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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 June 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.
Class Outstanding at August 9, 2000
--------------------------------------- -----------------------------
Common Stock, par value $0.01 per share 7,640,622 shares
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FREEREALTIME.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
Page No.
--------
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Condensed Consolidated Balance Sheets-
June 30, 2000 and March 31, 2000 3
Unaudited Condensed Consolidated Statements of Operations-
For the Three Months Ended June 30, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Cash Flows
For the Three Months Ended June 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 12
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FREEREALTIME.COM, INC.
AND SUBSIDIARY
Condensed Consolidated Balance Sheets
As of June 30, 2000 and March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
-------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,325 $ 2,501
Accounts receivable, net of allowance for
doubtful accounts of $166 and $166, respectively 1,927 1,322
Prepaid expenses and other current assets 567 564
------- -------
Total current assets 3,819 4,387
------- -------
Property, plant and equipment, net 1,115 886
Other assets, net 726 333
------- -------
$ 5,660 $ 5,606
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable $ -- $ 15
Current portion of capital lease obligations 23 26
Trade accounts payable 4,700 4,815
Accrued expenses 74 24
Deferred revenue 264 494
------- -------
Total current liabilities 5,061 5,374
------- -------
Notes payable to stockholders, excluding current portion 11 12
Capital lease obligations, net of current portion 21 25
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 and 7,213,670 issued
and outstanding as of June 30 and March 31,
2000, respectively 7,897 7,708
Accumulated deficit (7,262) (7,187)
Unearned compensation (68) (326)
------- -------
Total stockholders' equity 567 195
Commitments and contingencies
------- -------
$ 5,660 $ 5,606
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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FREEREALTIME.COM, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Operations
Three Months ended June 30, 2000 and 1999 (Dollars in
thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30,
------------------------
2000 1999
--------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 2,978 $ 1,505
Cost of revenues 884 1,617
--------- ---------
Gross profit 2,094 (112)
General, administrative, selling and
development expenses 2,044 767
Non-cash charge - stock option grants 159 438
--------- ---------
Total general, administrative, selling
and development expenses 2,203 1,205
Interest expense (income) (34) 3
--------- ---------
Net loss $ (75) $ (1,320)
========= =========
Basic and diluted loss per common share $ (0.01) $ (0.20)
========= =========
Common shares used in computing basic and
diluted per share amounts 7,299,824 6,573,407
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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FREEREALTIME.COM, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Three Months ended June 30, 2000 and 1999
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30,
--------------------
2000 1999
------- -------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (75) $(1,320)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 57 24
Provision for doubtful accounts -- 10
Non-cash charge - stock options 159 438
Change in assets and liabilities:
Accounts receivable (605) (415)
Prepaid expenses and other assets (396) (6)
Trade accounts payable and accrued expenses (65) 972
Deferred revenue (230) 24
------- -------
Net cash used in operating activities (1,155) (273)
------- -------
Cash flows from investing activities:
Capital expenditures (286) (71)
------- -------
Net cash used in investing activities (286) (71)
------- -------
Cash flows from financing activities:
Borrowings (repayments) of long-term debt (8) 7
Borrowings (repayments) of short-term debt (15) 12
Proceeds from issuance of common stock 301 400
Stock issuance costs (13) (72)
------- -------
Net cash provided by financing activities 265 347
------- -------
Net (decrease)/increase in cash (1,176) 3
Cash at beginning of period 2,501 493
------- -------
Cash at end of period $ 1,325 $ 496
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 17 $ 5
======= =======
Supplemental disclosure of noncash investing and
financing activities:
Unearned compensation related to stock options 84 414
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED JUNE 30, 2000
1. BASIS OF PRESENTATION
The condensed consolidated financial statements as of June 30, 2000 and
for the three-month periods ended June 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 June 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-month period ended June
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.
3. DEFINITIVE MERGER AGREEMENT SIGNED
On June 6, 2000, the Company entered into an Agreement and Plan of
Merger with RedChip.com, Inc., a Delaware corporation ("RedChip"). Upon the
closing of this transaction, the Company will issue 4,000,000 new shares of its
common stock to the shareholders of RedChip, subject to potential adjustment, in
exchange for all of the shares outstanding in RedChip. Following the close,
RedChip will be a wholly-owned subsidiary of FreeRealTime.com, Inc. The
Company anticipates closing the transaction in August 2000; however, the closing
is subject to numerous conditions and there can be no assurance that all such
conditions will be met and that the transaction will close.
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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 financial media company, empowering investors with the
information and tools they need in order to make knowledgeable investing
decisions. Through our FreeRealTime.com Web site, we strive to be a "one-stop"
portal for real-time financial information by offering free, real-time stock
quotes and value-added content, including news, market commentary, company
research, and analytical tools such as charting and portfolio stock tracking. We
completed our first quarter ended June 30, 2000 with approximately 1.27 million
registered users, an increase of 91% over the same period in the prior year when
we had approximately 665,000 users as of the close of the first quarter ended
June 30, 1999. We served approximately 176 million page-views on our
FreeRealTime.com Web site during the month of June 2000. This represented an
increase of 29% over the same month in the prior year when we served
approximately 136 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.
We also own and operate the BullSession.com Web site, where we offer
active investors a subscription service of "streaming" real-time quotes and
dynamically updating stock portfolios. BullSession.com completed the first
quarter ended June 30, 2000 with approximately 4,500 subscribers, as compared to
4,700 as of June 30, 1999, a decline of 4%. We believe this decline in active
subscribers during the first quarter ended June 30, 2000 was primarily due to
the widespread pull-back of the stock market, along with reduced trading
activity, which began in April 2000. However, our subscription revenue for the
three months ended June 30, 2000 has increased over the same period last year as
higher effective pricing packages have been selected by our subscribers on
average. In addition, our gross margins are substantially higher than the same
period last year on our subscription revenues (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, however, 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.
On June 6, 2000, we entered into an Agreement and Plan of Merger with
RedChip.com, Inc., a Delaware corporation ("RedChip"). We believe that the
merger, among other things, will expand FreeRealTime.com's content offering,
enabling us to provide broad based financial information including proprietary,
institutional quality independent research on publicly traded companies.
Additionally, the merger will offer opportunities to expand our subscription and
transaction-based services, and will add new opportunities in providing
"business to business" services to publicly traded companies in the form of
investor awareness programs. Upon the closing of this transaction, we will issue
4 million new shares of our common stock to the shareholders of RedChip in
exchange for all of the shares outstanding in RedChip. Following the close,
RedChip will be a wholly-owned subsidiary of FreeRealTime.com, Inc. While we
anticipate closing the transaction by the end of August 2000, the closing is
subject to numerous conditions and there can be no assurance that all such
conditions will be met and that the transaction will close. Furthermore, even if
the merger does close, there can be no assurance that we will be able to realize
any of our anticipated benefits from the merger. Jefferies & Company, Inc.
("Jefferies"), an investment bank, served as our financial advisor for this
transaction, and rendered a fairness opinion to our board of directors opining
to the fairness of the price to be paid by us for RedChip. We have also engaged
Jefferies to serve as our lead placement agent in connection with the sale of up
to $20 million of our equity securities.
On May 25, 2000 the Company formed and purchased 4 million shares of
Series A Convertible Preferred Stock in DigitalOffering, Inc., a newly formed
Delaware corporation ("DigitalOffering"). The Company plans to operate the
transaction services segment of its business model through DigitalOffering,
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. DigitalOffering 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.
7
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During the quarter ended June 30, 2000, the Company continued its trend of
producing strong revenue growth over all preceding periods, with significant
improvement in our gross margins and financial results from operations. We also
incurred significant increases in total selling, general, administrative
expenses, and development costs. 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. Our spending has been focused on adding
compelling content to FreeRealTime.com, enhancing the performance of our Web
sites, building the organization in all areas, and developing brand awareness.
Although we enjoyed marked increases and improvement in certain financial
results 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. Additionally, in the event the merger with RedChip.com
closes, we 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 current sources of revenue from the FreeRealTime.com Web site
include advertising sales, e-mail marketing revenues, web-hosting fees,
co-branded revenue sharing, and subscription revenues. For BullSession.com, our
source of revenue is from the sale of subscriptions. The Company also provided
software development services to an outside third party during the quarter ended
June 30, 2000 from which the Company generated significant revenue.
Our management efforts and strategies are oriented to enhancing our
existing revenues, as well as developing new revenue opportunities. These
efforts include (i) continually improving our Web sites so that they exhibit
more robust functionality, additional content, and greater ease-of-use, (ii)
building our in-house direct ad sales force to increase revenues, (iii) pursuing
higher prices, CPM, for our ad impressions through greater use of user
"targeting" ad serving technology and the addition of non-quote content pages,
and (iv) focusing on additional revenue sources including the sale of access to
our registered user base for advertisers through targeted e-mail marketing
campaigns, new co-branding alliances with other Web sites which involves content
and revenue sharing, adding new subscription-based products and services, and
pursuing opportunities to share in revenues generated from other on-line
transactions. We also have strategies to drive growth in our subscriber base,
and thereby increase our subscription fees, by enhancing our BullSession.com
service and adding new subscription-based tools and content services. Apart from
our efforts to grow our revenues, we believe that our costs per page view on
FreeRealTime.com should continue to decline over time due to declining costs in
programming, datafeed and other services from our suppliers as well as from the
effect of spreading certain fixed costs over greater page view traffic. Though
we expect to 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 JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
REVENUES
Revenues, which include ad sales, subscription fees, transaction
service fees, and web-hosting/co-brand revenue, increased by 98% to $2,978,000
in the three months ended June 30, 2000 from $1,505,000 in the three months
ended June 30, 1999. The increase in total revenue was primarily the result of
an increase in ad revenues, along with new transaction service fees generated
from software development services provided by the Company to a strategic
partner. 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.
Revenue from advertising on Freerealtime.com increased by 135% to
$2,067,000 in the three months ended June 30, 2000 from $ 880,000 in the three
months ended June 30, 1999. Revenue from subscriptions to the BullSession.com
Web site increased by 2% to $454,000 in the three months ended June 30, 2000
from $444,000 in the three months ended June 30, 1999, despite a 4% decrease in
the number of BullSession.com subscribers from the same period last year. This
was the result of higher effective pricing plans selected by
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subscribers. Revenue from transaction services increased to $237,000 in the
three months ended June 30, 2000 from $-0- in the three months ended June 30,
1999. This was the result of software development services 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 increased by 22% to $220,000 in the three months ended June
30, 2000 from $181,000 in the three months ended June 30, 1999, primarily due to
increased traffic on co-branded Web sites.
COST OF REVENUES
Cost of revenues decreased by 45% to $884,000 in the three months ended
June 30, 2000 from $1,617,000 in the three months ended June 30, 1999. This
decrease was primarily the result of reduced rates paid for real-time quotes, a
$300,000 credit related to past exchange fees, and from economies of scale
associated with higher volumes of Web-site traffic and revenues. Cost of
revenues as a percent of revenues decreased to 30% in the three months ended
June 30, 2000 from 107% in the three months ended June 30, 1999.
OPERATING EXPENSES
SALES AND MARKETING. Sales and Marketing expense increased by 137% to
$731,000 in the three months ended June 30, 2000 from $308,000 in the three
months ended June 30, 1999. Sales and Marketing expense as a percent of revenues
increased to 25% in the three months ended June 30, 2000 from 20% in the three
months ended June 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, 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 229% to $1,035,000 in the three months ended June 30, 2000 from
$315,000 in the three months ended June 30, 1999. General and administrative
expense as a percent of revenues increased to 35% in the three months ended June
30, 2000 from 21% in the three months ended June 30, 1999. The period to period
increase was primarily the result of increased costs of additional personnel,
including in the areas of executive management, customer care, administrative,
accounting, legal, Web site operations, and corporate development, 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 our rapid growth in traffic on our Web sites.
PRODUCT DEVELOPMENT. Product development expense increased by 93% to
$278,000 in the three months ended June 30, 2000 from $144,000 in the three
months ended June 30, 1999. Product development expense as a percent of revenues
decreased slightly to 9% in the three months ended June 30, 2000 from 10% in the
three months ended June 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.
NON-CASH CHARGES-STOCK OPTION GRANTS. For the three months ended June
30, 2000, we recorded an additional amount of aggregate unearned compensation of
$84,000, as compared to $414,000 for the three months ended June 30, 1999,
reflecting the grant of stock options to employees and non-employees. Certain of
these options were granted at exercise prices less than the fair market value of
the underlying common stock on the grant date. We may record additional unearned
compensation in future periods to reflect additional option grants at exercise
prices less than the fair market value of common stock on the grant date. In
addition, we anticipate that the granting of options in the future to third
party service providers with exercise prices equal to or above the fair market
value on the date of grant may still generate additional unearned compensation
and non-cash charges when accounted for in accordance with prevailing accounting
methods. For the three months ended June 30, 2000, $159,000 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 $438,000 for the three months ended June 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.
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INTEREST INCOME (EXPENSE), NET
Net interest income was $34,000 in the three months ended June 30,
2000, compared to net interest expense of $3,000 incurred in the three months
ended June 30, 1999. Interest income during the three months ended June 30, 2000
was earned on money market investments from 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 June 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 June 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 a non-revolving loan from Royal
Bank in Calgary, loans from stockholders, directors, and other outside parties,
and from capital lease arrangements. As of June 30, 2000, approximately $1.3
million in cash and cash equivalents was on hand.
OPERATING ACTIVITIES
We used net cash in our operating activities in the amount of
$1,155,000 during the three months ended June 30, 2000, as compared to $273,000
during the three months ended June 30, 1999. Net cash used in operating
activities in the quarter ended June 30, 2000 was primarily the result of 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 quarter ended June 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000 THREE MONTHS ENDED JUNE 30, 1999
------------------------------------------------ ----------------------------------------------
<S> <C>
o Net loss of approximately $75,000; o Net loss of approximately $1,320,000;
o An increase in accounts receivable of o An increase in accounts receivable of
approximately $605,000; approximately $415,000;
o An increase in prepaid and other assets of o An increase in prepaid expenses and other
approximately $396,000; assets of $6,000;
o A decrease in accounts payable and accrued o An increase in accounts payable and accrued
expenses of approximately $65,000; expenses of approximately $972,000;
o Depreciation of approximately $57,000; o Depreciation of approximately $24,000;
o Non-cash charges-stock option grants of o An increase in deferred revenue of
approximately $159,000; and approximately $24,000.
o A decrease in deferred revenue of approximately
$230,000.
</TABLE>
Accounts payable decreased primarily as a result of an overall decrease in our
cost of sales (mainly stock exchange fees) during the three months ended June
30, 2000. 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 one customer account, and have recorded an allowance for
uncollectible accounts accordingly.
INVESTING ACTIVITIES
Cash used in investing activities was approximately $286,000 during the
three months ended June 30, 2000, compared to $71,000 during the three months
ended June 30, 1999, and consisted of property and equipment expenditures in
both periods.
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FINANCING ACTIVITIES
Net cash provided by financing activities was approximately $265,000
during the three months ended June 30, 2000 compared to approximately $347,000
during the three months ended June 30, 1999. Cash used in financing activities
during the three months ended June 30, 2000, was approximately $36,000, as
compared to $72,000 during the three months ended June 30, 1999, and consisted
of payments of debt obligations and stock issuance costs. Cash provided by
financing activities during these same periods was approximately $301,000 and
$419,000, respectively, which consisted primarily of gross proceeds from the
sale of 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:
o web-site development and enhancement for Freerealtime.com,
BullSession.com, and DigitalOffering.com, including functionality,
content, and back-end systems;
o computer servers and other computer equipment to support growth in
site traffic;
o software developers, computer programmers, and other technical staff;
bandwidth and networking equipment and infrastructure;
o information systems and furniture and fixtures for new employees and
facilities expansion;
o additional personnel in the areas of sales, marketing, business
development, customer support, accounting, and administration;
o increased promotional activities, advertising, and other branding
efforts, and
o content development and acquisition.
In addition to purchasing computer hardware, software, and office
equipment, we also lease certain equipment under short term and long term leases
with terms ranging from one to three years. We may exercise purchase options at
the end of the lease terms if determined to be favorable to replacing such items
at that time through lease renewal or capital acquisition. During Fiscal 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 May 31, 2000. We plan to relocate our Irvine operations to a larger
facility sometime in Fiscal 2001. 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. 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. As noted above,
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.
During the three months ended June 30, 2000 we completed one private
equity financing in which we sold an aggregate of 40,268 shares of Common Stock
for total gross proceeds of $181,206.
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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 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:
o our limited operating history,
o intense competition for Web-based business and financial content,
o need to establish and maintain strategic relationships with other
Web-sites,
o our dependence on the various Exchanges for real-time stock quotes,
o inability to attract advertisers to our site,
o our reliance on a third party advertising sales force,
o changes in government regulation and legal uncertainties pertaining
to the Web, and
o 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 June 30, 2000, all of our investments mature
in three months or less.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
----------- -----------
10.1 Web Hosting and Internet Access Service Agreement
between Quest Internet Solutions, Inc. and
FreeRealTime.com, Inc, dated February 20, 2000,
pursuant to which FreeRealTime.com receives co-location
and communication services
10.2 AdForce Services Agreement between AdForce, Inc. and
FreeRealTime.com, Inc., dated July 1, 2000, whereby
FreeRealTime.com receives ad serving management
services related to advertising displayed on
FreeRealTime.com
27.1 Financial Data Schedule
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.
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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: August 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
----------- -----------
10.1 Web Hosting and Internet Access Service Agreement
between Quest Internet Solutions, Inc. and
FreeRealTime.com, Inc, dated February 20, 2000,
pursuant to which FreeRealTime.com receives co-location
and communication services
10.2 AdForce Services Agreement between AdForce, Inc. and
FreeRealTime.com, Inc., dated July 1, 2000, whereby
FreeRealTime.com receives ad serving management
services related to advertising displayed on
FreeRealTime.com
27.1 Financial Data Schedule
To be completed
