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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of Securities Exchange Act of 1934
FREEREALTIME.COM, INC.
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(Exact Name of Small Business Issuer in Its Charter)
Colorado 84-1408716
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3333 Michelson Drive, Suite 430, Irvine, California 92612
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(Address of Principal Executive Offices) (Zip Code)
(949) 833-2959
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Issuer's Telephone Number, Including Area Code
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common
Stock, no par value
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PART I
We have elected to file the information required by Alternative 3 of Form
10-SB and are filing this Form 10-SB on a voluntary basis to:
. provide current, public information to the investment community;
. to expand the availability of secondary trading exemptions under
the Blue Sky laws and thereby expand the trading market in our
securities; and
. to comply with prerequisites for quotation of our securities on
the Over-the-Counter Bulletin Board.
Item 1. Description of Business
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We are a Web-based provider of real-time financial market information
services and analytic tools. Through our Freerealtime.com Web site, we strive to
be a "one-stop" portal for real-time financial information by offering free,
real-time stock quotes and value-added content, including news, market
commentary, company research, and analytic tools such as charting and portfolio
stock tracking. We completed our fiscal year ended March 31, 1999 ("Fiscal
1999") with over 500,000 registered users, a portion of whom hit our site ("page
views") approximately 103 million times in March 1999. Our Web site traffic has
grown each quarter since the commencement of our service in February 1998. As of
March 31, 1999, we experienced in excess of 50% sequential growth in page views
from the fiscal quarter ended December 31, 1998 when we had approximately
353,000 registered users, along with approximately 64 million page-views for the
month of December 1998. Subsequent to the end of Fiscal 1999, we continued to
realize significant growth for the first quarter of Fiscal 2000, ended June 30,
1999, as we had over 660,000 registered users, serving approximately 136 million
page-views in June 1999. A majority of our page views are real-time quotes. The
Freerealtime.com Web site is offered free of charge to our registered users and
the sale of advertising represents our primary source of revenue from this Web
site.
We also own and operate the Web site, BullSession.com, where we offer
active investors a subscription service of "streaming" real-time quotes and
dynamically updating stock portfolios. Our subscriber count on this Web site has
also shown significant sequential quarterly growth during Fiscal 1999.
BullSession.com finished Fiscal 1999 with over 3,500 subscribers, up from
approximately 1,700 at the end of December 1998. By the end of June 1999,
BullSession.com had over 4,700 subscribers. Our source of revenue from the
BullSession.com Web site is the sale of subscriptions at monthly prices ranging
from $26 to $50.
Corporate History
Freerealtime.com, Inc. is the result of a merger between Pub Singin', Inc.,
a Colorado corporation ("Pub Singin") and First International Financial
Corporation, a Delaware corporation ("FIFC-Delaware"). The two companies merged
in September 1998 (the "Merger"). Immediately prior to the Merger, Pub Singin
changed its name to "Freerealtime.com" and Freerealtime.com became the surviving
entity in the merger. Pursuant to the merger agreement, all shares of FIFC-
Delaware were exchanged for shares of Freerealtime.com with the result that,
following the Merger, the former stockholders of FIFC-Delaware held
approximately a 90% controlling interest in Freerealtime.com. Pub Singin was
formed on May 3, 1989 under the laws of the State of Colorado for the purpose of
publishing and marketing song sheets. From inception through the merger with
FIFC-Delaware, Pub Singin had no material business or financial results of
operations. Our historical business began in Canada through First International
Financial Corporation, an Alberta corporation ("FIFC-Alberta"). FIFC-Alberta,
through a predecessor corporation, was formed in July 1994 under the laws of
Alberta, Canada by our founder Brad Gunn. FIFC-Alberta commenced business
operations in January 1996, when it initiated the sale of capital stock in
private placement transactions and began to develop its historical Internet
business. Mr. Gunn formed First
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International Financial Corporation, a Delaware corporation ("FIFC-Delaware")
on June 25, 1997 under the laws of the State of Delaware under the name First
International USA Corp. with the intent of moving the business of FIFC-Alberta
into the United States. FIFC-Delaware did not have any business operations until
July 31, 1998 when FIFC-Delaware acquired all of the outstanding capital stock
of FIFC-Alberta from the stockholders of FIFC-Alberta in exchange for the
issuance of shares of common stock of FIFC-Delaware. As a result of the
foregoing acquisition, FIFC-Alberta became a wholly-owned subsidiary of FIFC-
Delaware. See Risk Factors--Risks Related to Our Business--Historical
Transactions.
Industry Background
The Web as a New Medium. The Web has rapidly become a significant global
medium for communications, news, information and commerce. International Data
Corporation, a leading provider of information technology data, analysis and
consulting, has estimated that the number of individuals worldwide with access
to the Internet will reach approximately 200 million by the end of 1999, of
which 125 million will be accessing the Web. This growth is being driven by a
number of factors, including:
. a growing base of personal computers, or PCs, in the home and workplace;
. improvements in network infrastructure;
. more convenient, faster and inexpensive Internet access;
. advances in PCs and modems;
. increases in the quantity and quality of content available on the Web;
and
. the overall increase in public awareness of the Web.
The Web allows a broad range of users to easily access information on the
Internet and interact with individuals or organizations offering textual,
graphical and other information. With an increasing number of Web users both in
the U.S. and internationally, the Web has emerged as a new mass communications
medium. The ease and speed of publishing, distributing and communicating text,
graphics, audio and video over the Web has led to a proliferation of Internet-
based services.
The emergence and exponential growth of the Web as a mainstream consumer
medium is creating opportunities for marketing, sales, distribution, publishing
and communication for virtually any organization that has the skills and tools
to present their message over the Internet. Through the Web, companies can
deliver timely, personalized content in a manner not possible through other
media. Using the Web, corporate and financial-related information can be
continuously updated, distributed to a vast number of users on a real time
basis, and accessed by users at any time. The Web offers an exciting medium for
corporate and financial-related content because of the capacity for the
combination of graphics, audio and video elements. The interactive nature of the
Web further allows the consumer to access information tailored to the individual
user's preferences and system requirements and facilitates online electronic
trading and purchasing of relevant financial goods and services.
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The Web has also become an attractive medium for advertisers, offering a
level of targetability, flexibility, interactivity and measurability not
available in traditional media. With Internet advertising, advertisers have the
ability to gather demographic information and target their messages to specific
groups of consumers as well as change their advertisements frequently in
response to market factors, current events and consumer feedback. Moreover,
advertisers can more accurately track the effectiveness of their advertising
messages by receiving reports of the number of advertising "impressions"
delivered to consumers, and the resulting "hit" or "click through" rate to their
Web sites.
Demand for Business News and Financial Programming.
A number of trends have led to increased demand for comprehensive business
news and financial programming in all forms of media:
. Individuals are proactively managing their money and the American public
is investing an increasing percentage of their household wealth in
securities;
. The emergence of online trading of financial instruments has led many
investors to rely less on traditional brokers; and
. U.S. companies are competing globally, requiring increased real-time
knowledge of a broad range of financial information from around the
world.
According to data compiled by International Data Corporation, since online
brokerage services on the Internet first arrived in 1996, the number of online
brokerage accounts has increased from 1.5 million at the end of 1996, to 3.5
million at the end of 1997 and 6.4 million at the end of 1998 (representing
approximately $324 billion in assets). Online trading is estimated to have
reached an average of over 499,000 trades per day during the first quarter of
1999, and now accounts for an estimated 25% of all retail stock trades in the
U.S. Forrester Research, a publicly traded independent research firm which
provides analysis of a range of technology industries, predicts that the number
of online brokerage accounts will increase to 14.4 million by 2002.
Driven by these factors, numerous traditional and online information
sources such as newspapers, magazines, broadcasters and specialized financial
Web sites are seeking to address the demand for timely and relevant financial
information. However, these companies are often unable to effectively meet
consumers' needs for high-quality, compelling and relevant, real-time business
information. Newspapers and magazines cannot offer real-time data and
information, and broadcasters are limited in the depth and availability of their
content. Unlimited access to up-to-the-second information is critical for making
timely and profitable investment decisions.
We believe that a significant opportunity exists for a company to provide
an easy to access portal for real-time financial market information, financial
services and financial tools. By integrating real-time market information with
the best available financial tools, content and commentary, a Web-based service
can enable its audience to keep abreast of current business developments, track
industry and competitive trends, make informed, timely investment decisions and
manage their financial assets. We believe that by assembling a loyal base of
users who actively follow business and financial news, a Web site may be able to
create a targeted and demographically desirable audience that is attractive to
financial and non-financial advertisers, as well as have a significant
opportunity to sell related subscription services to such users.
The Company Strategy
Through our Freerealtime.com Web site, we are a leading Web-based provider
of free, real-time financial market data, financial programming, including news
and research, analytic tools and financial services. Freerealtime.com completed
June 1999 with over 660,000 registered users, a portion of whom hit our site
approximately 135 million times that month, causing in excess of 6 million page
views per market day.
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Our primary strategy is to develop a large and loyal community of users by
offering free stock quotes and other financial tools and content. As our user
base continues to grow, we are developing a sizeable audience with demographic
attributes that is attractive to advertisers and we expect to continue growing
our revenues through the sale of advertising. As a related strategy, we intend
to market subscription-based tools and services, as well as certain financial
transaction services, to our community of users. We currently generate, and
expect to experience growth in, revenues from these related strategies through
(i) the ownership of certain subscription-based tools and services, including
our BullSession.com dynamically updating portfolio management tool, and (ii)
revenue sharing and fee participation contracts with third party owners and
providers of subscription and transaction services. The specific elements of our
strategy include:
FREE FINANCIAL CONTENT & TOOLS. Freerealtime.com is the primary site
through which we will develop our brand as a leading provider of easy to use,
real-time financial information. The business model of our free site is driven
by the sale of advertising ("ads"); accordingly, our near-term strategies focus
on growing our audience with attractive demographics and include the following
specific elements:
BUILD TRAFFIC AND AUDIENCE LOYALTY. We intend to build our customer
base and page view traffic by expanding the financial content, tools and
services that we offer on our Web site. In addition to providing valuable
real-time market data for free, we intend to provide our members with free
real-time news, commentary, and analysis from quality third party
providers, such as Reuters and Briefing.com, as well as from proprietary
content that we develop, such as our stock watch and portfolio management
tools. We also plan continued development of community features such as our
"Stock Talk" message boards and free e-mail services, which we believe lead
our members to remain on our site longer and return more often.
DEVELOP "CO-BRAND," WEB-HOSTING AND OTHER MARKETING PROGRAMS. We are
actively pursuing "co-branding" contractual relationships with other high
traffic Web sites pursuant to which we produce and market a co-branded page
of content or tools with the co-brand partner. Such relationships build
users, site traffic and brand awareness for both parties, as well as,
typically generate revenue for us through ad sales and fee sharing
arrangements. We have a number of co-brand agreements, including agreements
entered subsequent to the end of Fiscal 1999, with various Web sites,
including BigCharts.com, Zacks.com, Infospace.com, MarketGuide.com,
JAGNotes.com, Telescan.com, WallstreetCity.com, INVESTools.com, and
Go2Net.com. Additionally, we will continue to rely on "cost effective"
marketing programs such as customer referrals, e-mail marketing campaigns
and free publicity. Upon the availability of additional capital resources,
we intend to initiate advertising of Freerealtime.com both on and off the
Internet.
BUILD AND CAPITALIZE ON ATTRACTIVE AUDIENCE DEMOGRAPHICS. We believe
our Web site attracts users who, as a group, are more affluent and better
educated than users of many other Web sites and therefore present an
attractive medium for companies that advertise and engage in commerce over
the Internet. Through data gathered from users who register for real-time
quotes and from periodic surveys, we have knowledge of and track user
activity on our Web site so that we can provide advertisers with detailed
demographic and other information that allows the advertisers to target
specific groups and tailor their advertisements to our users. We believe
this strategy will help attract new advertisers and increase the sales
prices we receive for our ad impressions, referred to as cost-per-thousand
("CPMs").
SUBSCRIPTION-BASED INFORMATION SERVICES & ANALYTIC TOOLS. We market monthly
subscriptions for certain value-added content and tools to our large community
of users on our free Web site. Our strategy to grow our subscription users and
revenues includes the following elements:
EXPAND VALUE-ADDED CONTENT. We are actively pursuing the addition or
development of more subscription-based services in order to expand the
collection of such services that we offer beyond our BullSession.com site,
where we offer active investors a subscription service of "streaming" real-
time quotes and dynamically updating stock portfolios. We plan to expand
these services through internal
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development, acquisition, and marketing and license relationships. Our
current BullSession.com site had over 4,700 subscribers at the end of June
1999, and we have a second-generation service under development that we
plan to introduce during Fiscal 2000. Subsequent to the end of Fiscal 1999,
we entered into certain agreements under which we will market subscriptions
and share in ongoing subscription revenue, including subscription services
related to market commentary and analysis with JAGNotes.com and
INVESTools.com, and stock screening and technical analysis with
Telscan.com's ProSearch technology and WallStreetCity.com.
DRIVE SUBSCRIPTION GROWTH WITH MARKETING PROGRAMS. We intend to drive
subscription growth by "upselling" and cross-marketing our large community
of users, moving them from our high traffic Freerealtime.com site to our
BullSession.com service and other affiliated subscription services. During
Fiscal 1999 we extensively advertised BullSession.com on our free Web site
and we believe this marketing program contributed to our substantial growth
in subscribers. We also plan to expand our co-marketing contracts, such as
we have with JAGNotes.com, INVESTools.com, and Telescan.com, pursuant to
which one or both parties markets our respective subscription services to
new users and we share in the resulting revenues and fees.
ONLINE FINANCIAL TRANSACTION SERVICES. Similar to our strategies for
subscription services, we are pursuing opportunities to sponsor certain
transaction services and capabilities to our users and to participate in the
resulting transaction fees. Our strategies are based around "alliance" marketing
opportunities and include:
DEVELOP TRANSACTION FEE OPPORTUNITIES. We believe that our customers
often use our free and subscription content and services as "decision
tools" supporting a transaction event, including, for example, the purchase
or sale of securities, insurance, banking and other financial products and
services. We believe the fees realized by third parties from transactions
with our customers are substantial, and we plan to enter into fee
participation arrangements by sponsoring and promoting such third party
transaction providers on our Web sites.
EXPAND TRANSACTION SERVICES ALLIANCES. We are currently pursuing
marketing alliances to direct or network our customer's transaction
activity to particular third party providers in exchange for a
participation in the resulting transaction fees. This strategy allows us to
minimize the significant investment expenditures necessary to develop and
operate transaction capabilities. We have recently entered into a letter of
intent with Herzog, Heine & Geduld, Inc. to offer Web-based equities
trading on the Freerealtime.com Web site. Such transaction services will
initially be aimed at qualified small institutional investors and may be
expanded in the near term to include retail transaction services, however
there can be no assurance that a definitive agreement will ever be reached.
We are also pursuing an alliance agreement with DirectQuote.com pursuant
to which we hope to offer our members the ability to receive a quote and
apply for and obtain life insurance.
Products
The Freerealtime.com Web Site
Our Freerealtime.com Web site provides unlimited, free, real-time stock
quotes. Through this site we also offer business and company news, market
statistics and commentary, fundamental company information and research, and
certain free analytic tools such as community "stock talk," charting and
portfolio stock tracking. We believe that offering comprehensive business news,
financial programming and analytic tools is critical to our success because the
combination of these services enables us to increase audience loyalty, average
usage time and repeat visits while also creating a sense of community.
Freerealtime.com completed Fiscal 1999, ended March 31, 1999, with over
500,000 registered users, a portion of whom hit our site ("page views")
approximately 103 million times in March 1999. Our Web site traffic has shown
significant sequential quarterly growth since the commencement of our service in
February 1998, including in excess of 50% sequential growth of page views from
the third fiscal quarter ended December 31, 1998 when we had
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approximately 353,000 registered users, along with approximately 64 million
page-views for the month of December 1998. Subsequent to the end of Fiscal 1999,
we continued to realize significant growth for the first quarter of the fiscal
year ended March 31, 2000 ("Fiscal 2000"), as we had over 660,000 registered
users, serving approximately 136 million page-views in June 1999. A majority of
our page views for each fiscal period have been real-time stock quotes. The
Freerealtime.com Web site is offered free of charge to our registered users and
the sale of advertising represents our primary source of revenue from this Web
site.
The Freerealtime.com Web site provides stock quotes from all major U.S.
stock markets (the "Exchanges"). These quotes are offered in real time. Through
these stock quote pages, our audience can access other valuable information
about a particular company, including stories from several news services, SEC
filings and annual reports, summaries of analysts' information and a variety of
fundamental and technical information. In addition to a wide variety of data on
specific securities, including trading share and dollar volume information, bid
and ask quotes and size, relative indices, stock split information and other
data, the Freerealtime.com Web site also provides information as to various
market and industry indices, commodity, options and currency markets.
The Freerealtime.com Web site aggregates numerous news feeds from around
the world, sorts and organizes articles according to industry, company, and type
of news. Our news feeds include BusinessWire, PRNewswire, Reuters, Associated
Press and United Press International. Commentary is provided by Comtex News,
Reuters, RealtimeTraders.com and Zacks Investment Research and is updated
throughout the day. Subsequent to the end of Fiscal 1999, we entered agreements
to provide additional market and company commentary and analysis from
JAGNotes.com, INVESTools.com, and WallStreetCity.com.
We believe that providing a place for our audience, financial journalists
and experts in the financial world to meet and share ideas about investing will
help increase our brand awareness, as well as motivate our users to return
frequently to spend more time on our Web site. Additionally, because we intend
to integrate related news, market data and charts offered throughout our
service, community members will be able to form niche user groups around their
specific interests, which can be targeted with relevant marketing campaigns and
transaction opportunities. In addition, by integrating other content with these
community features, community members will be exposed to other areas of the
site, increasing the awareness of the breadth of our programming and other
services.
The BullSession.com Web Site
While all the programming available on Freerealtime.com is currently free
of charge, a core element of our corporate strategy includes providing
subscription-based financial content and investment tools to sophisticated
investors through affiliated Web sites. Our initial entry into subscription
services, BullSession.com, is a trader's portfolio management tool that features
"streaming" real-time, ticker-tape quotes and dynamically updating stock
portfolios. BullSession.com also provides other value-added financial content,
including business and company news, company fundamentals, charting, detailed
quotes, exchange statistics and options listings.
Our subscriber count on this Web site realized significant sequential
quarterly growth during Fiscal 1999. BullSession.com finished Fiscal 1999 with
over 3,500 subscribers, up from approximately 1,700 at the end of December 1998.
By the end of June 1999, BullSession.com had over 4,700 subscribers. Our source
of revenue from the BullSession.com Web site is the sale of subscriptions at
monthly prices ranging from $26 to $50, with an average of $32 per month.
The central feature of the BullSession.com service is the sophisticated
TickerTracker(TM) which allows a subscriber to monitor a custom set of
portfolios consisting of stocks and indexes. Each portfolio is continuously
updated with real-time trading information and subscribers can view a variety of
information, including best bid and offer, last sale, trade volume, day high-
low, 52 week high-low, time of last sale, price targets, and company name.
TickerTracker also performs portfolio management and analytical functions,
including calculating the profit/loss position on a given stock or a given
portfolio. Users may also display their portfolios in a scrolling
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stock ticker tape format where the stock symbol and last price scroll by in a
small window that can be running at the same time as other software on the
subscriber's computer screen.
The Detailed Quotes screen allows users to query more detailed historical
data such as P/E ratios, 52-week high and low, and dividend and earnings
information. The Exchange Statistics screen allows users to query a variety of
reports on each exchange (e.g., most active, percent gainers, dollar amount
gainers, etc.). The Option Listings screen allows users to query detailed
information about the options offered on a given security.
Other Products and Services
Subsequent to the end of Fiscal 1999, we have continued to pursue our
strategies to add content and tools to our Freerealtime.com Web site as well as
to develop or add subscription and transaction services. We have recently
entered "co-branding" agreements with several parties to enhance our community
services with free e-mail from Critical Path.com, and to add free content to our
Web site in the areas of market and company commentary and analysis from
JAGNotes.com and WallStreetCity.com, investment advisory newsletters from
INVESTools.com, and stock screening, searching and technical analysis from
Telescan.com. We are in the process of developing and launching these co-branded
pages and we can give no assurance that these relationships will help increase
our users, site traffic and brand awareness or that they will result in revenue
for us through the ad sales and fee sharing arrangements.
We also have pursued a number of new initiatives in subscription and
transaction services since the end of Fiscal 1999. We are developing a second-
generation BullSession tool that we expect to complete and introduce in Fiscal
2000. We have entered into several marketing and license contracts through which
we expect to realize a share of subscription revenues derived from our marketing
activities. Apart from the free content co-branding arrangements noted in the
paragraph above, we have agreements with JAGNotes.com, INVESTools.com, and
Telescan.com, pursuant to which we will market and sell subscriptions to their
respective subscription services and share in the resulting subscription
revenues and fees. We also have entered into an agreement with
WallStreetCity.com under which they will license a private label version of our
BullSession.com service and we will share in revenues that they generate from
the sale of subscriptions. Additionally, we have entered into a letter of intent
to launch an "order entry portal" through a joint effort with Herzog, Heine &
Geduld, Inc. to offer equities transaction services for qualified small
institutional investors. We are in the process of developing and launching these
license and marketing subscription and transaction services and we can give no
assurance that these relationships will help increase our subscribers and
transactions or that they will result in revenue for us through the subscription
sales and transaction fee sharing arrangements.
Advertising Sales on Freerealtime.com
We are focused on providing our advertisers with a large, demographically
desirable audience. We believe that our Web site attracts users who as a group
are more affluent and better educated than users of many other Web sites and
therefore represent an attractive medium for companies that advertise and engage
in commerce over the Internet. Advertisements are displayed on every page view
on our Web site, including when a user enters the service, reviews a news story,
accesses a quote or views a stock message board.
In March 1999, the final month of Fiscal 1999, we entered into an agency ad
sales contract with AdSmart, Inc., a company owned by CMGI, Inc., to represent
our Web site to advertisers and media buyers. Since that time, we have realized
average monthly growth rate of over 275% in advertising sales through June 30,
1999 as a result of both AdSmart's efforts and those of our in-house ad sales
force. Prior to AdSmart, we primarily utilized other ad sales firms and networks
to sell our ad impression inventory. Subsequent to the end of Fiscal 1999, we
have been expanding an in-house ad sales team, and expect that in-house ad sales
will represent a growing proportion of our total ad sales.
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We currently derive, and expect to continue to derive, a substantial
majority of our revenue on our free Web site from the sale of advertising and
sponsorships. Currently we offer the following advertising options on the
Freerealtime.com Web site:
. Run of Site. Run of site rotations are banner advertisements that rotate
on a random basis throughout the Freerealtime.com Web site, appealing to
advertisers seeking to establish general brand recognition across
Freerealtime.com's audience. Run of site rotations are typically sold in
blocks of 1,000 impressions and with a minimum of 100,000 guaranteed
impressions over the life of the advertising contract.
Freerealtime.com's current CPM rate for run of site rotations ranges
from $2 to $25 depending on length of contract and number of impressions
purchased. Subsequent to the end of Fiscal 1999, we added a second
banner ad at the bottom of each page view, but to date have used such
bottom banner for internal promotion and have not sold a significant
number of bottom banner impressions to outside advertisers.
. Targeted Advertisements. Targeted advertisements are banner
advertisements that are displayed when a user browses through specific
quote or other content pages, allowing advertisers to target users based
on page view interest and activity, region or country, time of day,
frequency of use, Internet Service Provider, type of operating system or
browser. Because every user of Freerealtime.com is a registered member
in our database, we can effectively target advertising to each
individual member. Like run of site rotations, targeted advertisements
are sold in blocks of 1,000 impressions. Due to the greater selectivity
of the audience and because users typically spend more time on non-quote
content pages than on quote pages, Freerealtime.com's current rates for
targeted advertisements are generally higher than run of site rotations.
During Fiscal 1999, the substantial majority of our ad impressions were
not sold as targeted ads. In August 1999, we re-launched an improved and
revised Freerealtime.com Web site, which included certain technical
enhancements to facilitate the sale of targeted ads.
. Sponsorships. Sponsorships allow advertisers to gain maximum exposure on
the Web site by featuring "buttons" and "boxes" on certain pages. For
example, the online brokerage services of Datek and Ameritrade have had
advertisements placed in fixed positions within our Web site allowing
users to move directly to the advertiser's site to establish an account
or place an order. We offer sponsorship opportunities throughout our
entire site. Sponsorships are usually a fixed monthly fee over the life
of the contract and may include other advertising components such as
general rotation or targeted banner advertisements. Subsequent to the
end of Fiscal 1999, we expanded the number of sponsorship buttons per
page view from two to six.
Historically, our advertisers have been from technology and financial
services industry, but we have recently attracted advertisers from brands
outside of these industries. We believe that attracting additional advertisers
from businesses outside of the financial and technology industries is important
to our future success and revenue growth.
Marketing and Distribution
We are seeking to establish the Freerealtime.com brand as one of the Web's
leading providers of free real time market data and financial content and tools,
and subscription and transaction services. Despite the lack of capital resources
to fund a media-based advertising campaign, we experienced substantial growth
during Fiscal 1999 in the number of users and page view traffic on our Web
sites. The substantial increase in the number of users on the site was primarily
due to a higher level of awareness of our Web sites by users of the Internet,
which we believe is a result of user referrals, the appearance of our Web sites
in the query lists of "search portal" Web sites, favorable publicity received
for both Freerealtime.com and BullSession.com, and user traffic from our web-
hosting and co-branding relationships. Due to limited capital resources we did
not expend material amounts on advertising of our Web sites during Fiscal 1999.
Upon the availability of capital resources, we intend to increase advertising
and marketing expenditures to continue to build brand awareness, users and
traffic on our Web sites.
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Our current primary marketing and distribution strategy consists of
actively pursuing Web-hosting and "co-branding" contractual relationships with
other high traffic Web sites. Such relationships build users, site traffic and
brand awareness for both parties, as well as, typically generate revenue for us
through ad sales or fee sharing arrangements. In these relationships, we and the
co-brand partner produce and market a co-branded page of content or tools, with
the parties, as negotiated, assuming responsibility for web-hosting operations,
programming production, subscription or advertising sales, and other
administrative functions. Currently, we have a number of co-branded arrangements
and contracts, including BigCharts.com, Zacks.com, Infospace.com,
MarketGuide.com, JAGNotes.com, Telescan.com, WallstreetCity.com, INVESTools.com,
and Go2Net.com. Additionally, until we can afford a significant advertising
campaign, we will continue to rely on other "cost effective" marketing programs
such as customer referrals, e-mail marketing campaigns and free publicity.
Infrastructure, Operations and Technology
The data center and network operations for our Web sites are currently
outsourced to a third party "co-location" firm, Exodus Communications, Inc., who
operates data centers for us in two locations: Jersey City, New Jersey and
Irvine, California. Freerealtime.com utilizes multiple Web servers running Sun
Microsystems Solaris 2.6 operating system and Apache Web Server. Internet access
is maintained by Exodus through multiple OC3 connections with four different
tier one backbone providers. The systems running the Web site are powered by
multiple uninteruptible power supplies backed up with multiple diesel power
generators. Full site redundancy is handled by Cisco's Global Director and
multiple Cisco Local Directors.
All of our market data serving software was created by and is owned by
Freerealtime.com. We are expanding our internal development group to create new,
and enhance existing, services, tools and features. We also utilize third party
technology for certain sections of our site, for example BigCharts for our
charting capability.
We obtain most of the information on our Web sites from suppliers of market
data and financial programming. Key contractual supply relationships include
quote and market data from the U.S. stock Exchanges, datafeed services from S&P
Comstock, and news programming from Comtex and Reuters. We depend on these
information providers to provide information and data feeds on a timely basis.
Our Web site could experience disruptions or interruptions in service due to the
failure or delay in the transmission or receipt of this information. Our
contracts with these information providers generally provide for payments based
on our volume of traffic on our Web sites, such as number of users or volume of
real-time quotes. The rapid growth in traffic on our Web sites has caused our
expenses for services from these suppliers to grow faster than the availability
of cash from revenues and internal operations or from external capital
contributions. Subsequent to the end of Fiscal 1999, certain of these data and
operations costs decreased substantially on a per-page view basis. In the first
quarter of Fiscal 2000 ending June 30, 1999, the NASDAQ reduced market data fees
by approximately 50%, and the NYSE and AMEX have announced similar fee
reductions that are expected to take effect prior to the end of Fiscal 2000.
Additionally, we renegotiated and amended our datafeed and co-location provider
contracts to result in significant reductions in our per-page view costs for
these services. Despite these declines in our unit costs, we anticipate that
these costs will continue to increase over the foreseeable future as we realize
growth in the users and page views on our Web sites. As of the date hereof, we
believe we have satisfactory relationships with all our suppliers of market data
and financial programming. For a more detailed discussion see Management's
Discussion and Analysis--Cost of Revenues.
Our market is characterized by rapidly changing technology, evolving
industry standards and frequent new product announcements. These are exacerbated
by the recent growth of the Web and the intense competition in our industry. To
be successful, we must adapt to our rapidly changing market by continually
improving the performance, features, and reliability of our services. We could
incur substantial costs if we need to modify our services or infrastructure in
order to adapt to these changes.
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Intellectual Property
We rely primarily on a combination of copyrights, trademarks, trade secret
laws, our user policy and restrictions on disclosure to protect our intellectual
property, such as our content, trademarks, trade names and trade secrets. We
plan to enter into confidentiality agreements with our employees and consultants
to control access to and distribution of our other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the content on our Web site or our other intellectual
property without authorization. There can be no assurance that these precautions
will prevent misappropriation or infringement of our intellectual property. A
failure to protect our intellectual property in a meaningful manner could have a
material adverse effect on our business, operating results and financial
condition. In addition, we may need to engage in litigation in order to enforce
our intellectual property rights in the future or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of management and other resources, either of
which could have a material adverse effect on our business, operating results
and financial condition.
We also license certain data and content from third parties. In these
license agreements, the licensors have generally agreed to defend, indemnify and
hold us harmless with respect to any claim by a third party that the licensed
software or content infringes any person's proprietary rights. There can be no
assurance that the outcome of any litigation between such licensors and a third
party or between us and a third party will not lead to royalty obligations for
which we are not indemnified or for which such indemnification is insufficient,
or that we will be able to obtain any additional license on commercially
reasonable terms if at all. In the future, we may seek to license additional
technology or content in order to enhance our current features or to introduce
new services. There can be no assurance that any such licenses will be available
on commercially reasonable terms, if at all. The loss of or inability to obtain
or maintain any of these technology licenses could result in delays in
introduction of new services until equivalent technology, if available, is
identified, licensed and integrated, which could have a material adverse effect
on our business, results of operations and financial condition.
There can be no assurance that infringement or other claims will not be
asserted or prosecuted against us in the future whether resulting from our
internally developed intellectual property or licenses or content from third
parties. Any future assertions or prosecutions could materially adversely affect
our business, results of operations and financial condition. Any such claims,
with or without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel or require us to introduce new
content or trademarks, develop non-infringing technology or enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may
not be available on acceptable terms, if at all. In the event of a successful
claim of infringement and our failure or inability to introduce new content or
trademarks, develop non-infringing technology or license the infringed or
similar technology on a timely basis, our business, results of operations and
financial condition could be materially adversely affected.
Government Regulations
There are currently few laws or regulations that specifically regulate
communications or commerce on the Web. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting certain types of
information and content over the Web. Several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet Service
Providers and online services providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. This could
increase the cost of transmitting data over the Internet. Moreover, it may take
years to determine the extent to which existing laws relating to issues such as
property ownership, libel and personal privacy are applicable to the Web. Any
new laws or regulations relating to the Web could adversely affect our business.
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Research and Development
For fiscal year ended March 31, 1999, we spent $60,000 on product
development. Our primary focus has been software and system development. For a
more detailed discussion see Management's Discussion and Analysis--Operating
Expenses--Product Development.
Employees and Consultants
As of June 1, 1999, there were 15 personnel dedicated to our business,
seven of whom worked in product and content development, two in sales and
marketing, three in customer support, and three in management and
administration. We have also contracted with three consulting executives to
advise in the management of the Company. We have never had a work stoppage and
we consider our employee relations to be good.
We believe that our future success will depend in part on our continued
ability to attract, integrate, retain and motivate highly qualified sales,
technical, and managerial personnel, and upon the continued service of our
senior management and key sales and technical personnel. None of our personnel
is bound by an employment agreement that prevents such person from terminating
his or her relationship at any time for any reason. Competition for qualified
personnel is intense, particularly in the Irvine, California area, where our
headquarters are located. At times we have experienced difficulties in
attracting new personnel. There can be no assurance that we will successfully
attract, integrate, retain and motivate a sufficient number of qualified
personnel to conduct our business in the future.
Reports to Security Holders
Following the effectiveness of this Form 10-SB, we will be subject to the
informational requirements of the Securities Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, we will file reports, proxy
statements, and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, proxy statements
and other information filed electronically by us.
Risk Factors
Risks Related to Our Business
OUR LIMITED OPERATING HISTORY. We were incorporated in the state of
Colorado on May 3, 1989 under the name Pub Singin', Inc. and had no prior
operations and no assets other than the initial capitalization provided by Pub
Singin's founders. On or about August 27, 1998, we entered into an agreement of
merger with First International Financial Corporation, a Delaware corporation,
("FIFC") by which we acquired, among other things, all right, title and interest
in FIFC's Web sites Freerealtime.com and BullSession.com. Immediately prior to
the merger we changed our name to Freerealtime.com, Inc. The Web sites are at
early stage of development, as they did not begin significant operations until
February 1998. Accordingly, we have a limited history upon which an evaluation
of our prospects can be made. Stockholders in our company must consider the
risk, expenses and difficulties frequently encountered by early stage companies
in new and rapidly evolving markets, including Web-based financial information
companies. There can be no assurance that we will be able to achieve profitable
operations.
HISTORICAL TRANSACTIONS. Prior to the acquisition of FIFC-Alberta, FIFC-
Delaware had intended to file an amendment to its Certificate of Incorporation
to change its name and to increase its authorized capital stock. It failed to
make these filings and, as a result, certain stockholders received shares of
common stock in a corporation that had not legally changed its name and which
were in excess of the amount of shares of common stock authorized by the
Certificate of Incorporation of FIFC-Delaware. As a further result, we needed to
make certain corrective filings with respect to the name change and the Merger
with Colorado and Delaware. We discovered FIFC-Delaware's failure to make these
filings during the preparation of this report and the Company has since made the
required corrective state filings. The former stockholders of FIFC-Alberta have
approved the necessary corrective actions.
RELIANCE ON MANAGEMENT. All decisions regarding our management are made
exclusively by our officers and directors. Stockholders may not participate in
our management, and therefore, are dependent upon the management abilities of
our officers and directors. In addition the Company contracts with several
consultants who are advising us on certain executive management functions. These
consultants are not officers and directors of the Company and our officers and
directors have no obligation to accept or follow their advice. The only
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assurance that our stockholders have that our officers and directors will not
abuse their discretion in making decisions with respect to the affairs of the
Company and other business decisions is the fiduciary obligations and business
integrity of our officers and directors. Accordingly, no person should purchase
the shares of our common stock unless that person is willing to entrust all
aspects of management to our officers and directors or their successors.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS; UNPREDICTABILITY
OF FUTURE REVENUE; EXPECTED FUTURE LOSSES; SEASONALITY. Our quarterly operating
results may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside our control. These factors include:
. the early stage of our development, particularly given that our Web
sites did not begin significant operations until February 1998;
. the level of Web usage;
. traffic levels on our Web site, which can fluctuate significantly as a
result of business and financial news events and volume and price
volatility on the various securities exchanges;
. the demand for advertising on our Web site as well as on the Web in
general;
. changes in Web advertising rates resulting from competition or other
factors;
. our ability to enter into, renegotiate or renew key agreements;
. the amount and timing of our costs related to our marketing efforts or
other initiatives;
. fees we may pay for data feed and distribution or content agreements or
other costs we incur as we expand our operations;
. new services introduced by us or our competitors;
. competitive factors;
. technical difficulties or system downtime affecting the Web generally or
the operation of our Web sites; or
. economic conditions specific to the Web as well as general economic
conditions.
Therefore, our operating results for any particular quarter may not be
indicative of future operating results.
We expect that over time our revenues will come from a mix of advertising,
content licensing, e-commerce or transaction relationships and subscription
service fees. However, we expect the majority of our revenues to come from the
sale of advertising for the foreseeable future. Therefore, our quarterly
revenues and operating results are likely to be particularly affected by the
level of our advertising revenue in each quarter. Our operating expenses are
based on our expectations of future revenues and are relatively fixed in the
short term. If we have lower revenues, particularly advertising revenues, than
we expect, we may not be able to quickly reduce our spending in response. In
addition, we intend to significantly increase our operating expenses to grow our
business. Any shortfall in our revenues would have a direct impact on our
operating results for a particular quarter and these fluctuations could affect
the market price of our common stock in a manner unrelated to our long-term
operating performance or prospects.
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We have incurred operating losses in each fiscal quarter since we were
formed. We expect operating losses and negative cash flows to continue for the
foreseeable future as our current expenses are significantly greater than our
revenues and we intend to significantly increase our operating expenses to grow
our business.
We believe that advertising sales in traditional media, such as television
and radio, generally are lower in the first and third calendar quarters of each
year. If our market makes the transition from an emerging to a more developed
medium, seasonal and cyclical patterns in our industry may develop in the
future. Therefore, if our industry follows the same seasonal patterns as those
in the traditional media, we may experience lower advertising revenues in the
first and third calendar quarters of each year. Furthermore, traffic levels on
our Web site typically fluctuate with the occurrence of significant events in
the business and financial news, such as fluctuations in trading volumes and
prices on the stock markets, which could cause changes in our audience size or
page view volume.
NEED TO MAINTAIN AND RENEW KEY SUPPLIER RELATIONSHIPS. We depend on
maintaining good relationships with our suppliers of market data and financial
programming to our Web sites. Key contractual supply relationships include quote
and market data from the Exchanges, data feed services from S&P Comstock, news
programming from Comtex, and co-location and communication services from Exodus
Communications. We depend on these information providers to provide information
and data feeds on a timely basis. Our Web site could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information. The rapid growth in traffic on our Web sites has
caused our expenses for services from these suppliers to grow faster than the
availability of cash from revenues and internal operations or from external
capital contributions. As of June 30, 1999, we had significant accrued and past
due liabilities payable to these suppliers, which are reflected in our
significant negative working capital balance as of that date. Subsequent to June
30, 1999, we obtained sufficient capital financing to repay these past due
liabilities and we believe we have satisfactory relationships with these
suppliers. In the future, we will need to raise additional capital to fund our
ongoing negative cash flow from operations, including payments to these
suppliers. We cannot assure you that we will be able to raise additional capital
on terms favorable to us or at all. The loss of certain of these supply
relationships, especially those with the Exchanges, could have a material
adverse effect on our business.
INTENSE COMPETITION FOR WEB-BASED BUSINESS AND FINANCIAL CONTENT. Many Web
sites compete for consumers' and advertisers' attention and spending,
particularly in the business and financial information and news area. We expect
this competition to continue to increase. We compete for advertisers, users and
content providers with many types of companies, including the following:
. publishers and distributors of traditional media, including television,
radio and print, such as CNN, CNBC, and The Wall Street Journal;
. general purpose consumer online services such as America Online and
Microsoft Network;
. online services or Web sites targeted to business, finance and investing
needs, such as MarketWatch.com, The Wall Street Journal Interactive
Edition, TheStreet.com and certain of the online brokerage firms,
including Schwab.com and E*TRADE;
. providers of terminal-based financial news and data, such as Bloomberg
Business News, Reuters News Service, Dow Jones Markets and Bridge News
Service; and
. Web retrieval and other Web "portal" companies, such as Excite, Inc.;
Infoseek Corporation; Lycos, Inc.; Yahoo! Inc.; and Netscape
Communications Corporation.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which would adversely affect our business.
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RISKS OF DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB
SITE. We believe that our Freerealtime.com Web site will be more attractive to
advertisers if we develop a larger audience comprised of demographically-
favorable users. We also believe our subscription-based content and analytic
tools services, as represented by our BullSession.com Web site, will be more
attractive to subscribers if we improve and expand our portfolio of higher-value
content and tools. Accordingly, we intend to introduce on our Web sites
additional or enhanced content and tools services in the future in order to
retain our current users and attract new users. If we introduce a service that
is not favorably received our current users may not continue using our services
as frequently. New users could also choose a competitive service over ours.
We may also experience difficulties that could delay or prevent us from
introducing new services, including difficulties in acquiring or allying with
content and tools providers and in developing such services internally.
Furthermore, these services may contain errors that are discovered after the
services are introduced. We may need to significantly modify the design of these
services on our Web site to correct these errors. Our business could be
adversely affected if we experience difficulties in introducing new services or
if our users do not accept these new services.
NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER SITES.
We depend on establishing and maintaining licensing, co-brand and revenue
sharing relationships with high-traffic Web sites. Currently, such relationships
do not account for a significant portion of our traffic or revenues. For
example, approximately 5% of our traffic and less than 10% of our projected
revenues come from our transaction, licensing and co-brand relationships.
However, increasing the number of these relationships is a key element of our
strategic plan, and we may not be able to enter into such relationships on
commercially reasonable terms or at all. Even if we enter into relationships
with these Web sites, we may not realize additional users or revenues from these
relationships. Additionally, many companies we may pursue for a strategic
relationship also offer competing services. As a result, these competitors may
be reluctant to enter into strategic relationships with us. Our business could
be adversely affected if we do not establish and maintain additional strategic
relationships on commercially reasonable terms or if any of our strategic
relationships do not result in increased use of our Web site or additional
revenues.
LETTERS OF INTENT MAY NOT MATERIALIZE INTO FINAL AGREEMENTS. Recently we
entered Letters of Intent regarding new strategic relationships for a co-
branding arrangement with JAGnotes.com and for transaction services with (i)
Herzog, Heine & Geduld, Inc for an online order execution system for qualified
institutional investors and (ii) the DirectQuote.com Venture for online term
life insurance quotes and application processing. We cannot assure you that we
will be able to execute final agreements on terms favorable to us or at all.
DEPENDENCE ON KEY PERSONNEL, INCLUDING MANAGEMENT CONSULTANTS. Our future
success will depend in part on the service of our key personnel and,
additionally, on our ability to identify, hire and retain additional qualified
personnel. There is intense competition for qualified personnel in our areas of
activity, and there can be no assurance that we will be able to continue to
attract and retain such personnel necessary for our development. Failure to
attract and retain key personnel could have a material adverse effect on our
business. In addition, three individuals joined us in 1999 as consultants and
they are not officers of the Company. Each consultant is providing us a
significant amount of his time and is operating under short-term consulting
agreements. As a result we face certain risks associated with this management
structure, including that our senior managers may not work sufficiently or
effectively as a team to successfully manage our growth and that, upon
expiration, we may not be able to renew these consulting arrangements on
reasonable terms to us or attract and retain new managers to replace the
consultants.
RISKS OF INCREASED USERS STRAINING OUR SYSTEMS AND OTHER SYSTEM
MALFUNCTIONS. In the past, our Web sites have experienced significant increases
in traffic when there are significant business or financial news events,
including stock market volatility. In addition, the number of our users has
continued to increase over time and we are seeking to further increase our user
base. Therefore, our Web sites must accommodate a high volume of traffic and
deliver frequently updated information. Our Web sites have in the past and may
in the future experience slower response times or other problems for a variety
of reasons.
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We also depend on information providers to provide information and data
feeds on a timely basis. Our Web sites could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information. In addition, our users depend on Internet service
providers, online service providers and other Web site operators for access to
our Web sites. Each of them has experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to our systems in the future. These types of occurrences could cause
users to perceive our Web sites as not functioning properly and therefore cause
them to use other methods to obtain their business and financial information.
NEED TO EXPAND OUR BUSINESS AND RELATED PROBLEMS. We believe that we will
need to expand our business and operations in order to grow our business. This
growth is likely to continue to place a significant strain on our resources. As
we grow, we will also have to implement new operational and financial systems,
procedures and controls. If we are unable to accomplish any of these, our
business could be adversely affected. In addition, several members of our senior
management joined us in 1999, including three members who are consultants and
not officers of the Company. As a result we face a number of risks associated
with this management structure, including that our senior managers may not work
together effectively as a team to successfully manage our growth.
FOREIGN CURRENCY RISK. We are exposed to changes in the currency exchange
rate between U.S. Dollars and Canadian Dollars, to the extent that the Company's
wholly-owned Canadian subsidiary (First International Financial Corporation,
Calgary) has an inter-company obligation to Freerealtime.com, Inc, as it had in
the amount of approximately $275,000 U.S. as of June 30, 1999. Any future
repayment of that obligation to Freerealtime.com will result in a currency
exchange loss if re-paid at a time when the Canadian Dollar weakens against the
U.S. Dollar. Under our current policies, we do not use currency hedges (forward
contracts, options, etc) to manage exposure to currency risk.
Risks Relating to Advertising
RISKS ASSOCIATED WITH OUR BUSINESS MODEL WHICH DEPENDS ON WEB ADVERTISING.
We expect to derive the majority of our revenues in the foreseeable future from
advertising. No standards have been widely accepted to measure the effectiveness
of Web advertising. If such standards do not develop, existing advertisers may
not continue their current levels of Web advertising. Furthermore, advertisers
that have traditionally relied upon other advertising media may be reluctant to
advertise on the Web. Advertisers that already have invested substantial
resources in other advertising methods may be reluctant to adopt a new strategy.
Our business would be adversely affected if the market for Web advertising fails
to develop or develops more slowly than expected.
Different pricing models are used to sell advertising on the Web. It is
difficult to predict which, if any, will emerge as the industry standard. This
makes it difficult to project our future advertising rates and revenues. For
example, advertising rates based on the number of "click throughs," or user
requests for additional information made by clicking on the advertisement,
instead of rates based solely on the number of impressions, or times an
advertisement is displayed, could adversely affect our revenues because
impression-based advertising comprises a substantial majority of our current
advertising revenues. Our advertising revenues could be adversely affected if we
are unable to adapt to new forms of Web advertising. Moreover, "filter" software
programs that limit or prevent advertising from being delivered to a Web user's
computer are available. Widespread adoption of this software could adversely
affect the commercial viability of Web advertising.
INABILITY TO TRACK AND MEASURE THE DELIVERY OF ADVERTISEMENTS. It is
important to our advertisers that we accurately measure the demographics of our
user base and the delivery of advertisements on our Web site. We depend on third
parties to provide a majority of these measurement and ad-serving services. If
those third parties are unable to provide these services in the future, we would
be required to perform them ourselves or obtain them from another provider. This
could cause us to incur additional costs or cause interruptions in our business
during the time we are replacing these services. We are implementing additional
systems designed to record demographic data on our users. If we do not develop
these systems successfully, we may not be able to accurately evaluate the
demographic characteristics of our users. Companies may not advertise
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on our Web site or may pay less for advertising if they do not perceive our
measurements or measurements made by third parties to be reliable.
RELIANCE ON THIRD PARTY ADVERTISING SALES FORCE. We have a small internal
sales force consisting of only two members, one of whom is a consultant to our
Company. We are attempting to expand our internal sales force by hiring
additional members. The success of our internal sales effort is subject to
various risks, including competition in hiring and retaining sales personnel and
the length of time required for a new hire to become productive. For the
foreseeable future we expect to rely upon third parties to sell a majority of
the advertisements on our Freerealtime.com Web site. In March 1999, we entered a
one-year contract with ADSmart, a leading Internet ad sales firm. We depend on
maintaining our contractual relationship with AdSmart to sell our advertisements
and to serve advertisements on our free site. ADSmart has recently merged with
another firm and internal disruption and turnover related to integration of the
merger could materially effect their ability to sell our advertising inventory.
Our business would be adversely affected if our third party sales force fails to
attract advertisements to our free Web site. Our business could also be
adversely affected if there is a material breach of our contract or we are not
able, upon expiration, to renew or replace our contract with AdSmart on
reasonable terms to us or at all.
DEPENDENCE ON FINANCIAL INDUSTRY ADVERTISERS. Prior to entering our
advertising sales relationship with ADSmart in March 1999, financial services
companies have accounted for the substantial majority of our advertising
revenues. Subsequently, advertisers other than financial firms have accounted
for the majority of our advertisers. We need to continue to sell advertising to
customers outside of the financial services industry in order to increase our
revenues. To date, relatively few advertisers from industries other than the
technology and financial services industries have devoted a significant portion
of their advertising budgets to Web advertising. If we are not successful in
continuing to attract and maintain advertisers from other industries, our
business could be adversely affected.
Risks Related to Our Industry
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE WEB. Our market is new and
rapidly evolving. Our business would be adversely affected if Web usage does not
continue to grow. Web usage may be inhibited for a number of reasons, such as:
. inadequate network infrastructure;
. security concerns;
. inconsistent quality of service; and
. unavailability of cost-effective, high-speed service.
If Web usage grows, the Internet infrastructure may not be able to support
the demands placed on it by its current growth or its performance and
reliability may decline. In addition, Web sites have experienced interruptions
in their service as a result of outages and other delays occurring throughout
the Internet network infrastructure. If these outages or delays frequently occur
in the future, Web usage, as well as usage of our Web sites, could grow more
slowly or decline.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB. There
are currently few laws or regulations that specifically regulate communications
or commerce on the Web. However, laws and regulations may be adopted in the
future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting certain types of
information and content over the Web. Several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet Service
Providers and online service providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. This could
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increase the cost of transmitting data over the Internet. Moreover, it may take
years to determine the extent to which existing laws relating to issues such as
property ownership, libel and personal privacy are applicable to the Web. Any
new laws or regulations relating to the Web could adversely affect our business.
WEB SECURITY CONCERNS COULD HINDER INTERNET COMMERCE. The need to securely
transmit confidential information over the Internet has been a significant
barrier to electronic commerce and communications over the Web. Any well-
publicized compromise of security could deter more people from using the Web or
from using it to conduct transactions that involve transmitting confidential
information, such as stock trades or purchases of goods or services. Because
many of our advertisers seek to advertise on our Web site to encourage people to
use the Web to purchase goods or services, our business could be adversely
affected.
We may also incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches.
STORAGE OF PERSONAL INFORMATION ABOUT OUR USERS. We have a non-disclosure
policy displayed on our Web sites. Our policy is not to willfully disclose any
individually identifiable information about any user to a third party without
the user's consent. This policy is accessible to users of our personalized
services when they initially register. Despite this policy, however, if third
persons were able to penetrate our network security or otherwise misappropriate
our users' personal information or credit card information, we could be subject
to liability. These could include claims for unauthorized purchases with credit
card information, impersonation or other similar fraud claims. They could also
include claims for other misuses of personal information, such as for
unauthorized marketing purposes. These claims could result in litigation. In
addition, the Federal Trade Commission and other states have been investigating
certain Internet companies regarding their use of personal information. We could
incur additional expenses if new regulations regarding the use of personal
information are introduced or if they chose to investigate our privacy
practices.
LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB SITES. We may be subjected
to claims for defamation, negligence, copyright or trademark infringement or
based on other theories relating to the information we publish on our Web site.
These types of claims have been brought, sometimes successfully, against online
services as well as other print publications in the past. We could also be
subjected to claims based upon the content that is accessible from our Web sites
through links to other Web sites. Our insurance may not adequately protect us
against these types of claims.
Risk Related to Year 2000 Readiness
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. We are in the process of
assessing the Year 2000 issue and expect to complete the program by the fall of
1999. We have not incurred material costs to date in this process, and currently
do not believe that the cost of additional actions will have a material effect
on our results of operations or financial condition.
Although we currently believe that our systems are Year 2000 compliant in
all material respects, the current systems and products may contain undetected
errors or defects with Year 2000 date functions that may result in material
costs. Although we are not aware of any material operational issues or costs
associated with preparing our internal systems for the Year 2000, we may
experience serious unanticipated negative consequences (such as significant
downtime for one or more media properties) or material costs caused by
undetected errors or defects in the technology used in its internal systems. In
addition, we utilize third-party equipment, software and content, including non-
information technology systems ("non-IT systems"), such as our security system,
building equipment, and non-IT systems embedded microcontrollers that may not be
Year 2000 compliant. We are in the process of developing a plan to assess
whether these third parties are adequately addressing the Year 2000 issue and
whether any of our non-IT systems have material Year 2000 compliance problems.
Failure of such third-party
17
<PAGE>
equipment, software, or content to operate properly with regard to the year 2000
and thereafter could require us to incur unanticipated expenses to remedy any
problems, which could have a material adverse effect on our business, results of
operations, and financial condition. We are in the process of fully developing a
comprehensive contingency plan to address situations that may result if we are
unable to achieve Year 2000 readiness of our critical operations. Finally, we
are also subject to external forces that might generally affect industry and
commerce, such as utility or transportation company Year 2000 compliance
failures and related service interruptions. Furthermore, the purchasing patterns
of advertisers may be affected by Year 2000 issues as companies expend
significant resources to correct their current systems for Year 2000 compliance.
We do not currently have any information about the Year 2000 status of its
advertising customers. However, these expenditures may result in reduced funds
available for Web advertising or sponsorship of Web services, which could have a
material adverse effect on our business, results of operations, and financial
condition.
Item 2. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
Selected Financial Data
The following selected financial data is qualified by reference to, and
should be read in conjunction with the financial statements of Freerealtime.com,
Inc. and the notes thereto included elsewhere in this Form 10-SB, as well as the
discussion hereunder "Management's Discussion and Analysis or Plan of
Operation", also included elsewhere in this Form 10-SB. Prior to the year ended
March 31, 1999 ("Fiscal 1999), our operating activities consisted largely of
developing our Freerealtime.com and BullSession.com Web sites, along with the
systems and infrastructure necessary to support these sites. As we did not
generate significant revenue or incur significant costs in prior years, and in
view of the rapidly evolving nature of our business and very limited operating
history, we believe that prior fiscal year comparisons of our financial results
are not meaningful or indicative of future performance. The selected statement
of data for the year-ended March 31, 1999 has been derived from the financial
statements of Freerealtime.com, Inc as audited by KPMG LLP, independent
auditors, and are included elsewhere in this Form 10-SB.
The statement of operations data for the three months ended June 30, 1999
and the balance sheet data as of June 30, 1999, are derived from our unaudited
financial statements included in this Form 10-SB. The unaudited financial
statements have been prepared on the same basis as our audited financial
statements and, in our opinion include all material adjustments, consisting only
of normal recurring adjustments, necessary to present fairly this unaudited
financial information. The historical results are not necessarily indicative of
results to be expected for future periods.
18
<PAGE>
Statement of Operations Data:
<TABLE>
<CAPTION>
(in thousands, except share and per share data) Quarter Ended
Year Ended June 30
March 31, ---------------------------
Revenues 1999 1998 1999
- -------- ----------- ---------- ----------
<S> <C> <C> <C>
Advertising Revenue (gross) $ 631 45 880
Web-Host/Co-Brand Revenue 179 6 181
Subscription Revenue 586 50 444
---------- ---------- ----------
Total Revenues 1,396 101 1,505
- ---------------------------------------------------------------------------------------------
Cost of Revenues
Market Data 1,896 170 1,169
Co-location and Communications 588 59 426
Programming 54 19 12
Other 29 19 10
---------- ---------- ----------
Total Cost of Revenues 2,567 267 1,617
Gross Profit (1,171) (166) (112)
General, Administrative, Selling
and Development Expenses
Sales and Marketing 404 18 308
General and Administrative 552 6 315
Product Development 60 9 144
Non Cash Charges-Stock Option Grants 316 - 438
---------- ---------- ----------
Total General, Administrative, Selling
and Development Expenses 1,332 33 1,205
Interest Expense (18) (3) (3)
Goodwill Impairment (528) - -
---------- ---------- ----------
Loss before income tax provision/benefit (3,049) (202) (1,320)
Income tax provision/benefit -0- - -
---------- ---------- ----------
Net Loss $ (3,049) $ (202) $ (1,320)
- --------------------------------------------------------------------------------------------
Net Loss per share:
Basic and diluted (.54) (.04) (.20)
Shares used to compute basic and diluted 5,601,073 4,544,990 6,573,407
net loss per share
As of
June 30, 1999
-------------
Balance Sheet Data:
Cash and cash equivalents $493 $496
Working capital (deficit) (1,676) (2,246)
Total assets 1,132 1,593
Total stockholders equity (deficit) (1,461) (1,991)
</TABLE>
Overview
Prior to the fiscal year commencing April 1, 1998 and ending March 31, 1999
("Fiscal 1999), our operating activities consisted largely of developing our
Freerealtime.com and BullSession.com Web sites, along with the systems and
infrastructure necessary to support these sites. We have incurred substantial
costs to date in creating and developing our Web sites. These costs include
significant purchases of computer hardware and software, the hiring of software
developers, technical support personnel, executive management, key strategic
consultants, sales and marketing staff, accounting personnel, and administrative
support personnel. Our spending has been focused on building brand awareness and
other financial related content, and providing our users with seamless access to
real-time market data. As a result, we have incurred significant net losses in
each fiscal quarter since inception. We expect
19
<PAGE>
these net losses, as well as negative cash flow from operations, to continue for
the foreseeable future as we plan to substantially increase our operating and
capital expenditures in order to continue building site traffic and brand
awareness. Our current sources of revenue with respect to the Freerealtime.com
site include ad sales, sponsorship fees, web-hosting fees and co-branding
revenues. For BullSession.com, our source of revenue is subscription fees.
Our management efforts and strategies are oriented to enhancing our
existing revenues, as well as developing new revenue opportunities. These
efforts include (i) launching a new Freerealtime.com site in August 1999 that
exhibits more robust functionality, additional content, and greater ease-of-use,
(ii) building our in-house direct ad sales force to increase revenues, (iii)
pursuing higher prices, referred to as cost-per-thousand ("CPM"), for our ad
impressions through greater use of user "targeting" ad serving technology and
the addition of non-quote content pages, and (iv) focusing on revenue
alternatives to ad sales, including sponsorship fees, new co-branding ventures,
and opportunities in on-line transaction services. We also have strategies to
drive growth in our subscriber base, and thereby increase our subscription fees,
by enhancing our BullSession.com service and adding new subscription-based tools
and content services. Apart from our efforts to grow our revenues, we believe
that our costs per page view should continue to decline over time due to
declining costs in programming, datafeed and other services from our suppliers
as well as from the effect of spreading certain fixed costs over greater page
view traffic. Though we expect to continue incurring net losses for the
foreseeable future, we plan to continue to execute on these and other measures
which are designed with an objective of achieving profitable operations,
although we can not give any assurances that we will achieve such objective.
Results of Operations
FISCAL YEAR ENDED MARCH 31, 1999
Revenues
For Fiscal 1999, total net revenue amounted to $1,396,000 and consisted
primarily of the sale of on-line banner ads and sponsorships on Freerealtime.com
(collectively 45% of total revenues) and subscriptions sold on BullSession.com
(42% of total revenues). Additional net revenue was derived from Web-Hosting and
Co-Branding contracts (13%).
Revenue from advertising on FreeRealTime.com. For the twelve-months ended
March 31, 1999, the company experienced sequential month-to-month growth in both
page-views and, consequently, ad revenues. Total advertising revenue for this
period was $631,000. Ad revenue during the first six months of Fiscal 1999
amounted to $198,000, versus the last six months of the fiscal year which
totaled $433,000, representing growth of approximately 119%. This growth during
the second half of the year was primarily due to the substantial increase in the
number of users, page views, and ad impressions on the Freerealtime.com Web site
during that period. The substantial increase in the number of users on the site
was primarily due to a higher level of awareness of our Web sites by users of
the Internet, which we believe is a result of user referrals, the appearance of
our Web sites in the query lists of "search portal" Web sites, favorable
publicity received for both Freerealtime.com and BullSession.com, and user
traffic from our web-hosting and co-branding relationships. Due to limited
capital resources we did not expend material amounts on advertising of our Web
sites during Fiscal 1999.
The ad revenue that we generate as a user views a page on our Web site is a
function of the number of ad impressions on that page and the price, or CPM, at
which we sold the ad impression to an advertiser. An "ad impression" is an
advertisement that is displayed on a page view. We can have multiple impressions
on a single page view. During the course of Fiscal 1999, and subsequent to the
end of the fiscal year, we have increased the number of ad impressions per page.
We are also attempting to increase the CPM for the ads that we sell. We believe
that if we are successful in developing new content, enhancing existing quote
and non-quote content pages, and building our in-house ad sales force, then our
average CPMs are likely to increase, although there can be no assurance that we
will be successful in realizing an increase in CPMs or that advertisers will
continue to purchase ad space on the Internet, including on Freerealtime.com, at
similar levels or on the same terms as they have in the past. We recognize
revenue from the sale of banner advertisements as the ad impression is served or
20
<PAGE>
displayed. We recognize revenue from the sale of sponsorships over the period in
which the sponsorship advertisement is served or displayed. In both cases,
revenue is recognized only after there exists no further obligations on the part
of the advertiser or Freerealtime.com, Inc. During Fiscal 1999 we relied on
third party ad sales firms and networks to sell the substantial majority of our
ad impressions. Subsequent to the end of Fiscal 1999, we added additional in-
house salespeople and began to supplement the sales efforts of these ad sales
networks. We record an appropriate allowance against potentially uncollectible
accounts and/or write-off certain receivables as bad debts if they are deemed
uncollectible. Our obligations typically include guarantees of a minimum number
of impressions to the advertiser. To the extent minimum guaranteed impressions
are not met, we have no contractual obligation to the advertiser to compensate
them for un-filled impressions, nor does the advertiser have an obligation to
pay for those un-filled impressions. We defer revenue recognition with respect
to un-filled impressions until they are filled, if at all. If we were paid for
un-filled impressions, we would either return such payment to the advertiser or
issue credit to the advertiser against future impressions.
REVENUE FROM SUBSCRIPTIONS SOLD ON BULLSESSION.COM. For Fiscal 1999, we
experienced sequential month-to-month growth in both the number of subscribers
and total subscription revenue. Total subscription revenue for this period was
$586,000. Subscription revenue for the first six months of the year amounted to
$140,000, versus the last six months of the year that totaled $446,000,
representing growth of approximately 218%. This growth in subscription revenue
is primarily attributable to the increase in the number of subscribers
throughout the year resulting from increased marketing efforts and favorable
publicity received for both Freerealtime.com and BullSession.com. Because we
regularly advertise BullSession.com on our Freerealtime.com Web site, we believe
the increased traffic on the Freerealtime.com site has contributed to the
increase in subscribers on BullSession.com.
Subscribers to our BullSession.com service generally use a credit card to
purchase the service on either a monthly, quarterly or annual basis. We
recognize subscription revenue on a monthly basis for the month in which the
service is delivered. Any amounts prepaid for a quarterly or annual subscription
are recorded as deferred revenue and amortized to revenue over the period the
service is rendered. Monthly prices for the subscription service range from $26
to $50, depending on the level of services.
REVENUES FROM WEB-HOSTING AND CO-BRANDING VENTURES. For Fiscal 1999, total
revenues from these web-hosting and co-branding ventures amounted to $179,000,
of which $163,000 (approximately 91%) resulted from our Web-hosting
relationships with Infospace.com and Zacks.com. Pursuant to agreements that may
expire, if not renewed, during Fiscal 2000, we receive a monthly fee to host Web
traffic for Infospace.com and Zacks.com by registering their users and providing
them access to our market data and financial content on Freerealtime.com. Co-
branding relationships with BigCharts.com, Marketguide.com, and WWQuote.com
resulted in $16,000 in total revenue for Fiscal 1999, reflecting our share of
net advertising revenue generated from the sale of ad impressions on co-branded
pages. Under co-branding arrangements, we either provide content to or receive
content from a third party Web site and arrange such content on a page, which
may be on either our or the co-brand partner's Web site, with brand
identification for both parties. Typically one of the parties is responsible for
selling the ad impressions on the page views and both parties share, on a
negotiated basis, in the ad revenue generated on the co-branded page views.
Subsequent to the end of Fiscal 1999, we have entered into new co-branding
contracts and we expect that co-branded ad revenues will represent a material
portion of our revenue in future periods.
Cost of Revenues
Cost of revenues include the following expenditures: payments to the stock
exchanges for real-time market data, costs for data center operations incurred
with a third party "co-location" provider, datafeed, programming and other
content costs, and other costs. Cost of revenues for the twelve-months ended
March 31, 1999 amounted to $2,567,000, or 184% of revenues. Stock exchange fees
represented the majority of these costs and amounted to $1,896,000or 74% of
total cost of revenues. Subsequent to the end of Fiscal 1999, certain costs of
revenues decreased substantially on a per-page view basis. In the first quarter
of Fiscal 2000 ending June 30, 1999, the NASDAQ reduced market data fees by
approximately 50%, and the NYSE and AMEX Exchanges
21
<PAGE>
have announced similar fee reductions that are expected to take effect prior to
the end of Fiscal 2000. Additionally, we renegotiated and amended our datafeed
and co-location provider contracts to result in significant reductions in our
per-page view costs for these services. Despite these declines in our unit
costs, we anticipate that total cost of revenues will continue to increase over
the foreseeable future as we realize growth in the users and page views on our
Web sites.
Operating Expenses
SALES AND MARKETING. Sales and Marketing expense for the twelve months
ended March 31, 1999 totaled $404,000 (29% of revenues), and primarily reflected
advertising commissions paid to third party ad sales firms and networks that
represented the Freerealtime.com Web site to advertisers and media buyers, and
amounts paid to a marketing consulting firm engaged to manage our advertising
sales function and to direct the overall marketing efforts of the company,
including managing our relationships with AdSmart and other ad sales networks
and building an in-house ad sales force responsible for selling banner ads,
buttons, and sponsorships on Freerealtime.com. Subject to the availability of
sufficient funds, we plan to hire additional sales and marketing personnel, and
to implement new marketing programs during Fiscal 2000. As such, we anticipate
that total sales and marketing expense will increase over the foreseeable
future; however, sales and marketing expense as a percentage of net revenues may
fluctuate depending on the timing of the addition of new sales and marketing
personnel and on new marketing initiatives.
GENERAL AND ADMINISTRATIVE. General and administrative expense totaled
$552,000, (40% of revenues), for Fiscal 1999. General and administrative expense
consists primarily of compensation and benefits for various administrative and
technical personnel, fees for independent consultants providing management
advisory and investor relations services, occupancy costs, legal and accounting
fees, depreciation, insurance, telecommunications costs, provision for
uncollectible amounts, and other overhead costs. We plan to hire additional
personnel in all areas of the organization including management, customer
support, accounting, and administrative support during Fiscal 2000. As such, we
anticipate that general and administrative expenses will increase over the
foreseeable future; however, general and administrative expense as a percentage
of net revenues may fluctuate depending on the timing of the addition of these
new personnel and of future expenditures in general and administrative related
activities.
PRODUCT DEVELOPMENT. Product development expense primarily consists of
compensation and benefits for software developers, as well as fees paid to third
party developers and systems consultants. These individuals are located
primarily in Calgary, Alberta. Total Product Development expense for the twelve
months ended March 31, 1999 was $60,000 (4% of revenues). This represents cash
compensation paid to these individuals for the period. In addition, certain of
these employees have received non-cash compensation in the form of stock option
grants. Such non-cash compensation is reflected in our financial statements as
unearned compensation and is amortized as an expense to the company as described
below under "Non Cash Charges-Stock Option Grants". We employ a technical staff
that includes a Vice President of Development, several developers and
programmers, and a Systems Administrator. These individuals, along with third
party consultants, have developed and maintained our Web sites during Fiscal
1999. To date, all internal product development costs have been expensed as
incurred. We believe that significant investments in product development are
required to remain competitive. Consequently, we plan to hire additional
personnel in this area of the organization including product managers,
additional software developers, and quality assurance personnel. As such, we
anticipate that product development expense will increase over the foreseeable
future as we continue to enhance our existing Web sites and develop new
products; however, product development expense as a percentage of net revenues
may fluctuate depending on the timing of the addition of these new personnel and
related overhead.
GOODWILL. We incurred $528,000 of goodwill upon the merger of
FreeRealtime.com and FIFC-Delaware, of which the entire amount was charged to
expense during the fiscal year ended March 31, 1999. For a more detailed
discussion see Note 6 to Notes to Financial Statements.
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<PAGE>
NON CASH CHARGES-STOCK OPTION GRANTS. During Fiscal 1999, we recorded
aggregate unearned compensation of $520,000 reflecting the grant of stock
options to employees and non-employees. These options were granted at exercise
prices less than the deemed fair market value of the underlying common stock on
the grant date. We also expect to record additional unearned compensation in the
first quarter ended June 30, 1999 to reflect additional option grants at
exercise prices less than the deemed fair market value of common stock on the
grant date. The deferred compensation is being amortized to compensation expense
over the vesting period of the options. Of the total deferred compensation of
$520,000 recorded during Fiscal 1999, $316,000 of was amortized as a non-cash
charge during Fiscal 1999 and the balance of $204,000 will be amortized in
future periods. See Note 6 of Notes to Financial Statements.
Interest Income (Expense), Net
Net interest expense of $18,000 for the year ended March 31, 1999 primarily
resulted from interest incurred on debt obligations, including a bank loan,
capital leases, and loans from an officer and director; partially offset by
interest income earned on our cash balances.
Income Taxes
We have incurred losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes in
Fiscal 1999. Deferred tax assets for the year ended March 31, 1999 which would
otherwise reflect the tax net operating loss carryforwards existing at the
balance sheet date, as well as the taxable temporary differences in the
treatment of certain items are fully offset by valuation allowances. We will re-
assess the need to record such valuation allowances, or a current or deferred
tax liability as appropriate, over future periods. For a more detailed
discussion see Note 5 of Notes to Financial Statements.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1998
Revenues
Revenues increased from $101,000 in the three months ended June 30, 1998 to
1,505,000 for the three months ended June 30, 1999. The increase in revenue,
which is comprised primarily of ad sales and subscription fees, was a direct
result of the substantial increase from period to period in the number of users,
page views, and ad impressions on the Freerealtime.com Web site and in the
number of subscribers on the BullSession.com Web site.
Revenue from advertising on Freerealtime.com increased from $45,000 in the
three months ended March 31, 1998 to $880,000 in the three months ended June 30,
1999. Revenue from subscriptions to the BullSession.com Web site increased from
$50,000 in the three months ended June 30, 1998 to $444,000 in the three months
ended June 30, 1999. Revenue from web-hosting and co-branding ventures increased
from $6,000 in the three months ended June 30, 1998 to $181,000 during the three
months ended June 30, 1999.
Cost of Revenues
Cost of revenues increased from $267,000 in the three months ended June 30,
1998 to $1,617,000 for the three months ended June 30, 1999. The period to
period increase was the result of the substantial increase in the site traffic
on our Web sites as most of the components of cost of revenues are based on
certain measures of site traffic volume, including the number of real-time
quotes, the number of periodic users, and the amount of communications bandwidth
utilized. Cost of revenues as a percent of revenues was 264% for the three
months ended June 30, 1998 as compared to 107% for the three months ended June
30, 1999. This change was primarily the result of reduced rates paid for real-
time quotes from the Exchanges and reduced datafeed costs as a result of an
amendment of our datafeed contract with our supplier, as well as from economies
of scale associated with higher volumes of Web-site traffic and revenues.
Operating Expenses
SALES AND MARKETING. Sales and Marketing expense increased from $18,000 in
the three months ended June 30, 1998 to $308,000 for the three months ended June
30, 1999. Sales and Marketing expense as a percent of revenues was 18% for the
three months ended June 30, 1998 as compared to 20% for the three months ended
June 30, 1999. The period to period increase on an absolute dollar and
percentage basis was primarily the result of increased advertising sales
commissions paid to third party ad sales firms, as well as increased costs of
additional employees and consultants retained to manage our advertising sales
function and to direct the overall marketing efforts of the Company, including
the development of an in-house ad sales force and new marketing programs during
Fiscal 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased
from $6,000 in the three months ended June 30, 1998 to $315,000 for the three
months ended June 30, 1999. General and administrative expense as a percent of
revenues was 6% for the three months ended June 30, 1998 as compared to 21% for
the three months ended June 30, 1999. The period to period increase on an
absolute dollar and percentage basis was primarily the result of increased costs
of additional personnel, including administrative and technical personnel, fees
for independent consultants providing management advisory and investor relations
services, as well as greater occupancy costs, legal and accounting fees,
telecommunications costs, and other overhead costs associated with managing our
rapid growth in traffic on our Web sites.
PRODUCT DEVELOPMENT. Product development expense increased from $9,000 in
the three months ended June 30, 1998 to $144,000 for the three months ended June
30, 1999. Product development expense as a percent of revenues was 9% for the
three months ended June 30, 1998 as compared to 10% for the three months ended
June 30, 1999. The period to period increase on an absolute dollar and
percentage basis was primarily the result of costs of additional personnel,
including costs for software developers, as well as fees paid to third party
developers and systems consultants.
NON-CASH CHARGES-STOCK OPTION GRANTS. For the three months ended June 30,
1999, we recorded amortization of aggregate unearned compensation of $438,000
which was the result of a significant amount of stock options vesting during the
three months ended June 30, 1999. We recorded no amortization of aggregate
unearned compensation for the three months ended June 30, 1998. As the deferred
compensation expense is amortized based on the vesting period of the granted
stock options, we expect there will be material variations in the amount of this
expense from quarter to quarter and that quarterly comparisons of such expense
are not meaningful.
Interest Income (Expense), Net
Net interest expense did not increase from period to period, and was $3,000
in the three months ended June 30, 1998 and $3,000 for the three months ended
June 30, 1999.
Income Taxes
We have incurred losses since inception and again during the quarter ended
June 30, 1999, and anticipate losses for the foreseeable future. We have
therefore recorded no provision for income taxes in the quarter ended June 30,
1999. Deferred tax assets for the quarter ended June 30, 1999 which would
otherwise reflect the tax net operating loss carryforwards existing at the
balance sheet date, as well as the taxable temporary differences in the
treatment of certain items, are fully offset by valuation allowances. We will
reassess the need to record such valuation allowances, or a current or deferred
tax liability as appropriate, over future periods.
Liquidity and Capital Resources
To date, our operations have been financed primarily from, the sale of
equity securities, and to a lesser extent, a non-revolving loan from Royal Bank
in Calgary, loans from stockholders, Directors, and other outside parties, and
from capital lease arrangements. As of June 30, 1999, approximately $496,000 in
cash and cash equivalents was on hand. All but $34,000, which was restricted as
collateral by Royal Bank, was available to the company.
Operating Activities
We used net cash in our operating activities in the amount of $374,000
during Fiscal 1999, and $ 47,000 during the three months ended June 30, 1999,
which was primarily the result of our net losses for these periods and an
increase in accounts receivable, partially offset by an increase in accounts
payable and accrued liabilities, as specified below:
<TABLE>
<CAPTION>
Year Ended March 31, 1999 Three Months Ended June 30, 1999
------------------------- --------------------------------
<S> <C>
. Net loss of approximately $3,049,000; . Net loss of approximately $1,320,000;
. An increase in accounts receivable of . An increase in accounts receivable of approximately
approximately $424,000; $415,000;
. An increase in accounts payable and accrued expenses of . An increase in accounts payable and accrued expenses
approximately $2,078,000; of approximately $1,189,000;
. Depreciation of approximately $47,000; . Depreciation of approximately $24,000;
. Non-cash charges-stock-option grants of . Non-cash charges-stock option grants of
approximately $316,000; approximately $438,000.
. Goodwill impairment charge $528,000.
</TABLE>
Accounts payable increased as a result of an overall increase in our cost of
sales and operating expenses over the course of Fiscal 1999, and in the months
ended June 30, 1999, as our business has grown during these same periods. This
increase in accounts payable primarily reflects amounts due in arrears as of
March 31, 1999 and June 30, 1999 to our major suppliers of market data.
Subsequent to the end of June 30, 1999, we have received sufficient net proceeds
from the sale of equity securities to fund the payment of these accrued accounts
payable. The amount of our accounts receivable at each period-end varies,
primarily due to the timing of revenue recognition associated with the running
of our advertising and sponsorship campaigns, and the growth in our Web-host
related revenue and subscription revenue. To date, we have not
23
<PAGE>
experienced material collection difficulties, but have recorded certain write-
offs of bad debts as well as an allowance for uncollectible accounts.
Investing Activities
Cash used in investing activities was approximately $246,000 during the
year ended March 31, 1999 and approximately $13,000 during the three months
ended June 30, 1999, and consisted of property and equipment expenditures in
both periods.
Financing Activities
Net cash provided by financing activities was approximately $1,058,000
during the year ended March 31, 1999 and approximately $63,000 during the three
months ended June 30, 1999. Cash used in financing activities during these
periods was approximately $157,000 and $362,000, respectively, and consisted of
payments of debt obligations and stock issuance costs. Cash provided by
financing activities during these same periods was approximately $1,215,000 and
$425,000, respectively, which consisted primarily of proceeds from the sale of
common stock.
We have no material financial commitments other than obligations under our
bank loan agreements, and to several of our stockholders, and under our leases.
Subject to cash availability, we anticipate significant increases in our
operating and capital expenditures over the foreseeable future, including:
. web-site development and enhancement for Freerealtime.com and
BullSession.com, including functionality, content, and back-end
systems;
. computer servers and other computer equipment to support growth in
site traffic;
. software developers and computer programmers;
. information systems management;
. bandwidth and networking equipment and infrastructure;
. computer equipment and furniture and fixtures for new employees and
facilities expansion;
. additional personnel in the areas of sales, marketing, business
development, customer support, accounting, and administration;
. increased promotional activities and branding efforts;
. content development and acquisition;
In addition to purchasing computer hardware, software, and office
equipment, we also lease certain equipment under short term and long term leases
with terms ranging from one to three years. We may exercise purchase options at
the end of the lease terms if determined to be favorable to replacing such items
at that time through lease renewal or capital acquisition. During Fiscal 2000 we
plan to spend up to $500,000 for additional computer hardware, software, office
equipment, and tenant improvements. We lease our Irvine, California facility
under a noncancelable operating lease that expires on May 31, 2000. We lease our
Calgary, Alberta facility under a noncancelable operating lease which expires on
February 28, 2000. We currently intend to renew our Irvine lease, but do not
intend to renew the Calgary lease as we intend to relocate our Calgary
operations to a larger facility sometime in Fiscal 2000. We will incur
additional costs related to the relocation of the Calgary facility and may have
to pay rent on two leases for a period of time.
The timing of these additional capital and operating expenditures, as well
as the timing of hiring additional personnel to support our growth plans, and
our ability to continue sustaining net losses and negative cash flows from
operations will depend largely on our ability to continue to obtain additional
capital through financing transactions. The failure to raise such capital when
needed could have a material adverse effect on our business, operating results,
and our financial condition. If additional funds are raised through the sale of
equity, or convertible debt securities, the percentage ownership of our
stockholders will be reduced, our stockholders may experience significant
dilution and these securities may have rights, preferences, or privileges senior
to those of our common stockholders. There can be no assurance that additional
financing will be available to us or on terms favorable to us. If adequate
capital funds are not available or are not available on acceptable terms, our
ability
24
<PAGE>
to fund our current growth plans and to take advantage of unanticipated
opportunities, develop or enhance our Web sites, or otherwise respond to
competitive pressures, could be significantly limited. Based on net proceeds
received from the sale of equity securities subsequent to the end of Fiscal
1999, and management contingency plans to curtail our growth plans and reduce
our current scope of operations in the event that additional capital funds are
not available to us, management believes we can continue our operations through
Fiscal 2000.
During Fiscal 1999 we completed two private equity financings in which we
sold an aggregate of 965,000 shares of common stock for a total proceeds of
$965,000. Subsequent to the end of Fiscal 1999 we completed two private equity
financings in which we sold an aggregate of 1,011,200 shares of Common Stock and
stock purchase warrants to purchase 182,500 shares of Common Stock for total
proceeds of $4,873,500. For a more detailed discussion see "Market for Common
Equity and Related Stockholder Matters -- Recent Sales of Unregistered
Securities." Concurrent with the second private equity financing in September
1999, we entered into a strategic co-marketing and cross-licensing agreement
with Telescan, Inc. ("Telescan") covering certain of each other's Web-based
products and services. Telescan purchased $3,000,000 of the shares of Common
Stock sold in the private equity financing.
Item 3. Description of Property
- -------------------------------
Our principal administrative, marketing, and management facilities are
located in approximately 3,800 square feet of office space in Irvine, California
which is subleased from South Coast Financial Securities, Inc., a California
corporation. The term of the sublease began on February 22, 1999 and will
terminate on May 31, 2000. There is no existing option to extend the sublease.
Our research development facilities are located in approximately 1,900 square
feet of office space in Calgary, Alberta, Canada. The term of the lease is for
one year for the period covering August 1, 1998 through July 31, 1999. This
lease was extended through February 28, 2000 commencing on August 1, 1999, and
provides us with an option to renew for an additional year beyond February 28,
2000. Due to our growth, we believe we will require more office space beginning
in 2000. All of our communications, network, and server infrastructure are
hosted in the Exodus Communications data centers in Jersey City, New Jersey and
Irvine, California. Any system failure at these locations could lead to
interruptions, delays, or cessations in service to our members, which could have
a material adverse effect on our business, results of operations and financial
condition.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- ----------------------------------------------------------------------
The following table sets forth, as of October 15, 1999, the number of
shares and percentage of voting interest (on a fully diluted basis) represented
by shares of Common Stock held by each of our directors and executive officers
and of each person who beneficially owns more than 5% of our Common Stock.
Except as specified below, management is not aware of any individual or entity
that owns 5% or more of the voting securities of the Company; unless otherwise
stated, each of the stockholders below has sole voting and dispositive power
with respect to shares beneficially owned by stockholder.
<TABLE>
<CAPTION>
Name and Address of Number of Shares of Percentage of
Beneficial Owner/(1)/ Common Stock Class
-------------------- ------------------- -------------
<S> <C> <C>
Brad Gunn 2,735,002/(2)/ 29.8
Stuart Robson 777,786/(3)/ 8.5
John Gunn 303,771 3.3
Telescan 600,000 6.5
All directors, officers
and beneficial owners
of 5% or more
as a group 4,416,559 48.1
</TABLE>
(1) The address for each of Messrs. Gunn, Robson and Gunn is 3333 Michelson
Drive, Suite 430, Irvine, California 92612. The address for Telescan is
5959 Corporate Drive, Suite 2000, Houston, Texas 77036.
25
<PAGE>
(2) Includes 118,901 shares which Mr. Gunn has the option to acquire at an
exercise price of $0.40 per share and 59,451 shares which Mr. Gunn has the
option to acquire at $1.00 per share.
(3) Includes 302,400 shares which Mr. Robson has the option to acquire at an
exercise price of $0.10.
Item 5. Directors, Executive Officers, Promoters and Control Persons
- ----------------------------------------------------------------------
The following table sets forth the names and principal positions of the
directors and executive officers of the Company as of September 29, 1999:
<TABLE>
<CAPTION>
Name Age Title
- --------------------------------- -------------------------- ------------------------------------------------
<S> <C> <C>
Brad G. Gunn 30 President, Chief Executive Officer, Chief
Financial Officer & Director
Stuart Robson 38 Executive Vice President of Operations &
Director
Darrell Nash 23 Vice President, Development
John Gunn 57 Director
</TABLE>
Brad G. Gunn, is our President, Chief Executive Officer and Chief Financial
Officer. He has operated in this capacity since 1996. As a co-founder, Mr. Gunn
has spent the last two years with the Company involved in strategic planning,
overseeing the development teams, overseeing revenue initiatives, raising
financing, acting as a subscriber liaison and overseeing market research,
developing new products, developing new strategic alliances, and managing
existing strategic relationships. Mr. Gunn was previously an equities trader
with the Toronto Dominion Bank, and an equities trader and options specialist
with Royal Bank of Canada. In 1992, Mr. Gunn received a bachelor's degree in
Economics with a minor in Management from The University of Calgary. Mr. Gunn is
also a member of the Board of Directors and has served as such since 1996.
Stuart Robson, has been our Executive Vice President of Operations since 1996.
Mr. Robson is responsible for. the orderly operation and administration of
billing, customer service, contract administration and negotiation, and data
operations. Prior to joining us, Mr. Robson worked as Vice President Marketing
for Netway Internetworking Technologies, Inc., an Internet software startup. Mr.
Robson's previous experience includes owning and operating an international
grain marketing company. Mr. Robson is also a member of the Board of Directors
and has served as such since 1996.
Darrell Nash, is our Vice President of Development. Mr. Nash oversees all
technical responsibilities for the company, including managing the development
teams, designing and implementing the system architecture, capacity planning,
ordering and installing hardware, and dealing with our strategic alliance
technical groups. He has been with us since our inception. Prior to joining us,
Mr. Nash worked as a system administrator and web site administrator for the
Department of Computer Science. In 1997, Mr. Nash received a bachelor's in
Computer Science from the University of Calgary.
John Gunn, is a Director of the Company. Mr. Gunn has 28 years of general
business and management experience and has particular expertise in the area of
corporate negotiations in an international setting. Mr. Gunn received his Master
of Science in Engineering from The University of Alberta in 1968. Mr. Gunn has
served as a member of the Board of Directors since 1997.
26
<PAGE>
Family Relationships
John Gunn, a member of the Board of Directors, is the father of Brad Gunn,
our President, Chief Executive Officer, and Chief Financial Officer.
Item 6. Executive Compensation
- ------------------------------
The tables below set forth certain information concerning the annual rates
of compensation paid by us to our executive managers, for each of the last three
completed fiscal years ending March 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION> Annual Compensation Long-Term Compensation
----------------------------------- --------------------------------------
Securities
Name and Restricted Stock Underlying
Position Year Salary Awards Options
- ------------------------------- ------------ -------------------- --------------------- -----------
<S> <C> <C> <C> <C>
Brad G. Gunn 1997 $ 5,300 $0 0
CEO, CFO and President 1998 0 0 0
1999 0 0 356,703
Stuart Robson 1997 0 0 0
EVP Operations 1998 4,700 0 0
1999 64,652 0 302,405
Darrell Nash 1997 0 0 0
VP Development 1998 6,060 0 0
1999 27,327 87,194 44,390
</TABLE>
27
<PAGE>
The following table sets forth certain information with respect to grants
of options during Fiscal 1999 to our Executive Officers.
Option Grants in Last Fiscal Year(1)
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year (per Share) Date
-------------------------- ----------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Brad Gunn 118,901 15.2% $0.40 06/10/2000
237,802 30.3% 1.00 06/01/2001
Subtotal................. 356,703 45.5%
Stuart Robson 143,870 18.4% 0.10 06/10/2000
158,535 20.2% 0.10 12/10/2000
Subtotal................. 302,405 38.6%
Darrell Nash 44,390 5.7% 0.10 06/10/2000
(1) There were no SAR awards in the last fiscal year.
</TABLE>
The following table sets forth certain information with respect to options
exercised during Fiscal 1999 and exercisable and unexercisable options held by
the Executive Officers as of March 31, 1999.
Aggregated Year-End Option Values/(1)/
<TABLE>
<CAPTION>
Number of Securities Underlying Value Of Unexercised In-The-Money Options
Unexercised Options at Fiscal Year At Fiscal Year End(2)
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brad Gunn 0 356,703 $0 $71,341(3)
Stuart Robson 0 302,405 0 272,165(4)
Darrell Nash 0 44,390 0 39,951
</TABLE>
- -----------------------
(1) There were no options exercised in this last Fiscal Year.
(2) Based on the fair market value as determined by the Board of Directors of
$1.00, minus the exercise price of the option, multiplied by the number of
shares to which the option relates.
(3) This number reflects 118,901 options to purchase shares of Common Stock at
an exercise price of $0.40 and 237,802 options to purchase shares of Common
Stock at an exercise price of $1.00.
(4) This number reflects 143,870 options to purchase shares of Common Stock at
an exercise price of $0.10 and 158,535 options to purchase shares of Common
Stock at an exercise price of $0.10.
28
<PAGE>
Item 7. Certain Relationships and Related Transactions
- ------------------------------------------------------
Brad Gunn loaned the Company approximately $71,896 (Canadian) pursuant to a
note dated April 1, 1998 with interest at 10% per annum and a final due date of
March 31, 2001. At the end of Fiscal 1999, the unpaid balance on the note was
approximately $38,328 (Canadian).
We are unaware of any other transactions during the last two years in which
we were a party and any of our directors or executive officers, or any family
member of our directors or officers, had a direct or indirect material interest.
Item 8. Description of Securities.
- ---------------------------------
The following description of our capital stock and certain provisions of
our Articles of Amendment and Restatement of Articles of Incorporation (the
"Articles") and Bylaws is a summary and is qualified in its entirety by the
provisions of the Articles and Bylaws, which have been filed as exhibits hereto.
General
Our Articles provide that we are authorized to issue 50,000,000 shares of
Common Stock, no par value per share. As of October 15, 1999, 7,565,764 shares
of Common Stock were outstanding and held of record by approximately 90
stockholders. We are also authorized to issue 5,000,000 shares of preferred
stock, no par value per share. No shares of preferred stock are currently issued
and outstanding.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. The holders of Common Stock are
not entitled to cumulative voting rights with respect to election of directors,
and as a consequence, minority stockholders will not be able to elect directors
on the basis of their shares alone. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors of legally available funds, subject to any preferences that may be
applicable to any shares of preferred stock issued in the future. In the event
of our liquidation, dissolution and winding up, holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any outstanding preferred stock. Holders of
Common Stock have no preemptive, subscription, redemption or conversion rights.
All outstanding shares of Common Stock are fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock. The holders of Preferred Stock, as a group, are entitled to
preference upon our dissolution or winding up to 10% of our assets to be
distributed pro rata to the holders of the Preferred Stock prior to any
distributions to holders of the Common Stock. Our Board of Directors has the
authority to issue the remaining unissued authorized preferred shares and to fix
the powers, preferences, rights and limitations of such shares or any class or
series thereof, without shareholder approval. Persons acquiring such shares
could have preferential rights with respect to voting, liquidation, dissolution
or dividends over existing stockholders. Shares could be issued to deter or
delay a takeover or other change in control. We have no current plans to issue
any shares of preferred stock.
PART II
Item 1. Market Price of and Dividends on Our Common Equity and Other Shareholder
- --------------------------------------------------------------------------------
Matters.
- -------
Our Common Stock has been quoted and traded in the over-the-counter market
on the NASD OTC Bulletin Board system under the symbol "FRTI" since September
1998. The following table indicates high and
29
<PAGE>
low bid and asked quotations for our Common Stock for the periods indicated.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
Calendar 1999 Calendar 1998
---------------------- -----------------------
Calendar Quarter High Low High Low
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Quarter One 20.000 4.750
Quarter Two 10.125 6.625
Quarter Three(1) 10.125 5.000 7.188 6.500
Quarter Four 9.500 4.000
</TABLE>
- -------------------
(1) Third quarter results for Calendar 1998 reflect information available for
September 21 through September 30 only.
As of October 15, 1999, there were approximately 90 holders of record of
our Common Stock. We have not declared any dividends and do not intend to
declare any dividends in the foreseeable future.
Item 2. Legal Proceedings
- -------------------------
We are aware of no pending or active legal proceedings involving
Freerealtime.com or any of our properties.
Item 3. Changes in and Disagreements with Accountants.
- -----------------------------------------------------
Our principal accountant is KPMG LLP of Costa Mesa, California. Their
report through March 31, 1999 did not contain any adverse opinion or disclaimer,
nor were there any disagreements between management and our accountants.
Item 4. Recent Sales of Unregistered Securities
- -----------------------------------------------
As discussed above, Freerealtime.com resulted from the merger of FIFC-
Delaware and Pub Singin. Accordingly, information concerning the recent sales of
unregistered securities is provided for each of the entities that collectively
constitute Freerealtime.com.
FIFC-Delaware. FIFC-Delaware was merged into Freerealtime.com in September
1998. Prior to the merger, FIFC-Delaware had completed two issuances of its
common stock. The first occurred on July 31, 1998, pursuant to the acquisition
of FIFC-Alberta by FIFC-Delaware. In this offering, FIFC-Delaware issued
4,544,990 shares of common stock to the former stockholders of FIFC-Alberta in
exchange for their shares of common stock of FIFC-Alberta. FIFC-Delaware relied
on the registration exemption in Section 4(2) of the Securities Act of 1933 (the
"1933 Act") to issue these shares without registration. As a result of this
acquisition, FIFC-Alberta became a wholly owned subsidiary of FIFC-Delaware. The
second offering occurred in August 1998. In this offering, the FIFC-Delaware
issued 215,000 shares of its common stock at $1.00 per share for a total of
$215,000. FIFC-Delaware relied on the registration exemption in Section 4(2) of
the 1933 Act to issue these shares without registration. The offering was
subscribed to by eleven investors. No underwriters were involved in either of
these sales.
Pub Singin. In September 1997, Pub Singin issued 5,680,000 shares common
stock at $.005 per share for a total of $2,840. The shares were sold to
approximately 29 investors all of whom executed subscription agreements in
connection with their purchases. Pub Singin relied on the registration exemption
in Rule 504 of the 1933 Act to issue these shares without registration. The
primary qualifying factor for a Rule 504 exemption is an offering price of less
that $1,000,000. Pub Singin changed its name to Freerealtime.com, Inc.,
immediately prior to its merger with FIFC-Delaware.
30
<PAGE>
Freerealtime.com. Since our merger with FIFC-Delaware, we have completed
three issuances of additional common stock. In October 1998, we sold a total of
750,000 shares to three investors for $750,000 (less cash costs incurred of
approximately $75,000 and excluding issuance costs paid by issuing 500,000
shares of common stock valued at $500,000). We relied on the registration
exemption in Rule 504 of the 1933 Act to issue these shares without
registration. No underwriters were involved in this offering.
The second issuance occurred during June and July 1999. In this issuance we
offered 1,250,000 units at $4.00 per unit consisting of one share of common
stock and one warrant to purchase an additional share of common stock at $4.75.
Seven elected to participate and 182,500 units were sold for a total of $730,000
(less costs incurred of approximately $100,000). We relied on the registration
exemption in Section 4(2) of the 1933 Act to issue these units without
registering the underlying securities. No underwriters were involved in this
offering.
The third issuance occurred during September and October 1999. We relied on
the registration exemption in Section 4(2) of the Securities Act of 1933 to
issue these shares without registration. Twenty investors purchased 828,700
shares for a total purchase price of $4,143,500 (less costs incurred of
approximately $425,000, a portion of which was paid with 16,574 shares of common
stock in lieu of cash) as of the date of the filing of this Amendment No. 1 to
Form 10-SB. No underwriters were involved in this offering. The offering was
still open as of the date of the filing of this Amendment No. 1 to Form 10-
SB.
While we believe that all of the issuances discussed above qualified for
either the Rule 504 or Section 4(2) exemption from registration, a court could
determine that these issuances did not qualify for either exemption. If that
were to occur, we would be in violation of the Securities Laws and we could be
exposed to liability for damages suffered by our investors.
Item 5. Indemnification of Directors and Officers.
- -------------------------------------------------
Our Amended and Restated of the Articles of Incorporation give our Board of
Directors the power to indemnify any person who is or was our director, officer,
or agent, or any person who served or is serving at our request as a director,
officer, or agent of another enterprise. The indemnification covers instances
where the present or former director, officer or agent is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in our right), by reason of the fact that he is or
was our director, officer or agent.
We may indemnify such director, officer or agent against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in our best interests and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. In the
case of any threatened, pending or completed action or suit by or in our right,
the indemnification available to such an director, officer or agent is limited
to expenses (including attorney's fees) actually or reasonably incurred by him
in connection with the defense or settlement of such action, if he acted in good
faith and in a manner he reasonably believed to be in our best interests. In
this instance however, no indemnification shall be made in respect of any claim,
issue or matter as to which such person has been adjudged to be liable for
negligence or misconduct in the performance of his to duty to us unless and only
to the extent that the court in such action or suit determines that such person
is fairly and reasonably entitled to indemnification for such expenses which
court deems proper.
Additionally, we may (i) pay such expenses in advance of the final
disposition on any action, suit or proceeding upon receipt of an undertaking by
or on behalf of the potentially indemnified person to repay such amount unless
it is ultimately determined that he is entitled to be indemnified by us, and
(ii) purchase insurance on behalf of any person who is our director, officer or
agent against any liability asserted against him whether or not we would have
the power to indemnify him against such liability.
PART F/S
The Financial Statements, Interim Financial Statements and Notes thereto
can be found beginning on page FS-1 "Index to Financial Statements" following
the signature page hereof.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Act of 1934,
as amended, the registrant has duly caused this Amendment No.1 to Form 10-SB to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
the 18th day of October 1999.
FREEREALTIME.COM
By: /s/ Brad G. Gunn
--------------------------------------
Brad G. Gunn
President, Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, as amended,
this Amendment No.1 to Form 10-SB has been signed by the following persons in
the capacities indicated on this the 18th day of October, 1999.
Name Title
---- -----
/s/ Brad G. Gunn President, Chief Executive Officer, Chief
- ---------------------------- Financial Officer & Director
Brad G. Gunn
* Executive Vice President, Business Development,
- ---------------------------- & Director
Stuart Robson
* Director
- ----------------------------
John Gunn
* By: /s/ Brad G. Gunn
----------------------
Brad G. Gunn
Attorney-in-fact
1
<PAGE>
Exhibit
No. Description
- ------- -----------
2.1.1* Articles of Amendment and Restatement of the Articles of Incorporation
2.1.2* Articles of Amendment
2.2* Bylaws
6.1* Agreement for Receipt and Use of Market Data between First
International Financial Corporation and the New York Stock Exchange,
Inc., dated December 23, 1997 pursuant to which Freerealtime.com
obtains certain information relating to the New York Stock Exchange
and the American Stock Exchange
6.2.1+* NQDS Information Vendor Agreement between The Nasdaq Stock Market,
Inc. and First International Financial Corporation (Alberta), dated
March 25, 1997 pursuant to which Freerealtime.com obtains certain
market information relating to the Nasdaq National Market and the
National Small Cap Market
6.2.2* Amendment to Attachment A - System Description of NQDS Information
Vendor Agreement, dated April 25, 1997
6.2.3* Addendum to the Vendor Agreements for Level 1 Service and Last Sale
Service of The National Stock Market, Inc., between The Nasdaq Stock
Market, Inc., and First International Financial Corporation (Alberta),
dated May 20, 1999 adjusting subscriber pricing and revenue guarantees
6.3.1* S&P Comstock Information Distribution License Agreement between S&P
Comstock, Inc. and First International Financial Corporation
(Alberta), dated June 13, 1997 pursuant to which Freerealtime.com
obtains certain securities and commodities prices and other data.
6.3.2* Addendum to Exhibit C of License Agreement by and between S&P
Comstock, Inc. and First International Financial Corporation
(Alberta), dated June 13, 1997 allowing First International Financial
Corporation to operate a second site
6.4* Options Price Reporting Authority Vendor Agreement, between First
International Financial Corporation (Alberta) and the American Stock
Exchange, Inc., Chicago Board Options Exchange, Incorporated and
Philadelphia Stock Exchange, Inc., dated August 12, 1997 pursuant to
which Freerealtime.com obtains market information relating to options
6.5* Representation Agreement between 2CAN Media, Inc. and
Freerealtime.com, dated March 10, 1999 relating to advertising sales
representation for FreeRealtime.com
6.6* Letter Agreement between Arete Advisors & Investors, Inc. ("Arete")
and FreeRealtime.com, Inc., dated January 27, 1999 relating to certain
consulting services to be supplied Arete
6.7* Letter Agreement between the Lawson Marketing Group ("Lawson") and
FreeRealtime.com, dated April 14, 1999 relating to certain consulting
services to be provided by Lawson
6.8.1* Letter Agreement between Neufeld & Co. and Freerealtime.com dated
April 5, 1999 relating to certain consulting services
6.8.2* Letter Agreement between Neufeld & Co. and Freerealtime.com dated July
15, 1999 relating to certain consulting services
____________
+ Attachments available from the Company upon request.
* Previously filed with Form 10-SB
<PAGE>
Exhibit
No. Description
-- -----------
6.9* Lease between Daniel Pearse & Associates Ltd. and First International
Financial Corporation, dated June 17, 1997, relating to facilities
located in Calgary, Alberta Canada
6.9.1* Offer to Amend Lease between Daniel Pearse & Associates Ltd. and First
International Financial Corporation, dated June 17, 1998
6.9.2* Offer to Amend Lease between Daniel Pearse & Associates Ltd. and First
International Financial Corporation.
6.10* Sublease between South Coast Financial Services, Inc. and
Freerealtime.com, dated February 20, 1999, relating to facilities
located in Irvine, California
6.11* Equipment Lease between Balboa Capital Corporation and
Freerealtime.com, dated March 25, 1999 relating to material equipment
used by Freerealtime.com
6.12* Master Services Agreement between Exodus Communications, Inc. and
FreeRealtime.com, Inc. dated July 1, 1999
27.1** Financial Data Schedule
_______________
* Previously filed with Form 10-SB
** Filed herewith.
<PAGE>
Independent Auditors' Report
The Stockholders
FreeRealTime.com, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of FreeRealTime.com,
Inc. and subsidiary (the Company) as of March 31, 1999 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the two-year period then ended. In connection
with our audit of the consolidated financial statements, we have also audited
the consolidated financial statement schedule as of and for the year ended March
31, 1999. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FreeRealTime.com,
Inc. and subsidiary as of March 31, 1999 and the results of their operations and
their cash flows for each of the years in the two-year period then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Orange County, California
July 29, 1999, except as to Note 8 to the consolidated,
financial statements which is as of September 29, 1999.
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheet
March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Assets 1999
-------
<S> <C>
Current assets:
Cash and cash equivalents $ 493
Accounts receivable, net of allowance for
doubtful accounts of $66 358
Prepaid expenses and other current assets 8
-------
Total current assets 859
-------
Property, plant and equipment, net 265
Other assets, net 8
-------
$ 1,132
-------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current installments of note payable to bank $ 70
Current installments of loan payable to shareholders 3
Current portion of capital lease obligations 11
Trade accounts payable 2,078
Advances payable 250
Accrued expenses 44
Deferred revenue 79
-------
Total current liabilities 2,535
-------
Notes payable to bank, excluding current portion 12
Notes payable to stockholders, excluding current portion 38
Capital lease obligations, net of current portion 8
Stockholders' deficit:
Preferred stock, no par value, 5,000,000 shares
authorized; no shares issued and outstanding. --
Common stock, no par value, 50,000,000 shares
authorized; 6,537,990 issued and outstanding. 2,078
Accumulated deficit (3,335)
Unearned Compensation (204)
-------
Total stockholders' deficit (1,461)
-------
Commitments and contingencies $1,132
=======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended March 31, 1999 and 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenues $ 1,396 $ 55
Cost of revenues 2,567 37
--------- ---------
Gross profit (loss) (1,171) 18
--------- ---------
General, administrative, selling and development
expenses 1,016 168
Non-cash charge - stock option grants 316 --
--------- ---------
Total general, administrative, selling and
development expenses 1,332 168
Goodwill impairment 528 --
Interest expense 18 11
--------- ---------
Net loss $ (3,049) $ (161)
========= =========
Basic and diluted loss per common share $ (0.54) $ (0.04)
========= =========
Common shares used in computing basic and diluted
per share amounts 5,601,073 4,447,635
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended March 31, 1999 and 1998
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Common
shares Common Accumulated Unearned
outstanding stock deficit Compensation Total
----------- -------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1997 4,176,066 104 (125) -- (21)
--
FIFC-Alberta stock offerings 368,924 36 -- -- 36
Net loss -- -- (161) -- (161)
----------- -------- ---------- ------------ -------
Balance at March 31, 1998 4,544,990 140 (286) -- (146)
FIFC-Delaware stock offering 215,000 215 -- -- 215
Shares issued to acquire FreeRealTime.com,
Inc. (the former Pub Singin', Inc.) 528,000 528 528
Stock offering, net of issuance costs
of $575 1,250,000 675 -- -- 675
Issuance of options as compensation,
net of amortization -- 520 -- (204) 316
Net loss -- -- (3,049) -- (3,049)
----------- -------- ----------- ------------ -------
Balance at March 31, 1999 6,537,990 $ 2,078 (3,335) (204) (1,461)
=========== ======== =========== ============ =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended March 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
------- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,049) $(161)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 47 7
Goodwill impairment 528 --
Provision for doubtful accounts 66 --
Non-cash charge - stock options 316 --
Receivables (424) 13
Inventories, prepaid expenses and other assets (15) --
Trade accounts payable and accrued liabilities 2,078 6
Unearned revenue 79 --
------- -----
Net cash used by operating activities (374) (135)
------- -----
Cash flows from investing activities:
Capital expenditures (246) (24)
------- -----
Net cash used in investing activities (246) (24)
------- -----
Cash flows from financing activities:
Advances payable 250 --
Borrowings (repayments) of long-term debt (75) 144
Increase (decrease) in note payable to shareholder (7) 27
Proceeds from issuance of common stock 965 36
Stock issuance costs (75) --
------- -----
Net cash provided by financing activities 1,058 207
------- -----
Net increase in cash 438 48
------- -----
Cash at beginning of year 55 7
------- -----
Cash at end of year $ 493 $ 55
======= =====
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 18 $ --
======= =====
Supplemental disclosure of noncash investing and financing
activities:
Borrowings related to the acquisition of assets $ 22 $ --
Unearned compensation related to stock options 520 --
Common stock issued to pay for stock issuance fees 500 --
======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
(1) Business Description and Organization
FreeRealTime.com, Inc. ("the Company" or "FreeRealTime.com") is a web based
provider of real-time financial market information services and analytic
tools. The Company has a free web site and web site which is accessible
only to paid subscribers. The Company derives its revenues from the sale of
advertising space on its free web site and from the collection of
subscription fees.
FreeRealTime.com, Inc. is the result of a merger between Pub Singin', Inc.,
a Colorado corporation ("Pub Singin") and First International Financial
Corporation, a Delaware corporation ("FIFC-Delaware"). The two companies
merged in September 1998. Immediately prior to the merger, Pub Singin
changed its name to "FreeRealTime.com, Inc." and FreeRealTime.com, Inc.
became the surviving entity. Prior to the merger, FreeRealTime.com, Inc.
had approximately 528,000 shares of common stock issued and outstanding
(after giving effect to a 5-for-1 reverse stock split) and FIFC-Delaware
had approximately 4,760,000 shares of common stock issued and outstanding.
Pursuant to the merger agreement, all shares of FIFC-Delaware were
exchanged on a 1-for-1 basis for shares of FreeRealTime.com, Inc.
Accordingly, following the merger the former shareholders of FIFC-Delaware
held approximately a 90% controlling interest in FreeRealTime.com, Inc.
Pub Singin was formed on May 3, 1989 under the laws of the State of
Colorado for the purpose of publishing and marketing song sheets for use in
piano bars and restaurants. From the period of its inception through the
time of its merger with FIFC-Delaware, Pub Singin had no business
operations and sustained minimal losses each year.
The Company's business began in Canada through First International
Financial Corporation, an Alberta corporation ("FIFC-Alberta"). FIFC-
Alberta was originally named Divitae Financial Corporation and was formed
in July 1994 under the laws of Alberta, Canada by founder Brad Gunn. Mr.
Gunn formed FIFC-Alberta as an investment vehicle for his family but the
company never conducted any business operations until January 1996, when
Divitae Financial Corporation changed its name to First International
Financial Corporation. At that time, FIFC-Alberta sold capital stock in
several private placements and began to develop its Internet business.
First International Financial Corporation (Delaware) ("FIFC-Delaware") was
formed on June 25, 1997 under the laws of the State of Delaware under the
name First International USA Corp. with the intent of moving the business
of FIFC-Alberta into the United States and into an entity governed by the
laws of the State of Delaware. FIFC-Delaware did not have any business
operations until July 31, 1998 when FIFC-Delaware acquired 566,689 shares
of common stock of FIFC-Alberta, representing all of the outstanding
capital stock, from the stockholders of FIFC-Alberta. FIFC-Delaware
issued, in the aggregate, 4,544,990 shares of common stock in a private
placement to the stockholders of FIFC-Alberta in exchange for their shares
of FIFC-Alberta. As a result of the foregoing acquisition, FIFC-Alberta
became a wholly-owned subsidiary of FIFC-Delaware.
Prior to the acquisition of FIFC-Alberta, FIFC-Delaware intended to file an
amendment to its Certificate of Incorporation to change its name to "First
International Financial Corporation" and to increase its authorized capital
stock. Due to the failure to file the amendment to the Certificate of
Incorporation of FIFC-Delaware, stockholders of FIFC-Alberta received
shares of common stock in a corporation that had
6
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
not legally changed its name and which were in excess of the amount of
shares of common stock authorized by the Certificate of Incorporation of
FIFC-Delaware. In addition, due to the failure to legally effect the name
change of FIFC-Delaware, the Company has made a corrective filing with the
State of Colorado and has filed a merger certificate in Delaware to effect
the merger of FIFC-Delaware and Pub Singin. The failure to file this
amendment to the Certificate of Incorporation was discovered during the
preparation of the Company's annual report on Form 10-SB and an amendment
to the Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on September 29, 1999.
(2) Summary of Significant Accounting Policies
Business Combinations and Basis of Presentation
The combination between FIFC-Delaware and Pub Singin', Inc. was accounted
for as a purchase. The combination between FIFC-Delaware and FIFC-Alberta
was a combination between commonly controlled corporations and has been
accounted for using the "as if pooling" method of accounting. The
accompanying financial statements have been restated as if the pooling took
place at beginning of the earliest year presented. All share and per share
information has been retroactively restated for the effects or all stock
splits and share exchanges. All intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities to prepare the consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Foreign Currency
The financial statements of the Canadian subsidiary are measured using the
local currency as the functional currency. Assets and liabilities of the
Canadian subsidiary are translated using the rate of exchange at the
balance sheet date. Income and expense items are translated at the average
rate of exchange during each period. Translation gains and losses are nil.
Foreign currency transaction gains and losses are included in income
currently.
Revenue Recognition
Advertising revenues are recognized during the period the advertising is
displayed. Subscription fees are recognized on a straight-line basis over
the subscription period.
7
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. At March 31, 1999, $50 of the
Company's cash and cash equivalents balance was restricted in accordance
with the Company's collateralized bank loan.
Plant and Equipment
Plant and equipment are stated at cost. Depreciation has been provided on
a straight-line basis over periods ranging from 5 to 7 years.
Long Lived Assets
Long lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Advertising, Start-up Costs and Development Costs
The Company charges all advertising costs, start-up costs and development
costs to expense as incurred. Selling expenses of the Company include
advertising and promotion costs of approximately $12 and $13 for the years
ended March 31, 1999 and 1998, respectively.
Software Development Costs for Internal Use Software
Internal costs associated with the development of software used internally
is generally expensed as incurred.
Stock Based Compensation
The Company measures the compensation cost of employee stock option plans
using the intrinsic value based method prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company makes pro forma
disclosures of net loss and loss per share as if the fair value method
prescribed by Statement of Financial Accounting Standards No. 123 had been
applied.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under
this method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
8
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
Earnings Per Share
Basic and diluted earnings per share have been retroactively restated to
give effect to stock splits and the Company's business combination
accounted for using the "as if pooling" method.
Other Comprehensive Income
Net income and other comprehensive income are substantially identical for
all periods presented because foreign currency translation adjustments are
nil.
Business Segment Reporting
The Company adopted Statement of Financial Accounting Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information"
effective in the fiscal year ended March 31, 1999. SFAS No. 131
establishes new standards for reporting information about business segments
and related disclosures about products, geographic areas and major
customers, if applicable. Management of the company has determined that it
operates in only one reportable business segment. The company does not
have any individually significant customers. Substantially all sales are
derived from customers located in the United States.
Fair Value of Financial Instruments
The Company believes that the fair value of its financial instruments
approximates their recorded historical cost due to the short term
maturities of the instruments and where applicable, the similarity of
stated interest rates with market rates.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 modifies the accounting for derivative and hedging activities and is
effective for fiscal years beginning after June 15, 2000. Since the
Company and its subsidiaries do not presently invest in derivatives or
engage in hedging activities, SFAS No. 133 should not impact the Company's
financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." The Company
will adopt SOP 98-1 effective April 1, 1999. The adoption of SOP 98-1 will
require the Company to modify its method of accounting for software. The
Company is still evaluating the impact of SOP 98-1.
In April 1998, The American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities." SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred.
Based on information currently available, the Company does not expect the
adoption of SOP 98-5 to have a significant impact on its financial position
or results of operations. The Company will adopt SOP 98-5 effective April
1, 1999.
9
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
(3) Property, Plant and Equipment
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Computer hardware and software $ 323
Office equipment 10
--------
333
Less accumulated depreciation and amortization 68
--------
$ 265
========
</TABLE>
(4) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Collateralized bank loan, bearing interest
at the rate of bank's prime rate plus 4%.
Interest only payments until June 30, 1998.
Commencing June 1, 1998, principal payments
of $9 plus interest monthly for 36 months. 82
Unsecured shareholder loans, bearing interest
at the rate of 10%. Interest only payments
until maturity. Maturity dates range from
March 31, 2001 to April 24, 2001. 41
--------
Total long-term debt 123
Less current installments of long-term debt 73
--------
Long-term debt, excluding current installments $ 50
========
</TABLE>
Under the terms of the collateralized bank loan, the Company is required to
meet certain non-financial covenants and ratios. The Company was in
compliance with all covenants and ratios at March 31, 1999.
Annual maturities of long-term debt for the next five years for the periods
ended March 31 are as follows:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
2000 $ 73
2001 37
2002 13
--------
$ 123
========
</TABLE>
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
(5) Income Taxes
The Company has no significant net, taxable temporary differences which
would require recognition of deferred tax liabilities and, due to the
uncertainty of future realizability, has recorded a valuation allowance
against all deferred tax assets for deductible temporary differences and
tax operating loss carryforwards. The Company increased its valuation
allowance by approximately $273 for the year ended March 31, 1999,
primarily as a result of the increase in tax operating loss carryforwards.
The Company has had losses since inception and therefore has not provided
for income taxes. At March 31, 1999, the Company has net operating loss
carryforwards of approximately $273 for both Federal and state income tax
reporting purposes which begin to expire in 2011 and 2004, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, as well as
operating loss and tax credit carryforwards.
Significant components of the Company's deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Deferred tax asset -- net operating losses $ 273
Valuation allowance (273)
----------
Net deferred tax asset -- net operating losses $ --
==========
</TABLE>
Due to the uncertainty surrounding the realization of the benefits of the
net operating loss carryforward, the Company has established a valuation
allowance for all of its deferred tax asset as of March 31, 1999. In
assessing the potential realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. In addition, the utilization of the net operating loss
carryforwards may be limited due to restrictions imposed under applicable
Federal and state tax law due to a change in ownership.
(6) Shareholders' Equity
Sales of Unregistered Securities
FIFC-Delaware merged with FreeRealTime.com (formerly Pub Singin) in
September 1998. Prior to the merger, FIFC-Delaware had completed two
issuances of its common stock. The first occurred in July 1998. FIFC-
Delaware, whose shareholders were identical to those of FIFC-Alberta,
issued approximately 8 shares of FIFC-Delaware common stock to acquire each
outstanding common share of FIFC-Alberta. FIFC-Delaware issued a total of
4,544,990 shares of common stock in this exchange. All share amounts prior
to this acquisition reflect the 8-for-1 share exchange. This share exchange
has been FIFC-Delaware relied on the registration exemption in Section 4(2)
of the Securities Act of 1933 (the "1933 Act") to issue those shares
without registration. As a result of this acquisition, FIFC-Alberta became
a wholly-owned subsidiary of FIFC-Delaware. In August 1998, FIFC-Delaware
issued 215,000 shares of its common stock at $1.00 per share for a total of
$215. FIFC-Delaware relied on the registration exemption in Section 4(2) of
the 1933 Act to issue these shares without registration.
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
In September 1998, FIFC Delaware acquired the company formerly known as Pub
Singin (Pub Singin changed its name to FreeRealTime.com, Inc. just prior to
the acquisition). Pub Singin was an inactive public shell company with no
operations and no assets. To complete the acquisition, FIFC Delaware issued
528,000 shares of common stock with a market value of $528 to acquire all
of the common stock belonging to the former Pub Singin shareholders. The
excess of the purchase price over the fair value of the net assets acquired
(goodwill) was approximately $528, which was to be amortized on a straight-
line basis over five years. Subsequent to the merger, the Company evaluated
the recoverability of the goodwill recorded and determined the goodwill to
be permanently impaired. As a result, the Company recorded an impairment
charge of $528 in fiscal 1999.
The acquisition described above was accounted for by the purchase method of
accounting. Accordingly, the accompanying Consolidated Statements of
Operations do not include any revenues or expenses related to this
acquisition prior to the closing date. Following are the Company's pro
forma results for fiscal years 1999 and 1998 assuming the acquisition
occurred on April 1, 1997 (in thousands, except for per share data).
Because Pub Singin had no operations, the pro forma results of operations
for 1999 and 1998 are identical to the results reported in the Consolidated
Statements of Operations included herein, except as to the amortization of
goodwill:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 1,396 $ 55
Net loss (2,943) (267)
Net loss per common share:
Basic and diluted (0.50) (0.05)
Weighted average outstanding common shares:
Basic and diluted 5,865,073 4,975,635
</TABLE>
In October 1998, the Company offered 1 million shares of common stock in
FreeRealTime.com, Inc. The aggregate offering price for the issuance was
$1,000. The Company relied on the registration exemption in Rule 504 of the
1933 Act to issue these units without registration. Three investors
purchased a total of 750,000 shares for $750 (less issuance costs of $75
paid in cash). In addition, the Company issued 500,000 shares of common
stock with a fair market value of $500 as stock issuance costs which had no
net effect on stockholders' equity.
While the Company believes that all of the issuances discussed above
qualified for either the Rule 504 or Section 4(2) exemption from
registration, a court could determine that these issuances did not qualify
for either exemption. If that were to occur, the Company would be in
violation of the Securities Laws and the Company could be exposed to
liability for damages suffered by investors.
Stock Option Plan
As of March 31, 1999, the Company had two stock-based compensation plans,
the Non-Qualified Stock Option Plan and the 1999 Equity Incentive Plan.
Stock options are granted at the discretion of the Board of Directors.
Options vest at varying rates from the date of grant up to 16 months.
Compensation expense, related to stock options granted with exercise prices
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
below fair market value, are amortized over the option vesting period. Options
expire at varying rates of up to 47 months from the date of grant. The
total number of options exercisable as of March 31, 1999 was 300,000 with a
weighted average exercise price of $1.06.
The following tables summarize the Company's option activity:
<TABLE>
<CAPTION>
Number of Weighted-average exercise
options price per option
<S> <C> <C>
Outstanding at March 31, 1998 - $ -
Granted during the year ended
March 31, 1999 1,436,000 1.02
----------- -------------------------
Outstanding at March 31, 1999 1,436,000 $ 1.02
=========== =========================
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- ----------------------------
Weighted-
Number average Weighted-
Range of outstanding remaining Average Weighted-
exercise at March 31, contractual Exercise Number of average
prices 1999 life Price Shares exercise price
-------- ------------ ----------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
$
.10 -- 1,230,000 2.10 $ 0.58 285,500 $ 1.00
1.00
2.20 -- 206,000 2.96 3.63 14,500 2.20
8.00
------------ ---------
Total 1,436,000 2.22 $ 1.02 300,000 $ 1.06
============ =========
</TABLE>
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
The following table presents pro forma information as if the Company had
recorded compensation cost using the fair value method of SFAS No. 123 for
the issued stock options using the minimum value valuation model:
<TABLE>
<CAPTION>
Year Ended
March 31, 1999
--------------
<S> <C>
Net loss:
As reported $ (3,049)
Assumed stock compensation cost (5)
--------------
Pro forma, adjusted $ (3,054)
--------------
Pro forma loss per share:
Basic and diluted (0.54)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model, with the following weighted-
average assumptions: risk-free interest rate of 5.5%; no stock dividend
yield; expected lives of approximately 6 months. The average fair value of
options granted amounted to $0.02 per option granted in 1999.
(7) Commitments and Contingencies
Leases
The Company is obligated under various capital leases for computer hardware
that expire at various dates during the next three years. At March 31,
1999, the gross amount of computer hardware and related accumulated
amortization recorded under capital leases are as follows:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Computer hardware $ 22
Less accumulated amortization 2
--------
$ 20
========
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
(Dollars in thousands, except per share data)
The Company also has two noncancelable operating leases for buildings, that
expire in 2000. Future minimum lease payments under the noncancelable
operating leases (with initial or remaining terms in excess of one year)
and future minimum capital lease payments as of March 31, 1999 are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
2000 $ 11 $ 15
2001 8 -
2002 3 -
------- ---------
Total minimum lease payments 22 $ 15
=========
Less amount representing interest
(at rates ranging from 9.05% to 15.60%) 3
-------
Present value of net minimum
capital lease payments 19
Less current installments of obligations
under capital leases 11
-------
$ 8
=======
</TABLE>
Total rental expense, including month-to-month rentals, approximated $34 in
1999.
(8) Subsequent Events
During June and July 1999, the Company offered units consisting of one
share of common stock and one warrant to purchase an additional share of
common stock. The price of each unit was $4.00 and 182,500 units were
issued, for total offering proceeds of $730 (less issuance costs of $76).
The Company relied on the registration exemption in Section 4(2) of the
1933 Act to issue these units without registering the underlying
securities.
In September 1999 (through September 29, 1999), the Company issued 727,800
shares of common stock at $5.00 per share for a total of $3,639. The
Company relied on the registration exemption in Section 4(2) of the 1933
Act to issue these units without registering the underlying securities.
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheet
As of June 30, 1999 and March 31, 1999
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Assets June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 496 $ 493
Accounts receivable, net of allowance for
doubtful accounts of $76 and $66 at June 30 and
March 31, 1999, respectively 763 358
Prepaid expenses and other current assets 14 8
------- -------
Total current assets 1,273 859
------- -------
Property, plant and equipment, net 312 265
Other assets, net 8 8
------- -------
$ 1,593 $ 1,132
======= =======
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current installments of note payable to bank $ 69 $ 70
Current installments of loan payable to shareholders - 3
Current portion of capital lease obligations 27 11
Trade accounts payable 3,264 2,078
Advances payable - 250
Accrued expenses 47 44
Deferred revenue 112 79
------- -------
Total current liabilities 3,519 2,535
------- -------
Note payable to bank, excluding current portion 13 12
Notes payable to stockholders, excluding current portion 12 38
Capital lease obligations, net of current portion 40 8
Stockholders' deficit:
Preferred stock, no par value, 5,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, no par value 50,000,000 shares authorized;
6,644,240 and 6,537,990 issued and outstanding at June 30
and March 31, 1999, respectively 2,844 2,078
Accumulated deficit (4,655) (3,335)
Unearned Compensation (180) (204)
------- -------
Total stockholders' deficit (1,991) (1,461)
Commitments and contingencies ------- -------
$ 1,593 $ 1,132
======= =======
</TABLE>
See accompanying notes to consolidated and interim financial statements.
<PAGE>
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Quarters ended June 30, 1999 and June 30, 1998
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended June 30,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues $ 1,505 $ 101
Cost of revenues 1,617 267
---------- ----------
Gross loss (112) (166)
General, administrative, selling and development expenses 767 33
Non-cash charge - stock option grants 438 -
---------- ----------
Total general, administrative, selling and
development expenses 1,205 33
Interest expense 3 3
---------- ----------
Net loss $ (1,320) $ (202)
========== ==========
Basic and diluted loss per common share $ (0.20) $ (0.04)
========== ==========
Common shares used in computing basic and diluted
per share amounts 6,573,407 4,544,990
========== ==========
</TABLE>
See accompanying notes to consolidated and interim financial statements.
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Quarters ended June 30, 1999 and June 30, 1998
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended June 30,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,320) $ (202)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 24 12
Provision for doubtful accounts 10 2
Non-cash charge - stock option grants 438 -
Receivables (415) (31)
Inventories, prepaid expenses and other assets (6) 4
Trade accounts payable and accrued liabilities 1,189 182
Unearned revenue 33 12
---------- ----------
Net cash used in operating activities (47) (21)
---------- ----------
Cash flows from investing activities:
Capital expenditures (13) (15)
---------- ----------
Net cash used in investing activities (13) (15)
---------- ----------
Cash flows from financing activities:
Advances payable (250) -
Capital lease obligations (10) -
Repayments of long-term debt (29) (4)
Proceeds from insurance of common stock 425 -
Payment for repurchase of common stock - (5)
Stock issuance costs (73) -
---------- ----------
Net cash provided by financing activities 63 (9)
---------- ----------
Net increase (decrease) in cash 3 (45)
Cash at beginning of period 493 55
---------- ----------
Cash at end of period $ 496 $ 10
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 3 $ 4
========== ==========
Supplemental disclosure of noncash investing and financing
activities:
Borrowings related to the acquisition of assets 58
Unearned compensation related to stock options 414 -
========== ==========
</TABLE>
See accompanying notes to consolidated and interim financial statements.
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
JUNE 30, 1999.
1. Basis of Presentation
The consolidated financial statements as of June 30, 1999 and for the
three-month periods ended June 30, 1999 and 1998, include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments and
reclassifications) necessary to present fairly the financial position, results
of operations and cash flows at June 30, 1999 and for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto for the year ended March 31, 1999, included herein. The results of
operations for the three-month period ended June 30, 1999 is not necessarily
indicative of the operating results to be expected for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
2. Sale of Unregistered Securities
In June 1999, the Company offered units consisting of one share of common stock
and one warrant to purchase one additional share of common stock. The price of
each unit was $4.00 and 106,250 units were issued for total offering proceeds of
$425 (less issuance costs of $73). The Company relied on the registration
exemption in Section 4(2) of the 1933 Act to issue these units without
registering the underlying securities.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 MAR-31-1999
<CASH> 496,000 493,000
<SECURITIES> 0 0
<RECEIVABLES> 839,000 424,000
<ALLOWANCES> (76,000) (66,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 14,000 8,000
<PP&E> 336,000 312,000
<DEPRECIATION> (24,000) (47,000)
<TOTAL-ASSETS> 1,593,000 1,132,000
<CURRENT-LIABILITIES> 3,519,000 2,535,000
<BONDS> 0 0
0 0
0 0
<COMMON> 2,844,000 2,078,000
<OTHER-SE> (4,835,000) (3,539,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,593,000 1,132,000
<SALES> 0 0
<TOTAL-REVENUES> 1,505,000 1,396,000
<CGS> 1,617,000 2,567,000
<TOTAL-COSTS> 1,205,000 1,332,000
<OTHER-EXPENSES> 0 528,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,000 18,000
<INCOME-PRETAX> (1,320,000) (3,049,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,320,000) (3,049,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,320,000) (3,049,000)
<EPS-BASIC> (0.20) (0.54)
<EPS-DILUTED> 0 0
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