in its charter)
Florida 65-0607814
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 North Military Trail, Suite 200
Boca Raton, Florida 33431
(Address of principal executive offices)
(561) 995-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) 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 ____
On December 15, 1999 the registrant had 11,476,388 outstanding shares
of common stock, $0.01 par value.
Transitional Small Business Disclosure Format (check one):
Yes ____ No __X__
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onlinetradinginc.com corp.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations (unaudited) for the Three and Nine
Months Ended October 31, 1999 and 1998 1
Statements of Financial Condition as of October 31, 1999 (unaudited)
and January 31, 1999 2
Statement of Stockholders' Equity (unaudited) for the Nine
Months Ended October 31, 1999 3
Statements of Cash Flows (unaudited) for the Nine Months Ended
October 31, 1999 and 1998 4
Notes to the Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
<PAGE>
onlinetradinginc.com corp.
Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Commissions ...................................... $ 2,092,667 $ 1,250,421 $ 6,272,161 $ 3,707,378
Investment gains (losses) ........................ 331,479 79,485 869,727 (10,288)
Other revenues ................................... -- -- 175,000 --
Interest - revenue sharing ....................... 108,909 14,405 246,119 61,808
Interest and dividends ........................... 234,814 9,905 336,890 29,572
------------ ------------ ------------ ------------
Total Revenues ........................... 2,767,869 1,354,216 7,899,897 3,788,470
------------ ------------ ------------ ------------
Expenses:
Employee compensation and benefits ............... 1,276,917 731,097 3,715,779 2,147,402
Clearing and other transaction costs ............. 554,699 529,758 1,865,029 1,447,099
Occupancy and administrative ..................... 261,005 97,420 594,008 286,424
Interest expense ................................. 5,356 9,441 19,605 27,439
Depreciation ..................................... 14,890 7,368 36,245 22,112
------------ ------------ ------------ ------------
Total Expenses ........................... 2,112,867 1,375,084 6,230,666 3,930,476
------------ ------------ ------------ ------------
Income (loss) before income taxes ........ 655,002 (20,868) 1,669,231 (142,006)
Income tax (provision) benefit ..................... (240,120) 8,000 (629,064) 53,530
------------ ------------ ------------ ------------
Net income (loss) ........................ $ 414,882 $ (12,868) $ 1,040,167 $ (88,476)
============ ============ ============ ============
Earnings Per Share:
Basic ............................................ $ 0.04 $ (0.00) $ 0.11 $ (0.01)
============ ============ ============ ============
Diluted .......................................... $ 0.04 $ (0.00) $ 0.11 $ (0.01)
============ ============ ============ ============
Weighted average common shares
outstanding - basic ............................ 11,476,388 8,888,888 9,877,039 8,745,205
============ ============ ============ ============
Weighted average common shares
outstanding - diluted ........................... 11,482,334 8,888,888 9,886,304 8,745,205
============ ============ ============ ============
</TABLE>
See accompanying notes.
1
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onlinetradinginc.com corp.
Statements of Financial Condition
<TABLE>
<CAPTION>
As of As of
---------------- ----------------
October 31, 1999 January 31, 1999
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................................. $ 17,585,967 $ 1,005,944
Receivable from clearing organization ..................................................... 361,259 572,433
Other receivables ......................................................................... 124,672 6,163
Securities owned, at market value ......................................................... 776,943 381,084
Prepaid expenses .......................................................................... 29,404 9,420
Clearing deposit .......................................................................... 100,366 --
Office furniture & equipment, net ......................................................... 239,294 136,146
Other Assets .............................................................................. 87,109 43,398
---------------- ----------------
TOTAL ASSETS .................................................................... $ 19,305,014 $ 2,154,588
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable .......................................................................... $ 175,190 $ 163,074
Accrued payroll ........................................................................... 553,540 644,148
Income taxes payable ...................................................................... 601,434 38,230
Securities sold but not yet purchased, at market value .................................... 322,913 --
Other current liabilities ................................................................. 220,210 141,200
Deferred Income Taxes ..................................................................... 17,900 15,400
Subordinated Loans ........................................................................ 400,000 525,000
---------------- ----------------
TOTAL LIABILITIES ............................................................... 2,291,187 1,527,052
---------------- ----------------
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none
outstanding at October 31, 1999; 300 shares of Series A issued and
outstanding, January 31, 1999, stated value $1,000, voting,
stated value $1,000, voting, redeemable at 110% of stated value ....................... -- 300,000
Common stock, $0.01 par value; 100,000,000 shares authorized;
issued and outstanding, 11,476,388 shares at October 31, 1999 and
8,888,888 shares at January 31, 1999 .................................................. 114,763 88,888
Additional-Paid-In-Capital .............................................................. 15,753,312 103,063
Retained earnings ....................................................................... 1,145,752 135,585
---------------- ----------------
Total Stockholders' Equity .............................................................. 17,013,827 627,536
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................. $ 19,305,014 $ 2,154,588
================ ================
</TABLE>
See accompanying notes.
2
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onlinetradinginc.com corp.
Statement of Changes in Stockholders' Equity
For the Nine Months Ended October 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock
---------------------------- ----------------------------
Amount at Additional
Shares Stated Shares Amount at Paid-In Retained
Issued Value Issued Par Value Capital Earnings Totals
------------ --------- ---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 31, 1999 ...... 300 $ 300,000 8,888,888 $ 88,888 $ 103,063 $ 135,585 $ 627,536
Issuance of common stock for cash -- -- 2,587,500 25,875 15,595,149 -- 15,621,024
Redemption of preferred stock ... (300) (300,000) -- -- -- (30,000) (330,000)
Other ........................... -- -- -- -- 55,100 -- 55,100
Net income for the nine months
ended October 31, 1999 ........ -- -- -- -- -- 1,040,167 1,040,167
---------- --------- ----------- ----------- ----------- ---------- -----------
BALANCES, October 31, 1999 ...... -- $ -- 11,476,388 $ 114,763 $15,753,312 $1,145,752 $17,013,827
========== ========= ========== ============ =========== ========== ===========
</TABLE>
See accompanying notes
3
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onlinetradinginc.com corp.
Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
------------------------------------
1999 1998
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .................................................................... $ 1,040,167 $ (88,476)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation ..................................................................... 36,245 22,112
Common stock issued for services ................................................. -- 26,000
Deferred income taxes ............................................................ 2,500 (54,300)
Changes in certain assets and liabilities:
Receivable from clearing organization .......................................... 211,174 (111,006)
Other receivables .............................................................. (118,509) (441)
Securities owned at market value ............................................... (395,859) 353,572
Prepaid expenses ............................................................... (19,984) (8,989)
Clearing deposit ............................................................... (100,366) --
Other assets ................................................................... 11,289 (183)
Accounts payable ............................................................... 12,116 (15,570)
Accrued payroll ................................................................ (90,607) 288,904
Income taxes payable ........................................................... 563,204 --
Other current liabilities ...................................................... 79,010 149,132
Securities sold, but not yet purchased, at market value ........................ 322,913 198,656
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................................... 1,553,293 759,411
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ................................................. (139,394) (7,215)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ............................................. 15,621,024 --
Proceeds from issuance of common stock warrants .................................... 100 --
Repayment of subordinated loan ..................................................... (125,000) 25,000
Redemption of preferred stock ...................................................... (330,000) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................................... 15,166,124 25,000
------------ ------------
Net Increase in Cash and Cash Equivalents ............................................ 16,580,023 777,196
Cash, Beginning of Period ............................................................ 1,005,944 218,335
------------ ------------
Cash, End of Period .................................................................. $ 17,585,967 $ 995,531
============ ============
Supplemental Disclosure Of Cash Flow Information:
Cash paid during the period for income taxes ...................................... $ 64,140 $ --
============ ============
Cash paid during the period for interest .......................................... $ 23,012 $ 24,942
============ ============
</TABLE>
Supplemental Disclosure Of Non-Cash Investing and Financing Activities:
The Company acquired the domain name "onlinetrading.com" for cash and stock
options. Accordingly, other assets and additional paid in capital were increased
by $55,000, the value of the stock options.
See accompanying notes.
4
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onlinetradinginc.com corp.
Notes to Financial Statements
Three and Nine Months Ended October 31, 1999 and 1998
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with Item 310(b) of Regulation S-B, "Interim Financial Statements",
and accordingly do not include all information and footnotes required under
generally accepted accounting principles for complete financial statements.
Financial information as of January 31 has been derived from the audited
financial statements of the Company for the year ended January 31, 1999. In the
opinion of management all adjustments, (consisting only of normal recurring
adjustments), necessary to present fairly the financial position as of October
31, 1999, the results of operations for the three and nine months ended October
31, 1999 and 1998 and cash flows for the nine months ended October 31, 1999 and
1998 have been included in the accompanying financial statements. Certain
reclassifications have been made to the October 31, 1998 financial information
to conform to the presentation in October 31, 1999. The results of operations
and cash flows for the interim periods, is not necessarily indicative of the
results of operations or cash flows that may be expected for the respective
year-end. For additional information, refer to the financial statements and
footnotes for the year ended January 31, 1999 included in the Company's Form
SB-2 Registration Statement.
NOTE 2 - NET CAPITAL REQUIREMENTS
The Company is subject to the Securities and Exchange Commission
uniform net capital rule, which requires the maintenance of minimal net capital
as defined. As of October 31, 1999, the Company had net capital of $16,759,442,
which was $16,656,084 in excess of the minimum required.
NOTE 3 - INCOME TAXES
Income taxes for the interim periods were computed using the effective
tax rate estimated to be applicable for the full fiscal year, which is subject
to an ongoing quarterly review by management.
NOTE 4 - CAPITAL TRANSACTIONS
A stock split of 11.1111 shares for each 10 shares of common stock
outstanding was effected on April 3, 1999. The number of shares issued and all
per share amounts have been adjusted to retroactively reflect the effect of the
stock split.
On May 8, 1999 the Company's articles of incorporation were amended to
increase its authorized $0.01 par value common stock to 100,000,000 shares.
In July 1999, the Company redeemed all of the currently outstanding
Preferred Stock Series A shares.
5
<PAGE>
onlinetradinginc.com corp.
Notes to Financial Statements
Three and Nine Months Ended October 31, 1999 and 1998
(UNAUDITED)
NOTE 5 - PUBLIC OFFERING
The Company completed its initial public offering (the "IPO") by
issuing 2,587,500 shares of common stock (including 337,500 shares to cover
over-allotments), $0.01 par value (the "IPO Shares") on June 11, 1999. The IPO
shares were issued in a registered offering pursuant to a Registration Statement
on Form SB-2 (Commission File No. 333-75119; effective date June 11, 1999)
through a syndicate of underwriters, the principal representatives of which were
Werbel-Roth Securities, Inc., onlinetradinginc.com corp., Seaboard Securities,
Inc., and The Agean Group, Inc. The IPO shares were offered and sold by the
underwriters at an initial public offering price of $7.00 per share, resulting
in aggregate gross offering proceeds of $18,112,500 and net proceeds to the
Company of $15,621,024.
The Company incurred offering expenses in connection with this offering
as follows:
Underwriting discounts and commissions $1,539,563
Expenses paid to/for underwriters 486,461
Other offering expenses 465,452
----------
$2,491,476
==========
Except for the concessions earned by the Company as a result of
participating in the underwriters syndicate, none of the above expenses were
paid either directly or indirectly to directors, officers, general partners of
the Company or its associates, or to persons owning more than 10% of any class
of equity security of the Company or to affiliates of the Company.
In conjunction with the IPO, the Company issued 225,000 warrants to the
underwriters. The warrants have an exercise price of $11.55 (165% of the $7.00
IPO price).
NOTE 6 - EARNINGS PER SHARE
The Company follows the provisions of SFAS No. 128, "Earnings Per
Share," which requires companies with complex capital structures or common stock
equivalents to present both basic and diluted earnings per share ("EPS") on the
face of the income statement. Basic EPS is calculated as income available to
common stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated using the "if
converted" method for convertible securities and the treasury stock method for
options and warrants as previously prescribed by Accounting Principles Board
Opinion No. 15, "Earnings Per Share."
6
<PAGE>
onlinetradinginc.com corp.
Notes to Financial Statements
Three and Nine Months Ended October 31, 1999 and 1998
(UNAUDITED)
NOTE 6 - EARNINGS PER SHARE (continued)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
----------------------- -------------------------
1999 1998 1999 1998
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net earnings (loss) available to common
Shareholders ................................. $ 414,882 $ (12,868) $ 1,040,167 $ (88,476)
=========== ========= =========== ===========
Denominator:
Denominator for earnings per share - weighted
average shares outstanding ................ 11,476,388 8,888,888 9,877,039 8,745,205
Effect of dilutive securities - non-employee
stock options ............................. 5,946 -- 9,265 --
----------- --------- ----------- -----------
Denominator for earnings per share - assuming
dilution - adjusted weighted average shares
outstanding ............................... 11,482,334 8,888,888 9,886,304 8,745,205
=========== ========= =========== ===========
Basic earnings per share ....................... $ 0.04 $ (0.00) $ 0.11 $ (0.01)
=========== ========= =========== ===========
Dilutive earnings per share .................... $ 0.04 $ (0.00) $ 0.11 $ (0.01)
=========== ========= =========== ===========
</TABLE>
NOTE 7 - STOCK OPTIONS
In 1999, the Company adopted the 1999 Stock Option Plan. Pursuant to
the terms of this plan, employees, non-employee directors, consultants and
independent contractors are eligible to receive options to purchase common
stock. Up to 1,000,000 shares may be issued under the plan and will be drawn
from either authorized but previously unissued shares or from treasury shares.
Options granted under this plan are granted at the fair market value of the
common stock at the date of grant. In general, the employee options become
exercisable over a five year period beginning June 11, 2000. All options expire
ten years after the date of grant.
The Company has granted the following options:
Weighted average
Type Shares exercise price
- ---------------------------------------- ------------- -----------------
Employee 295,500 $ 7.13
Non-employee director 40,000 $ 11.68
Non-employee consultants 40,000 $ 13.50
No stock options have been exercised during the three or nine months ended
October 31, 1999.
7
<PAGE>
onlinetradinginc.com corp.
Notes to Financial Statements
Three and Nine Months Ended October 31, 1999 and 1998
(UNAUDITED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Lease
On March 2, 1999, the Company entered into a three year
operating lease to rent office furniture, office equipment, and computer
hardware. The monthly rental payment under the agreement is $6,862 plus
applicable taxes.
On June 29, 1999, an amendment to the Company's current lease
agreement for its office space located in Boca Raton, Florida became effective.
The amendment will add 5,009 square feet of office space to its Boca Raton
location. The space is expected to be completed by January 1, 2000.
NOTE 9 - SUBSEQUENT EVENTS
On December 6, 1999, the Company completed an acquisition of the
principal assets of Newport Discount Brokerage, Inc. for total cash
consideration of $2,682,000 and up to 125,000 shares of common stock. The stock
issuance is contingent upon the acquired assets achieving certain revenue goals
and the valuation of customer balances one year following closing. The Company
will be filing a Form 8-K by December 21, 1999 with the complete terms and
agreements related to the acquisition.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the level of
operation and financial condition of onlinetradinginc.com corp. (the "Company").
This discussion should be read with the financial statements appearing in Part
I. Item 1 of this report. The results of operations for the three and nine
months ended October 31, 1999 are not necessarily indicative of the results for
the entire year fiscal year ending January 31, 2000.
The Company is a brokerage firm registered with the Securities and Exchange
Commission, the National Association of Securities Dealers, the Municipal
Securities Rulemaking Board, and all state securities divisions except Hawaii
and Puerto Rico. We are a full-service firm targeting experienced high net worth
investors and small to mid-sized financial institutions including: hedge funds,
money managers, mutual funds, registered investment advisors and pension funds.
We specialize in offering equity execution systems and services to more active
market participants, and we plan to expand our business by using the Internet to
efficiently market and distribute our products and services to additional
potential clients.
In June 1999, the Company completed an initial public offering (the "IPO") of
2,587,500 common shares at a price of $7.00 per share which, including the 15%
over-allotment. The Company received net proceeds from the offering of
$15,621,024. All of the unused net proceeds have been invested in short-term
commercial paper and money market funds. We will use the proceeds of the initial
public offering for sales & marketing, website enhancement and programming,
potential acquisitions, increasing the Company's net capital, hiring additional
management and personnel, branch office expansion, expansion of client service
department, network expansion and upgrades, and Year 2000 readiness and testing.
Based on currently proposed plans and assumptions relating to the implementation
of our business plans, we believe that the proceeds of this offering, combined
with cash flow from operations, will enable us to fund our planned operations
for at least the next twelve months. However, we cannot be assured that we will
realize cash flow from operations or that cash flow will be sufficient. If our
plans change, our assumptions change or prove to be inaccurate or if the
proceeds of this offering otherwise prove to be insufficient to implement our
business plans, we may find it necessary or desirable to reallocate a portion of
the proceeds, use proceeds for other purposes, seek additional financing or
curtail operations.
IMPACT OF THE YEAR 2000
With the new millenium approaching, many institutions around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
complaint. The issue, in general terms, is that many existing computer systems
and micro processors with data functions use only two digits to identify a year
in the date field with the assumption that the first two digits of the year are
always "19." Consequently, on January 1, 2000, computers that are not Year 2000
compliant may read the year as 1900. Systems that calculate, compare or sort
using the incorrect date may malfunction.
9
<PAGE>
We believe we have materially modified and/or replaced our previously
non-compliant information technology systems to properly recognize and utilize
dates beyond December 31, 1999. We presently believe that with modifications
previously made to existing software, conversions to new software and
replacement of some hardware, the Year 2000 issue will be satisfactorily
resolved in our own systems. However, even if these changes are successful,
failures of third party systems, to which we are financially or operationally
linked, to address their own system problems could have a material adverse
impact on us. We have contacted substantially all of our third party financial
information vendors, telecommunications supplies and our clearing broker
requesting assurances of their compliance. These third parties have advised us
that their review of their operating systems indicate that they are Year 2000
compliant or will be Year 2000 compliant in a timely manner. Evaluation of these
issues is continuing and there is a risk that other problems, not presently
known to the Company, will be discovered which could present a material risk of
disruption to the Company's operations and result in material adverse
consequences to the Company. Furthermore, there can be no assurance that the
Company will not experience unexpected delays in correction of any Year 2000
issues that may be discovered. Any inability to correct such issues in a timely
manner could cause a material disruption of the Company's business. The Year
2000 issue could lower demand for the Company's services while increasing the
Company's costs. These combining factors, while not quantified, could have a
material adverse impact on the Company's financial results.
The Company continues to evaluate Year 2000 risks and corrective actions and
currently has a contingency plan if any third parties with which we do business
have any material Year 2000 failures or interruptions in service.
We have budgeted $100,000 for Year 2000 testing and monitoring and have spent
approximately $25,000 consisting of compensation for information technology
employees, and acquisition of new computer hardware and software. However, no
assurances can be given that this budgeted amount will be sufficient as actual
results could differ materially from our plans.
RECENT DEVELOPMENTS
On December 6, 1999, the Company completed an acquisition of the principal
assets of Newport Discount Brokerage, Inc. for total cash consideration of
$2,682,000 and up to 125,000 shares of common stock. The stock issuance is
contingent upon the acquired assets achieving certain revenue goals and the
valuation of customer balances one year following closing. The Company will be
filing a Form 8-K by December 21, 1999 with the complete terms and agreements
related to the acquisition.
RESULTS OF OPERATIONS
Nine Months Ended October 31, 1999 Compared with Nine Months Ended
October 31, 1998
REVENUES
Total Revenues. The Company's total revenues for the nine months ended
October 31, 1999 increased 109% from $3,788,470 for the nine months ended
October 31, 1998 to $7,899,897 for the nine months ended October 31, 1999.
10
<PAGE>
Commission Revenue. Commission revenue increased $2,564,783, or 69%
from $3,707,378 for the nine months ended October 31, 1998 to $6,272,161 for the
nine months ended October 31, 1999. The increase was the primary result of
hiring additional five registered representatives, the opening of three branch
offices and the participation as an underwriter of the Company's initial public
offering.
Investment Gains (Losses). Our proprietary trading profits increased
$880,015 to $869,727 for the nine months ended October 31, 1999 as compared to a
net loss of $10,288 for the nine months ended October 31, 1998. During the
quarter ended July 31, 1999, $4,604 representing an investment gain on
commercial paper was recorded as interest and dividends and has been reclassed
to investment gains (losses).
Other Revenues. Other revenues increased by $175,000 which
represents an arbitration settlement received by the Company in July 1999.
Interest - Revenue Sharing. Interest revenue sharing represents a
revenue sharing agreement with our clearing firm. Interest revenue sharing
increased by $184,311 to $246,119 for the nine months ended October 31, 1999 as
compared to $61,808 for the nine months ended October 31, 1998. The increase was
due primarily to a change in the percentage of revenue the Company receives and
the increase of our customer balances being maintained by the clearing firm. The
interest revenue sharing during the quarter ended April 30, 1999 of $58,598 was
previously recorded in interest and dividends and has been reclassed to interest
revenue sharing. The interest revenue sharing during the six months ended July
31, 1998 of $47,403 was previously recorded in interest and dividends and has
been reclassed to interest revenue sharing.
Interest and Dividends. Interest and dividend income increased $307,318
primarily as a result of the Company's increased cash position available for
investment and the prevailing interest rates.
EXPENSES
Total Operating Expenses. Total operating expenses increased by 59%
from $3,930,476 for the nine months ended October 31, 1998 to $6,230,666 for the
nine months ended October 31, 1999.
Employee Compensation and Benefits. Employee compensation and related
benefits increased by $1,568,377, or 73%, from $2,147,402 for the nine months
ended October 31, 1998 to $3,715,779 for the nine months ended October 31, 1999.
Included in this amount is commissions paid to the Company's brokers and traders
which increased $1,611,678 from $582,673 for the nine months ended October 31,
1998 to $2,194,351 for the nine months ended October 31, 1999 as a result of the
increased commission revenue. We anticipate this expense to continue to increase
as we expand our business and customer base. In addition, since the public
offering, the Company has employed various customer support, back office and
management staff including a general counsel, a chief financial officer, a chief
technical officer, and a director of internet sales. The increase in broker
commissions and compensation for new staff was offset somewhat by a significant
decline in officer compensation. In addition, the percentage of employee
compensation and related benefits to revenue decreased from 57% for the nine
months ended October 31, 1998 to 47% for the nine months ended October 31, 1999.
11
<PAGE>
Clearing and Other Transaction Costs. Clearing and other transaction
costs represents the cost to execute and clear customer trades. These expenses
increased $417,930, or 29%, from $1,447,099 to $1,865,029 as a result of the
increase in our volume of transactions. However, these costs decreased from 39%
of commission revenue for the nine months ended October 31, 1998 to 30% of
commission revenue for the nine months ended October 31, 1999 as a result of
changes in the charges by the clearing firm.
Occupancy and Administrative. Occupancy and administrative expenses
consist primarily of advertising, telephone and communication, rent, and
professional fees. Occupancy and administrative expenses increased $307,584 or
107%, from $286,424 for the nine months ended October 31, 1998 to $594,008 for
the nine months ended October 31, 1999. This increase is the primary result of
advertising in a national business publication, increased telephone and
communication expenses due to the increased customer activity, leasing of
additional office equipment and furniture to facilitate our expansion, increased
professional fees for auditing and legal services, and licenses and
registrations for the additional offices and registered representatives.
Interest Expense. Interest expense decreased $7,834 from $27,439 for
the nine months ended October 31, 1998 to $19,605 for the nine months ended
October 31, 1999 as a result of the repayment of $125,000 of the Company's
subordinated loans and a decrease in the interest rate being charged on one of
the Company's subordinated loans.
Depreciation Expense. Depreciation expense increased $14,133 from
$22,112 for the nine months ended October 31, 1998 to $36,245 for the nine
months ended October 31, 1999. The increase is the result of $181,198 additional
fixed assets being acquired since October 31, 1998.
Income Taxes. The Company recorded a provision for income taxes of
$629,064 for the nine months ended October 31, 1999 as compared to an income tax
benefit of $53,530 for the nine months ended October 31, 1998. The effective
tax rate was 38% for the nine months ended October 31, 1999 and 1998.
As a result of the above, operating results improved from a net loss of $88,476
for the nine months ended October 31, 1998 to net income of $1,040,167 for the
nine months ended October 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1999, the Company had cash and cash equivalents of
$17,585,967, consisting of money market funds and short term commercial paper as
compared to $995,531 as of October 31, 1998.
Cash provided by operating activities was $1,553,293 and $759,411 for the nine
months ended October 31, 1999 and 1998. The increase in cash provided by
operations was primarily the result of an increase in the Company's net income
for the nine months ended October 31, 1999.
Cash used in investing activities was $139,394 and $7,215 for the nine months
ended October 31, 1999 and 1998, respectively. The primary purpose of the use of
cash was for the acquisition of office equipment and furniture.
12
<PAGE>
Cash provided by financing activities was $15,166,124 for the nine months ended
October 31, 1999, primarily from the initial public offering of the Company, as
compared to $25,000 for the nine months ended October 31, 1998. During the nine
months ended October 31, 1999, the Company repaid $125,000 of its subordinated
debt and retired $330,000, (110% of the stated value), of preferred stock.
As a result, the Company had a net increase in cash and cash equivalents of
$16,580,023 and $777,196 for the nine months ended October 31, 1999 and 1998,
respectively.
The Company is subject to the Securities and Exchange Commission uniform net
capital rule, which requires the maintenance of minimal net capital as defined.
As of October 31, 1999, the Company had net capital of $16,759,442, which was
$16,656,084 in excess of the minimum required. In addition, the Company's
aggregate indebtedness may not exceed 15 times its net capital (i.e. its net
capital ratio). As of October 31, 1999, the Company had a net capital ratio of
.09 to 1. The Company remains well within the regulatory required minimums.
The Company currently anticipates that its available cash resources, including
the net proceeds from the IPO, and cash flows from operations will be sufficient
to meet its working capital and anticipated capital expenditure requirements for
at least the next twelve months. However, the Company may need to raise
additional funds in order to support more rapid expansion, develop new or
enhanced services and products, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unanticipated
opportunities.
FORWARD LOOKING INFORMATION
Statements contained in this report regarding the Company's future operations,
growth strategy, future performance and results and the anticipated liquidity
are forward looking and therefore are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected or
suggested in the forward looking statements, including those discussed on this
report and in the Company's other filings with the SEC. In addition, any forward
looking information regarding the operations of the Company will be effected by
management's ability to: (1) complete its expansion in a timely fashion, (2)
manage and operate its facility as expanded, (3) increase its marketing and
sales efforts, (4) maintain its existing customers, and (5) identify and correct
any Y2K problems. There can be no assurance that the Company will be successful
in completing its proposed expansion, or, if completed, that it will be
successful in efficiently managing its growth in order to maximize potential
transaction volume.
13
<PAGE>
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 11, 1999, the U.S. Securities and Exchange Commission declared effective
the Company's Registration Statement on Form SB-2 (SEC File Number 333-75119).
The IPO was completed after the sale of 2,250,000 shares of the Company's common
stock for $7.00 per share. The managing underwriter, Werbel-Roth Securities,
Inc., also exercised the 15% over-allotment option on July 1, 1999 and sold an
additional 337,500 shares.
The Company incurred expenses of $2,491,476 in connection with the IPO and
over-allotment. These expenses represented direct payments to others and not
direct or indirect payments to directors or officers of the Company or to
persons owning more than 10% of any class of securities of the Company. Net
proceeds from the IPO, including the over-allotment, were $15,621,024 and are
being used for: sales & marketing, website enhancement and programming,
potential acquisitions, increasing the Company's net capital, hiring additional
management and personnel, branch office expansion, expansion of client service
department, network expansion and upgrades, and Year 2000 readiness and testing.
From the effective date of the IPO through the date hereof, the Company has
utilized a portion of the proceedings as follows:
Sales & Marketing $ 50,000
Website Enhancement & Programming 70,000
Increase Net Capital 1,500,000
Additional Management & Personnel 60,000
Expansion Client Services 15,000
Network Expansion & Upgrade 10,000
Year 2000 Readiness and Testing 25,000
Working Capital 120,000
---------
Total use of proceeds to date $1,850,000
==========
The balance of the net proceeds has been invested in short-term commercial paper
and money market funds. No payments from the use of proceeds were made to
officers, directors, or persons owning more than 10% of any class of securities
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 8, 1999, pursuant to Section 607.0704 and Section 607.0821 of the Florida
Business Corporation Act, the Shareholders approved an amendment to the articles
of incorporation to increase its authorized $0.01 par value common stock to
100,000,000 shares. The vote in this matter was as follows:
For 8,888,888
Against 0
Abstain 0
Broker non-votes 0
14
<PAGE>
ITEM 5. OTHER INFORMATION
As previously reported on the quarter ended July 31, 1999 Form 10-QSB, Benedict
S. Gambino submitted his letter of resignation as a director of the Company on
August 5, 1999. The letter stated that Mr. Gambino found no material
inadequacies with the Company, its financial reporting, regulatory requirements
or management during his tenure on the Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 11 - Computation of Per Share Earnings (see footnote #6)
Exhibit 27 - Financial Data Schedule
Exhibit 99.1 - Addendum to Andrew A. Allen's Employment Agreement
(filed with the Securities and Exchange Commission as exhibit 99.1 to
the Company's 10-QSB for the quarter ended April 30, 1999 and
incorporated herein by reference)
Exhibit 99.2 - Addendum to Farshid Tafazzoli's Employment Agreement
(filed with the Securities and Exchange Commission as exhibit 99.2 to
the Company's 10-QSB for the quarter ended April 30, 1999 and
incorporated herein by reference)
(b) Form 8-K
The Company filed a Form 8-K, dated August 6, 1999, concerning the
potential acquisition of Newport Discount Brokerage, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
onlinetradinginc.com corp.
December 15, 1999 By: /s/ Andrew A. Allen
- ----------------- -------------------------------------------
Date Andrew A. Allen, Chief Executive Officer
December 15, 1999 By: /s/ E. Steven zum Tobel
- ----------------- -------------------------------------------
Date E. Steven zum Tobel, President
December 15, 1999 By: /s/ Anthony M. Palermo
- ----------------- -------------------------------------------
Date Anthony M. Palermo, Chief Financial Officer
15
<PAGE>
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