UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _____ to ______
Commission file number: 1-14897
A.B. Watley Group Inc.
----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3911867
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(State or other jurisdiction of (IRS Employer
incorporation or organization ) Identification No.)
40 Wall Street, New York, N.Y.10005
-----------------------------------
(Address of principal executive offices)
(212) 422-1100
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(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Outstanding at
Common Stock April 28, 2000
------------ --------------
$.001 par value 7,981,745
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
A. B. Watley Group Inc.
Index
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition
March 31, 2000 (Unaudited) and
September 30, 1999 3
Consolidated Statements of Operations
Three months and six months ended
March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows
Six months ended March 31, 2000
and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis
or Plan of Operation 8
PART II - OTHER INFORMATION
Item 2. Changes in Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
A. B. Watley Group Inc.
Consolidated Statements of Financial Condition
March 31, September 30,
2000 1999
(Unaudited)
Assets
Cash and cash equivalents $ 7,247,032 $ 9,298,822
Restricted cash 524,981 513,753
Securities owned at market value 116,471 214,381
Receivables from clearing brokers 1,371,342 626,288
Property and equipment at cost, net of
accumulated depreciation of
$1,681,899 and $1,183,774 at
March 31, 2000 and September 30, 1999,
respectively 15,967,355 10,852,956
Loans receivable from related party 116,868 121,891
Deferred offering costs 19,167 21,667
Other assets 2,173,668 1,595,196
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Total assets $ 27,536,884 $ 23,244,954
============ ============
Liabilities and stockholders' equity
Liabilities:
Subordinated borrowings $ 350,000 $ 350,000
Subordinated borrowings from officer 180,000 180,000
Securities, sold not yet purchased 53,271 56,192
Notes payable, net of unamortized premium of
$167,691 and $221,697 at March 31, 2000 and
September 30, 1999 1,969,678 2,213,748
Bank loan 20,000 40,000
Deferred rent incentives 1,510,432 752,512
Accounts payable and accrued liabilities 8,087,571 3,561,563
Other liabilities 387,517 247,952
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Total liabilities 12,558,469 7,401,967
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Stockholders' equity:
Common stock, $.001 par value, 20,000,000
authorized, 7,981,745 and 7,931,745 issued
and outstanding at March 31, 2000 7,982 7,932
and September 30, 1999, respectively
Additional paid-in capital 19,028,934 18,661,749
Option costs, net (107,331) (121,331)
Accumulated deficit (3,951,170) (2,705,363)
------------ ------------
Total stockholders' equity 14,978,415 15,842,987
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Total liabilities and stockholders' equity $ 27,536,884 $ 23,244,954
============ ============
3
A. B. Watley Group Inc.
Consolidated Statements of Operations
(UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Commissions $ 10,091,323 $ 3,714,711 $ 16,734,946 $ 6,190,372
Data service revenues 461,915 291,869 974,961 567,473
Principal transactions 1,594,791 721,136 2,635,485 1,099,795
Interest and other income 547,976 68,173 893,154 116,737
Interest income - related party 1,545 1,545 3,090 3,090
--------------- --------------- --------------- ---------------
Total revenues 12,697,550 4,797,434 21,241,636 7,977,467
Interest expense 68,765 90,805 133,386 195,558
Interest expense - related party 3,750 3,750 7,500 7,500
--------------- --------------- --------------- ---------------
Net revenues 12,625,035 4,702,879 21,100,750 7,774,409
--------------- --------------- --------------- ---------------
Expenses:
Commissions, floor brokerage, and clearing charges 4,680,318 1,763,471 7,972,574 3,133,081
Employee compensation and related costs 3,163,103 1,211,450 5,509,191 2,063,792
Communications 399,994 336,556 851,450 539,904
Business development 2,426,983 218,447 3,775,923 422,142
Professional services 404,850 343,909 959,040 542,480
Occupancy and equipment costs 1,287,149 456,722 2,418,588 671,870
Depreciation and amortization 202,368 145,491 438,589 260,402
Other expenses 241,705 132,819 402,242 271,998
--------------- --------------- --------------- ---------------
Total expenses 12,806,470 4,608,865 22,327,597 7,905,669
--------------- --------------- --------------- ---------------
Income (loss) before income tax (181,435) 94,014 (1,226,847) (131,260)
Income tax provision 8,400 4,150 18,960 8,300
--------------- --------------- --------------- ---------------
Net income (loss) $ (189,835) $ 89,864 $ (1,245,807) $ (139,560)
=============== =============== =============== ===============
Basic earnings per common share $ (0.02) $ 0.02 $ (0.15) $ (0.03)
Diluted earnings per common share $ (0.02) $ 0.02 $ (0.15) $ (0.03)
Weighted average shares outstanding - basic 7,981,745 5,595,821 7,956,745 5,462,463
Weighted average shares outstanding - diluted 7,981,745 5,749,235 7,956,745 5,462,563
4
A. B. Watley Group Inc.
Consolidated Statements of Cash Flows
(UNAUDITED)
Six Months Ended
----------------
March 31, 2000 March 31, 1999
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Cash flows from operating activities
Net loss $ (1,245,807) $ (139,560)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 438,589 260,402
Non-cash compensation/service costs 33,735 129,084
Changes in assets and liabilities:
(Increase) decrease in operating assets:
Restricted cash (11,228) (507,280)
Securities owned 97,910 (58,662)
Receivables from clearing brokers (745,054) (231,330)
Loans receivable from related party 5,023 (1,545)
Other assets (588,360) (123,301)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased (2,921) 90,737
Accounts payable and accrued liabilities 2,838,240 520,484
Other liabilities 139,565 84,582
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Net cash provided by operating activities 959,692 23,611
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Cash flows used in investing activities
Purchases of property and equipment, net (3,855,332) (1,443,267)
Deferred rent incentives 757,920
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Net cash used in investing activities (3,097,412) (1,443,267)
-------------- --------------
Cash flows from financing activities
Proceeds from sale of common stock, net - 1,050,000
Proceeds from exercised stock options - 2,500
Proceeds from exercised warrants 350,000 -
Proceeds from notes payable (244,070) 900,000
Deferred offering costs - (483,873)
Repayment of bank loan (20,000) (20,000)
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Net cash provided by financing activities 85,930 1,448,627
-------------- --------------
Net increase (decrease) in cash and cash equivalents (2,051,790) 28,971
Cash and cash equivalents at beginning of period 9,298,822 970,308
-------------- --------------
Cash and cash equivalents at end of period $ 7,247,032 $ 999,279
============== ==============
Supplemental non-cash investing and financing activities
and disclosure of cash flow information
Accounts payable for purchases of property and equipment $ 1,687,768 $ 222,500
Cash paid for:
Interest $ 119,386 $ 61,474
Taxes 48,541
5
A.B. Watley Group Inc.
Notes to Consolidated Financial Statements
(UNAUDITED)
1. Organization and Basis of Presentation
A.B. Watley Group Inc. ("ABWG" or the "Company"), which was formerly known as
Internet Financial Services Inc., conducts business primarily through its
principal subsidiary, A.B. Watley, Inc. ("A.B. Watley"). A.B. Watley is a
registered broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc. ABWG is a
Delaware corporation organized May 15, 1996.
A.B. Watley is an introducing broker-dealer which conducts business in
electronic trading, information and brokerage services, as well as institutional
block trading. A.B. Watley clears all transactions through two clearing brokers
on a fully disclosed basis. Accordingly, A.B. Watley is exempt from Rule 15c3-3
of the Securities and Exchange Commission ("SEC").
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended March
31, 2000 are not necessarily indicative of the results that may be expected for
the year ended September 30, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto for the fiscal year
ended September 30, 1999 included in the Company's Annual Report on Form 10-KSB.
The consolidated financial statements include the accounts of ABWG and its
wholly-owned subsidiary, A.B. Watley. All significant intercompany balances and
transactions have been eliminated. Certain prior year amounts reflect
reclassifications to conform to current year's presentations.
2. Net Capital Requirement
A.B. Watley is subject to the SEC's Uniform Net Capital Rule 15c3-1 (the "Net
Capital Rule") which requires A.B. Watley to maintain minimum net capital such
that the ratio of aggregate indebtedness to net capital, both as defined, shall
not exceed 15 to 1. The Net Capital Rule also requires that equity capital may
not be withdrawn or cash dividends paid if A.B. Watley's resulting net capital
ratio would exceed 10 to 1. At March 31, 2000, A.B. Watley had net capital, as
defined, of $1,991,809 which was $1,634,999 in excess of its required net
capital of $356,810. The aggregate indebtedness to net capital ratio was 2.69 to
1.
6
A.B. Watley Group Inc.
Notes to Consolidated Financial Statements
(UNAUDITED)
3. Stock Options
On March 14, 2000, the stockholders approved the adoption of the Company's 1999
stock option plan. The Company has reserved 800,000 shares of common stock for
issuance upon exercise of options granted pursuant to the 1999 stock option
plan.
4. Earnings Per Share
Since the Company recognized a net loss for the three months ended March 31,
2000 and six months ended March 31, 2000 and 1999, diluted earnings per common
share is the same as basic earnings per common share for both periods. In
calculating diluted earnings per common share for the three month period ending
March 31, 1999, the Company assumed the average fair value of its common stock
during this period was $7.00 per share.
5. Notes Payable
On January 3, 2000, New York Small Business Venture Fund LLC ("NYSB") exercised
50,000 warrants equal to 50,000 shares. The warrants were issued as a result of
a $500,000 loan that the Company obtained in October 1999 and repaid from the
proceeds of the Company's initial public offering ("IPO"). The warrants were
exercised at the IPO price of $7.00 per share. NYSB continues to hold warrants
to purchase an additional 141,250 shares, which warrants expire October 2, 2003.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB. The results of operations for the three and six months ended March 31,
2000 are not necessarily indicative of the results for the entire fiscal year
ending September 30, 2000.
Results of Operations
Three months ending March 31, 2000 compared to the quarter ending March 31, 1999
REVENUES. Total revenues for the quarter ending March 31, 2000 were $12,697,550,
an increase of 165%, as compared to revenues of $4,797,434 for the quarter
ending March 31, 1999. Revenues from commissions increased by $6,376,612, or
172%, from $3,714,711 for the March 1999 quarter to $10,091,323 for the March
2000 quarter due primarily to the significantly increased number of online
trades executed as well as due to the growth in our third-market institutional
sales division. During the quarter ending March 31, 2000, the Company's online
brokerage division had total billed transactions of 449,513 and average billed
transactions of 7,135 per day, an increase of 213% compared to an average daily
billed transaction rate of 2,276 per day during the March 1999 quarter totaling
141,137 billed transactions. Data service revenues increased by $170,046, or
58%, from $291,869 for the March 1999 quarter to $461,915 for the quarter ending
March 31, 2000 due to the increase in the number of online accounts. Revenues
from principal transactions increased by $873,655, or 121%, from $721,136 for
the March 1999 quarter to $1,594,791 for the quarter ending March 31, 2000,
mainly as a function of the significantly higher volumes of business conducted
by both the online brokerage division's trading desk and the third-market
institutional sales division. Interest and other income increased from $68,173
for the March 1999 quarter to $547,976 for the quarter ending March 31, 2000.
Interest expense decreased from $90,805 for the March 1999 quarter to $68,765
for the March 2000 quarter as result of decreased borrowings.
As a result of the foregoing, net revenues increased by $7,922,156, or 168%,
from $4,702,879 for the March 1999 quarter to $12,625,035 for the quarter ending
March 31, 2000. Nearly all of our revenues were generated by clients in the
United States and no single group of related clients accounted for 10% or more
of our revenues.
EXPENSES EXCLUDING INTEREST. Total expenses increased by $8,197,605, or 178%,
from $4,608,865 for the March 1999 quarter to $12,806,470 for the quarter ending
March 31, 2000. Commissions, floor brokerage and clearing charges represent
payments to our clearing and floor brokers and to certain employees who
facilitate our clients' transactions. As a result of the large increase in the
volume of business conducted by our online clients, such expenses increased by
$2,916,847, or 165%, from $1,763,471 for the March 1999 quarter to $4,680,318
for the quarter ending March 31, 2000. Employment compensation and related costs
increased by $1,951,653, or 161%, from $1,211,450 for the March 1999 quarter to
$3,163,103 for the quarter ending March 31, 2000, largely due to the hiring of
59 new employees to service the growth in our client base. Communications
expense increased by $63,438, or 19%, from $336,556 for the March 1999 quarter
to $399,994 for the quarter ending March 31, 2000 as a function of the growth in
our online client base. The Company expects that the foregoing expenses will
continue to increase as the Company expands the client base.
Business development costs consist of advertising costs which have mostly been
for television, radio, online and print advertising to obtain new clients. These
expenses increased by $2,208,536, or 1,011%, from $218,447 for the March 1999
quarter to $2,426,983 for the quarter ending March 31, 2000 as the Company
increased its planned advertising and promotional efforts.
8
Professional services increased from $343,909 for the March 1999 quarter to
$404,850 for the quarter ending March 31, 2000 due to the general growth in our
business. Occupancy and equipment costs increased by $830,427, or 182%, from
$456,722 for the March 1999 quarter to $1,287,149 for the quarter ending March
31, 2000, primarily due to the addition of 24,000 square feet at 40 Wall Street
and the leasing of additional equipment to increase our capacity and to
facilitate the relocation efforts. Depreciation and amortization increased by
$56,877, or 39%, from $145,491 for the March 1999 quarter to $202,368 for the
quarter ending March 31, 2000 for similar reasons. Other expenses increased by
$108,886, or 82%, from $132,819 for the March 1999 quarter to $241,705 for the
quarter ending March 31, 2000 due to the Company's overall growth.
The income tax provision increased from $4,150 for the March 1999 quarter to
$8,400 for the quarter ending March 31, 2000.
As a consequence of the foregoing, our operating loss increased from a net
income of $89,864 for the March 1999 quarter to a net loss of $189,835 for the
quarter ending March 31, 2000.
Six months ended March 31, 2000 compared to six months ended March 31, 1999.
NET REVENUES. Total revenues for the six months ended March 31, 2000 were
$21,241,636, an increase of $13,264,169, or 166% as compared to revenues of
$7,977,467 for the six months ended March 31, 1999. Revenues from commissions
increased by $10,544,574 or 170% from $6,190,372 for the six months ended March
31, 1999 to $16,734,946 due primarily to the significantly increased number of
online trades executed as well as the growth in our third market institutional
sales division. During the six months ending March 31, 2000, the Company's
online brokerage division had total billed transactions of 753,686 and average
billed transactions of 5,935 per day, an increase of 70% compared to an average
daily billed transaction rate of 2,346 per day during the six months ending
March 31, 1999, totaling 443,341 billed transactions. Data service revenues also
increased by $407,488, or 72%, from $567,473 for the six months ending March 31,
1999 to $974,961 for the six months ending March 31, 2000, due to the increase
in the number of online accounts. Revenues from principal transactions increased
by $1,535,690, or 140% from $1,099,795 for the six month period ending March 31,
1999 to $2,635,485 for the six month period ending March 31, 2000, mainly as a
function of the significantly higher volumes of business conducted by both the
online brokerage division's trading desk and the third-market institutional
sales division. Interest and other income increased from $116,737 for the six
month period ending March 31, 1999 to $893,154 for the six months ending March
31, 2000.
Interest expense decreased from $195,558 for the six months ended March 31, 1999
to $133,386 for the six months ending March 31, 2000 primarily as a result of
decreased borrowings.
As a result of the foregoing, net revenues increased by $13,326,341, or 171%,
from $7,774,409 for the six months ending March 31, 1999 to $21,100,750 for the
six months period ending March 31, 2000. Nearly all of our revenues were
generated by clients in the United States and no single client or group of
related clients accounted for 10% or more of our revenues.
EXPENSES EXCLUDING INTEREST. Total expenses increased by $14,421,928, or 182%,
from $7,905,669 for the six months ending March 31, 1999 to $22,327,597 for the
six months ending March 31, 2000. Commissions, floor brokerage and clearing
charges represent payments to our clearing and floor brokers and to certain
employees who facilitate our clients' transactions. As a result of the large
increase in the volume of business conducted by our online clients, such
expenses increased by $4,839,493, or 154%, from $3,133,081 for the six months
ending March 31, 1999 to $7,972,574 for the six months ending March 31, 2000.
Employment compensation and related costs increased by $3,445,399, or 167%, from
$2,063,792 for the six months ending March 31, 1999 to $5,509,191 for the six
months ending March 31, 2000, largely due to the hiring of 30 new employees to
service the growth in our client base. Communications expense increased by
$311,546, or 58%, from $539,904 for the six months ending March 31, 2000 to
$851,450 for the six months ending March 31, 2000 as a function of the growth in
our online client base. We expect that the foregoing expenses will continue to
increase as we expand our client base.
9
Business development costs consist of advertising costs to obtain new clients,
which costs have mostly been for television, radio, online and print
advertising. These expenses increased by $3,353,781, or 794%, from $422,142 for
the six months ending March 31, 1999 to $3,775,923 for the six months ending
March 31, 2000 as the Company increased its planned advertising and promotional
efforts.
Professional services increased from $542,480 for the six months ended March 31,
1999 to $959,040 for the six months ending March 31, 2000. Occupancy and
equipment costs increased by $1,746,718, or 260%, from $671,870 for the six
months ending March 31, 2000 to $2,418,588 for the six months ending March 31,
2000, primarily due to the addition of 24,000 square feet at 40 Wall Street and
the leasing of additional equipment to increase our capacity and to facilitate
the relocation efforts. Depreciation and amortization increased by $178,187, or
68%, from $260,402 for the six months ending March 31, 1999 to $438,589 for the
six months ending March 31, 2000 for similar reasons. Other expenses increased
by $130,244, or 48%, from $271,998 for the six months ending March 31, 1999 to
$402,242 for the six months ending March 31, 2000 due to overall growth.
The income tax provision increased from $8,300 for the six months ended March
31, 1999 to $18,960 for the six months ending March 31, 2000.
As a consequence of the foregoing, our net loss increased from $139,560 for the
six months ending March 31, 1999 to a net loss of $1,245,807 for the six months
ending March 31, 2000.
Liquidity and Capital Resources
Prior to our initial public offering ("IPO"), our capital requirements exceeded
our cash flow from operations as we built our business. Since the IPO, the
proceeds from the IPO and cash flow from operations have been able to satisfy
our cash needs as we continue to build our business. Based on our current
assumptions relating to our business plan, we anticipate our capital
requirements will be satisfied by internal sources for at least six months from
March 31, 2000. If our plans change or our assumptions prove to be inaccurate,
we may need to seek additional debt or equity financing sooner than currently
anticipated or curtail our operations. If we incur debt, we will become subject
to the risks that interest rates may fluctuate and cash flow may be insufficient
to make payments on the debt.
During the six months ended March 31, 2000, the Company spent approximately
$3,000,000 for software development. We are expecting to incur an additional
$500,000 in software development costs to complete our current projects. The
Company plans to complete the current project in June 2000. These software
development efforts are related to the creation of proprietary direct access
online trading and market information software.
Cash provided by operating activities during the six months ending March 31,
2000 was $959,692. The Company had a net loss of $1,245,807 and an increase in
accounts payable and accrued liabilities of $2,838,240, other assets of
$588,360, and receivables from clearing brokers of $745,054, which was offset by
an adjustment for depreciation and amortization of $438,589 and an increase in
other liabilities of $139,565.
Cash used in investing activities was $3,097,412 during the six months ended
March 31, 2000 compared to $1,443,267 during the six months ending March 31,
1999. Uses of cash in the six months ending March 31, 2000 related to purchases
of equipment, software and leasehold improvements made in the Company's new
facility at 40 Wall Street. In addition to the cash used in investing activities
during the six months ended March 31, 2000, the Company accrued accounts payable
relating to purchases of property and equipment and leasehold improvements of
$1,687,768 during this period.
Cash provided by financing activities was $85,930 during the six months ending
March 31, 2000 compared to $1,448,627 during the six months ended March 31,
1999. Cash provided by financing activities during the six months ending March
31, 2000 consisted primarily of the exercise of warrants.
Net Operating Loss Carryforward
The Company's net operating loss carryforward expires beginning in the year
2013. The issuance of additional equity securities, together with the Company's
recent financing and public offering, could result in an ownership change and
thus could limit our use of the Company's prior net operating losses. If the
Company achieves profitable operations, any significant limitation on the
utilization of our net operating losses would have the effect of increasing our
tax liability and reducing net income and available cash reserves. We are unable
to determine the availability of these net operating losses since this
availability is dependent upon profitable operations, which we have not achieved
in periods prior to the most recent two quarters.
Relevant Accounting Standards
We generally grant stock options to employees and consultants with an exercise
price not less than the fair market value at the date of grant. We account for
stock option grants to employees in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognize no compensation expense related to option grants. In cases where we
grant options below the fair market value of the stock at the date of grant the
difference between the strike price and the fair market value is treated as
compensation expense and amortized over the vesting period of the option, if
any. Stock options granted to consultants and others instead of cash
compensation are recorded based upon management's estimate of fair
10
value of the options or the related services provided and expensed over the
vesting period, if any.
We account for income taxes under the provisions of SFAS No. 109, "Accounting
for Income Taxes." We recognize the current and deferred tax consequences of all
transactions that have been recognized in the financial statements, using the
provisions of enacted tax laws. Deferred tax assets are recognized for temporary
differences that will result in deductible amounts in future years and for tax
loss carryforwards, if in the opinion of our management, it is more likely than
not that the deferred tax asset will be realized. SFAS No. 109 requires
companies to set up a valuation allowance for the component of net deferred tax
assets which does not meet the more likely than not criteria for realization. We
have established this valuation allowance for our deferred tax assets.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
per Share." The new rules are effective for both interim and annual financial
statements for the periods ending after March 15, 1997. SFAS No. 128 supersedes
APB No. 15 to conform earnings per share with international standards as well as
to simplify the complexity of the computation under APB No. 15. The previous
primary earnings per share calculation is replaced with a basic earnings per
share calculation. The basic earnings per share differs from the primary
earnings per share calculation in that the basic earnings per share does not
include any potentially dilutive securities. Fully dilutive earnings per share
is replaced with diluted earnings per share and should be disclosed regardless
of dilutive impact of basic earnings per share. Accordingly, we have adopted
SFAS No. 128 effective September 30, 1999.
In fiscal 1999, the Company adopted SFAS No. 131, Disclosure about Segments of
an Enterprise and Related Information. SFAS No. 131 supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise. Under the new
standard, the Company is required to use the management approach to reporting
its segments. The management approach designates that the internal organization
that is used by management for making operating decisions and assessing
performance as the source of the Company's segments. Based on this approach, the
Company has determined that it operates in one reporting segment.
Year 2000 Issues
The financial markets were essentially unaffected by the issues regarding Y2K,
reporting only a few minor technical problems. The Company and its
counterparties were not adversely affected. However, we will continue monitoring
our systems and those of our vendors to ensure that there is no material
disruption to the Company's operations due to Y2K issues.
Forward Looking Statements
Certain statements contained in this report, including statements regarding the
development of services and markets and future demand for services and other
statements regarding matters that are not historical facts, discuss future
expectations or other forward-looking information. Those statements are subject
to known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from those contemplated by the statements.
Factors that might cause a difference include, but are not limited to, customer
trading activity, loss of one or more significant customers, changes in
technology, issues involved in the launch of new or modified software programs,
shifts in competitive patterns, ability to manage growth effectively, risks
associated with acquisitions including integration risks, risks associated with
strategic partnerships, various project-associated risks, substantial
competition, general economic and securities markets conditions, risks
associated with intellectual property rights, risks associated with
international operations and other risk factors listed from time to time in the
Company's filings and reports with the Securities and Exchange Commission.
11
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
On April 20, 1999, the Securities and Exchange Commission declared the Company's
Registration Statement on Form SB-2 (Reg. No. 333-71783) [the "Registration
Statement"] effective.
From the effective date of the Registration Statement through the date hereof,
the Company (i) repaid indebtedness of approximately $776,800; (ii) used
approximately $2,175,000 for leasehold improvements; (iii) used approximately
$2,742,000 for equipment and software purchases; (iv) used approximately
$918,000 for working capital; and (v) invested most of the balance of
approximately $7,300,000 in short-term money market funds. All of such payments
were made to third parties, except for the repayment of indebtedness of $100,000
to the father of Eric Steinberg, an Executive Vice President of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On March 14, 2000, the Company held its Annual Meeting of Stockholders
(the "Meeting").
(b) At the Meeting, the Company's stockholders voted on (i) the election of
the Company's Board of Directors, consisting of seven persons, (ii)
approval of the 1999 Stock Option Plan and (iii) ratification of Ernst &
Young LLP as independent accountants.
The votes for the election of Directors were as follows:
Nominee For Withheld
------- --- --------
Steven Malin 7,167,431 2,374
Harry Simpson 7,167,431 2,374
Robert Malin 7,167,431 2,374
Elizabeth Chambers 7,167,431 2,374
Mark Chambre 7,167,431 2,374
Michael B. Kraines 7,167,431 2,374
Stanley Weinstein 7,167,431 2,374
The votes for the approval of the 1999 Stock Option Plan were as follows:
For Against Withheld
--- ------- --------
4,939,138 56,007 694
The votes for the ratification of Ernst & Young LLP were as follows:
For Against Withheld
--- ------- --------
7,168,290 1,091 424
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report:
None.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
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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.
Date: May 15, 2000
A. B. WATLEY GROUP INC
By: /s/ Steven Malin
--------------------
Steven Malin
Chairman, Chief Executive Officer
By: /s/ Joseph M. Ramos, Jr.
----------------------------
Joseph M. Ramos, Jr.
Chief Financial Officer
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