<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NUMBER 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
August 18, 2000
Date of Report (Date of earliest event reported)
FREEREALTIME.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-27493 33-0881720
(State or other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
</TABLE>
<TABLE>
<S> <C>
3333 MICHELSON DRIVE, SUITE 430 92612
IRVINE, CALIFORNIA
(Address of principal executive (Zip Code)
offices)
</TABLE>
(949) 833-2959
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 18, 2000, pursuant to that certain Agreement and Plan of
Merger dated as of June 6, 2000 (the "Merger Agreement") by and among
Freerealtime.com, Inc., a Delaware corporation ("Freerealtime"), and
RedChip.com, Inc., a Delaware corporation ("RedChip"), RedChip was merged with a
wholly-owned subsidiary of Freerealtime (the "Merger"). Following the Merger,
RedChip survived as a wholly-owned subsidiary of Freerealtime. The Merger
Agreement was filed previously as Exhibit 2.1 to Freerealtime's Current Report
on Form 8-K dated June 6, 2000.
The Merger Agreement was amended by the First Amendment to Agreement and
Plan of Merger dated as of August 10, 2000 (the "First Amendment"). The First
Amendment modified certain provisions in the Merger Agreement including
provisions relating to the treatment of the RedChip stock options and the
amendment also adjusted the Exchange Ratio to .3935408.
Upon consummation of the Merger, each outstanding share of common stock,
$0.01 par value per share, of RedChip (the "RedChip Common Stock") was
converted into the right to receive .3935408 shares of common stock, $0.001 par
value per share, of Freerealtime (the "Freerealtime Common Stock"). It is
expected that up to 4,000,000 shares and certain cash amounts in lieu of
fractional shares of Freerealtime Common Stock will be issued upon conversion of
outstanding shares of RedChip Common Stock. The Merger consideration was
determined based upon negotiations between Freerealtime and RedChip.
2
<PAGE> 3
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired
The following consolidated financial statements of RedChip are included
in this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 9
Consolidated Balance Sheets as of December 31, 1999
and 1998 10
Consolidated Statements of Operations for the periods from July 21,
1999 to December 31, 1999 and January 1, 1999 to July 20, 1999
and for the year ended December 31, 1998 11
Consolidated Statements of Stockholders' Equity for the periods from
July 21, 1999 to December 31, 1999 and January 1, 1999 to July 20,
1999 and for the year ended December 31, 1998 12
Consolidated Statements of Cash Flows for the periods from July 21, 1999
to December 31, 1999 and January 1, 1999 to July 20, 1999 and for the
year ended December 31, 1998 13
Notes to Consolidated Financial Statements 14
Consolidated Balance Sheets as of June 30, 2000 (unaudited) 25
Consolidated Statements of Operations for the six month periods ended
June 30, 2000 and 1999 (unaudited) 26
Consolidated Statements of Stockholders' Equity for the six month
periods ended June 30, 2000 and 1999 (unaudited) 27
Consolidated Statements of Cash Flows for the six month periods ended
June 30, 2000 and 1999 (unaudited) 28
</TABLE>
(b) Pro forma financial information:
The following unaudited pro forma combined condensed financial
information is based upon the historical financial statements of the Company and
RedChip and has been prepared to illustrate the effects of the acquisition of
RedChip.
The unaudited pro forma combined condensed balance sheet as of June 30,
2000, gives effect to the RedChip acquisition, as if the acquisition had been
completed on June 30, 2000 and was prepared based upon the balance sheets of the
Company and RedChip as of June 30, 2000.
The unaudited pro forma combined condensed statements of operations for
the 3 month period ended June 30, 2000 and the year ended March 31, 2000 give
effect to the transaction described above as if the transaction had been
completed at the beginning of the fiscal year ended March 31, 2000. The
unaudited pro forma combined condensed statement of operations for the 3 month
period ended June 30, 2000 was prepared based upon the separate unaudited
financial statements of the Company and RedChip for the 3 month period ended
June 30, 2000. The unaudited pro forma combined condensed statements of
operations for the year ended March 31, 2000 was prepared based upon separate
historical consolidated financial statement of the Company for the year ended
March 31, 2000 and the consolidated financial statements of RedChip for the year
ended December 31, 1999. As the comparative RedChip periods presented in the
combined pro forma financial statements were for the 12 month period ended
December 31, 1999 and the 3
3
<PAGE> 4
month period ended June 30, 2000, the unaudited historical consolidated
financial statements for RedChip for the 3 month period ended March 31, 2000
have not been presented. The unaudited consolidated loss for RedChip's 3 month
period ended March 31, 2000 was $2,227,549.
The unaudited pro forma combined condensed financial information is provided for
comparative purposes only and is not indicative of the results of operations or
financial position of the combined companies that would have occurred had the
acquisition of RedChip occurred at the beginning of the periods presented or on
the date indicated, nor is it indicative of future operating results or
financial position. The unaudited pro forma adjustments are based upon currently
available information and upon certain assumptions that management of the
Company believes are reasonable under the circumstances. The unaudited pro forma
combined condensed financial information and the related notes thereto should be
read in conjunction with the Company's consolidated financial statements and the
related notes, included in the Company's fiscal 2000 Form 10-KSB and fiscal 2001
first quarter Form 10Q, and the financial statements of RedChip which are listed
in item 7 (a) above. The RedChip financial information has been prepared in
accordance with generally accepted accounting principles and include all
adjustments, consisting of normal recurring accruals considered necessary for a
fair presentation.
The RedChip acquisition will be accounted for using the purchase method of
accounting. Accordingly, the Company's cost to acquire RedChip will be allocated
to the assets acquired and the liabilities assumed according to their estimated
fair values as of the date of the RedChip acquisition. As of the date of
acquisition, the book value of RedChip's property and equipment was estimated to
equal the respective fair value.
4
<PAGE> 5
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Unaudited Pro Forma Combined Condensed Balance Sheet
As of June 30, 2000
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
As of June 30, 2000
---------------------------------------------------------------
FRT RedChip Pro Forma Combined
June 30, 2000 June 30, 2000 Adjustment FRT & RedChip
------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,325 31 10,002 A 9,801
(827) A
(730) B
Accounts receivable, net 1,927 302 2,229
Prepaid expenses and other current assets 567 61 628
------- ------ -------- -------
Total current assets 3,819 394 8,445 12,658
------- ------ -------- -------
Property, plant and equipment, net 1,115 862 1,977
Goodwill 4,332 (4,332) C 18,634
18,634 C
Investment in subsidiary -- -- 16,925 B --
(16,925) C
Other assets, net 726 162 888
------- ------ -------- -------
$ 5,660 5,750 22,747 34,157
======= ====== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to stockholders -- 298 298
Subordinated debt -- 525 525
Current portion of capital lease obligations 23 -- 23
Trade accounts payable 4,700 1,368 6,068
Accrued expenses 74 184 258
Payable to stockholders -- 134 134
Deferred revenue 264 554 818
------- ------ -------- -------
Total current liabilities 5,061 3,063 -- 8,124
------- ------ -------- -------
Long-Term Liabilities -- 64 64
Notes payable to stockholders, excluding current portion 11 -- 11
Capital lease obligations, net of current portion 21 -- 21
Stockholders' equity:
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;
7,640,622 issued and outstanding, actual, and 15,233,268
shares issued, pro forma (including pro forma shares
issued in the RedChip acquisition and the private
placement) 7,897 54 (54) C 33,267
16,195 B
9,175 A
APIC -- 10,064 (10,064) C --
Notes receivable -- (1,005) 1,005 C --
Accumulated deficit (7,262) (6,490) 6,490 C (7,262)
Unearned compensation (68) -- (68)
------- ------ -------- -------
Total stockholders' equity 567 2,623 22,747 25,937
Commitments and contingencies
------- ------ -------- -------
$ 5,660 5,750 22,747 34,157
======= ====== ======== =======
</TABLE>
See Notes to Unaudited Pro Forma Combined
Condensed Financial Information.
5
<PAGE> 6
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Unaudited Pro Forma Combined Condensed Statement of Operations
For the Three Months Ended June 30, 2000
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For the Three Months ended June 30, 2000
----------------------------------------------------------------
FRT RedChip Pro Forma Combined
6/30/00 6/30/00 Adjustments FRT & RedChip
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues $ 2,978 $ 1,168 4,146
Cost of revenues 884 1,645 2,529
----------- ----------- ----------- -----------
Gross profit 2,094 (477) 1,617
General, administrative, selling and development expenses 2,044 3,601 5,645
Non-cash charge -- stock option grants 159 -- 159
Goodwill amortization -- -- 1,553(D) 1,553
----------- ----------- ----------- -----------
Total general, administrative, selling and development
expenses 2,203 3,601 1,553 7,357
----------- ----------- ----------- -----------
Operating income (loss) (109) (4,078) (5,740)
Interest income (expense) 34 (18) 16
----------- ----------- ----------- -----------
Net loss $ (75) $ (4,096) (1,553) (5,724)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (0.01) (0.38)
=========== ===========
Common shares used in computing basic and diluted loss
per share 7,299,824 14,892,470(E)
=========== ===========
</TABLE>
See Notes to Unaudited Pro Forma
Combined Condensed Financial Information
6
<PAGE> 7
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Unaudited Pro Forma Combined Condensed Statement of Operations
For the Year Ended March 31, 2000
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
For the Year For the Year Year Ended
Ended Ended March 31,
March 31, December 31, 2000
2000 1999 Pro Forma Combined
FRT RedChip Adjustments FRT & RedChip
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenues $ 7,198 $ 1,432 8,630
Cost of revenues 5,507 1,301 6,808
----------- ----------- ----------- -----------
Gross profit 1,691 131 1,822
General, administrative, selling and development expenses 4,717 3,309 8,026
Non-cash charge -- stock option grants 1,425 -- 1,425
Goodwill amortization -- -- 6,211 (D) 6,211
----------- ----------- ----------- -----------
Total general, administrative, selling and development
expenses 6,142 3,309 6,211 15,662
----------- ----------- ----------- -----------
Operating income (loss) (4,451) (3,178) (13,840)
Interest income (expense) 71 (62) 9
----------- ----------- ----------- -----------
Net loss $ (4,380) $ (3,240) (6,211) (13,831)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (0.69) (0.99)
=========== ===========
Common shares used in computing basic and diluted loss
per share 6,392,543 13,985,189 (E)
=========== ===========
</TABLE>
See Notes to Unaudited Pro Forma
Combined Condensed Financial Information
7
<PAGE> 8
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
A. As a condition of the closing of the merger transaction,
FreeRealTime.com was to complete a Private Placement of the Company's
stock or other equity securities to raise an aggregate gross proceeds of
a minimum of $5,000,000. On August 15, 2000 the Company issued 3,810,367
shares of common stock in a private placement which raised $9,175,614 of
cash, net of $826,599 in expenses.
B. To record the FreeRealTime.com shares issued to acquire RedChip and the
related acquisition costs.
C. To reflect the excess of acquisition cost over the estimated fair value
of the net assets acquired (goodwill) and the elimination of RedChip's
equity accounts against the FreeRealTime.com investment in subsidiary.
The purchase price and goodwill calculation are summarized as follows
(calculated as if the combination occurred at June 30, 2000):
<TABLE>
<CAPTION>
<S> <C>
Purchase price paid as:
Common shares issued $ 17,200,000
Common shares returned to
cancel shareholder notes $ (1,005,000)
------------
16,195,000
Acquisition costs 730,000
------------
Total Purchase Price $ 16,925,000
Allocated to:
Fair value of RedChip.com identifiable
assets and liabilities, net (1,709,000)
Excess of purchase price over
fair value of net liabilities acquired $ 18,634,000
</TABLE>
D. Reflects amortization expense of $6,211,333 and $1,552,833 for the year
ended March 31, 2000 and the 3 months ended June 30, 2000, respectively,
related to the goodwill of $18,634,000 recorded in the acquisition of
RedChip.com, Inc. Goodwill will be amortized over a period of 3 years.
E. Pro Forma basic weighted average shares was calculated by adding the
4,000,000 shares of common stock issued by the Company, less the shares
returned to cancel shareholder notes of 217,721, in the RedChip
acquisition and the 3,810,367 shares issued by the Company in the
private placement on August 15, 2000 to the weighted average common
shares as reported in the consolidated financial statements of the
Company for the respective periods. No common stock equivalents were
added for either pro forma period as each pro forma statement of
operations resulted in a net loss and the effects would be antidilutive.
(c) Exhibits
See Exhibit Index on Page 29
8
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
RedChip.com, Inc.:
We have audited the accompanying consolidated balance sheets of RedChip.com,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the periods from July 21, 1999 to December 31, 1999 and January
1, 1999 to July 20, 1999, and for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 RedChip.com, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the periods from July 21, 1999 to December
31, 1999 and January 1, 1999 to July 20, 1999, and for the year ended December
31, 1998, in conformity with accounting principles generally accepted in the
United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant losses from
operations and has limited working capital that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are described in Note 1. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon
March 10, 2000 (except with respect to the
the matter discussed in Note 11 as to
which the date is September 1, 2000)
9
<PAGE> 10
REDCHIP.COM, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
| Predecessor
1999 | 1998
----------- | -----------
<S> <C> | <C>
CURRENT ASSETS: |
Cash and cash equivalents $ 30,166 | $ 5,772
Accounts receivable, net of allowance for doubtful |
accounts of $8,720 and $23,285, respectively 78,923 | 32,824
Other current assets 41,531 | 42,695
----------- | -----------
Total current assets 150,620 | 81,291
|
PROPERTY AND EQUIPMENT 198,696 | 32,090
|
GOODWILL 4,486,209 | --
|
OTHER ASSETS 181,669 | 24,859
----------- | -----------
$ 5,017,194 | $ 138,240
=========== | ===========
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
CURRENT LIABILITIES: |
Accounts payable $ 825,144 | $ 208,862
Accrued liabilities 91,000 | 54,828
Payable to stockholders 187,448 | --
Payable to affiliates 331,980 | 44,288
Deferred compensation 20,633 | 91,984
Deferred revenue 601,863 | 513,097
Bridge loans 300,000 | 249,980
Notes payable to stockholders 284,869 | 284,869
Subordinated debt 525,000 | --
----------- | -----------
Total current liabilities 3,167,937 | 1,447,908
|
SUBORDINATED DEBT -- | 481,911
|
COMMITMENTS (Note 9) |
|
STOCKHOLDERS' EQUITY: |
Preferred stock, $0.01 par value; 1,000,000 shares |
authorized; none issued and outstanding -- | --
Common stock, $0.01 par value; 19,000,000 shares |
authorized; 7,869,818 issued and outstanding at |
December 31, 1999 32,798 | --
Common stock, no par value; 1,000,000 shares |
authorized; 135,506 issued and outstanding at |
December 31, 1998 -- | 2,541,918
Additional paid-in capital 5,214,349 | 136,070
Notes receivable (1,005,000) | --
Retained deficit (2,392,890) | (4,469,567)
----------- | -----------
Total stockholders' equity 1,849,257 | (1,791,579)
----------- | -----------
$ 5,017,194 | $ 138,240
=========== | ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
10
<PAGE> 11
REDCHIP.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS FROM JULY 21, 1999 TO DECEMBER 31, 1999 AND
JANUARY 1, 1999 TO JULY 20, 1999 AND FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
| Predecessor
| -----------------------------------
July 21, 1999 to | January 1, 1999 to
December 31, 1999 | July 20, 1999 1998
----------------- | ------------------ -----------
<S> <C> | <C> <C>
REVENUES: |
Subscription revenue $ 274,011 | $ 526,424 $ 1,382,533
Corporate services revenue 333,945 | 136,465 460,281
Other revenue 86,840 | 74,465 179,989
----------- | ----------- -----------
Total revenue 694,796 | 737,354 2,022,803
|
COST OF REVENUES 1,040,771 | 260,266 717,054
----------- | ----------- -----------
GROSS MARGIN (DEFICIT) (345,975) | 477,088 1,305,749
----------- | ----------- -----------
|
OPERATING EXPENSES: |
Production and development 701,402 | 431,243 907,281
Sales and marketing 403,587 | 216,587 409,988
General and administration 733,546 | 564,371 501,638
Depreciation and amortization 187,199 | 71,370 67,838
----------- | ----------- -----------
Total operating expenses 2,025,734 | 1,283,571 1,886,745
----------- | ----------- -----------
|
NET LOSS BEFORE INTEREST EXPENSE (2,371,709) | (806,483) (580,996)
|
INTEREST EXPENSE 21,181 | 40,649 100,081
----------- | ----------- -----------
NET LOSS $(2,392,890) | $ (847,132) $ (681,077)
=========== | =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
11
<PAGE> 12
REDCHIP.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIODS FROM JULY 21, 1999 TO DECEMBER 31, 1999 AND
JANUARY 1, 1999 TO JULY 20, 1999 AND FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital
--------------------------- ---------------------------- Stock
Shares Capital Shares Capital Subscriptions
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 -- $ 80,100 $ 1,710,818 $ 482,100
Net loss -- -- -- -- --
Common shares issued -- -- 55,406 831,100 (482,100)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1998 -- -- 135,506 2,541,918 --
Net loss -- -- -- -- --
Preferred shares issued 70,745 650,005 -- -- --
Preferred shares converted
to common shares (70,745) (650,005) 70,745 650,005 --
Common shares issued -- -- 800 10,500 --
----------- ----------- ----------- ----------- -----------
BALANCE, July 20, 1999 -- -- 207,051 3,202,423 --
----------- ----------- ----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------
BALANCE, July 21, 1999 -- -- 6,060,887 14,709 --
Issuance of common stock for
private placement, net of
expenses -- -- 1,808,931 18,089
Net loss -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1999 -- $ -- 7,869,818 $ 32,798 $ --
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-In Notes Retained Stockholders'
Capital Receivable Deficit Equity
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 136,070 $ -- $(3,788,490) $(1,459,502)
Net loss -- -- (681,077) (681,077)
Common shares issued -- -- -- 349,000
----------- ----------- ----------- -----------
BALANCE, December 31, 1998 136,070 -- (4,469,567) (1,791,579)
Net loss -- -- (847,132) (847,132)
Preferred shares issued -- -- -- 650,005
Preferred shares converted
to common shares -- -- -- --
Common shares issued -- -- -- 10,500
----------- ----------- ----------- -----------
BALANCE, July 20, 1999 136,070 -- (5,316,699) (1,978,206)
----------- ----------- ----------- -----------
-------------------------------------------------------------------------------------------------------
BALANCE, July 21, 1999 2,382,837 (1,005,000) -- 1,392,546
Issuance of common stock for
private placement, net of
expenses 2,831,512 -- -- 2,849,601
Net loss -- -- (2,392,890) (2,392,890)
----------- ----------- ----------- -----------
BALANCE, December 31, 1999 $ 5,214,349 $(1,005,000) $(2,392,890) $ 1,849,257
=========== =========== =========== ===========
</TABLE>
12
<PAGE> 13
REDCHIP.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS FROM JULY 21, 1999 TO DECEMBER 31, 1999 AND
JANUARY 1, 1999 TO JULY 20, 1999 AND FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
| Predecessor
| -----------------------------------
July 21, 1999 to | January 1, 1999 to
December 31, 1999 | July 20, 1999 1998
----------------- | ------------------ -----------
<S> <C> | <C> <C>
CASH FLOWS FROM OPERATING |
ACTIVITIES: |
Net loss $(2,392,890) | $ (847,132) $ (681,077)
Adjustments to reconcile net |
loss to net cash used in |
operating activities- |
Depreciation and |
amortization 187,199 | 71,370 67,838
Changes in net assets and |
liabilities- |
Accounts receivable (64,833) | 30,010 22,648
Accounts receivable from |
affiliate -- | -- 54,104
Other current assets (9,861) | 11,025 (7,185)
Accounts payable 516,849 | 128,579 34,844
Accrued liabilities 26,549 | (4,983) 34,624
Payable to stockholders (1,027,974) | -- --
Payable to affiliate 331,980 | (4,131) 44,288
Deferred compensation -- | (21,351) 91,984
Deferred revenue (93,656) | 182,422 (396,810)
----------- | ----------- -----------
Net cash used in (2,526,637) | (454,191) (734,742)
operating activities |
----------- | ----------- -----------
CASH FLOWS FROM INVESTING |
ACTIVITIES: |
Purchase of property and |
equipment (180,920) | (30,023) (3,641)
----------- | ----------- -----------
Net cash used in |
investing activities (180,920) | (30,023) (3,641)
----------- | ----------- -----------
CASH FLOWS FROM FINANCING |
ACTIVITIES: |
Net short-term borrowings 300,000 | (79,462) --
Payments on short-term debt (2,370,518) | -- 199,980
Payments on notes payable to |
stockholders -- | -- 169,869
Issuance of common shares 2,615,056 | 660,505 349,000
Costs to issue common shares (79,416) | -- --
----------- | ----------- -----------
Net cash provided by |
financing activities 465,122 | 581,043 718,849
----------- | ----------- -----------
NET INCREASE (DECREASE) IN CASH |
AND CASH EQUIVALENTS (2,242,435) | 96,829 (19,534)
|
CASH AND CASH EQUIVALENTS AT |
BEGINNING OF PERIOD $2,272,601 | $ 5,772 $ 25,306
---------- | ---------- ----------
CASH AND CASH EQUIVALENTS AT |
END OF PERIOD $ 30,166 | $ 102,601 $ 5,772
========== | ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH |
FLOW INFORMATION: |
Conversion of bridge loan to |
common shares $ 150,000 | $ -- $ --
Conversion of accrued private |
placement expenses to common |
shares 183,510 | -- --
Costs to issue common shares 19,549 | -- --
|
CASH PAID FOR INTEREST 37,576 | 26,435 38,113
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
(Continued)
13
<PAGE> 14
REDCHIP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
RedChip.com, Inc. (the Company), a Delaware corporation, was in late June 1999
for the purpose discussed below. The Company completed the acquisition of Crown
Point Publishing, Inc. (CPPI) on July 21, 1999. The Company operates under a
fiscal year ending December 31.
RedChip.com, Inc. is a vertical portal, serving small-cap companies and the
investors who follow them. The Company provides proprietary research and
targeted information on emerging growth companies and undiscovered small-cap
values. The Company's analysts, reporters, and editorial staff are focused
exclusively on the small-cap market. The Company's strategy is to become a
leader in providing broad coverage and in-depth analysis in the small-cap arena.
In addition to research, news and commentary, the Company provides investors
with trading information, investment tools, community features and education.
For corporate clients, the Company provides a high-quality platform to
communicate with the investment community and access to "blue chip" services.
The Company is in the process of developing services to provide access to online
offerings for IPOs, follow-ons, and private placements through its RedChip
Direct subsidiary.
Crown Point Publishing, Inc., an Oregon corporation, was a financial research
publishing company. CPPI published The Red Chip Review and hosted conferences
for investors. The CPPI stock was acquired by the Company from the former
stockholders on July 21, 1999 in exchange for cash and common stock of the
Company.
Liquidity
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The Company
incurred a net loss of $2,392,890 for the period from July 21, 1999 to December
31, 1999.
The Company expects to incur additional expenditures to further develop, market
and sell its services. The Company's working capital at December 31, 1999 plus
limited revenue from sales will not be sufficient to meet such objectives
without additional financing. Management recognizes that the Company must
generate additional financial resources or other reductions in operating costs
to enable it to continue operations with available resources. Management's plans
include consideration of the sale of equity securities under appropriate market
conditions, solicitation of support from existing stockholders or alliances with
other interested entities with resources to support the Company's ongoing
operations, which would generate sufficient resources to assure continuation of
the Company's operations and development programs.
14
<PAGE> 15
Management expects that their efforts to raise equity capital will result in the
introduction of other parties with interests and resources which may be
compatible with the Company. However, no assurances can be given that the
Company will be successful in raising additional capital. Further, there can be
no assurance, assuming the Company successfully raises additional funds or
enters into a business alliance, that the Company will achieve profitability or
positive cash flow.
Subsequent to year-end, the Company completed a second private placement of
shares of the Company's common stock for total proceeds of $4,768,800 (see Note
10 for further discussion).
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value
The carrying value of financial instruments approximates fair value, unless
otherwise disclosed.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid investments and have a
maturity at the date of purchase of three months or less.
Property and Equipment
Depreciation on fixed assets, which consist of computers, software and
furniture, and leasehold improvements, is calculated on a straight-line basis
over the estimated useful lives of three to five years. Depreciation expense for
the year ended December 31, 1998, the period from January 1, 1999 to July 20,
1999 and the period from July 21, 1999 to December 31, 1999 was $24,923, $19,588
and $15,148, respectively.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. For purposes of evaluating the recoverability
of long-lived assets, the recoverability test is performed using undiscounted
net cash flows of the asset.
Segment Reporting
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS 131)
for the year ended December 31, 1998. Based upon definitions contained within
SFAS 131, the Company has determined that it operates in one segment. In
addition, all sales are domestic.
15
<PAGE> 16
Goodwill
Goodwill represents the consideration in excess of the fair market value of the
assets acquired in the acquisition of CPPI. Goodwill amortization is calculated
on a straight-line basis over 15 years. Amortization expense was $137,555 for
the period from July 21, 1999 to December 31, 1999.
Deferred Loan Costs
Deferred loan costs are amortized over the maturity period of the related debt
and are included in other assets in the accompanying consolidated balance
sheets. Deferred loan costs were fully amortized as of December 31, 1999.
Amortization expense was $15,701, $8,694 and $16,165 for the year ended December
31, 1998, the period from January 1, 1999 to July 20, 1999 and the period from
July 21, 1999 to December 31, 1999, respectively.
Subscription Revenue
Revenue from the sale of subscriptions is recognized over the term of the
subscription. In most cases, the subscription term is for twelve months or less.
Therefore, the unearned portion of subscription revenue is shown as a current
liability.
Corporate Services Revenue
Corporate services revenue is generated by the Company's RedChip Partners
subsidiary, which provides strategic business services, including investor
awareness programs delivered through the Company's website and participation in
investor conferences that the Company sponsors. Corporate services revenues are
recognized ratably over the contract term for Investor Awareness programs and as
services are provided for other events.
Other Revenue
Other revenue consist of sales of research reprints, individual research report
downloads from the Company's website and other one-time sales. Other revenues
are recognized as the products are sold.
Income Taxes
The Company is a C corporation and accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under SFAS 109, deferred tax assets and liabilities are
recorded based on the tax effected difference between the tax bases of assets
and liabilities and their carrying amount for financial reporting purposes,
referred to as "temporary differences," using enacted marginal income tax rates.
Comprehensive Income
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). This
statement establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial statements.
The objective of SFAS 130 is to report a measure of all changes in equity of an
enterprise that result from transactions with owners. The Company has adopted
SFAS 130. Comprehensive loss did not differ from net loss for any of the periods
presented.
16
<PAGE> 17
Recent Accounting Pronouncements
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133" (SFAS 137). SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 also requires that changes in the
derivative instrument's fair value be recognized currently in results of
operations unless specific hedge accounting criteria are met. SFAS 137 amends
SFAS 133 such that it is now effective for fiscal years beginning after June 15,
2000. The Company does not have any derivative instruments and, accordingly,
adoption of SFAS 133 will not have a material impact on the Company's financial
condition or results of operations.
2. ACQUISITION:
On July 21, 1999, the Company completed a plan of merger that resulted in the
acquisition of CPPI by the Company (the Acquisition). The former stockholders of
CPPI received, at their option, cash of $12.08 per CPPI share or shares of the
Company's common stock at a conversion rate of 7.39 to 1. The Company has paid
or will pay $1,175,265 in cash and issued 811,378 shares of common stock, valued
at $1,322,546, to the former stockholders of CPPI. As the cash payments were
made subsequent to July 21, 1999, this amount was recorded as a payable to
stockholders in the accompanying consolidated balance sheets. As of December 31,
1999, $134,366 remains to be paid to the former stockholders.
The Company financed the Acquisition through bridge loans received from Roth
Capital Partners, the Company's sole stockholder prior to the Acquisition. In
forming RedChip.com, Inc., Roth Capital Partners contributed $2,350,000 as a
bridge loan to be repaid with the proceeds of an anticipated private placement
of the Company's common stock. In addition, Roth Capital Partners contributed
the business plan for the Company and entered into a strategic alliance
agreement in exchange for 4,590,000 shares of the Company's common stock. No
amounts were recorded in connection with this contribution.
Pursuant to employment agreements with certain key members of the Company's
management, the Company granted the right to purchase additional shares of the
Company's common stock to these individuals. A total of 659,509 shares of common
stock were issued to three employees at $1.63 per share. The Company issued
$1,005,000 in notes receivable to these employees to finance the purchase of
common stock, with the remainder of the share price of $70,000 paid in cash and
forgiveness of certain deferred compensation owed to one of the employees. The
notes receivable are recorded as a reduction of stockholders' equity in the
accompanying consolidated balance sheets.
The transactions discussed above were a series of planned transactions executed
to form the Company and consummate the Acquisition of CPPI. Accordingly, this
series of transactions has been reflected as if they occurred on July 21, 1999.
The financial statements with respect to periods prior to July 21, 1999, reflect
the financial position and results of operations of the Company prior to the
Acquisition (the Predecessor). There was no activity of the Company from the
formation date to the date of Acquisition, thus no results prior to the
Acquisition are included for the Company.
The acquisition of CPPI was accounted for as a purchase. The total purchase
price was comprised of cash of $1,175,265, common stock valued at $1,322,546,
and fees and expenses of $212,656 related to the Acquisition. The aggregate
consideration has been allocated to the assets and liabilities of CPPI, based on
fair market value as of July 21, 1999. The excess of the purchase price over the
assets acquired and liabilities assumed totaling $4,623,764, was allocated to
goodwill.
17
<PAGE> 18
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
| Predecessor
| -----------
1999 | 1998
--------- | ---------
<S> <C> | <C>
Leasehold improvements $ 29,595 | $ --
Equipment 184,249 | 159,167
--------- | ---------
213,844 | 159,167
Less- Accumulated depreciation (15,148) | (127,077)
--------- | ---------
$ 198,696 | $ 32,090
========= | =========
</TABLE>
4. OTHER ASSETS:
Other assets include a $200,000 loan made to Marcus Robins, the Company's chief
executive officer, pursuant to his employment agreement with the Company. The
loan bears interest at a rate of 7% and is due on the fifth anniversary of the
date of the loan, or within 180 days after termination of employment, as
defined, whichever is earlier. However, the loan will be forgiven on the fifth
anniversary of the date of the loan if Marcus Robins is still an employee of the
Company. As such, the loan has been recorded as other assets and will be
amortized over the five-year term of the loan. Amortization expense for the
period ended December 31, 1999 was $18,331.
5. DEBT:
Short-Term Debt
At December 31, 1998, the Company had outstanding $49,980 on a 10.25% term loan,
payable in monthly installments of $3,526 through January 2000. The loan was
fully repaid as of December 31, 1999.
In October 1998, the Company borrowed $200,000 from an investor. Interest on the
note is based on an annual rate of 10%. The loan was fully repaid prior to the
Acquisition.
Bridge Loan
The Company has an outstanding bridge loan of $300,000, which bears interest at
8% and is due December 8, 2000, or the earlier of the date upon which the
Company closes a debt or equity financing with gross proceeds of $3,000,000 or
more (Note 10) or the closing of the acquisition of the Company (whether by way
of merger, purchase of all or a controlling interest in stock, purchase of
substantially all assets or otherwise).
Subordinated Debt
The Company has outstanding $525,000 of 10% Subordinated Promissory Notes, which
are due July 31, 2000. These notes are unsecured and are not subject to
redemption prior to maturity. Each $25,000 note had a warrant entitling the
holder to purchase 3,695 shares of the Company's common stock at $6.76 per
share. These warrants were cancelled in connection with the Acquisition.
18
<PAGE> 19
6. STOCKHOLDERS' EQUITY:
Prior to the Acquisition
Subsequent to December 31, 1998, CPPI issued, in two installments, 70,745 shares
of Series A Convertible Preferred Stock (the Preferred Stock) at a price per
share of $9.188 for a total amount of $650,005. Each share of Preferred Stock
was convertible, at the holders option, into one share of CPPI's common stock.
Prior to the Acquisition, the Preferred Stock was converted into 70,745 shares
of CPPI's common stock.
Preferred Stock
No shares of preferred stock of the Company are outstanding at December 31,
1999. The Board of Directors has the authority, without further action by the
stockholders, to issue the authorized shares of preferred stock in one or more
series and to fix the rights, preferences and privileges thereof, including
voting rights, terms of redemption, redemption prices, liquidation preferences,
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. Although it presently has no
intention to do so, the Board of Directors, without stockholder approval, may
issue preferred stock with voting and conversion rights which could adversely
affect the voting power of the holders of common stock. This provision may be
deemed to have a potential anti-takeover effect, and the issuance of preferred
stock in accordance with such provision may delay or prevent a change of control
of the Company.
Common Stock
Holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Subject to preferences that may be applicable to
the holders of outstanding shares of preferred stock, if any, the holders of
common stock are entitled to receive such lawful dividends as may be declared by
the Board of Directors. In the event of liquidation, dissolution or winding up
of the Company, and subject to the rights of the holders of outstanding shares
of preferred stock, if any, the holders of shares of common stock shall be
entitled to receive all of the remaining assets of the Company available for
distribution to its stockholders after satisfaction of all its liabilities and
the payment of any liquidation preference of any outstanding preferred stock.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and nonassessable,
with the exception of certain shares sold in exchange for notes receivable (Note
2).
On September 30, 1999, the Company completed a private placement of shares of
the Company's common stock. The Company sold 1,604,326 shares at $1.63 per
share, and received net proceeds of $2,516,091. Such proceeds were used to repay
$2,350,000 of the bridge loans. The remaining $150,000 bridge loan was converted
to common stock, with Roth Capital Partners receiving 92,024 shares in exchange
for the conversion of the bridge loan. In addition, $183,510 of expenses payable
to Roth Capital Partners in connection with the private placement were converted
into 112,581 shares of common stock.
Stock Options
CPPI had an Incentive Stock Option Plan (the Incentive Plan), under which 25,000
shares of common stock were reserved for issuance under qualified options,
nonqualified options, stock appreciation rights and other awards as set forth in
the Incentive Plan.
19
<PAGE> 20
In connection with the acquisition, the Company adopted a Stock Incentive Plan
(the Plan), under which 1,350,000 shares of common stock are reserved for
issuance under qualified options, nonqualified options and other awards as set
forth in the Plan. Subsequent to the acquisition, the Plan was amended to
reserve an additional 650,000 shares, for a total of 2,000,000 shares. The Plan
provides for administration by a Committee comprised of not less than two
members of the Company's Board of Directors. Such Committee (or the Board of
Directors in its absence) determines the number of shares, option price,
duration and other terms of the options granted under the Plan. Qualified
options are available for issuance to employees of the Company. Nonqualified
options are available for issuance to employees, consultants, advisors and
others having a relationship with the Company, on terms as determined by the
Committee. Under the Plan, the exercise price of a qualified option cannot be
less than the fair market value on the date of grant and the exercise price of a
nonqualified option cannot be less than 85% of the fair market value on the date
of grant. Options granted under the Plan generally vest two to four years from
the date of grant and generally expire five years from the date of grant or
earlier upon certain events, as defined in the Plan.
If the person to whom the option is granted is a 10% stockholder on the date of
grant, the exercise price cannot be less than 110% of the fair market value on
the date of the grant. In connection with the acquisition, the Company granted
options to purchase 1,035,258 shares of the Company's common stock at an
exercise price of $1.63 per share, which was determined to be the fair market
value of the Company's common stock at the date of grant.
The following is a summary of stock option activity and number of shares
reserved for outstanding options:
<TABLE>
<CAPTION>
Number of Number of Weighted
Reserved Shares Options Average
Available Outstanding Option Price
--------------- ----------- ------------
<S> <C> <C> <C>
Outstanding at December 31, 1998 --
Predecessor 19,025 5,975 $80.00
---------- ---------- ------
Outstanding at July 20, 1999 --
Predecessor 19,025 5,975 $80.00
========== ========== ======
-----------------------------------------------------------------------------------------
Outstanding at July 21, 1999 1,350,000 -- $ --
Additional shares reserved 650,000 --
Granted (1,335,734) 1,335,734 1.63
Canceled 3,900 (3,900) 1.63
---------- ---------- ------
Outstanding at December 31, 1999 668,166 1,331,834 $ 1.63
========== ========== ======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number of Shares Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices December 31, 1999 Life -- Years Price December 31, 1999 Price
--------- ----------------- ------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.63 1,331,834 4.6 $ 1.63 392,211 $ 1.63
</TABLE>
20
<PAGE> 21
Statement of Financial Accounting Standards No. 123
During 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), which defines a fair
value based method of accounting for an employee stock option and similar equity
instruments and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the method
of accounting prescribed by APB 25. Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plan under
APB 25; however, the Company will compute, for pro forma disclosure purposes,
the value of all options granted as part of and subsequent to the acquisition
and future grants using the Black-Scholes option pricing model as prescribed by
SFAS 123, using the following weighted average assumptions for grants subsequent
to the Acquisition and in 1997 (no other grants were made prior to the
Acquisition):
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------
| Predecessor
| -----------
1999 | 1997
------- | -----------
<S> <C> | <C>
Risk-free interest rate 5.8% | 6.0%
Expected dividend yield -- | --
Expected lives (years) 4 years | 5 years
Expected volatility 0.0% | 0.0%
</TABLE>
Using the Black-Scholes methodology, the total fair value of options granted for
the period from July 20 to December 31, 1999 was $447,071, which would be
amortized on a pro forma basis over the vesting period of the options (typically
two to four years). The weighted average fair value of options granted during
1999 was $0.29 per share. Using the Black-Scholes methodology, the total fair
value of options granted during 1997, when the last grants were made prior to
the Acquisition, was $115,429, which would be amortized on a pro forma basis
over the vesting period of the options (typically one to five years). The
weighted average fair value of options granted during 1997 was $19.24 per share.
If the Company had accounted for its stock-based compensation plan in accordance
with SFAS 123, the Company's net loss would approximate the pro forma
disclosures below:
<TABLE>
<CAPTION>
| Predecessor
| --------------------------------------------------------------------------
July 21, 1999 to | January 1, 1999 to
December 31, 1999 | July 20, 1999 1998
-------------------------------- | -------------------------------- --------------------------------
As Pro | As Pro As Pro
Reported Forma | Reported Forma Reported Forma
----------- ----------- | ----------- ----------- ----------- -----------
<S> <C> <C> | <C> <C> <C> <C>
Net loss $(2,392,890) $(2,572,678) | $ (847,132) $ (859,612) $ (681,077) $ (704,117)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts.
21
<PAGE> 22
7. INCOME TAXES:
As of December 31, 1999, the Company had federal net operating loss (NOL)
carryforwards of approximately $4.7 million. If not applied against future
taxable income, the federal NOL carryforwards will expire in the years 2012
through 2019. Changes in the Company's ownership, as a result of the Acquisition
or other transactions (Notes 2 and 11), may cause an annual limitation on the
amount of carryforwards that can be utilized. As of December 31, 1999 and 1998,
the Company had net deferred tax assets of $1,828,719 and $673,910,
respectively, primarily resulting from NOL carryforwards. In accordance with
SFAS 109, at December 31, 1999 and 1998, a valuation allowance was recorded to
reduce net deferred tax assets to zero.
The significant components of the Company's deferred tax assets and liabilities
as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
| Predecessor
| -----------
1999 | 1998
----------- | -----------
<S> <C> | <C>
Components of deferred tax assets- |
Accrued salaries and benefits $ 8,492 | $ 3,860
Accrued expenses -- | 10,593
Allowance for doubtful accounts 3,366 | 8,988
Net operating loss and other tax credit carryforwards 1,822,864 | 650,869
----------- | -----------
Total deferred tax assets 1,835,722 | 674,310
|
Components of deferred tax liability- |
Fixed assets (7,003) | (400)
|
Valuation allowance (1,828,719) | (673,910)
----------- | -----------
Net asset $ -- | $ --
=========== | ===========
</TABLE>
The reconciliation between the effective tax rate and the statutory federal tax
rate on net loss as a percentage is as follows for the years ending December 31:
<TABLE>
<CAPTION>
| Predecessor
| -----------
1999 | 1997
----- | -----------
<S> <C> | <C>
Statutory federal income tax rate 34.0 | 34.0
State taxes, net of federal tax benefit 4.6 | 4.6
Effect of change in valuation allowance (38.6) | (38.6)
----- | -----
-- | --
===== | =====
</TABLE>
8. RELATED PARTY TRANSACTIONS:
Prior to the Acquisition
Crown Point Group Ltd. (Group) and Crown Point Securities, Incorporated
(Securities), companies for which Marcus Robins was a major shareholder and
served as an officer and director, leased office space and purchased services
from CPPI. Mr. Robins was the CEO and a major shareholder of CPPI.
22
<PAGE> 23
During 1998, Group and Securities paid $7,500 to CPPI for services. At December
31, 1998, CPPI had accounts payable to Group of $16,844.
Payable to Stockholders
At December 31, 1999, there is $187,448 in payable to stockholders of which
$53,082 relates to accrued interest on the notes payable to Marcus and Barbara
Robins and their families.
Payable to Affiliates
At December 31, 1999, there is $331,980 in payable to affiliates of which
$177,480 relates to administrative expenses incurred by the Company's primary
shareholder, Roth Capital Partners, on the Company's behalf.
The remaining $154,500 relates to website advisory and development fees owed to
Millennium Group, Inc. The Managing Partner of Millennium Group, Inc. also
serves on the Board of Directors of the Company.
Notes Payable to Stockholders
At December 31, 1999 and 1998, there were notes payable to Marcus and Barbara
Robins and their family totaling $284,869.
Marcus and Barbara Robins have guaranteed certain debts and leases of the
Company.
Office Space
Roth Capital Partners provides, at no cost, office space and support services in
Minneapolis, San Francisco and Los Angeles. Roth Capital Partners also has
agreed to guarantee the obligations under the office lease in Portland, Oregon.
9. COMMITMENTS:
Operating Leases
The Company leases equipment and facilities under noncancelable operating leases
with various renewal options. Other leases have terms of one year or less. The
following is a schedule, by year, of minimum rental payments due under the
leases described above for the years ending December 31:
<TABLE>
<S> <C>
2000 $ 256,274
2001 277,137
2002 266,493
2003 266,493
2004 266,493
Thereafter 133,246
----------
Total minimum lease payments $1,466,136
==========
</TABLE>
23
<PAGE> 24
10. PRIVATE PLACEMENT:
In February 2000, the Company completed a second private placement of shares of
the Company's common stock. The Company sold 2,056,000 shares at $2.50 per
share, and received net proceeds of $4,768,800. Proceeds will be used to finance
continued expansion of the business, including continued investment in the
website and systems, hiring new employees, increased marketing, promotional and
sales efforts, and for working and general corporate purposes, including capital
expenditures. In addition, a portion of the net proceeds was used to repay
short-term liabilities payable to suppliers, vendors and affiliates, and to
repay the $300,000 bridge loan outstanding at December 31, 1999. In connection
with this financing, the Company paid fees of $310,176 to Roth Capital Partners,
and agreed to issue a warrant to purchase 60,500 shares of common stock at a
price of $2.50 per share to Roth Capital Partners for services provided as the
placement agent.
11. SUBSEQUENT EVENT:
In August 2000, all of the outstanding stock of the Company was sold to
FreeRealTime.com, Inc. (FreeRealTime). FreeRealTime is a leading digital
financial media company which delivers, through its web site, an extensive array
of stock market data, business information, communication tools, and
sophisticated research and investment management tools for institutional
investors, brokers and independent investors.
24
<PAGE> 25
REDCHIP.COM, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30,
2000
-----------
(unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31
Accounts receivable, net 302
Prepaid expenses and other current assets 61
--------
Total current assets 394
--------
Property, plant and equipment, net 862
Goodwill 4,332
Other assets, net 162
--------
$ 5,750
========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to stockholders 298
Subordinated debt 525
Trade accounts payable 1,368
Accrued expenses 184
Payable to stockholders 134
Deferred revenue 554
--------
Total current liabilities 3,063
--------
Long-Term Liabilities 64
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares issued and outstanding --
Common stock, $0.01 par value 19,000,000 shares authorized;
9,925,818 issued and outstanding at June 30, 2000 54
APIC 10,064
Notes receivable (1,005)
Accumulated deficit (6,490)
--------
Total stockholders' equity 2,623
--------
$ 5,750
========
</TABLE>
25
<PAGE> 26
REDCHIP.COM, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
(PREDECESSOR
COMPANY)
June 30, June 30,
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 1,168 $ 680
Cost of revenues 1,645 253
--------- -----
Gross profit (477) 427
Production and development 816 424
Sales and marketing 869 192
General and administration 1,633 551
Depreciation and amortization 283 73
--------- -----
Total general, administrative, selling and development
expenses 3,601 1,240
--------- -----
Operating income (loss) (4,078) (813)
Interest income (expense) (18) (41)
--------- -----
Net loss $(4,096) $(854)
========= =====
</TABLE>
26
<PAGE> 27
REDCHIP.COM, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
----------------- -------------------- Paid-in Notes Retained Stockholders'
Shares Capital Shares Capital Capital Receivable Deficit Equity (Deficit)
------ ------- --------- ------- ---------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 7,869,818 33 5,214 (1,005) (2,393) 1,849
Net loss (unaudited) -- -- (4,096) (4,096)
Common shares issued
(unaudited) 2,056,000 21 4,850 -- -- 4,871
------ ------- --------- ---- ------ ------ ------ ------
Balance, June 30, 2000
(unaudited) 9,925,818 54 10,064 (1,005) (6,489) 2,624
====== ======= ========= ==== ====== ====== ====== ======
</TABLE>
27
<PAGE> 28
REDCHIP.COM, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
(Predecessor
Company)
June 30, June 30,
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss: $(4,096) $(854)
Adjustments to reconcile net loss to net cash used in operating
activities -
Depreciation and amortization 108 73
Changes in net assets and liabilities -
Accounts receivable (222) 5
Accounts receivable from affiliate -- --
Other current assets 154 21
Accounts payable 365 443
Accrued liabilities 72 (55)
Payable to stockholders -- (285)
Payable to affiliate (195) (44)
Deferred compensation -- (92)
Deferred revenue (48) 142
------- -----
Net cash used in operating activities (3,862) (646)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (771) (70)
------- -----
Net cash used in operating activities 771 (70)
------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings -- --
Payments on short-term debt (236) 248
Payments on notes payable to stockholders -- --
Issuance of common shares 4,870 508
Costs to issue common shares
------- -----
Net cash provided by financing activities 4,634 756
NET INCREASE (DECREASE) IN CASH AND CASH
AND CASH EQUIVALENTS 1 40
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD $ 30 $ 6
------- -----
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 31 $ 46
======= =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID FOR INTEREST $ 18 $ 41
</TABLE>
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of June 6, 2000, between
RedChip.com, Inc., a Delaware corporation, and Freerealtime.com,
Inc., a Delaware corporation, as amended (the "Merger
Agreement")(1)
2.2 First Amendment to the Agreement and Plan of Merger dated as of
August 10, 2000, between Freerealtime.com, Inc., a Delaware
corporation, FRT Merger Sub, Inc., a Delaware corporation, and
RedChip.com, Inc., a Delaware corporation(2)
99.1 Joint Press Release, dated June 7, 2000, issued by
Freerealtime.com, Inc.(1)
99.2 Press Release, dated August 21, 2000, issued by Freerealtime.com,
Inc.(2)
(1) Previously filed as an exhibit to Registrant's Form 8-K filed on
June 14, 2000.
(2) Previously filed as an exhibit to Registrant's Form 8-K filed on
September 1, 2000.
</TABLE>
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Freerealtime.com, Inc.
Date: October 31, 2000 By: /s/ Michael Neufeld
-----------------------------------
Michael Neufeld
Executive Vice President, Chief
Financial Officer and Secretary
30
