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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-27493.
FREEREALTIME.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0881720
(State of Incorporation No.) (I.R.S. Employer
Identification No.)
3333 Michelson Drive
Suite 430
Irvine, California
(Address of principal executive offices)
(949) 833-2959
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 10, 2000
--------------------------------------- --------------------------------
<S> <C>
Common Stock, par value $0.01 per share 15,215,808 shares
</TABLE>
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FREEREALTIME.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1 Financial Statements:
Unaudited Condensed Consolidated Balance Sheets-
September 30, 2000 and March 31, 2000 3
Unaudited Condensed Consolidated Statements of Operations-
For the Three Months Ended September 30, 2000 and 1999, and the
Six Months Ended September 30, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 2000 and 1999 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 15
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 17
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FREEREALTIME.COM, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of September 30, 2000 and March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, 2000 March 31, 2000
------------------ --------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,609 $ 2,501
Accounts receivable, net of allowance for
doubtful accounts of $478 and $166, respectively 1,673 1,322
Prepaid expenses and other current assets 680 564
-------- -------
Total current assets 7,962 4,387
-------- -------
Property, plant and equipment, net 2,242 886
Goodwill, net of amortization 18,572
Other assets, net 618 333
-------- -------
$ 29,394 $ 5,606
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ 15
Current installments of loan payable to shareholders 134 --
Current portion of capital lease obligations 20 26
Trade accounts payable 4,567 4,815
Accrued expenses 562 24
Deferred revenue 701 494
-------- -------
Total current liabilities 5,984 5,374
-------- -------
Notes payable to stockholders, excluding current portion -- 12
Capital lease obligations, net of current portion 78 25
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $0.01 par value 50,000,000 shares authorized;
15,450,914 and 7,213,670 issued and outstanding as of
September 30 and March 31, 2000, respectively 34,295 7,708
Treasury stock, 235,096 common shares at September 30, 2000 (1,085) --
Accumulated deficit (9,846) (7,187)
Unearned compensation (32) (326)
-------- -------
Total stockholders' equity 23,332 195
-------- -------
$ 29,394 $ 5,606
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
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FREEREALTIME.COM, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------------- ---------------------------
2000 1999 2000 1999
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 2,801 $ 1,335 $ 5,779 $ 2,840
Cost of revenues 1,422 1,213 2,306 2,830
---------- --------- --------- ---------
Gross profit 1,379 122 3,473 10
General, administrative, selling and development expenses 3,109 907 5,147 1,674
Amortization of goodwill 760 -- 760 --
Merger Expenses 114 -- 114 --
Non-cash charge - stock option grants 34 105 193 543
---------- --------- --------- ---------
Total general, administrative, selling and
development expenses 4,017 1,012 6,214 2,217
Interest expense (income) (55) 6 (82) 9
---------- --------- --------- ---------
Net loss $ (2,583) $ (896) $ (2,659) $ (2,216)
========== ========= ========= =========
Basic and diluted loss per common share $ (0.23) $ (0.13) $ (0.29) $ (0.37)
========== ========= ========= =========
Common shares used in computing basic and diluted
per share amounts 11,346,376 6,730,512 9,323,100 5,946,468
========== ========= ========= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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FREEREALTIME.COM, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months ended September 30, 2000 and September 30, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
-----------------------------
2000 1999
------------ -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,659) $(2,216)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 177 51
Provision for doubtful accounts 260 54
Non-cash charge - stock options 193 543
Receivables (388) (572)
Prepaid expenses and other assets (340) (690)
Amortization of goodwill 760 --
Trade accounts payable and accrued liabilities (1,717) 2,121
Unearned revenue (463) 523
-------- -------
Net cash used in operating activities (4,177) (186)
-------- -------
Cash flows from investing activities:
Cash paid on acquisition, net of cash received (700) --
Capital expenditures (694) (127)
-------- -------
Net cash used in investing activities (1,394) (127)
-------- -------
Cash flows from financing activities:
Advances payable -- (250)
Repayments of long-term debt (21) --
Repayments of short-term debt (709) (33)
Proceeds from issuance of common stock 10,295 4,179
Stock issuance costs (1,058) (446)
Increase (decrease) in note payable to shareholder 172 (28)
-------- -------
Net cash provided by financing activities 8,679 3,422
-------- -------
Net increase in cash 3,108 3,109
Cash at beginning of period 2,501 493
-------- -------
Cash at end of period $ 5,609 $ 3,602
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 17 $ 11
======== =======
Supplemental disclosure of noncash investing and financing activities:
Borrowings related to the acquisition of assets -- 44
======== =======
Unearned compensation related to stock options (3) 76
======== =======
Stock issued to acquire company 17,200 --
======== =======
Stock return to extinguish notes receivable 1,085 --
======== =======
</TABLE>
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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
The condensed consolidated financial statements as of September 30, 2000 and
for the three and six-month periods ended September 30, 2000 and 1999, 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 September 30, 2000 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. The financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended March
31, 2000, which can be found in the Company's Form 10-KSB as filed with the
Securities and Exchange Commission and incorporated herein by this reference.
The results of operations for the three and six-month periods ended September
30, 2000 are 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 (AMOUNTS ARE ACTUAL, NOT IN THOUSANDS)
In June 2000, the Company offered shares of common stock pursuant to a
private placement. The price of each share was $4.50 and 40,268 shares were
issued for total offering proceeds of $181,200 (less issuance costs of $5,000).
The Company relied on a registration exemption under Section 5 of the 1933 Act
to issue these shares without registering the underlying securities.
In August 2000, the Company offered shares of common stock pursuant to a
private placement. The price of each share was $2.625 and 3,810,367 shares were
issued for total offering proceeds of $10,002,000 (less expenses of $1,759,000).
The Company relied on a registration exemption under the 1933 Act to issue these
shares without registering the underlying securities. The Company later filed an
S-1 Registration Statement for these securities on November 14, 2000.
3. ACQUISITIONS
On August 18, 2000, the Company completed its acquisition of RedChip.com, Inc.,
a Delaware corporation. Redchip.com, Inc. was merged with a wholly-owned
subsidiary of the Company. Following the merger, Redchip.com, Inc. survived as a
wholly-owned subsidiary of the Company.
Upon consummation of the merger, each outstanding share of common stock of
RedChip.com, Inc. was converted into the right to receive .3935408 shares of
common stock, $0.01 par value per share, of FreeRealtime.com, Inc. Approximately
4 million shares and certain cash amounts in lieu of fractional shares of
Company common stock were issued upon conversion of outstanding shares of
RedChip.com, Inc. common stock.
Of the total shares issued, approximately 235,000 shares were returned to the
Company to extinguish certain notes receivable held by RedChip.com, Inc. from
certain of its shareholders. The total consideration, as measured based on the
fair value of the Company's common stock at the date the combination was entered
into is summarized below:
<TABLE>
<S> <C>
Common stock issued $ 17,200,000
Value attributed to Company stock options and
warrants granted to retire RedChip.com, Inc.
stock options and warrants 252,000
Acquisition costs - cash 739,000
------------
Total consideration 18,191,000
Net fair value of liabilities acquired 1,141,000
------------
Goodwill $ 19,332,000
============
</TABLE>
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The acquisition was accounted for using the purchase method of accounting. The
Company's financial statements included the results of RedChip.com, Inc. only
from the date of acquisition forward. Goodwill is amortized over three years.
Summarized are certain pro forma operating results as if the combination had
been consummated on April 1, 1999:
<TABLE>
<CAPTION>
Year ended Six months ended
March 31, 2000 September 30, 2000
-------------- ------------------
<S> <C> <C>
Revenue $ 8,630,000 $ 7,288,000
Net income (loss) (13,831,000) (9,076,694)
Basic and diluted loss
per share $ (0.99) $ (0.61)
</TABLE>
The pro forma results for the year ended March 31, 2000 were compiled by
combining the results of the Company for the year ended March 31, 2000 with the
results of RedChip.com, Inc. for the year ended December 31, 1999. The unaudited
loss for RedChip.com, Inc. for the three months ended March 31, 2000 was
$2,228,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with our Consolidated
Financial Statements and notes thereto.
OVERVIEW
We are a Web-centric financial media and investment services company
whose free and subscription based financial products and services are designed
to provide sophisticated on-line home and office based (or "SOHO") investors
with real-time actionable insight into the financial marketplace, and to provide
opportunities to this same audience to execute financial transactions on-line.
Paramount to achieving this mission is to deliver effective solutions to media
and corporate advertisers and to our content and service partners. We currently
use the following mediums to distribute our proprietary and allied content: the
Web through our
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FreeRealTime.com, RedChip.com, BullSession.com, and soon to be launched
DigitalOffering.com Web site; Print, with our RedChip Review, RedChip Gold, and
other RedChip publications; and Radio, with our RedChip radio program broadcast
regionally in the Pacific Northwest. As a media company, we generate the
majority of our revenues from the sale of advertising on FreeRealTime.com and
through email marketing programs, while subscription, service, and transaction
based revenues continue to become a larger part of our revenue stream.
On August 18, 2000, we completed our acquisition of RedChip.com, Inc., a
Delaware corporation ("RedChip"), the award winning investment research and
information firm devoted to "discovering tomorrow's Blue Chips today", whereby
RedChip became a wholly owned subsidiary of FreeRealTime.com. We believe that
over the long term, the merger with RedChip will, among other things, expand
FreeRealTime.com's content offering, enabling us to provide our audience with
broad based financial information including proprietary, institutional quality
independent research on publicly traded companies, as well as access to
information about and transaction opportunities with emerging growth companies
through our affiliate, Digital Offering, Inc. Additionally, the merger will
offer opportunities to expand our overall suite of subscription and
transaction-based services offered to both retail and institutional investors,
and will add new opportunities in providing "business to business" services to
publicly traded companies through our RedChip Partners program ("Partners").
Partners is primarily an investor awareness program whereby public companies
sign up with Partners entitling these companies to present at several investor
conferences held by RedChip throughout the year across the country. These
Partner companies also receive webcasts of their management presentations and
road shows on the RedChip.com Web site. Partners currently has approximately 70
companies currently under contract. The RedChip Review is a series of print
on-line publications containing proprietary research and analysis on emerging
growth and small capitalization public companies, and is produced by RedChip's
staff of financial analysts. These publications currently have approximately
1,600 subscribers, comprised of retail and institutional investors.
Through our FreeRealTime.com site, we strive to provide comprehensive
real-time financial information by offering free real-time stock quotes and
value-added content, including news, market commentary, public company research,
and analytical tools such as charting and portfolio stock tracking. We completed
our second quarter ended September 30, 2000 with approximately 1.34 million
registered users on our FreeRealTime.com site, an increase of 77% over the same
period in the prior year when we had approximately 759,000 users as of the close
of the second quarter ended September 30, 1999. We served approximately 139
million page-views on our FreeRealTime.com Web site during the month of
September 2000. This represented an increase of 22% over the same month in the
prior year when we served approximately 114 million page-views. A majority of
our page views are real-time quote pages, though the Freerealtime.com site also
provides market news, research, commentary, message boards, and other
information. The Freerealtime.com Web site is offered free of charge to our
registered users, and the sale of advertising currently represents our largest
source of revenue from this Web site. In addition to selling advertising on
FreeRealTime.com to media buyers and advertisers, the Company will also
distribute third party advertising inventory through its recently launched
Perfect Circle Media ("PCM") division, currently a startup venture. No revenue
has been recognized yet from the PCM venture.
Users may also access several proprietary and allied subscription based
products and services through the FreeRealTime.com site, from which the Company
generates revenues. Our proprietary BullSession.com service, where we offer
active investors a subscription service of "streaming" real-time quotes and
dynamically updating stock portfolios, currently generates the largest portion
of our monthly subscription revenue. BullSession.com completed the second
quarter ended September 30, 2000 with approximately 4,900 subscribers to
BullSession.com and to a private labeled version thereof, as compared to
approximately 4,800 as of September 30, 1999, a 2% increase. We believe this
modest growth to be mainly attributable to the widespread pull-back of the stock
market, along with reduced trading activity, which began in April 2000. Our
gross margins are significantly higher than the same period last year on
BullSession.com subscription sales (and for the company as a whole) primarily
due to significant reductions in our stock exchange fees paid by the Company for
real time market data, as well as overall economies of scale which have been
achieved. We will continue to explore new opportunities to enhance the
BullSession.com Web site, and also plan to introduce new subscription products
and services in order to pursue continued growth in this segment of our
business. Our source of revenue from the BullSession.com Web site is the sale of
subscriptions at monthly prices ranging from $26 to $50. We also share in
subscription revenues generated from the sale of third party products and
services through our FreeRealTime.com site.
On August 15, 2000, the Company raised approximately $10 million in cash (less
expenses of $1,053,000) through a private placement of its common stock. Los
Angeles based Jefferies and Company, Inc. ("Jefferies"), a national
institutional brokerage and investment banking firm, was the lead investor. Roth
Capital Partners, an investment banking firm based in Southern California and a
major stockholder in RedChip prior to its acquisition by the Company, was also
an investor in the financing. The Company will use the proceeds from this
financing primarily for general working capital purposes, as well as to fund
integration efforts and new businesses for the newly combined FreeRealTime.com
and RedChip entities. The Company also entered into a wide-ranging strategic
alliance
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with Jefferies, pursuant to a signed Letter of Intent (LOI). Under terms of the
LOI, FreeRealTime.com and Jefferies plan a broad-based alliance to provide
Web-based financial transaction services and to jointly market investment
information services, including the distribution of public and private
securities by Jefferies and DigitalOffering.com, FreeRealTime.com's online
distribution portal for these types of transactions. The proposed alliance
contemplates the issuance of additional common stock to Jefferies in exchange
for its contribution of technology resources, including licenses of existing
trading systems as well as ongoing development resources for co-developed
trading tools and execution services. Additionally, the proposed alliance
includes certain joint marketing and selling arrangements for FreeRealTime.com
products and services. The parties will share revenues and fees generated in
future periods from the alliance activities, and the proposed arrangements
provide that Jefferies may receive its share of revenues in shares of
FreeRealTime.com common stock in lieu of cash.
During the previous quarter ended June 30, 2000, the Company formed and
purchased 4 thousand shares of Series A Convertible Preferred Stock in Digital
Offering, Inc., a newly formed Delaware corporation ("Digital Offering"). During
the quarter ended September 30, 2000, the Company elected to convert all of its
preferred stock in Digital Offering into 4,000 shares of common stock, and
purchased an additional 500 shares of common stock in Digital Offering. The
Company plans to operate the transaction services segment of its business
through Digital Offering, including providing access for retail and
institutional investors to on-line private placements and public offerings of
equity securities, market trading in fixed-income securities, and institutional
order execution for the purchase and sale of equity securities. Digital Offering
has filed an application with the National Association of Securities Dealers to
obtain a license that will allow it to participate in fee sharing arrangements
associated with these transactions. Digital Offering made significant progress
in setting up its business operations during the quarter ended September 30,
2000, and continues to work toward launching its business in the coming months.
During the quarter ended September 30, 2000, the Company continued its trend
of producing strong growth in revenue and gross profit over the same period in
the prior year, while our overall net operating loss grew primarily as a result
of significant increases in total selling, general, and administrative expenses
associated with the acquisition of RedChip, as well as in the ongoing businesses
of the Company. As reported in the previous quarter ended June 30, 2000 with
respect to the then pending RedChip acquisition, we have and continue to expect
to incur operating losses, as well as negative cash flow from operations, until
the combined companies achieve the revenue and cost synergies that we believe
will be realized over time. Our spending during the quarter has been focused
largely on the acquisition and integration of the RedChip businesses, as well as
adding compelling content to FreeRealTime.com and launching a new version of
this site, enhancing the performance of our Web sites, building the organization
in all areas, and developing brand awareness. These increased costs centered
primarily around increased payroll and consulting costs with the hiring of
additional members of management, sales and marketing staff, accounting
personnel, customer support personnel, administrative personnel, and by engaging
key consultants, primarily in the software development area. Although we enjoyed
marked growth in revenue and gross profit during this quarter over the same
period last year, there can be no assurance that we will continue to realize
similar growth in the future, nor that we will achieve improved financial
results in the future. We plan to substantially increase our operating and
capital expenditures in order to continue building site traffic and brand
awareness, and in launching new business initiatives.
Our management efforts and strategies are oriented to enhancing our existing
revenues, as well as developing new revenue opportunities for our core
businesses, subsidiaries, and affiliate companies. These efforts include (i)
adding compelling proprietary and allied content to our suite of products and
services, (ii) expanding our mediums for distributing this content from
historically Web only to other traditional mediums including print, radio, and
investor conferences, (iii) continually improving our Web sites so that they
exhibit more robust functionality, additional content, and greater ease-of-use,
(iv) building our in-house direct ad sales force to increase our media sales
revenues, (v) pursuing higher prices, CPM, for our ad impressions through
greater use of user "targeting" ad serving technology and the addition of
non-quote content pages, (iv) developing new open media platforms so that
publicly traded companies and SOHO investors can reach each other, (v) focusing
on additional revenue sources including the sale of access to our registered
user base for advertisers through targeted e-mail marketing campaigns, and new
co-branding alliances with other Web sites involving content and revenue
sharing, (vi) adding new subscription-based products and services, and (vii)
pursuing opportunities to share in revenues generated from on-line transactions.
We also have strategies to drive growth in our subscriber base, and thereby
increase our subscription fees, by enhancing our current subscription products,
and adding new subscription-based tools and content services. Though we expect
to incur 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 cannot give any assurances as to achieving
this objective.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES
Revenues, which include ad sales, subscription fees, service fees, and
web-hosting/co-brand revenue, increased by 110% to $2,801,000 in the three
months ended September 30, 2000 from $1,335,000 in the three months ended
September 30, 1999. The
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increase in total revenue was primarily the result of an increase in ad
revenues, new service revenues from the RedChip Partners program, new
subscription revenues from sales of the RedChip Review, and revenues generated
from software development services provided by the Company to a third party. Ad
revenues increased primarily due to the substantial increase from period to
period in the number of users, page views, and ad impressions on the
Freerealtime.com Web site, as well as from the sale of email marketing campaigns
to advertisers during the quarter.
Revenue from advertising on Freerealtime.com increased by 108% to
$1,612,000 in the three months ended September 30, 2000 from $776,000 in the
three months ended September 30, 1999. Revenue from subscriptions increased by
41% to $619,000 in the three months ended September 30, 2000 from $440,000 in
the three months ended September 30, 1999, primarily resulting from growth in
the number of BullSession subscribers as well as new subscription revenue from
sales of the RedChip Review. Service revenue increased to $494,000 in the three
months ended September 30, 2000 from $-0- in the three months ended September
30, 1999. This was the result of new service revenue from the RedChip Partners
program totaling $223,000, and from software development services, totaling
$271,000, provided by the Company to Imperial Capital, LLC ("IC"), to develop a
fixed-income securities information and trading Web site for IC. Revenue from
web-hosting and co-branding ventures decreased by 36% to $76,000 in the three
months ended September 30, 2000 from $119,000 in the three months ended
September 30, 1999, primarily due to the termination by the Company of a
co-branded partner contract as well as decreased traffic on co-branded Web
sites.
COST OF REVENUES
Cost of revenues increased by 17% to $1,422,000 in the three months ended
September 30, 2000 from $1,213,000 in the three months ended September 30, 1999.
This increase was primarily the result of adding new costs associated with the
production of the RedChip Review series of print and on-line publications,
partially offset by reduced rates paid for real-time market data and overall
economies of scale associated with higher volumes of traffic and revenues from
our FreeRealTime.com Web site. Cost of revenues as a percent of revenues
decreased to 51% in the three months ended September 30, 2000 from 91% in the
three months ended September 30, 1999.
OPERATING EXPENSES
SALES AND MARKETING. Sales and Marketing expense increased by 371% to
$1,054,0000 in the three months ended September 30, 2000 from $224,000 in the
three months ended September 30, 1999. Sales and Marketing expense as a percent
of revenues increased to 38% in the three months ended September 30, 2000 from
17% in the three months ended September 30, 1999. The period to period increase
in Sales and Marketing expense was primarily the result of increased advertising
sales commissions paid to third party ad sales firms as a result of higher ad
revenues, salaries, commissions, and benefits related to additional sales and
marketing personnel hired to manage our advertising sales function and to direct
the overall marketing efforts of the Company, and other marketing and
advertising expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased by
162% to $1,788,000 in the three months ended September 30, 2000 from $683,000
in the three months ended September 30, 1999. General and administrative expense
as a percent of revenues increased to 64% in the three months ended September
30, 2000 from 51% in the three months ended September 30, 1999. The period to
period increase was primarily the result of increased costs associated with
growth in the Company's operations, in addition to new costs associated with the
RedChip businesses, including additional personnel in the areas of executive
management, operations, administration, customer care, accounting, and corporate
development, as well as consulting and other professional fees, as well as
greater occupancy costs, legal and accounting fees, insurance costs,
telecommunications costs, and other overhead costs associated with managing the
growth in our various businesses.
PRODUCT DEVELOPMENT. Product development expense increased by 150% to
$267,000 in the three months ended September 30, 2000 from $107,000 in the three
months ended September 30, 1999. Product development expense as a percent of
revenues increased to 10% in the three months ended September 30, 2000 from 8%
in the three months ended September 30, 1999. The period-to-period increase in
product development expense 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.
MERGER EXPENSES. Merger Expenses were $114,000 in the three months ended
September 30, 2000, and $-0- in the three months ended September 30, 1999. These
represented additional costs associated with the acquisition of RedChip.com,
Inc. subsequent to the closing of the acquisition.
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NON-CASH CHARGES-STOCK OPTION GRANTS. For the three months ended September
30, 2000, $34,000 was amortized to expense as a non-cash charge from unearned
compensation recorded as the result of vested stock options granted during this
as well as previous periods, as compared to $105,000 for the three months ended
September 30, 1999. As the unearned compensation is amortized based on the
vesting period of the stock options granted, 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.
GOODWILL AMORTIZATION. For the three months ended September 30, 2000, we
recorded amortization of goodwill resulting from the acquisition of RedChip.com,
Inc. of $760,000 (see Footnote 3 to the unaudited financials statements
incorporated herein), as compared to no goodwill amortization for the three
months ended September 30, 1999. Goodwill is amortized over three years.
INTEREST INCOME (EXPENSE), NET
Net interest income was $55,000 in the three months ended September 30,
2000, compared to net interest expense of $6,000 incurred in the three months
ended September 30, 1999. Interest income during the three months ended
September 30, 2000 was earned on money market investments and certificates of
deposit primarily from the proceeds raised from the sale of the Company's common
stock.
INCOME TAXES
We have incurred losses since inception and again during the three months
ended September 30, 2000, and anticipate losses for the foreseeable future. We
have therefore recorded no provision for income taxes during these periods.
Deferred tax assets for the three months ended September 30, 2000 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.
SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1999
REVENUES
Revenues, which include ad sales, subscription fees, service fees, and
web-hosting/co-brand revenue, increased by 103% to $5,779,000 in the six months
ended September 30, 2000 from $2,840,000 in the six months ended September 30,
1999. The increase in total revenue was primarily the result of an increase in
ad revenues, new service revenues from the RedChip Partners program, new
subscription revenues from sales of the RedChip Review, and revenues generated
from software development services provided by the Company to a third party. Ad
revenues increased primarily due to the substantial increase from period to
period in the number of users, page views, and ad impressions on the
Freerealtime.com Web site, as well as from the sale of email marketing campaigns
to advertisers during the quarter.
Revenue from advertising on Freerealtime.com increased by 121% to $3,679,000
in the six months ended September 30, 2000 from $1,661,000 in the six months
ended September 30, 1999. Revenue from subscriptions increased by 21% to
$1,073,000 in the six months ended September 30, 2000 from $885,000 in the six
months ended September 30, 1999, primarily resulting from growth in the number
of BullSession subscribers as well as new subscription revenue from sales of the
RedChip Review. Service revenue increased to $731,000 in the six months ended
September 30, 2000 from $-0- in the six months ended September 30, 1999. This
was the result of new service revenue from the RedChip Partners program totaling
$223,000, and from software development services, totaling $508,000, provided by
the Company to Imperial Capital, LLC ("IC"), to develop a fixed-income
securities information and trading Web site for IC. Revenue from web-hosting and
co-branding ventures remained relatively flat, increasing by less than 1% to
$296,000 in the six months ended September 30, 2000 from $294,000 in the six
months ended September 30, 1999.
COST OF REVENUES
Cost of revenues decreased by 19% to $2,306,000 in the six months ended
September 30, 2000 from $2,830,000 in the six months
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ended September 30, 1999. This decrease was primarily the result of reduced
rates paid for real-time market data and overall economies of scale associated
with higher volumes of traffic and revenues from our FreeRealTime.com Web site,
partially offset by new costs associated with the production of the RedChip
Review series of print and on-line publications. Cost of revenues as a percent
of revenues decreased to 40% in the six months ended September 30, 2000 from
100% in the six months ended September 30, 1999.
OPERATING EXPENSES
SALES AND MARKETING. Sales and Marketing expense increased by 236% to
$1,785,000 in the six months ended September 30, 2000 from $532,000 in the six
months ended September 30, 1999. Sales and Marketing expense as a percent of
revenues increased to 31% in the six months ended September 30, 2000 from 19% in
the six months ended September 30, 1999. The period to period increase in Sales
and Marketing expense was primarily the result of increased advertising sales
commissions paid to third party ad sales firms as a result of higher ad
revenues, salaries, commissions, and benefits related to additional sales and
marketing personnel hired to manage our advertising sales function and to direct
the overall marketing efforts of the Company, and other marketing and
advertising expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased by
162% to $2,827,000 in the six months ended September 30, 2000 from $1,081,000 in
the six months ended September 30, 1999. General and administrative expense as a
percent of revenues increased to 49% in the six months ended September 30, 2000
from 38% in the six months ended September 30, 1999. The period to period
increase was primarily the result of increased costs associated with growth in
the Company's operations, in addition to new costs associated with the RedChip
businesses, including additional personnel in the areas of executive management,
operations, administration, customer care, accounting, and corporate
development, as well as consulting and other professional fees, as well as
greater occupancy costs, legal and accounting fees, insurance costs,
telecommunications costs, and other overhead costs associated with managing the
growth in our various businesses.
PRODUCT DEVELOPMENT. Product development expense increased by 777% to
$535,000 in the six months ended September 30, 2000 from $61,000 in the six
months ended September 30, 1999. Product development expense as a percent of
revenues increased to 9% in the six months ended September 30, 2000 from 2% in
the six months ended September 30, 1999. The period-to-period increase in
product development expense 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.
MERGER EXPENSES. Merger Expenses were $114,000 in the six months ended
September 30, 2000, and $-0- in the six months ended September 30, 1999. These
represented additional costs associated with the acquisition of RedChip.com,
Inc. subsequent to the closing of the acquisition.
NON-CASH CHARGES-STOCK OPTION GRANTS. For the six months ended September 30,
2000, $193,000 was amortized to expense as a non-cash charge from unearned
compensation recorded as the result of vested stock options granted during this
as well as previous periods, as compared to $543,000 for the six months ended
September 30, 1999. As the unearned compensation is amortized based on the
vesting period of the stock options granted, 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.
GOODWILL AMORTIZATION. For the six months ended September 30, 2000, we
recorded amortization of goodwill resulting from the acquisition of RedChip.com,
Inc. of $760,000 (see Footnote 3 to the unaudited financials statements
incorporated herein), as compared to no goodwill amortization for the three
months ended September 30, 1999. Goodwill is amortized over three years.
INTEREST INCOME (EXPENSE), NET
Net interest income was $82,000 in the six months ended September 30, 2000,
compared to net interest expense of $9,000 incurred in the six months ended
September 30, 1999. Interest income during the six months ended September 30,
2000 was earned on money market investments and certificates of deposit
primarily from the proceeds raised from the sale of the Company's common stock.
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INCOME TAXES
We have incurred losses since inception and again during the six months ended
September 30, 2000, and anticipate losses for the foreseeable future. We have
therefore recorded no provision for income taxes during these periods. Deferred
tax assets for the six months ended September 30, 2000 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, from loans from stockholders, directors, and
other outside parties, and from capital lease arrangements. As of September 30,
2000, approximately $5.6 million in cash and cash equivalents was on hand.
OPERATING ACTIVITIES
We used net cash in our operating activities in the amount of $4,177,000
during the six months ended September 30, 2000, as compared to $186,000 during
the six months ended September 30, 1999. Net cash used in operating activities
in the six months ended September 30, 2000 was primarily the result of our net
loss for the period, an increase in accounts receivable and prepaid expenses,
and a decrease in accounts payable, accrued expenses and deferred revenue. Net
cash used in operating activities in the six months ended September 30, 1999 was
primarily the result of our net loss for the period, and an increase in accounts
receivable and prepaid expenses, partially offset by an increase in accounts
payable, accrued liabilities, and deferred revenue:
SIX MONTHS ENDED SEPTEMBER 30, 2000 SIX MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------- -----------------------------------
- Net loss of approximately - Net loss of
$2,659,000; approximately $2,216,000;
- An increase in accounts - An increase in
receivable of accounts receivable of
approximately $388,000; approximately $572,000;
- An increase in prepaid - An increase in
and other assets of prepaid expenses and other
approximately $340,000; assets of $690,000;
- A decrease in accounts - An increase in
payable and accrued accounts payable and accrued
expenses of expenses of
approximately $1,717,000; approximately $2,121,000;
- Depreciation of - Depreciation of
approximately $177,000; approximately $51,000;
- Goodwill Amortization of - Non-cash
approximately $760,000 charges-stock option grants
of approximately
- Non-cash charges-stock $543,000; and
option grants of
approximately - An increase in
$193,000; and deferred revenue of
approximately
- A decrease in deferred $523,000.
revenue of approximately
$463,000.
The amount of our accounts receivable at each period-end varies, primarily due
to the timing of our advertising and sponsorship campaigns, and the growth in
our subscription revenue, transaction based revenue, and web host/co-brand
revenue. During the quarter, we experienced material collection difficulties
with several customer accounts, and have recorded an allowance for uncollectible
accounts accordingly for these accounts as well as a percentage of other
outstanding receivables.
INVESTING ACTIVITIES
Cash used in investing activities was approximately $1,394,000 during the six
months ended September 30, 2000, compared to $127,000 during the six months
ended September 30, 1999, and consisted of $700,000 of cash paid, net of cash
received, in acquiring RedChip.com, Inc. (i.e. cash acquisition costs) during
the six months ended September 30, 2000, as well as additional expenditures for
property and equipment in both periods.
FINANCING ACTIVITIES
Net cash provided by financing activities was approximately $8,679,000 during
the six months ended September 30, 2000 compared to approximately $3,422,000
during the six months ended September 30, 1999. Cash used in financing
activities during the six months ended September 30, 2000, was approximately
$1,788,000, as compared to $757,000 during the six months ended September 30,
1999, and consisted of payments of debt obligations and stock issuance costs.
Cash provided by financing activities during these same periods was
approximately $10,467,000 and $4,179,000, respectively, which consisted
primarily of gross proceeds from the sale of
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common stock and the exercise of stock options.
We have no material financial commitments other than 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,
RedChip.com, BullSession.com, DigitalOffering.com, and
PerfectCircleMedia.com, including functionality, content, and back-end
systems;
- computer servers and other computer equipment to support growth in
site traffic;
- software developers, computer programmers, and other technical staff;
bandwidth and networking equipment and infrastructure;
- information systems and furniture and fixtures for new employees and
facilities expansion;
- additional personnel in the areas of content production, sales,
marketing, business development, customer support, accounting, and
administration;
- increased promotional activities, advertising, and other branding
efforts, and
- other content production and development costs.
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 six 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 2001 (i.e. the
year ended March 31, 2001) we plan to spend up to $3,500,000 for computer
hardware, software, office equipment, and tenant improvements. We lease our
Irvine, California facility under a noncancelable operating lease that expires
on December 31, 2000. We will relocate our Irvine operations to a new facility
in Aliso Viejo, California in December 2000 pursuant to a 5 year non-cancelable
operating lease. We will incur additional costs related to the relocation of the
Irvine operations and may have to pay rent on two leases for a period of time.
We recently moved our Calgary office into a larger facility in January 2000,
under a cancelable operating lease which expires on January 1, 2005.
RedChip.com, Inc.'s main facility is located in Portland, Oregon, pursuant to a
noncancelable sublease between RedChip.com and Roth Capital Partners, a related
party stockholder in the Company, that expires on June 30, 2005. RedChip.com
also maintains small offices in San Francisco, California and Minneapolis,
Minnesota, both of which are sub-leased on a month-to-month basis from Roth
Capital Partners. The Company also sub-leases a small office in New York City on
a month-to-month basis from Jefferies and Company, a related party stockholder
in the Company. 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 to fund our current growth plans and to take advantage of
unanticipated opportunities, to develop or enhance our Web sites, or otherwise
to respond to competitive pressures, could be significantly limited. Based on
net proceeds received from the sale of equity securities during fiscal 2001, and
management contingency plans to curtail growth 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 2001. We have
engaged Jefferies & Company, Inc., an investment bank, as our financial advisor
and our lead placement agent in connection with the sale of up to $20 million of
our equity securities, of which approximately $10 million has been raised
pursuant to this engagement as noted above.
During the six months ended September 30, 2000 we completed two private
equity financings in which we sold an aggregate of 3,850,635 shares of Common
Stock for total gross proceeds of approximately $10,183,000.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this Form 10-Q
as well as some of our statements in periodic press
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releases and some oral statements of our officials during presentations about
the company are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include
statements that are predictive in nature, which depend upon or refer to future
events or conditions, which include words such as "believes," "anticipates,"
"estimates," "expects" or similar expressions. In addition, any statements
concerning future financial performance, ongoing business strategies or
prospects, and possible future actions, which may be provided by our management,
are also forward-looking statements. Forward-looking statements are based on
current expectations and projections about future events and are subject to
risks, uncertainties, and assumptions about our company, economic and market
factors and the industry in which we do business, among other things. These
statements are not guaranties of future performance and we have no specific
intention to update these statements.
Actual events and results may differ materially from those expressed or
forecasted in forward-looking statements due to a number of factors. The
principal important risk factors that could cause our actual performance and
future events and actions to differ materially from such forward-looking
statements, include, but are not limited to, those set forth below:
- our limited operating history,
- intense competition for Web-based business and financial content,
- need to establish and maintain strategic relationships with other
Web-sites,
- our dependence on the various Exchanges for real-time stock quotes,
- inability to attract advertisers to our site,
- our reliance on a third party advertising sales force,
- changes in government regulation and legal uncertainties pertaining to
the Web, and
- disruptions and interruptions in service due to Web-site failure.
Certain of these factors are discussed in more detail elsewhere in this Form
10-Q and the Company's other filings with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Sensitivity. The primary objective of our investment activities
is to preserve principal while at the same time maximizing the income we receive
from our investments without significantly increasing risk. Some of the
securities that we have invested in may be subject to market risk. This means
that a change in prevailing interest rates may cause the principal amount of the
investment to fluctuate. For example, if we hold a security that was issued with
a fixed interest rate at the then-prevailing market rate and the prevailing
interest rate later rises, the principal amount of our investment will probably
decline. To minimize this risk, we maintain our portfolio of cash equivalents in
money market funds. In general, money market funds are not subject to market
risk because the interest paid on such funds fluctuates with the prevailing
interest rate. As of September 30, 2000, all of our investments mature in three
months or less.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
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REPORTS ON FORM 8-K
a. On June 6, we filed a Current Report on Form 8-K reporting under Item 5
that we had entered into an Agreement and Plan of Merger with RedChip.com,
Inc. ("RedChip") Delaware corporation, pursuant to which we would form a
new subsidiary that would merge with into RedChip. Following the merger,
RedChip would be a wholly-owned subsidiary of FreeRealTime.com. The Current
Report included a copy of the Agreement and Plan of Merger which was
attached as an exhibit thereto.
b. On August 31, we filed a Current Report on Form 8-K, reporting under Item 5
that we had issued and sold 3,810,367 shares of its common stock $ 0.01par
value per share (the "Common Stock"), at a purchase price of $2.625 per
share, to select institutional and accredited investors in a private
placement.
c. On September 1, we filed a Current Report on Form 8-K, reporting under Item
2 that 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.
d. On October 31, we filed a Current Report on Form 8-K/A, reporting under
Item 2 that 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.
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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 thereunto duly authorized.
FREEREALTIME.COM, INC.
Date: November 14, 2000 /s/ Michael Neufeld
Michael Neufeld Executive
Vice President, Chief
Financial Officer and Secretary (Duly
Authorized Officer, Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
27.1 Financial Data Schedule
To be completed
18
