UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-QSB/A
- --------------------------------------------------------------------------------
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 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 August 23, 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__
<PAGE>
onlinetradinginc.com corp.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Statements of Operations (unaudited) for the Three and Six
Months Ended July 31, 1999 and 1998 1
Statements of Financial Condition as of July 31, 1999 (unaudited)
and January 31, 1999 2
Statement of Stockholders' Equity (unaudited) for the Six
Months Ended July 31, 1999 3
Statements of Cash Flows (unaudited) for the Six Months Ended
July 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 9-12
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
<PAGE>
onlinetradinginc.com corp.
Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Commissions ......................................... $ 1,897,738 $ 1,114,247 $ 3,957,494 $ 2,456,957
Investment gains (losses) ........................... 218,734 (305,957) 533,644 (89,773)
Other revenues ...................................... 175,000 -- 175,000 --
Interest - revenue sharing .......................... 78,612 -- 137,210 --
Interest and dividends .............................. 94,836 28,705 106,680 67,070
------------ ----------- ----------- -----------
Total Revenues .............................. 2,464,920 836,995 4,910,028 2,434,254
------------ ----------- ----------- -----------
Expenses:
Employee compensation and benefits .................. 1,213,270 443,302 2,406,730 1,416,305
Clearing and other transaction costs ................ 635,077 459,381 1,310,330 917,341
Occupancy and administrative ........................ 162,278 100,470 333,003 189,004
Interest expense .................................... 7,504 9,013 14,249 17,998
Depreciation ........................................ 12,611 7,315 21,355 14,744
------------ ----------- ----------- -----------
Total Expenses .............................. 2,031,040 1,019,481 4,085,667 2,555,392
------------ ----------- ----------- -----------
Income (loss) before income taxes ........... 433,880 (182,486) 824,361 (121,138)
Income tax (provision) benefit ........................ (165,929) 71,170 (316,267) 47,230
------------ ----------- ----------- -----------
Net income (loss) ........................... $ 267,951 $ (111,316) $ 508,094 $ (73,908)
============ =========== =========== ===========
Earnings Per Share:
Basic ............................................... $ 0.026 $ (0.013) $ 0.055 $ (0.009)
============ =========== =========== ===========
Diluted ............................................. $ 0.026 $ (0.013) $ 0.055 $ (0.009)
============ =========== =========== ===========
Weighted average common shares
outstanding - basic ............................... 10,221,768 8,633,180 9,224,847 8,633,180
============ =========== =========== ===========
Weighted average common shares
outstanding - diluted .............................. 10,233,397 8,633,180 9,227,778 8,633,180
============ =========== =========== ===========
</TABLE>
See accompanying notes.
1
<PAGE>
onlinetradinginc.com corp.
Statements of Financial Condition
<TABLE>
<CAPTION>
As of As of
------------- ----------------
July 31, 1999 January 31, 1999
------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................................................... $ 16,411,443 $ 1,005,944
Receivable from clearing organization ......................................................... 320,018 572,433
Other receivables ............................................................................. 25,917 6,163
Securities owned, at market value ............................................................. 1,504,684 381,084
Other current assets .......................................................................... 1,196 9,420
----------- ----------------
Total Current Assets .................................................................. 18,263,558 1,975,044
Property and Equipment, net ..................................................................... 200,966 136,146
Other Assets .................................................................................... 117,189 43,398
----------- ----------------
TOTAL ASSETS .......................................................................... $ 18,581,413 $ 2,154,588
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................................................................. $ 220,799 $ 163,074
Accrued payroll ............................................................................... 462,050 644,148
Income taxes payable .......................................................................... 297,094 38,230
Securities sold but not yet purchased, at market value ........................................ 295,500 --
Other current liabilities ..................................................................... 195,868 141,200
------------- ----------------
Total Current Liabilities ............................................................. 1,471,311 986,652
------------- ----------------
Deferred Income Taxes ........................................................................... 13,481 15,400
------------- ----------------
Subordinated Loans .............................................................................. 425,000 525,000
------------- ----------------
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none outstanding
at July 31, 1999; 300 shares of Series A issued and outstanding January 31, 1999,
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 July 31, 1999 and 8,888,888 shares at
January 31, 1999 ............................................................................ 114,763 88,888
Additional-Paid-In-Capital .................................................................... 15,943,179 103,063
Retained earnings ............................................................................. 613,679 135,585
------------- ----------------
Total Stockholders' Equity ...................................................................... 16,671,621 627,536
------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................................... $ 18,581,413 $ 2,154,588
============= ================
</TABLE>
See accompanying notes.
2
<PAGE>
onlinetradinginc.com corp.
Statement of Changes in Stockholders' Equity
For the Six Months Ended July 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 15,785,016 -- 15,810,891
Redemption of preferred stock ............ (300) (300,000) -- -- -- (30,000) (330,000)
Other .................................... -- -- -- -- 55,100 -- 55,100
Net income for the six months
ended July 31, 1999 .................... -- -- -- -- -- 508,094 508,094
---------- --------- ----------- ------------ ----------- -------- -----------
BALANCES, July 31, 1999 .................. -- $ -- 11,476,388 $ 114,763 $15,943,179 $613,679 $16,671,621
========== ========= =========== ============ =========== ======== ===========
</TABLE>
See accompanying notes
3
<PAGE>
onlinetradinginc.com corp.
Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
----------------------------------
1999 1998
------------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ..................................................................... $ 508,094 $ (73,908)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation ...................................................................... 21,355 14,744
Common stock issued for services .................................................. -- 26,000
Deferred income taxes ............................................................. (1,919) --
Changes in certain assets and liabilities:
Receivable from clearing organization ........................................... 252,415 38,787
Other receivables ............................................................... (19,754) (1,750)
Securities owned at market value ................................................ (1,123,600) (700,865)
Other current assets ............................................................ 8,224 (4,667)
Other assets .................................................................... (18,792) (1,295)
Accounts payable ................................................................ 57,726 (11,570)
Accrued payroll ................................................................. (182,098) 118,683
Income taxes payable ............................................................ 258,865 (48,000)
Other current liabilities ....................................................... 54,668 279,101
Securities sold, but not yet purchased, at market value ......................... 295,500 168,425
------------ ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............................. 110,683 (196,315)
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment .................................................. (86,175) (4,726)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock .............................................. 15,810,891 --
Proceeds from issuance of common stock warrants ..................................... 100 --
Repayment of subordinated loan ...................................................... (100,000) --
Redemption of preferred stock ....................................................... (330,000) --
------------ ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ....................................... 15,380,991 --
------------ ---------
Net Increase (decrease) in Cash and Cash Equivalents .................................. 15,405,499 (201,041)
Cash Beginning of Period .............................................................. 1,005,944 218,335
------------ ---------
Cash End of Period .................................................................... $ 16,411,443 $ 17,294
============ =========
</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
<PAGE>
onlinetradinginc.com corp.
Notes to Financial Statements
Three and Six Months Ended July 31, 1999 and 1998
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
This document is an amendment of the Company's Form 10-QSB as orginally
filed with the Securities and Exchange Commission (SEC) on September 10, 1999.
As described in Note 5, the Company received certain cash proceeds from its
participation in the underwriting of its IPO. These proceeds were originally
recorded as revenue, as this is the customary treatment of such proceeds for a
broker/dealer in the normal course of business. In January 2000, while
preparing its records for the regular year end financial statement audit, the
Company determined that the receipt of this cash, net of related expenses,
should have been recorded as a direct increase in additional paid in capital
pursuant to applicable generally accepted accounting principles. This amended
Form 10-QSB reflects this change.
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, these financial statements contain all adjustments,
(consisting only of normal recurring adjustments), necessary for a fair
presentation of the results for the interim periods presented. The results of
operations for interim period ended July 31, 1999, is not necessarily indicative
of the results that may be expected for the year ending January 31, 2000. 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 July 31, 1999, the Company had net capital of $16,547,087,
which was $16,447,087 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 Six Months Ended July 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, net concession and
management fee proceeds for participation in the underwriting of the IPO of
$189,867, with final net proceeds to the Company of $15,810,891.
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 and management fee 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 accordance with accounting standards (APB 9), the Company has
recorded the net concession and management fee proceeds as additional paid in
capital.
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 Six Months Ended July 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 Six months ended
July 31, July 31,
---------------------- -------------------------
1999 1998 1999 1998
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net earnings (loss) available to common
Shareholders ................................. $ 267,951 $(111,316) $ 508,094 $ (73,908)
=========== ========= =========== ===========
Denominator:
Denominator for earnings per share - weighted
average shares outstanding ................ 10,221,768 8,633,180 9,224,847 8,633,180
Effect of dilutive securities - non-employee
stock options ............................. 11,629 -- 2,931 --
----------- --------- ----------- -----------
Denominator for earnings per share - assuming
dilution - adjusted weighted average shares
outstanding ............................... 10,233,397 8,633,180 9,227,778 8,633,180
=========== ========= =========== ===========
Basic earnings per share ....................... $ 0.026 $ (0.013) $ 0.055 $ (0.009)
=========== ========= =========== ===========
Dilutive earnings per share .................... $ 0.026 $ (0.013) $ 0.055 $ (0.009)
=========== ========= =========== ===========
</TABLE>
NOTE 7 - STOCK OPTIONS
On June 11, 1999, the Company granted 282,500 stock options to
its employees. These options generally vest over five years beginning June 11,
2000 and have an exercise price of $7.00. On June 11, 1999 and July 27, 1999,
the Company granted 20,000 options to each of its non-employee directors with an
exercise price of $7.00 and $16.35, respectively. None of the stock options were
exercised during the three or six months ended July 31, 1999.
On June 30, 1999 the Company acquired a ".com" domain name for cash and
40,000 stock options. This asset was recorded at its estimated fair value of
$65,000 and is being amortized over 15 years.
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.
7
<PAGE>
onlinetradinginc.com corp.
Notes to Financial Statements
Three and Six Months Ended July 31, 1999 and 1998
(UNAUDITED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
Operating Lease
On June 2, 1999, the Company entered into an amendment to its
current lease agreement for its office space located in Boca Raton, Florida. The
amendment will add 5,009 square feet of office space to its Boca Raton location.
The space is expected to be completed by November 1, 1999.
Potential Acquisition
On July 23, 1999, the Company entered into an agreement to
purchase Newport Discount Brokerage, Inc. for a combination of cash and stock.
Closing is contingent upon approval from the NASD, satisfaction of certain
conditions contained in the agreement and the successful resolution of due
diligence issues.
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 six months
ended July 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
$15,810,891 including net concession and management fee proceeds for
participation in the underwriting of the IPO of $189,867. All of the 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 a
period of at least twelve months following the closing. 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. However, we
currently have 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 beyond what we
have already spent. No assurances can be given that this budget will be
sufficient as actual results could differ materially from our plans.
RESULTS OF OPERATIONS
Six Months Ended July 31, 1999 Compared with Six Months Ended July 31, 1998
REVENUES. Total Company's revenues for the six months ended July 31, 1999 were
$4,910,028, a 102% increase over the Company's revenues for the six months ended
July 31, 1998. Revenues from commissions increased $1,500,537, or 61% from
$2,456,957 from the six months ended July 31, 1998 to $3,957,494 for the six
months ended July 31, 1999. The increase was the primary result of hiring
additional ten registered representatives and the opening of three branch
offices. Our proprietary trading profits increased $623,417 to $533,644 for the
six months ended July 31, 1999 as compared to a net loss of $89,773 for the six
months ended July 31, 1998. Other revenues increased by $175,000 which
represents an arbitration settlement received by the Company during the three
months ended July 31, 1999. Interest-revenue sharing increased by $137,210 which
represents a revenue sharing arrangement with our clearing firm. the interest-
revenue sharing earnings during the quarter ended April 30, 1999 of $58,598 were
previously recorded in interest and dividends and have been reclassed to
interest - revenue sharing. Interest and dividend income increased $39,610 as a
result of the earnings on the invested net proceeds from the Company's initial
public offering.
OPERATING EXPENSES. Total operating expenses increased by 60% from $2,555,392
for the six months ended July 31, 1998 to $4,085,667 for the six months ended
July 31, 1999. Employee compensation and related benefits increased by
$990,425, or 70%, from $1,416,305 for the six months ended July 31, 1998 to
$2,406,730 for the six months ended July 31, 1999. This increase was the result
of the addition of the registered representatives as mentioned above, plus the
hiring of twelve additional employees for management and support positions. We
anticipate this expense to continue to increase as we hire additional brokers,
management, executives, and other support staff. However, the percentage of
employee compensation and related benefits to revenue decreased from 58% for the
six months ended July 31, 1998 to 49% for the six months ended July 31, 1999.
10
<PAGE>
Clearing and other transaction costs represents our cost to execute and clear
trades. These expenses increased $392,989, or 43%, from $917,341 to $1,310,330
as a result of the increase in our volume of transactions. However, these costs
decreased from 37% of commission revenue for the six months ended July 31, 1998
to 33% of commission revenue for the six months ended July 31, 1999.
Occupancy and administrative expenses increased $143,699, or 76%, from $189,004
for the six months ended July 31, 1998 to $332,703 for the six months ended July
31, 1999. This increase is the primary result of leasing of additional office
equipment and furniture to facilitate our expansion, increased professional fees
and licenses and registrations. However, these costs as a percentage of revenue
decreased from 8% for the six months ended July 31, 1998 to 6% for the six
months ended July 31, 1999.
Interest expense decreased $3,749 from $17,998 for the six months ended July 31,
1998 to $14,249 for the six months ended July 31, 1999 as a result of the
decrease in the interest rate being charged on one of our subordinated loans.
Depreciation expense increased $6,611 from $14,744 for the six months ended July
31, 1998 to $21,355 for the six months ended July 31, 1999. The increase is the
result of $130,470 additional fixed assets being acquired since July 31, 1998.
As a result of the above, our operating results improved from a net loss of
$73,908 for the six months ended July 31, 1998 to net income of $508,094 for
the six months ended July 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended July 31, 1999, the Company had a increase in cash and
cash equivalents of $15,405,799, as compared to a decrease in cash and cash
equivalents of $201,041 for the six months ended July 31, 1998. For the six
months ended July 31, 1999, cash provided by operating activities was $110,683
as compared to cash used by operating activities of $196,315 for the six months
ended July 31, 1998. Cash flows from financing activities was $15,380,991 for
the six months ended July 31, 1999 and was mainly from the issuance of common
stock through the Company's initial public offering.
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 July 31, 1999, the Company had net capital of $16,547,087, which was
$16,447,087 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 July 31, 1999, the Company had a net capital ratio of .07
to 1. The Company remains well within the regulatory required minimums.
11
<PAGE>
The Company's primary source of operating liquidity continues to be cash
generated from operations and its IPO proceeds. The IPO proceeds of
$15,810,891 provide the Company with the capital resources to significantly
expand its network infrastructure, implement its marketing strategies, and
continuously improve its internet products.
In July 1999, the Company redeemed all of its currently outstanding preferred
stock for 110% of the $300,000 stated value or $330,000. In addition, in July
1999, the Company paid off $100,000 of its subordinated loans.
The Company believes that the net proceeds from the IPO, together with its
current cash balance and anticipated cash provided by future operations will be
sufficient to meet its working capital and anticipated capital expenditure
requirements for a period of at least twelve months following the closing of the
Company's registration statement. Management expects that, in the future, cash
in excess of current requirements will be invested in short-term interest
bearing securities.
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, 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.
12
<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 and the net concession and
management fee were $15,810,891. These proceeds 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.
Through July 31, 1999, the Company had not spent any of the net proceeds and has
invested these funds in short-term commercial paper and money market funds.
Accordingly, 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
ITEM 5. OTHER INFORMATION
On August 5, 1999, Benedict S. Gambino submitted his letter of resignation as a
director of the Company. The letter did not mention any disagreements with the
Company on any matter relating to the Company's operations, policies or
practices.
13
<PAGE>
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.
January 13, 2000 By: /s/ Andrew A. Allen
- ------------------ -------------------------------------------
Date Andrew A. Allen, Chief Executive Officer
January 13, 2000 By: /s/ E. Steven zum Tobel
- ------------------ -------------------------------------------
Date E. Steven zum Tobel, President
January 13, 2000 By: /s/ Anthony M. Palermo
- ------------------ -------------------------------------------
Date Anthony M. Palermo, Chief Financial Officer
14
<PAGE>
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<FISCAL-YEAR-END> Jan-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> Jul-31-1999
<CASH> 16,411,443
<RECEIVABLES> 345,935
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0
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