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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------
FORM 10-QSB
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended April 30, 2000
OR
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from __________ to _________.
COMMISSION FILE NUMBER: 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 June 7, 2000 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 Income (unaudited) for the Three Months
Ended April 30, 2000 and 1999 1
Statements of Financial Condition as of April 30, 2000 (unaudited)
and January 31, 2000 2
Statement of Changes in Stockholders' Equity (unaudited) for the
Three Months Ended April 30, 2000 3
Statements of Cash Flows (unaudited) for the Three Months Ended
April 30, 2000 and 1999 4
Notes to Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
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onlinetradinginc.com corp.
Statements of Income
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
Revenues
Commissions $ 4,006,514 $ 2,059,756
Investment gains, net 197,675 314,909
Interest - revenue sharing 129,158 58,598
Interest and dividends 269,436 11,844
------------------ ------------------
4,602,783 2,445,107
------------------ ------------------
Expenses
Employee compensation and benefits 1,752,754 1,189,208
Clearing and other transaction costs 1,200,303 610,440
Occupancy and administrative 521,554 239,489
Product development 200,204 -
Interest expense 11,516 6,745
Depreciation and amortization 155,744 8,744
------------------ ------------------
3,842,075 2,054,626
------------------ ------------------
Income before income taxes 760,708 390,481
Income tax provision 293,604 150,338
------------------ ------------------
Net Income $ 467,104 $ 240,143
================== ==================
Earnings Per Share
Basic $ 0.04 $ 0.03
================== ==================
Diluted $ 0.04 $ 0.03
================== ==================
Weighted average common shares outstanding
Basic 11,476,388 8,888,888
================== ==================
Diluted 11,497,950 8,888,888
================== ==================
</TABLE>
See accompanying notes to financial statements.
1
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onlinetradinginc.com corp.
Statements of Financial Condition
<TABLE>
<CAPTION>
April 30, 2000 January 31, 2000
------------------- -------------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 11,349,106 $ 15,127,790
Receivable from clearing organization 669,919 759,183
Securities owned, at market value 4,163,794 155,012
Other current assets 272,436 103,987
------------------- -------------------
Total Current Assets 16,455,255 16,145,972
Property and Equipment, net 485,707 400,776
Intangible Assets, net 2,458,500 2,592,600
Other Assets 119,464 221,456
------------------- -------------------
TOTAL ASSETS $ 19,518,926 $ 19,360,804
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of capital lease payable $ 103,748 $ 39,944
Accounts payable and accrued liabilities 1,205,489 1,291,317
Income taxes payable 298,948 653,141
Securities sold but not yet purchased, at market value - 25,938
------------------- -------------------
Total Current Liabilities 1,608,185 2,010,340
------------------- -------------------
Deferred Income Taxes 34,300 34,300
------------------- -------------------
Capital lease payable, net of current portion 165,304 72,131
------------------- -------------------
Commitments and Contingencies (Note 7)
Stockholders' Equity
Common stock, $0.01 par value; 100,000,000 shares authorized;
issued and outstanding, 11,476,388 shares 114,763 114,763
Additional paid-in-capital 15,943,179 15,943,179
Retained earnings 1,653,195 1,186,091
------------------- -------------------
Total Stockholders' Equity 17,711,137 17,244,033
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,518,926 $ 19,360,804
=================== ===================
</TABLE>
See accompanying notes to financial statements.
2
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onlinetradinginc.com corp.
Statement of Changes in Stockholders' Equity
For the Three Months Ended April 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------------------------ Additional
Shares Amount at Paid-In Retained
Issued Par Value Capital Earnings Total
--------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 31, 2000 11,476,388 $ 114,763 $ 15,943,179 $ 1,186,091 $ 17,244,033
Net income - - - 467,104 467,104
--------------- -------------- -------------- -------------- ---------------
BALANCE, April 30, 2000 11,476,388 $ 114,763 $ 15,943,179 $ 1,653,195 $ 17,711,137
=============== ============== ============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
3
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onlinetradinginc.com corp.
Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------------------------
2000 1999
------------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 467,104 $ 240,143
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 155,744 8,744
Deferred income taxes - (250)
Other non-cash charges 89,974 -
Changes in operating assets and liabilities:
Receivable from clearing organization 89,264 (105,548)
Other receivables - (3,749)
Securities owned, at market value (20,022) 218,037
Other current assets (168,449) 9,420
Other assets 100,908 (74,824)
Accounts payable and accrued liabilities (85,828) (94,668)
Income taxes payable (354,193) 104,788
Other current liabilities - 33,869
Securities sold, but not yet purchased, at market value (25,938) 9,600
------------------ ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 248,564 345,562
------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (15,010) (36,231)
Purchase of securities owned (3,988,760) -
------------------ ---------------
NET CASH USED IN INVESTING ACTIVITIES (4,003,770) (36,231)
------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligation (23,478) -
------------------ ----------------
Net increase (decrease) in cash and cash equivalents (3,778,684) 309,331
Cash and cash equivalents, beginning of period 15,127,790 1,005,944
------------------ ----------------
Cash and cash equivalents, end of period $ 11,349,106 $ 1,315,275
================== ================
Supplemental Disclosure of Non-cash Financing Activities
--------------------------------------------------------
Equipment acquired under capital lease $ 180,455 $ -
================== ================
Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash paid for income taxes $ 119,234 $ 47,735
================== ================
Cash paid for interest $ 11,516 $ 6,745
================== ================
</TABLE>
See accompanying notes to financial statements.
4
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onlinetradinginc.com corp.
Notes to Financial Statements
Three Months Ended April 30, 2000 and 1999
(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
accounting principles generally accepted in the United States for complete
financial statements. For additional information, refer to the financial
statements and footnotes for the year ended January 31, 2000 included in the
Company's Form 10-KSB Annual Report. Financial information as of January 31 has
been derived from the audited financial statements of the Company for the year
ended January 31, 2000. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position as of April 30, 2000, the results of operations for the
three months ended April 30, 2000 and 1999 and cash flows for the three months
ended April 30, 2000 and 1999 have been included in the accompanying financial
statements. 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 remainder of the year.
NOTE 2 - NET CAPITAL REQUIREMENTS
The Company is subject to the Securities and Exchange Commission
uniform net capital rule (Rule 15c3-1), which requires the maintenance of
minimal net capital and requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed 15 to 1. As of April 30, 2000, the
Company had net capital of $14,488,480, which was $14,370,247 in excess of its
required net capital of $118,233. The ratio of aggregate indebtedness to net
capital was .12 to 1.
NOTE 3 - SECURITIES OWNED
Securities owned consists of marketable trading and investment
securities at quoted market values. These securities consist of the following
as of April 30, 2000 and January 31, 2000:
<TABLE>
<CAPTION>
April 30, 2000 January 31, 2000
-------------- ----------------
<S> <C> <C>
Corporate stocks $ 25,362 $ 155,012
U.S. Government Treasury Note
Maturing on 10/31/00 4,138,432 -
-------------- ----------------
Total $ 4,163,794 $ 155,012
============== ================
</TABLE>
5
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onlinetradinginc.com corp.
Notes to Financial Statements
Three Months Ended April 30, 2000 and 1999
(UNAUDITED)
NOTE 4 - 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 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended
April 30,
----------------------------------
2000 1999
--------------- ---------------
Numerator:
Net earnings available to common
shareholders $ 467,104 $ 240,143
=============== ===============
Denominator:
Denominator for earnings per share - weighted
average shares outstanding 11,476,388 8,888,888
Effect of dilutive securities - stock
options 21,562 -
--------------- ---------------
Denominator for earnings per share - assuming
dilution - adjusted weighted average shares
outstanding 11,497,950 8,888,888
=============== ===============
Basic earnings per share $ 0.04 $ 0.03
=============== ===============
Diluted earnings per share $ 0.04 $ 0.03
=============== ===============
NOTE 6 - CAPITAL LEASE
On December 1, 1999, the Company entered into a capital lease for
office furniture, computer equipment and phone system. As of January 31, 2000,
the leasing company had funded $112,070 representing a portion of the total
furniture and computer equipment to be received. The balance of the equipment
totaling $180,455 was funded during the quarter ended April 30, 2000, making the
total amount of the capital lease $292,525. The lease is to be paid over 36
months which commenced in April 2000 with an initial payment of $25,937 to be
followed by 33 monthly payments of $8,646 and a final payment of $20,477. All
payments are also subject to applicable sales tax.
6
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onlinetradinginc.com corp.
Notes to Financial Statements
Three Months Ended April 30, 2000 and 1999
(UNAUDITED)
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
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 added 5,009 square feet of office space to its Boca Raton
location. The space was completed on March 1, 2000 and results in additional
monthly rent of $11,028 plus applicable taxes.
Litigation
On January 11, 2000, Robert A. Whigham, Jr. and Patricia F.
Whigham filed a civil action against onlinetradinginc.com corp., Barry Goodman,
Jan Bevivino, William L. Mark and Bear Stearns Securities Corp. The Company's
attorneys moved the case to the United States District Court for the District of
Massachusetts, Eastern Division and on May 5, 2000 the United States District
Court granted the Company's motion to compel arbitration and subsequently
entered a procedural order dismissing the Whigham's civil action without
prejudice. Although the Company expects the Whighams to initiate an arbitration
proceeding, as of the date of this filing the Whighams have not yet filed a
statement of claim or otherwise initiated arbitration.
The Whighams have alleged that, during the period from January 1999
through August 1999, their accounts were serviced by an unregistered person,
Barry Goodman, in violation of Massachusetts General Laws c.110A and that the
Company aided and abetted Mr. Goodman in violation of c.110A. The Whighams have
also made allegations of excessive trading, excessive commissions, fraud and
negligent supervision. The Whighams seek total alleged damages of $566,345 plus
interest, costs, fees and treble damages. The Company intends to present a
vigorous defense and to seek reimbursement for certain costs associated with the
Company's defense. The Company believes the allegations to be without merit;
however, there can be no assurance that the Company's defense of any future
claim will be successful.
NOTE 8 - SUBSEQUENT EVENT
On May 11, 2000, National Association of Securities Dealers, Inc.
(NASD) granted a change in business application, which enables the Company to
expand its scope and conduct a commission recapture business. The expanded
business increases the Company's minimum net capital requirement to $250,000 or
1/15 of aggregate indebtedness, whichever is greater. The Company remains well
within these regulatory required minimums and does not anticipate having any
problems meeting these requirements in the future.
7
<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
results of operations 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 months ended April 30, 2000 are not necessarily
indicative of the results for the entire fiscal year ending January 31, 2001.
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. The
Company provides financial brokerage services primarily to experienced investors
and small to mid-sized financial institutions through a variety of communication
mediums, including the Internet. While the Company's products allow clients to
trade directly over the Internet, the Company also provides a full range of
brokerage services including direct access to the various securities markets via
a computerized infrastructure. This enhances the Company's ability to obtain
the simplest, most direct execution of orders for clients at the best possible
price. In addition, as a result of the technology the Company uses, registered
representatives and clients have access to the most up-to-date electronic
information on stocks, market indices, analysts' research and news. The
Company's manner of executing trades using its computerized infrastructure
eliminates middlemen to save costs and increase investing efficiency.
RECENT DEVELOPMENTS
On January 19, 2000, the Company entered into a Merger Agreement with
Omega Research, Inc. Closing of the Merger Agreement is conditioned upon and
subject to the filing and effectiveness of a registration statement on Form S-4,
the approval of the shareholders of each of Omega Research, Inc. and
onlinetradinginc.com corp. and the satisfaction of other conditions precedent.
We anticipate the agreement to close during July. For more details regarding
the Merger Agreement please see the most recent Form 10-KSB.
RESULTS OF OPERATIONS
Three Months Ended April 30, 2000 Compared with Three Months Ended
April 30, 1999
REVENUES
Total Revenues. The Company's total revenues for the three months ended
April 30, 2000 increased 88% from $2,445,107 for the three months ended April
30, 1999 to $4,602,783 for the three months ended April 30, 2000.
8
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Commission Revenue. Commission revenue increased $1,946,758, or 95%
from $2,059,756 for the three months ended April 30, 1999 to $4,006,514 for the
three months ended April 30, 2000. The increase was the primary result of the
acquisition of Newport Discount Brokerage's clients as well as continued growth
of our customer base.
Investment Gains, net. Our proprietary trading net profits decreased
$117,234 to $197,675 for the three months ended April 30, 2000 as compared to
$314,909 for the three months ended April 30, 1999.
Interest - Revenue Sharing. Interest revenue sharing represents a
revenue sharing agreement with our clearing firm. Interest revenue sharing
increased by $70,560 to $129,158 for the three months ended April 30, 2000 as
compared to $58,598 for the three months ended April 30, 1999. 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.
Interest and Dividends. Interest and dividend income increased $257,592
to $269,436 for the three months ended April 30, 2000 as compared to $11,844 for
the three months ended April 30, 1999. The increase was 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 87%
from $2,054,626 for the three months ended April 30, 1999 to $3,842,075 for the
three months ended April 30, 2000.
Employee Compensation and Benefits. Employee compensation and related
benefits increased by $563,546, or 47%, from $1,189,208 for the three months
ended April 30, 1999 to $1,752,754 for the three months ended April 30, 2000.
Included in this amount is commissions paid to the Company's brokers which
increased $163,574 from $773,166 for the three months ended April 30, 1999 to
$936,740 for the three months ended April 30, 2000 as a result of the increased
commission revenue. We anticipate this expense to continue to increase as we
expand our business and customer base, however as a percentage of commission
revenue it should continue to decrease due to the growth in online generated
commissions. Also included in this amount is commissions paid to the Company's
traders which decreased by $36,698 to $69,393 for the three months ended April
30, 2000 due to the decrease in investment gains. In addition, the Company has
employed various customer support, back office and management staff to support
the current growth. The percentage of employee compensation and related
benefits to revenue decreased from 49% for the three months ended April 30, 1999
to 38% for the three months ended April 30, 2000.
Clearing and Other Transaction Costs. Clearing and other transaction
costs represents the cost to execute and clear customer trades. These
expenses increased $589,863, or 97%, from $610,440 to $1,200,303 as a result of
the increase in our volume of transactions and the acquisition of clients from
Newport Discount Brokerage, Inc. ("Newport"). However, as a percentage of
commission revenue for the three months ended April 30, 2000 we remained steady
at 30% as compared to the three months ended April 30, 1999.
9
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This percentage should begin to decrease with the conversion of former Newport
clients to the Company's clearing agent during May 2000.
Occupancy and Administrative. Occupancy and administrative expenses
consist primarily of telephone and communication, rent, quotes and research and
professional fees. Occupancy and administrative expenses increased $282,065 or
118%, from $239,489 for the three months ended April 30, 1999 to $521,554 for
the three months ended April 30, 2000. This increase is the primary result of
increased quote service expenses for increased business and additional offices,
telephone and communication expenses due to the increased customer activity,
leasing of additional office equipment and furniture to facilitate our
expansion, increased rent for additional space, and licenses and registrations
for the additional offices and registered representatives.
Product Development. Product development costs represent the cost to
develop our new order execution system. These costs totaled $200,204 for the
three months ended April 30, 2000.
Interest Expense. Interest expense increased $4,771 from $6,745 for the
three months ended April 30, 1999 to $11,516 for the three months ended April
30, 2000. This increase is primarily due to interest paid on a capital lease.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $147,000 from $8,744 for the three months ended April 30, 1999
to $155,744 for the three months ended April 30, 2000. The increase is primarily
due to the $134,100 of goodwill amortization related to the acquisition of
clients from Newport.
Income Taxes. The Company recorded a provision for income taxes of
$293,604 for the three months ended April 30, 2000 as compared to $150,338 for
the three months ended April 30, 1999. The effective tax rate was 39% for the
three months ended April 30, 2000 and April 30, 1999.
As a result of the above, operating results improved from net income of
$240,143 for the three months ended April 30, 1999 to net income of $467,104
for the three months ended April 30, 2000. This represents an increase of 95%.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2000, the Company had cash and cash equivalents of
$11,349,106, consisting of money market funds and short term commercial paper as
compared to $15,127,790 as of January 31, 2000.
Cash provided by operating activities was $248,564 and $345,562 for
the three months ended April 30, 2000 and 1999, respectively.
10
<PAGE>
Cash used in investing activities was $4,003,770 and $36,231 for the
three months ended April 30, 2000 and 1999, respectively. The primary use of
cash for the three months ended April 30, 2000 was for the purchase of a
treasury note as a short-term investment.
As a result, the Company had a net decrease in cash and cash
equivalents of $3,778,684 for the three months ended April 30, 2000 compared to
a net increase of $309,331 for the three months ended April 30, 1999.
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 April 30, 2000, the Company had net capital of $14,488,480,
which was $14,370,247 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 April 30, 2000, the Company had a net capital
ratio of .12 to 1. The Company remains well within the regulatory required
minimums.
On May 11, 2000, National Association of Securities Dealers, Inc.
(NASD) granted a change in business application, which enables the Company to
expand its scope and conduct a commission recapture business. The expanded
business increases the Company's minimum net capital requirement to $250,000 or
1/15 of aggregate indebtedness, whichever is greater. The Company remains well
within these regulatory required minimums and does not anticipate having any
problems meeting these requirements in the future.
The Company currently anticipates that its available cash resources,
including the net proceeds from the Initial Public Offering ("IPO") which was
effective on June 11, 1999, 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of
FASB Statement No. 133." SFAS No. 137 defers for one year the effective date of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 will now apply to all fiscal quarters of all fiscal years beginning
after June 15, 2000. SFAS No. 133 will require the Company to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. The Company will adopt SFAS No. 133 effective for the year
ending January 31, 2002. The Company believes that the adoption of SFAS No. 133
will not have a material impact on its financial statements, as it has entered
into no derivative contracts and has no current plans to do so in the future.
In March 2000, the Emerging Issues Task Force (the "EITF") reached a
consensus on Issue No. 00-2, "Accounting for Web Site Development Costs" ("EITF
Issue No. 00-2"), which applies to all web site development costs incurred for
the quarters beginning after June 30, 2000. The consensus states that the
accounting for specific web site development costs should be based
11
<PAGE>
on a model consistent with AICPA Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". Accordingly,
certain web site development costs that are currently expensed as incurred may
be capitalized and amortized. The adoption of EITF Issue No. 00-2 is not
expected to have a material impact on the financial statements of
the Company.
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, and (4) maintain its existing
customers. 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
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 11, 2000, Robert A. Whigham, Jr. and Patricia F. Whigham
filed a civil action against onlinetradinginc.com corp., Barry Goodman, Jan
Bevivino, William L. Mark and Bear Stearns Securities Corp. Our attorneys moved
the case to the United States District Court for the District of Massachusetts,
Eastern Division and on May 5, 2000 the United States District Court granted our
motion to compel arbitration and subsequently entered a procedural order
dismissing the Whighams' civil action without prejudice. Although we expect the
Whighams to initiate an arbitration proceeding, as of the date of this filing
the Whighams have not yet filed a statement of claim or otherwise initiated
arbitration.
The Whighams have alleged that, during the period from January 1999
through August 1999, their accounts were serviced by an unregistered person,
Barry Goodman, in violation of Massachusetts General Laws c.110A and that the
Company aided and abetted Mr. Goodman in violation of c.110A. The Whighams have
also made allegations of excessive trading, excessive commissions, fraud and
negligent supervision. The Whighams seek total alleged damages of $566,345 plus
interest, costs, fees and treble damages. The Company intends to present a
vigorous defense and to seek reimbursement for certain costs associated with the
Company's defense. The Company believes the allegations to be without merit;
however, there can be no assurance that the Company's defense of any future
claim will be successful.
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.
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 549,000
Increase Net Capital 1,500,000
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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
Acquisition & Non-compete Agreements 2,682,000
---------
Total use of proceeds to date $5,011,000
==========
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings (see Note 5 of notes to
financial statements.)
Exhibit 16.1 - Letter on Change in Certifying Accountant (filed with
the Securities and Exchange Commission as exhibit 16.1 to the Company's
Form 8-K on February 11, 2000.
Exhibit 27 - Financial Data Schedule
(b) Form 8-K filing during the quarter ended April 30, 2000.
The Company filed a Form 8-K, dated February 11, 2000, concerning the
change in certifying accountant.
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.
June 13, 2000 By: /s/ Andrew A. Allen
----------------------- --------------------------------------------
Date Andrew A. Allen, Chief Executive Officer
June 13, 2000 By: /s/ E. Steven zum Tobel
----------------------- --------------------------------------------
Date E. Steven zum Tobel, President and Chief
Financial Officer
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