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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR FISCAL YEAR ENDED: MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
COMMISSION FILE NO. 000-27493
FREEREALTIME.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 33-0881720
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3333 MICHELSON DRIVE, SUITE 430, 92612
IRVINE, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 833-2959
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common stock, par value $.01 per share
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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State the issuer's revenues for the most recent fiscal year: $7,198,000.
As of June 23, 2000, the aggregate market value of voting stock of
FreeRealTime.com, Inc. held by non-affiliates was $16,342,479.50 based on the
upon the closing price of such stock on the Nasdaq Over-the-Counter Bulletin
Board. The number of shares of common stock outstanding as of that date was
7,655,749.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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 fiscal
year ended March 31, 2000 ("Fiscal 2000") with over 1.1 million registered
users, an increase of 120% from 500,000 users as of the close of the fiscal year
ended March 31, 1999 ("Fiscal 1999"). We served approximately 298 million
page-views on our FreeRealTime.com Web site during the month of March 2000. This
represented an increase of 189% over the same month in the prior year when we
served approximately 103 million page-views. The FreeRealTime.com Web site is
offered free of charge to our registered users and the sale of advertising
represents our primary source of revenue from this Web site.
We also own and operate the BullSession.com Web site, where we offer active
investors a subscription service of "streaming" real-time quotes and dynamically
updating stock portfolios. Our subscriber count on this Web site has also shown
significant sequential quarterly growth during Fiscal 2000. BullSession.com
finished Fiscal 2000 with over 5,200 subscribers, up from approximately 3,500 at
the end of March 1999. Our source of revenue from the BullSession.com Web site
is the sale of subscriptions at monthly prices ranging from $26 to $50.
RECENT DEVELOPMENTS
RedChip Merger. 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, enable us to provide broad based financial information and offer
opportunities to expand our subscription and transaction-based services and add
new "B2B" services in the form of investor awareness programs for publicly
traded companies. Upon the closing of this transaction, we will issue 4,000,000
new shares of our 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., and the current shareholders of RedChip will own
approximately 33% of the total shares outstanding in FreeRealTime.com, Inc. on a
pro forma, fully diluted basis. While we anticipate closing the transaction by
the end of July 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.
Formation of DigitalOffering. On May 25, 2000 we purchased 4,000 shares of
Series A Convertible Preferred Stock in DigitalOffering, Inc., a newly formed
Delaware corporation ("DigitalOffering"). Our preferred shares are convertible
at any time at our option into a number of shares of Common Stock. No shares of
Common Stock have yet been issued by DigitalOffering. The Company intends to
purchase shares of Common Stock such that our total ownership will be
approximately 49% of the total Common Stock issued by DigitalOffering on the
date the common shares are issued. The convertibility feature of the Preferred
Stock held by the Company enables the Company to increase its ownership of the
Common Stock of DigitalOffering through such conversions, to as much as 85% of
DigitalOffering's then outstanding shares of Common Stock. In addition, it is
anticipated that certain executive officers of FreeRealTime.com will serve as
members of the board of directors of DigitalOffering and it is anticipated that
several of the executive officers of FreeRealTime.com will own Common Stock in
DigitalOffering. We plan to operate the transaction services segment of our
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
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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.
CORPORATE HISTORY
FreeRealTime.com, Inc., a Delaware corporation
("FreeRealTime.com -- Delaware"), is the result of a merger in September 1998
between our predecessor company, First International Financial Corporation, a
Delaware corporation ("FIFC-Delaware"), and FreeRealTime.com, Inc., a public
company located in the State of Colorado ("FreeRealTime -- Colorado")
(previously incorporated as Pub Singin', Inc. on May 3, 1989).
First International Financial Corporation. Our historical business began
in Canada through First International Financial Corporation, an Alberta
corporation ("FIFC-Alberta"). FIFC-Alberta, through a predecessor corporation,
was formed in July 1994 under the laws of Alberta, Canada by our founder Brad
Gunn. FIFC-Alberta commenced business operations in January 1996, when it
initiated the sale of capital stock in private placement transactions and began
to develop its Internet business. Mr. Gunn formed First International Financial
Corporation, a Delaware corporation (" FIFC-Delaware") on June 25, 1997 under
the laws of the State of Delaware, with the intent of moving the business of
FIFC-Alberta into the United States. FIFC-Delaware did not have any business
operations until July 31, 1998 when FIFC-Delaware acquired all of the
outstanding capital stock of FIFC-Alberta from the stockholders of FIFC-Alberta
in exchange for the issuance of shares of common stock of FIFC-Delaware. As a
result of the foregoing acquisition, FIFC-Alberta became a wholly-owned
subsidiary of FIFC-Delaware. Today, FIFC-Alberta is a wholly-owned subsidiary of
FreeRealTime.com, a Delaware corporation, as a result of the merger between
FreeRealTime.com-Colorado and FIFC-Delaware.
INDUSTRY BACKGROUND
The Web as a Global Medium. The Internet has rapidly become a significant
global medium for communications, news, information and commerce. Jupiter
Communications, a worldwide authority on Internet commerce, estimates that in
the U.S. today there are more than 134 million users of the Internet and that
the online population worldwide, will more than triple within the next five
years, growing from 200 million users today to 600 million users in 2005. IDC, a
leading market research firm, estimates that in the U.S. the user adoption rate
of the Internet will continue to rise in the coming years reaching more than 197
million total users by 2003. This growth is being driven by a number of factors,
including:
- a growing base of personal computers, or PCs, in the home and workplace;
- vast improvements in network infrastructure;
- more convenient, faster and free Internet access;
- advances in PCs, modems, and broadband deployment;
- increases in the quantity and quality of content available on the Web;
and
- the overall increase in public awareness of the Web.
The Web has become an attractive medium for advertisers, offering the
ability to target, as well as providing levels of reach, flexibility,
interactivity and measurability not typically available with traditional media.
According to Jupiter Communications, total online advertising revenues are
expected to grow to $28 billion worldwide by 2005, up from $4.3 billion in 1999,
positioning the Internet as the first marketing medium to offer global reach.
With Internet advertising, and specifically opt-in e-mail marketing, advertisers
have the ability to gather demographic information and target their messages to
specific groups of consumers. In fact, of total online advertising revenues, the
commercial e-mail market is expected to cannibalize direct mail revenues and
rise to an estimated $7.3 billion in 2005, up from $164 million in 1999,
according to Jupiter.
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Through the Web, financial information companies can deliver timely,
personalized content in a manner not possible using other media. Using the Web,
corporate and financial-related information can be continuously updated,
distributed to a vast number of users on a real-time basis, and accessed by
users at any time. Further, the interactive nature of the Web allows the
individual to access information tailored to his/her preferences and system
requirements and it also facilitates online electronic trading and the purchase
of relevant financial services.
Demand for Business News and Financial Programming. The Web has rapidly
established itself as an effective means for investors to manage portfolios,
research investments and trade securities. At the same time, individuals have
been taking greater control of their financial affairs by directly researching
information on investments, tracking their portfolios, purchasing no-load mutual
funds and playing a more proactive role in their relationships with financial
advisors. The Web has facilitated these behavioral shifts by providing investors
with easy access to information that was once available only to investment
professionals. Examples of such information include real-time market data and
news, historical quotes, charts, SEC filings and analysts' reports and earnings
estimates. According to BancBoston Robertson Stephens, the number of Web users
conducting financial transactions on the Web is estimated to be 44 million by
the end of 2000, and 79 million by the end of 2001. With financial transactions
defined as checking, transferring, paying, trading, crediting or purchasing a
personal financial asset online. BancBoston Robertson Stephens also estimates
that there will be 25 million online brokerage accounts by the end of 2003. With
more and more investors transacting online, the demand for better and more
timely information continues to grow.
Other Participants in the Industry. While there are hundreds of financial
information oriented Web sites on the Internet, only a handful of them attract
the bulk of investors interested in free, high quality, real-time financial
market information and analysis. These Web sites include: Raging Bull,
TheStreet.com, Telescan, and Thomson RT. In April 2000, Raging Bull, owned by
CMGi's Alta Vista, had a non-paying registered user base of 425,000. Publicly
held TheStreet.com had 41 million average monthly page views for the first
quarter of 2000. Telescan's WallStreetCity.com Web site generated approximately
21 million page views for the month of March 2000. Other Web sites that provide
financial programming of a less timely nature include, but are not limited to:
the major Web portals, such as Yahoo, Excite, Lycos, etc.; CBS Marketwatch,
which provides free real-time financial news but not free real-time market data;
Edgar Online; and Go2Net's Silicon Investor. CBS Marketwatch reported a monthly
average of 257 million page views and 10.8 million unique visitors for the first
quarter of 2000. In the fourth quarter of 1999, Edgar Online, a provider of
formatted SEC documents, had over 275,000 non-paying registered users and more
than 13,000 subscribers paying more then $9.95 per month. Go2Net's Silicon
Investor reported more than 250,000 active monthly members in the first quarter
of 2000.
We believe that a significant opportunity exists for a company to provide
an easy to access portal for real-time financial market information, financial
services and financial tools. By integrating real-time market information with
the best available financial tools, content and commentary, a Web-based service
can enable its audience to keep abreast of current business developments, track
industry and competitive trends, make informed, timely investment decisions and
manage their financial assets. We believe that by assembling a loyal base of
users who actively follow business and financial news, a Web site may be able to
create a targeted and demographically desirable audience that is attractive to
financial and non-financial advertisers. Further, such a Web site will have a
significant opportunity to sell related subscription and transaction services to
such users.
THE COMPANY STRATEGY
Develop and Maintain a Large User Base. Our primary strategy is to develop
a large and loyal community of users by offering free stock quotes and other
financial tools and content through the FreeRealTime.com Web site. As our user
base continues to grow, we are developing a sizeable audience with demographic
attributes that are attractive to advertisers.
Maintain Web site "Stickiness" and Increase Reach. "Stickiness" refers to
the amount of time a visitor spends on a Web site. The average amount of time a
visitor spends on our FreeRealTime.com Web site is almost 2 1/2 hours each month
according to Nielsen//NetRatings March 2000 Home Panel. This ranked
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FreeRealTime.com Number 1 in the Finance Category, and Number 2 on the overall
Web, according to Nielsen//NetRatings. We intend to maintain this stickiness by
continuing to provide the financial content, tools and services that we believe
investors desire, such as real-time market data and real-time news, portfolio
management, market commentary, community message boards and by seeking to
provide additional features including proprietary company research, profiles,
and analysis, sophisticated stock screening and trading tools, and access to a
multiple transaction services platform including the trading of equity and fixed
income securities. We believe that the suite of financial products and services
that we offer encourages our current registered users, as well as new users to
the site who register each market day, to visit our Web site often and for long
periods of time. We will begin allocating a portion of available resources to
advertising our Web sites for the first time beginning in the fiscal year ended
March 31, 2000, ("Fiscal 2001"), cash flow permitting, in order to increase our
audience reach.
Develop "Co-Brand," Web-Hosting and Other Marketing Programs. We continue
to pursue "co-branded" contractual relationships with other high quality and
high traffic Web sites, pursuant to which we produce and market a co-branded
page where we share content and/or tools with the co-brand partner, and share
revenues generated from these pages. Such relationships build users, site
traffic and brand awareness for both parties, while also generating revenue
through ad sales and fee sharing arrangements. Additionally, the number of our
registered users and subscribers allows us to generate additional revenues by
marketing our co-brand partners' (and other advertisers') products and services
directly to a targeted base of these users and subscribers each month through
e-mail marketing campaigns. For further discussion on e-mail marketing
campaigns, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Currently, we have co-brand agreements with various Web
sites, including MarketGuide.com, JAGNotes.com, Telescan.com,
WallstreetCity.com, INVESTools.com, Go2Net.com, IPO.com, InvestmentHouse.com and
mPower.com.
Capitalize on Attractive Audience Demographics. We believe our Web site
attracts users who, as a group, are more affluent and better educated than users
of many other Web sites and therefore present an attractive medium for companies
that advertise and engage in commerce over the Internet. Through data gathered
from users who register for real-time quotes and from periodic surveys, we have
knowledge of and track user activity on our Web site so that we can provide
advertisers with detailed demographic and other information that allows the
advertisers to target specific groups and tailor their advertisements to our
users. We believe this strategy helps attract new advertisers and increase the
sales prices we receive for our ad impressions and e-mail marketing campaigns.
Upsell User Base to Subscription Service. We also market subscription
based tools and services to our community of users. To increase our subscription
base we attempt to "upsell" the large community of users on our FreeRealTime.com
Web site to the subscription services on our BullSession.com Web site and other
subscription services. Additionally, we have entered into co-marketing
agreements with various companies, such as Telescan.com, JagNotes.com and
InvestmentHouse.com, wherein we market these parties' subscription services to
the users on our FreeRealTime.com Web site and share in the resulting revenues.
Provide On-Line Financial Transaction Services. We believe that our
customers often use our free and subscription-based content and services as
decision-making tools which create "actionable insight," leading them to enter
into various transactions on-line such as the purchase or sale of equity and
fixed income securities and the purchase of other financial products and
services. We believe the fees realized by third parties from transactions with
our customers are substantial. Accordingly, we are pursuing additional marketing
alliances to direct or network our customer's transaction activity to particular
third party providers in exchange for a participation in the resulting
transaction fees. Although we have entered into a letter of intent with Herzog,
Heine & Geduld, Inc. ("Herzog") to develop an on-line order entry portal through
which we would offer order execution services to institutional investors for
equity trading, in which we would share in transaction fees with Herzog. Herzog
is being acquired by Merrill Lynch Pierce Fenner and Smith. The Merrill Lynch
transaction creates substantial uncertainty as to whether an agreement can be
reached. We have not entered into a definitive agreement with Herzog and are not
certain that we ever will. We are continuing to pursue similar business
arrangements with other strategic partners involving on-line transaction
services. There can be no assurance that we will be able to enter into
agreements for these other transaction
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alliances, or that if we do, we will realize a benefit from such arrangements or
from arrangements for which we have definitive agreements.
PRODUCTS
THE FREEREALTIME.COM WEB SITE
The FreeRealTime.com Web site provides unlimited, free, real-time stock
quotes, as well as business and company news, market statistics and commentary,
fundamental company information and research, and free analytical tools such as
charting, portfolio management and message boards. We believe that offering
comprehensive business news, financial programming and analytical tools is
critical to our success because the combination of these services enables us to
increase audience loyalty, average usage time and repeat visits while also
creating a sense of community.
The FreeRealTime.com Web site provides stock quotes from all major U.S.
stock markets (the "Exchanges"). These quotes are offered in real time for free
to users. Through these stock quote pages, our audience can access other
valuable information about a particular company, including stories from several
news services, SEC filings and annual reports, summaries of analysts'
information and research and a variety of fundamental and technical information.
In addition to a wide variety of data on specific securities, including trading
share and dollar volume information, bid and ask quotes and size, relative
indices, stock split information and other data, the FreeRealTime.com Web site
also provides information as to various market and industry indices as well as
commodity, options and currency markets.
The FreeRealTime.com Web site aggregates numerous news feeds from around
the world, sorts and organizes articles according to industry, company and type
of news. Our news feeds include BusinessWire, PRNewswire, Reuters, Associated
Press and United Press International. Our news and market commentary partners
include Comtex News, Reuters, RealtimeTraders.com, StreetAdvisor.com, Zacks
Investment Research, JAGNotes.com and INVESTools.com and is updated daily.
We believe that providing a place for our audience, financial journalists
and experts in the financial world to meet and share ideas about investing will
help increase our brand awareness, as well as motivate our users to return
frequently to spend more time on our Web site. Additionally, because we
integrate related news, market data and charts throughout our service, community
members are able to form niche user groups around their specific interests,
which can be targeted with relevant marketing campaigns and transaction
opportunities.
THE BULLSESSION.COM WEB SITE
While all the programming available on FreeRealTime.com is currently free
of charge, a core element of our corporate strategy includes providing
subscription-based financial content and investment tools to sophisticated
investors through affiliated Web sites. Our BullSession.com Web site is a
subscription based service that provides a portfolio management tool featuring
"streaming" real-time, ticker-tape quotes and dynamically updating stock
portfolios.
The central feature of the BullSession.com service is the sophisticated
TickerTracker(TM) which allows a subscriber to monitor a custom set of
portfolios consisting of stocks and indexes. Each portfolio is continuously
updated with real-time trading information and subscribers can view a variety of
information, including best bid and offer, last sale, trade volume, day
high-low, 52 week high-low, time of last sale, price targets, and company name.
TickerTracker also performs portfolio management and analytical functions,
including calculating the profit/loss position on a given stock or a given
portfolio. Users may also display their portfolios in a scrolling stock ticker
tape format where the stock symbol and last price scroll by in a small window
that can be running at the same time as other software on the subscriber's
computer screen.
BullSession.com also offers a Detailed Quotes screen, which allows users to
obtain more detailed historical data such as P/E ratios and dividend and
earnings information; an Exchange Statistics screen, which allows users to
obtain a variety of reports on each exchange (e.g., most active, percent
gainers, dollar amount gainers, etc.) and an Option Listings screen, which
allows users to query detailed information about the options offered on a given
security.
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OTHER PRODUCTS AND SERVICES
In addition to the extensive financial services provided through our two
Web sites, we began offering free e-mail through the FreeRealTime.com Web site
during Fiscal 2000. By offering free e-mail we believe we have increased our
advertising base and provided another means for advertisers to target their ads.
We also believe that subscribers to our free e-mail will spend more time on our
Web site as they use it to check and send e-mails.
ADVERTISING SALES ON FREEREALTIME.COM
We are focused on providing our advertisers with a large, demographically
desirable audience. We believe that our FreeRealTime.com Web site attracts users
who as a group are more affluent and better educated than users of many other
Web sites and therefore represent an attractive medium for companies that
advertise and engage in commerce over the Internet. Advertisements are displayed
on virtually every page view on the FreeRealTime.com Web site, including when a
user enters the service, reviews a news story, accesses a quote or views a stock
message board.
We have entered into an agency ad sales contract with AdSmart, Inc., a
company owned by CMGI, Inc., to represent our Web site to advertisers and media
buyers. As a result of both AdSmart's efforts and those of our in-house ad sales
force, we realized an average monthly growth rate of 14% in our ad revenues for
Fiscal 2000. We are continuing to expand our in-house ad sales team, and expect
that in-house ad sales will represent a growing portion of our total ad sales.
A substantial majority of our revenue is derived from the sale of
advertising and sponsorships on the FreeRealTime.com Web site. Our current
advertising options on that site include:
- Run of Site. Run of site rotations are banner advertisements that rotate
on a random basis throughout the FreeRealTime.com Web site, appealing to
advertisers seeking to establish general brand recognition across
FreeRealTime.com's audience. Run of site rotations are typically sold in
blocks of 1,000 impressions, with a minimum of 100,000 guaranteed
impressions over the life of the advertising contract. FreeRealTime.com's
current cost-per-thousand impressions, or CPM, rate for run of site
rotations ranges from $2 to $25 depending on length of contract and
number of impressions purchased.
- Targeted Advertisements. Targeted advertisements are banner
advertisements that are displayed when a user browses through specific
quote or other content pages, allowing advertisers to target users based
on page view interest and activity, region or country, time of day,
frequency of use, Internet Service Provider, type of operating system or
browser. Because every user of FreeRealTime.com is a registered member in
our database, we can effectively target advertising to each individual
member. Like run of site rotations, targeted advertisements are sold in
blocks of 1,000 impressions. Due to the greater selectivity of the
audience and because users typically spend more time on non-quote content
pages than on quote pages, FreeRealTime.com's current CPM rates for
targeted advertisements are generally higher than run of site rotations.
- Sponsorships. Sponsorships allow advertisers to gain maximum exposure on
the Web site by featuring "buttons" and "boxes" on certain pages. For
example, the online brokerage services of Datek and Ameritrade have had
advertisements placed in fixed positions within our Web site allowing
users to move directly to the advertiser's site and establish an account
or place an order. We offer sponsorship opportunities throughout our
entire site. Sponsorships usually involve a fixed monthly fee over the
life of the contract and may include other advertising components such as
general rotation or targeted banner advertisements.
- E-mail Marketing Campaigns. E-mail marketing campaigns are a more
targeted means of advertising to a particular type of audience. We sell
two types of e-mail marketing campaigns: "direct" and "sponsored." Direct
e-mail campaigns are full e-mail ads by advertisers, whereas a sponsored
e-mail is a FreeRealTime.com content piece with a brief sponsorship by
the advertiser noted on the e-mail. Direct e-mail campaigns command as
much as $100-$200 CPM, and sponsored e-mail campaigns command as much as
$20-$30 CPM. We introduced our e-mail marketing campaign during the third
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quarter of Fiscal 2000 and relied primarily on the third party
representative firm, INVESTools, Inc., to sell the substantial majority
of our e-mail campaigns. We did expand our in-house ad sales force during
and subsequent to Fiscal 2000 in an effort to sell an increased
percentage of our total ad sales directly to advertisers, including
e-mail marketing campaigns.
Our advertisers have been from the technology, financial services, retail,
banking and other industries.
MARKETING AND DISTRIBUTION
We are seeking to establish the FreeRealTime.com brand as one of the Web's
leading providers of free real time market data, financial content and tools,
and subscription and transaction services. Despite the lack of capital resources
to fund a media-based advertising campaign, we experienced substantial growth
during Fiscal 2000 in the number of users, subscribers and page views on our Web
sites. The substantial increase in the number of users on the FreeRealTime.com
Web site was primarily due to a higher level of awareness of our Web sites by
users of the Internet, which we believe is a result of user referrals, the
appearance of our Web sites in the query lists of "search portal" Web sites,
favorable publicity received for both FreeRealTime.com and BullSession.com, and
user traffic from our web-hosting and co-branding relationships. Due to limited
capital resources we did not expend material amounts on advertising of our Web
sites during Fiscal 2000. Upon the availability of capital resources, we intend
to increase advertising and marketing expenditures to continue to build brand
awareness, users and traffic on our Web sites.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The data center and network operations for our Web sites are currently
outsourced to third party "co-location" firms, Exodus Communications, Inc. and
Quest Internet Solutions, Inc., which operate data centers for us in three
locations: Jersey City, New Jersey, Irvine, California and Sterling, Virginia.
FreeRealTime.com utilizes multiple Web servers running Sun Microsystems Solaris
2.8 operating system and Apache Web Server. Internet access is maintained by
Exodus through multiple OC3 connections with four different tier one backbone
providers. The systems running the Web site are powered by multiple
uninterruptible power supplies backed up with multiple diesel power generators.
Full site redundancy is handled by Cisco's Global Director and multiple Cisco
Local Directors.
All of our market data serving software was created by and is owned by
FreeRealTime.com. We are expanding our internal development group to create new,
and enhance existing, services, tools and features. We also utilize third party
technology for certain sections of our site, for example Telescan, Inc.
currently provides our charting capability.
We obtain most of the information on our Web sites from suppliers of market
data and financial programming. Key contractual supply relationships include
quote and market data from the U.S. stock exchanges, datafeed services from S&P
Comstock, and news programming from Comtex and Reuters. We depend on these
information providers to provide information and data feeds on a timely basis.
Our contracts with our datafeed and news programming suppliers generally provide
for fixed monthly charges for these services, whereas our contracts with the
stock exchanges generally provide for payments based on the volume of traffic on
our Web sites, as determined by the number of users or volume of real-time
quotes. The rapid growth in traffic on our Web sites has caused our expenses for
services from these suppliers at times to grow faster than the availability of
cash from revenues and internal operations or from external capital
contributions. During Fiscal 2000, certain of these data and operations costs
decreased substantially on a per-page view basis. In the first quarter of Fiscal
2000, the NASDAQ reduced its market data fees by approximately 50%, and the New
York and American Stock Exchanges announced significant fee reductions in the
third quarter of Fiscal 2000. Additionally, we renegotiated and amended our
datafeed and co-location provider contracts with S&P Comstock and Exodus
Communications, respectively, to result in significant reductions in our
per-page view costs for these services. Despite these declines in our unit
costs, we anticipate that these costs will continue to increase over the
foreseeable future as we realize growth in the users and page views on our Web
sites. As of the date hereof, we believe we have satisfactory relationships with
all our suppliers of market data and financial programming, although we have an
outstanding issue with the American Stock Exchange concerning
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the amount of past due obligations which we are currently in discussions to
resolve. For a discussion, see "Risk Factors -- Need to Maintain and Renew Key
Supplier Relationships" and "Management's Discussion and Analysis -- Cost of
Revenues."
Our market is characterized by rapidly changing technology, evolving
industry standards and frequent new product announcements. These are exacerbated
by the recent growth of the Web and the intense competition in our industry. To
be successful, we must adapt to our rapidly changing market by continually
improving the performance, features, and reliability of our services. We could
incur substantial costs if we need to modify our services or infrastructure in
order to adapt to these changes.
INTELLECTUAL PROPERTY
We rely primarily on a combination of copyrights, trademarks, trade secret
laws, our user policy and restrictions on disclosure to protect our intellectual
property. We typically enter into confidentiality agreements with our employees
and consultants to control access to and distribution of our other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the content on our Web site or our other
intellectual property without authorization. There can be no assurance that
these precautions will prevent misappropriation or infringement of our
intellectual property.
We also license certain data and content from third parties. In these
license agreements, the licensors have generally agreed to defend, indemnify and
hold us harmless with respect to any claim by a third party that the licensed
software or content infringes any person's proprietary rights. There can be no
assurance that the outcome of any litigation between such licensors and a third
party or between us and a third party will not lead to royalty obligations for
which we are not indemnified or for which such indemnification is insufficient,
or that we will be able to obtain any additional license on commercially
reasonable terms if at all.
GOVERNMENT REGULATIONS
There are currently few laws or regulations that specifically regulate
communications or commerce on the Web. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting certain types of
information and content over the Web. Several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet Service
Providers and online services providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. This could
increase the cost of transmitting data over the Internet. Moreover, it may take
years to determine the extent to which existing laws relating to issues such as
property ownership, libel and personal privacy are applicable to the Web. Any
new laws or regulations relating to the Web could adversely affect our business.
RESEARCH AND DEVELOPMENT
For Fiscal 2000, we spent $357,000 on product development. Our primary
focus has been software and system development. For a more detailed discussion
see "Management's Discussion and Analysis -- Operating Expenses -- Product
Development."
EMPLOYEES AND CONSULTANTS
As of June 15, 2000, there were 59 personnel dedicated to our business, 20
of whom worked in product and content development, 7 in sales and marketing, 2
in business development, 3 in transaction services, 1 in corporate development,
7 in customer support, 3 in accounting, 2 in legal and 14 in management,
operations and administration. We have never had a work stoppage and we consider
our employee relations to be good.
We believe that our future success will depend in part on our continued
ability to attract, integrate, retain and motivate highly qualified sales,
technical, and managerial personnel, and upon the continued service of our
senior management and key sales and technical personnel. None of our personnel
is bound by an employment agreement that prevents such person from terminating
his or her relationship at any time for any reason,
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<PAGE> 10
although we have strategic employment agreements with certain employees who have
been incentivized to continue their employment for a particular period of time.
Competition for qualified personnel is intense, particularly in the Irvine,
California area, where our headquarters are located. At times we have
experienced difficulties in attracting new personnel. There can be no assurance
that we will successfully attract, integrate, retain and motivate a sufficient
number of qualified personnel to conduct our business in the future.
REPORTS TO SECURITY HOLDERS
We are subject to the informational requirements of the Securities Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, we file
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the Commission's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy statements and other information filed electronically by us.
RISK FACTORS
RISKS RELATED TO THE BUSINESS
Limited Operating History. The FreeRealTime.com and BullSession.com Web
sites are at an early stage of development, as they did not begin significant
operations until February 1998. Accordingly, we have a limited history upon
which an evaluation of our prospects can be made. Our stockholders must consider
the risk, expenses and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, including Web-based financial
information companies. There can be no assurance that we will be able to achieve
profitable operations.
Historical Losses; Anticipated Losses. Since inception, we have incurred
significant operating losses, and as of March 31, 2000 had an accumulated
deficit of approximately $7.2 million. To the extent we are successful in
raising additional capital, we expect to significantly increase our operating
expenses to expand our media-based and subscription and transaction based
operations, including in the areas of sales and marketing, software development
and web operations, customer support, accounting, and administrative support. We
also expect to significantly increase our level of capital expenditures to
further develop and maintain our content, back-end systems, and overall market
position. Such increases in operating expense levels and capital expenditures
will adversely affect operating results and we believe that we may incur
substantial losses for the foreseeable future. In Fiscal 2000, we achieved
significant increases in revenue, gross profit, registered users, page views and
subscribers, as well as substantial improvement in our gross margin percentages
over the prior year. In addition, we achieved significant improvement in our
loss per share for the fourth quarter of Fiscal 2000 over the same period in the
prior year. Although we enjoyed marked increases and improvement in certain
financial results over the prior year, there can be no assurance that we will
continue to realize similar performance in the future, nor that we will achieve
improved loss per share results in the future.
Fluctuations in Operating Results. As a result of our limited operating
history and the emerging nature of the markets in which we compete, we are
unable to accurately predict our revenues. We expect to experience significant
fluctuations in our future quarterly operating results due to a variety of
factors, many of which are outside our control. Factors that may adversely
affect our quarterly operating results include: (i) the level of traffic on the
FreeRealTime.com and BullSession.com Web sites, (ii) the level of use of the
Internet and on-line services and increasing consumer acceptance of the Internet
as a medium for commerce, (iii) the demand for advertising on our Web sites and
on the Internet generally, (iv) our ability to enter into, renegotiate or renew
key contractual arrangements, (v) our ability to upgrade and develop our systems
and infrastructure and attract new personnel in a timely and effective manner,
(vi) the announcement or introduction of new sites, services and products by us
and our competitors, (vii) fees for data feed and distribution of content or
other costs we may incur as we expand our operations, (viii) technical
difficulties, system downtime or Internet brownouts, (ix) the amount and timing
of operating costs and capital expenditures relating to expansion of our
business, operations and infrastructure, (x) governmental regulation, and (xi)
general economic conditions and economic conditions specific to the Internet and
on-line commerce.
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<PAGE> 11
Due to the foregoing factors, in one or more future quarters, our operating
results may fall below the expectations of securities analysts and investors. In
such event, the trading price of our common stock would likely be materially
adversely affected.
Need to Maintain and Renew Key Supplier Relationships. We depend on
maintaining good relationships with our suppliers of market data and financial
programming. We believe that we are currently in good standing with all of our
suppliers. Key contractual supply relationships include quote and market data
from the various Exchanges, data feed services from S&P Comstock, news
programming from Comtex and Reuters, and co-location and communication services
from Exodus Communications. We depend on these information providers to provide
information and data feeds on a timely basis. Our Web sites could experience
disruptions or interruptions in service due to the failure or delay in the
transmission or receipt of this information. The rapid growth in traffic on our
Web sites has at times caused our expenses for services from these suppliers to
grow faster than the availability of cash from revenues and internal operations
or from external capital contributions. As of March 31, 2000, we had significant
accrued and past due liabilities payable to some of these suppliers, which are
reflected in our negative working capital balance. The loss of certain of these
supply relationships, especially those with the stock exchanges, could have a
material adverse effect on our business. We have a long standing relationship
with the American Stock Exchange but have an outstanding issue concerning the
amount of past due obligations which we are currently in discussions to resolve.
We believe that we have accrued the proper amount pertaining to these
obligations. However, this issue may give rise to a contingent obligation that
we believe will not exceed an additional $300,000 above and beyond what has
already been accrued in our financial statements.
Intense Competition for Web-Based Business and Financial Content. Many Web
sites compete for consumers' and advertisers' attention and spending,
particularly in the on-line financial services area. Our current competitors
include (i) publishers and distributors of traditional media, including
television, radio and print, such as CNN, CNBC, and The Wall Street Journal;
(ii) general purpose consumer online services such as America Online and
Microsoft Network; (iii) online services or Web sites targeted to business,
finance and investing needs, such as MarketWatch.com, The Wall Street Journal
Interactive Edition, TheStreet.com and certain of the online brokerage firms,
including Schwab.com and E*TRADE; (iv) providers of terminal-based financial
news and data, such as Bloomberg Business News, Reuters News Service, Dow Jones
Markets and Bridge News Service; and (v) other online financial service
providers such as Fool.com, Yahoo!Finance, Raging Bull, Silicon Investor and
Wall Street City.
We believe that the principal competitive factors in our market are
simplicity, brand recognition, product selection, personalized services,
convenience, price, accessibility, customer service, quality of editorial and
other site content and reliability and speed of fulfillment. Many of our
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other
resources than us. Certain of our competitors may be able to devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
or inventory availability policies and devote substantially more resources to
Web site and systems development than us. Increased competition may result in
reduced gross margins, loss of market share and a diminished brand franchise.
There can be no assurance that we will be able to compete successfully against
current and future competitors.
We expect that competition in the on-line financial services market will
intensify in the future. For example, as various market segments obtain large,
loyal customer bases, participants in those segments may seek to leverage their
market power to the detriment of participants in other market segments.
Competitive pressures created by any one of our competitors, or by our
competitors collectively, could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Risks of Developing New and Enhanced Services and Features for Our Web
Sites. We intend to introduce on our Web sites additional or enhanced content,
tools and services in the future in order to retain our current users and
attract new users. In particular, we are currently attempting to establish the
means whereby we can distribute online private placements and public offering of
equity securities and fixed income securities. There can be no assurance that we
will receive the appropriate regulatory and other approvals to operate this
service or any other proposed new services.
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<PAGE> 12
Need to Establish and Maintain Strategic Relationships With Other
Sites. We depend on establishing and maintaining licensing, co-brand and
revenue sharing relationships with high-traffic Web sites. Currently, such
relationships do not account for a significant portion of our traffic or
revenues. However, increasing the number of these relationships is a key element
of our strategic plan.
We may not be able to enter into such relationships on commercially
reasonable terms or at all, and even if we enter into relationships with these
Web sites, we may not realize additional users or revenues from these
relationships. Our business could be adversely affected if we does not establish
and maintain additional strategic relationships on commercially reasonable terms
or if any of our strategic relationships do not result in increased use of our
Web sites or additional revenues.
Dependence on Obtaining Real Time Stock Quotes. Our business is dependent
on providing our users with free real-time stock quotes which represent a
majority of our monthly page views. In order to provide our users with free
real-time stock quotes, we have entered into license agreements with NASDAQ, the
New York Stock Exchange and the American Stock Exchange whereby these exchanges
provide us with real-time stock quotes. We are dependent on receiving this
licensed data. Under the terms of each of these license agreements, each of the
exchanges may terminate such license agreement at any time, without penalty. As
a result, we face risks associated with maintaining these license agreements.
Possible Need for Additional Financing. We may require additional
financing. Our working capital requirements in the foreseeable future will
depend on a variety of factors including our ability to implement our business
plan. There can be no assurance that we will be able to successfully negotiate
or obtain additional financing, or that such financing will be on favorable or
acceptable terms. We do not have any commitments for additional financing. Our
ability to obtain additional capital will be dependent on market conditions, the
national economy and others factors outside our control. If adequate funds are
not available or are not available at acceptable terms, our ability to finance
our expansion, develop or enhance services or products or respond to competitive
pressures could be significantly limited. The failure to secure necessary
financing could have a material adverse effect on our business, prospects,
financial condition and results of operations.
Dependence on the Internet. Our ability to derive revenues from
advertising, subscription, and transaction based services is substantially
dependent upon continued growth in the use of the Internet and the
infrastructure for providing Internet access and carrying Internet traffic.
There can be no assurance that the necessary infrastructure, such as a reliable
network backbone, or complementary products will be developed or that the
Internet will prove to be a viable commercial marketplace. To the extent that
the Internet continues to experience significant growth in the level of use and
the number of users, there can be no assurance that the infrastructure will
continue to be able to support the demands placed upon it by such potential
growth. In addition, delays in the development or adoption of new standards or
protocols required to handle levels of Internet activity, or increased
governmental regulation may restrict the growth of the Internet. Critical issues
concerning the commercial use of the Internet, including but not limited to,
security, reliability, cost, ease of use and access, and quality of service,
remain unresolved and may impact the growth of Internet use. If the necessary
infrastructure or complementary products and services are not developed or if
the Internet does not become a viable commercial marketplace, the business, our
operating results and financial condition could be materially adversely
affected.
Developing Market; Uncertain Acceptance of the Internet as Medium for
Commerce. The market for our services has only recently begun to develop and is
rapidly evolving. As is typical for a new and rapidly evolving industry, demand
and market acceptance for recently introduced products and services over the
Internet are subject to a high level of uncertainty and risk. Moreover, since
the market for our services is new and evolving, it is difficult to predict the
size of this market and the future growth rate, if any. The success of our
services will be substantially dependent upon the widespread acceptance and use
of the Internet as a medium for accomplishing financial transactions by a broad
base of consumers. Rapid growth in the use of the Internet is a recent
phenomenon. There can be no assurance that there will be broad acceptance of the
Internet as an effective medium for accomplishing financial transactions by
consumers. If our on-line services do not achieve market acceptance or if the
Internet does not become a viable marketplace, our business, results of
operations and financial condition would be materially adversely affected.
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<PAGE> 13
Risks Associated with Brand Development. We believe that establishing and
maintaining the FreeRealTime.com and BullSession.com brands is a critical aspect
of our efforts to attract and expand our audience and that the importance of
brand recognition will increase due to the growing number of Internet sites and
the relatively low barriers to entry. Promotion and enhancement of the
FreeRealTime.com and BullSession.com brands will depend largely on our success
in providing high-quality products and services and in designing and
implementing effective media promotions, which success cannot be assured. In
order to attract and retain Internet users and to promote and maintain brand
recognition such as the FreeRealTime.com and BullSession.com brands in response
to competitive pressures, we believe it is necessary to substantially increase
our financial commitment to creating and maintaining a distinct brand loyalty
among consumers. If we are unable to provide high-quality products and services,
design and implement effective media promotions or otherwise fail to promote and
maintain our brands, or if we incur excessive expenses in an attempt to improve
our products and services or promote and maintain our brands, our business,
operating results and financial condition would be materially adversely
affected.
RISKS RELATED TO ADVERTISING
Advertising Based Business Model. We expect to derive the majority of our
revenues in the foreseeable future from advertising. No standards have been
widely accepted to measure the effectiveness of Web advertising. If such
standards do not develop, existing advertisers may not continue their current
levels of Web advertising. Furthermore, advertisers that have traditionally
relied upon other advertising media may be reluctant to advertise on the Web,
and advertisers that already have invested substantial resources in other
advertising methods may be reluctant to adopt a new strategy. Our business would
be adversely affected if the market for Web advertising fails to develop or
develops more slowly than expected.
Inability to Track and Measure the Delivery of Advertisements. It is
important to advertisers that we accurately measure the demographics of our user
base and the delivery of advertisements on our Web sites. We depend on a third
party, namely AdForce, who is contracted through our ad sales firm, AdSmart, to
provide a majority of these measurement and ad-serving services. If AdForce is
unable to provide these services in the future, we will be required to perform
them ourselves or obtain them from another provider. If we are unable to provide
these services to our advertisers, advertisers may cease to advertise on our Web
sites or reduce the amount they are willing to pay for such advertising.
Reliance on Third Party Advertising Sales Force. We have a small internal
sales force consisting of 4 members. We are attempting to expand our internal
sales force by hiring additional members. The success of our internal sales
effort is subject to various risks, including competition in hiring and
retaining sales personnel and the length of time required for a new hire to
become productive. For the foreseeable future we expect to rely on third parties
to sell a majority of the advertisements on the FreeRealTime.com Web site. Our
business would be adversely affected if our third party sales force fails to
attract advertisements to the our FreeRealTime.com Web site or if we are unable
to renew our advertising contracts with our third party sales force.
RISKS RELATED TO OUR INDUSTRY
Government Regulations and Legal Uncertainties. We are not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses, and there are currently few laws or regulations
directly applicable to access to or commerce on the Internet. It is possible,
however, that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing and characteristics
and quality of products and services. The adoption of any such laws or
regulations may decrease the growth of the Internet, which in turn, could
decrease the demand for our services and increase our cost of doing business or
otherwise have an material adverse effect on our business, prospects, financial
condition and results of operations. Moreover, the applicability to the Internet
or other on-line services of existing laws in various jurisdictions governing
issues such as property ownership, sales and other taxes, libel and personal
privacy is uncertain and may take years to resolve. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our
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<PAGE> 14
business, or the application of existing laws and regulations to the Internet or
other on-line services could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Storage of Personal Information About our Users. We have a non-disclosure
policy which states that we will not willfully disclose any individually
identifiable information about any user to a third party without the user's
consent. Despite this policy, however, if third persons were able to penetrate
our network security or otherwise misappropriate our users' personal information
or credit card information, we could be subject to liability for misuses of
personal information or for misappropriation of funds. These claims could result
in litigation. In addition, the Federal Trade Commission and other states have
been investigating certain Internet companies regarding their use of personal
information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced or if they chose to investigate our
privacy practices.
Liability for Information Displayed on our Web Sites. We may be subjected
to claims for defamation, negligence, copyright or trademark infringement or
claims based on other theories relating to the information published on our Web
sites. These types of claims have been brought, sometimes successfully, against
online services as well as other print publications in the past. We could also
be subject to claims based on the content that is accessible from our Web site
through links to other Web sites. Our insurance may not adequately protect us
against any of these types of claims.
Intellectual Property and Proprietary Rights. Our success is substantially
dependent upon our proprietary technology. We rely on a combination of
trademark, copyright and trade secret laws, as well as confidentiality
agreements and technical measures to protect our proprietary rights. Much of our
proprietary information may not be patentable, and we do not currently possess
any patents. There can be no assurance that we will develop proprietary products
or technologies that are patentable, that any issued patent will provide us with
any competitive advantage or will not be challenged by third parties, or that
the patents of others will not have a material adverse effect on our ability to
do business. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or services or to obtain and
use information that we regard as proprietary. There can be no assurance that
our means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology or duplicate our
products or design around patents issued to us or other of our intellectual
property rights.
There have been substantial amounts of litigation in the computer industry
regarding intellectual property rights. There can be no assurance that third
parties will not in the future claim infringement by us with respect to current
or future products, trademarks or other proprietary rights, that we will
counterclaim against any such parties in such actions or that if we make claims
against third parties with respect thereto, that any such party will not
counterclaim against us in such action. Any such claims or counterclaims could
be time-consuming and result in costly litigation, require us to redesign our
products or require us to enter into royalty or licensing agreements, any of
which could have a material adverse effect on our business, prospects, financial
condition and results of operations. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at all.
Rapid Technological Change. The Internet and on-line commerce industries
are characterized by rapid technological change, changing market conditions and
customer demands and the emergence of new industry standards and practices that
could render our existing Web sites and proprietary technology obsolete. Our
future success will substantially depend on our ability to enhance our existing
services, develop new services and proprietary technology and respond to
technological advances in a timely and cost-effective manner. The development of
Web sites and other proprietary technology entails significant technical and
business risk. There can be no assurance that we will be successful in
developing and using new technologies or adapting our proprietary technology and
systems to meet emerging industry standards and customer requirements. If we are
unable, for technical, legal, financial, or other reasons, to adapt in a timely
manner in response to changing market conditions or customer requirements, our
business, prospects, results of operations and financial condition would be
materially adversely affected.
Risk of System Failure. Our success is substantially dependent upon our
ability to deliver high quality, uninterrupted Internet hosting, which requires
that we protect our computer equipment and the information stored in our
servers. Our systems are vulnerable to damage by fire, natural disaster, power
loss, telecommuni-
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cation failures, unauthorized intrusion and other catastrophic events. Any
substantial interruption in our systems would have a material adverse effect on
our business, prospects, financial condition and results of operations. Although
we carry property and business interruption insurance, our coverage may not be
adequate to compensate for the losses that may occur. In addition, our systems
may be vulnerable to computer viruses, physical or electronic break-ins and
other similar disruptive events. Computer viruses, break-ins or other problems
caused by third parties could lead to interruptions, delays, loss of data or
cessation in service to users of our services. The occurrence of any of these
risks could have a material adverse effect on our business, prospects, financial
condition and results of operations.
Possible Volatility of Stock Price. The trading price of our common stock
is likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as actual or anticipated variations in our quarterly
operating results, announcements of technological innovations, or new services
by us or our competitors, changes in financial estimates by securities analysts,
conditions or trends in the Internet and on-line commerce industries, changes in
the market valuations of other Internet or on-line service companies,
announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments, additions or departures of
key personnel, sales of our common stock in the open market and other events or
factors, many of which are beyond our control. Further, the stock markets in
general, the Nasdaq National and Small Cap Markets, the OTC Bulletin Board and
the market for Internet-related and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect valuations substantially above historical levels. There can be no
assurance that these trading prices and valuations will be sustained. These
broad market and industry factors may materially adversely affect the market
price of the Common Stock, regardless of our operating performance. Market
fluctuations, as well as general political and economic conditions such as
recession or interest rate or currency rate fluctuations, may also adversely
affect the market price of our common stock. In the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such company. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse effect
on our business, prospects, results of operations and financial condition.
Potential Anti-Takeover Effects of Charter and Bylaws. Our Charter and
Bylaws contain provisions relating to issuance of preferred stock, special
meetings of shareholders and amendment of Bylaws that could have the effect of
delaying, deferring or preventing an unsolicited change in control.
Lack of Dividends. We have not declared or paid any dividends with respect
to our Common Stock. We do not anticipate paying any dividends in the
foreseeable future.
ITEM 2. PROPERTIES
Our principal administrative, marketing, and management facilities are
located in approximately 3,800 square feet of office space in Irvine,
California. We lease our Irvine, California facility under a noncancelable
operating lease that expires on November 30, 2000. Our research and development
facilities are located in approximately 1,900 square feet of office space in
Calgary, Alberta, Canada. We lease this facility under a cancelable operating
lease which expires on December 31, 2004. We do not currently intend to renew
our Irvine, California lease, but intend to relocate our Irvine facility to a
larger facility in Aliso Viejo, California. We will incur additional costs
related to the relocation of the Irvine facility and may have to pay rent on two
leases for a period of time.
All of our communications, network, and server infrastructure are currently
hosted in the Exodus Communications' and Quest data centers in Jersey City, New
Jersey, Irvine, California, and Sterling, Virginia. Any system failure at these
locations could lead to interruptions, delays, or cessations in service to our
members, which could have a material adverse effect on our business, results of
operations and financial condition.
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<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock has been quoted and traded in the over-the-counter market
on the Nasdaq Over-the-Counter Bulletin Board system under the symbol "FRTI"
since September 1998. The following table indicates high and low bid and asked
quotations for our Common Stock for the last two fiscal years. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions,
and may not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999
--------------- ---------------
QUARTER HIGH LOW HIGH LOW
------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Quarter One....................................... 10.125 6.625
Quarter Two(1).................................... 10.125 5.000 7.188 5.938
Quarter Three..................................... 8.625 4.750 9.500 4.000
Quarter Four...................................... 14.250 5.875 20.000 4.750
</TABLE>
---------------
(1) There were no quotations for our common stock prior to September 21, 1998
and the information for the second quarter of Fiscal 1999 represents data
for the period from September 21 through September 30 only.
As of June 15, 2000, there were approximately 74 holders of record of our
Common Stock. We have not declared any dividends and do not intend to declare
any dividends in the foreseeable future.
During Fiscal 2000, we completed two private equity financings in which we
sold an aggregate of 1,019,200 shares of common stock and stock purchase
warrants to purchase 182,500 shares of common stock, for total proceeds of
$4,913,500 (less stock issuance costs of $522,000). For a more detailed
discussion see "Market for Common Equity and Related Stockholder
Matters -- Recent Sales of Unregistered Securities." Concurrent with the second
private equity financing in September 1999, we entered into a strategic
co-marketing and cross-licensing agreement with Telescan, Inc. covering certain
of each other's Web-based products and services. Telescan purchased $3,000,000
of the shares of Common Stock sold in the private equity financing.
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<PAGE> 17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with the financial statements of FreeRealTime.com,
Inc. and the notes thereto included elsewhere in this Form 10-KSB, as well as
the discussion hereunder "Management's Discussion and Analysis or Plan of
Operation", also included elsewhere in this Form 10-KSB. The selected statement
of operations data for the years-ended March 31, 2000 and March 31, 1999 has
been derived from the financial statements of FreeRealTime.com, Inc. and
FIFC-Alberta respectively, as audited by KPMG LLP, independent auditors, and are
included elsewhere in this Form 10-KSB.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
2000 1999
------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
REVENUES
Advertising Revenue......................................... $ 4,751 $ 631
Web-Host/Co-Brand Revenue................................... 659 179
Subscription Revenue........................................ 1,788 586
---------
TOTAL REVENUES.................................... 7,198 1,396
--------- ---------
Cost of Revenues Market Data................................ 3,586 1,896
Co-location and Communications............................ 1,815 588
Programming............................................... 106 54
Other..................................................... 0 29
--------- ---------
Total Cost of Revenues.................................... 5,507 2,567
Gross Profit/(Loss)............................... 1,691 (1,171)
General, Administrative, Selling and Development Expenses
Sales and Marketing....................................... 1,525 404
General and Administrative................................ 2,835 552
Product Development....................................... 357 60
Non Cash Charges -- Stock Option Grants................... 1,425 316
---------
Total General, Administrative, Selling and Development
Expenses.................................................. 6,142 1,332
Interest Income/(Expense)................................... 71 (18)
--------- ---------
Loss before income tax provision/benefit.................. $ (4,380) $ (2,521)
Income tax provision/benefit................................ 0 0
--------- ---------
NET LOSS.......................................... $ (4,380) $ (2,521)
--------- ---------
Net Loss per share:
Basic and diluted......................................... (.69) (.45)
Shares used to compute basic and diluted net loss per
share.................................................. 6,392,543 5,601,073
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31,2000 MARCH 31,1999
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,501 $ 493
Working capital (deficit)................................. (987) (1,676)
Total assets.............................................. 5,606 1,132
Total stockholders equity (deficit)....................... 195 (1,461)
</TABLE>
16
<PAGE> 18
OVERVIEW
During the fiscal year commencing April 1, 1999 and ending March 31, 2000
("Fiscal 2000"), our operating activities consisted largely of further
development and enhancement of our FreeRealTime.com and BullSession.com Web
sites, along with the back-end systems and infrastructure necessary to support
significant increases in user traffic on both of these sites as compared to the
prior year. We have incurred substantial costs to date in creating and
developing our Web sites and back-end systems. These costs include significant
purchases of computer hardware and software, the hiring of software developers,
technical support personnel, and the engagement of technical consultants. During
Fiscal 2000, we incurred significant payroll and consulting costs with the
hiring of key members of executive management, sales and marketing staff,
accounting personnel, customer support personnel, administrative personnel, and
by engaging key strategic consultants. 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.
As a result, we have incurred significant net losses in each quarter since
inception and again in Fiscal 2000. We expect these net losses, as well as
negative cash flow from operations, to continue for the foreseeable future as we
plan to substantially increase our operating and capital expenditures in order
to continue building site traffic and brand awareness. In Fiscal 2000, we
achieved significant increases in revenue, gross profit, registered users, page
views, and subscribers, as well as substantial improvement in our gross margin
percentages over the prior year. In addition, we achieved significant
improvement in our loss per share for the fourth quarter of Fiscal 2000 over the
same period in the prior year. Although we enjoyed marked increases and
improvement in certain financial results over the prior year, there can be no
assurance that we will continue to realize similar growth in the future, nor
that we will achieve improved loss per share results in the future.
Our current sources of revenue with respect to the FreeRealTime.com Web
site include advertising sales, e-mail marketing revenues, web-hosting fees, and
co-branded advertising and subscription revenues. For BullSession.com, our
source of revenue is from the sale of subscriptions.
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 continue incurring net losses for the foreseeable future, we plan
to continue to execute on these and other measures which are designed with an
objective of achieving profitable operations, although we cannot give any
assurances as to achieving this objective.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO THE FISCAL YEAR ENDED MARCH 31,
1999
REVENUES
For Fiscal 2000, total net revenue amounted to $7,198,000 (a 416% increase
over the prior year total net revenue of $1,396,000) and consisted primarily of
the sale of on-line banner ads and sponsorships on FreeRealTime.com
(collectively 66% of total revenue, versus 45% in the prior year) and
subscriptions sold on
17
<PAGE> 19
BullSession.com (25% of total revenue, versus 42% in the prior year). Additional
net revenue was derived from Web-Hosting and Co-Branding ventures (9% of total
revenue, versus 13% in the prior year).
Revenue from advertising on FreeRealTime.com. Total advertising revenue for
Fiscal 2000 was $4,751,000, as compared to $631,000 in the prior year,
reflecting growth of 653%. This growth was primarily due to the substantial
increase in the number of users, page views, and ad impressions on the
FreeRealTime.com Web site during the fiscal year, as well as from the sale of
e-mail marketing campaigns to advertisers during the fiscal year. The
substantial increase in the number of users on the site was primarily due to a
higher level of awareness of our Web sites by users of the Internet, which we
believe is a result of user referrals, the appearance of our Web sites in the
query lists of "search portal" Web sites, favorable publicity received for both
FreeRealTime.com and BullSession.com, and user traffic from our web-hosting and
co-branding relationships. Due to limited capital resources we did not expend
material amounts on advertising of our Web sites during Fiscal 2000.
The ad revenue that we generate as a user views a page on our Web site is a
function of the number of ad impressions on that page and the price, CPM, at
which we sold the ad impression to an advertiser. An "ad impression" is an
advertisement that is displayed on a page view. We can have multiple impressions
on a single page view. Our average gross ad CPM increased to approximately $2.35
per page view during the fiscal year, an increase of 96% from $1.20 CPM in the
prior year. We are continually making efforts to increase our CPM. We believe
that if we are successful in developing new content, enhancing existing quote
and non-quote content pages, and building our in-house ad sales force, then our
average CPM is likely to increase, although there can be no assurance that we
will be successful in realizing an increase in CPM or that advertisers will
continue to purchase ad space on the Internet, including on FreeRealTime.com, at
similar levels or on the same terms as they have in the past. We recognize
revenue from the sale of banner advertisements as the ad impression is served or
displayed. We recognize revenue from the sale of sponsorships over the period in
which the sponsorship advertisement is served or displayed. In both cases,
revenue is recognized only after there exists no further obligations on the part
of the advertiser or FreeRealTime.com, Inc. We also began selling e-mail
marketing campaigns to advertisers during the third quarter of Fiscal 2000.
These campaigns are a more targeted means of advertising to a particular type of
audience that an advertiser is trying to reach. There are two types of e-mail
marketing campaigns that we sell: "direct" and "sponsored." Direct e-mail
campaigns are full e-mail ads by advertisers, whereas a sponsored e-mail is a
FreeRealTime.com content piece with a brief sponsorship by the advertiser noted
at the bottom of the e-mail. Direct e-mail campaigns command as much as
$100-$200 CPM, and sponsored e-mail campaigns command as much as $20-$30 CPM.
Total e-mail marketing revenues were $323,000 in Fiscal 2000, as compared to
$-0- in the prior year, and represented 7% of total advertising revenue. During
Fiscal 2000 we relied primarily on third party ad sales firms and networks to
sell the substantial majority of our ad impressions and e-mail campaigns. We did
expand our in-house ad sales force during and subsequent to Fiscal 2000 and
began to supplement the sales efforts of these ad sales networks. We record an
appropriate allowance against potentially uncollectible accounts and/or
write-off certain receivables as bad debts if they are deemed uncollectible. Our
obligations typically include guarantees of a minimum number of ad impressions
or e-mail opportunities to the advertiser. To the extent minimum guaranteed ad
impressions or e-mail opportunities are not met, we have no contractual
obligation to the advertiser to compensate them for un-filled ad impressions or
e-mail opportunities, nor does the advertiser have an obligation to pay for
those un-filled ad impressions or e-mail opportunities. We defer revenue
recognition with respect to un-filled ad impressions and e-mail campaigns until
they are filled, if at all. If we were paid for un-filled impressions or
campaign, we would either return such payment to the advertiser or issue credit
to the advertiser against future impressions or campaigns.
Revenue From Subscriptions Sold on Bullsession.Com. For Fiscal 2000, we
experienced growth over the prior year in both the number of subscribers to
BullSession.com and total subscription revenue. Total subscription revenue for
this period was $1,788,000 as compared to $586,000 for the prior year,
representing growth of 205%. Total subscribers to BullSession.com numbered 5,200
at the end of Fiscal 2000, as compared to 3,500 at the end of the prior year,
representing growth of 49%. This growth in the number of subscribers and
subscription revenue was primarily attributable to increased marketing efforts
and favorable publicity received for both FreeRealTime.com and BullSession.com.
Because we regularly advertise BullSession.com on our
18
<PAGE> 20
FreeRealTime.com Web site, we believe the increased traffic on the
FreeRealTime.com site has contributed to the increase in subscribers on
BullSession.com.
Subscribers to our BullSession.com service generally use a credit card to
purchase the service on either a monthly, quarterly or annual basis. We
recognize subscription revenue on a monthly basis for the month in which the
service is delivered. Any amounts prepaid for a quarterly or annual subscription
are recorded as deferred revenue and amortized to revenue over the period the
service is rendered. Monthly prices for the subscription service range from $26
to $50, depending on the level of services.
Revenues From Web-Hosting and Co-Branding Ventures. For Fiscal 2000, total
revenues from these web-hosting and co-branding ventures amounted to $659,000,
as compared to $179,000 in the prior year, reflecting growth of 268%. Our
Web-hosting relationships with Infospace.com and Zacks.com. amounted to $553,000
of this amount, or 84%. Pursuant to agreements that will expire, if not renewed,
during Fiscal 2001, we receive a monthly fee to host Web traffic for
Infospace.com and Zacks.com by registering their users and providing them access
to our market data and financial content on FreeRealTime.com. Co-branding
relationships with Go2Net's SiliconInvestor.com, BigCharts.com, Marketguide.com,
WWQuote.com, Amazon.com, and IPO.com resulted in $106,000 in total revenue for
Fiscal 2000, primarily reflecting our share of net advertising revenue generated
from the sale of ad impressions on co-branded pages. Under co-branding
arrangements, we either provide content to or receive content from a third party
Web site and arrange such content on a page, which may be on either our or the
co-brand partner's Web site, with brand identification for both parties.
Typically one of the parties is responsible for selling ad impressions on these
page views and both parties share, on a negotiated basis, the ad revenue
generated on the co-branded page views. Subsequent to the end of Fiscal 2000, we
have entered into new co-branding contracts and we expect that co-branded ad
revenues will represent a material portion of our revenue in future periods.
COST OF REVENUES
Cost of revenues include the following expenditures: payments to the stock
exchanges for real-time market data, costs for data center operations incurred
with a third party "co-location" provider, datafeed, programming and other
content costs, and other costs. Cost of revenues for Fiscal 2000 amounted to
$5,507,000, or 77% of revenues, representing an increase of 115% over the prior
year in which cost of revenues amounted to $2,567,000 for Fiscal 1999, or 184%
of revenues. As such, we achieved a positive gross margin for Fiscal 2000 of
23%, as compared to a negative gross margin of 84% in the prior year. Stock
exchange fees represented the majority of these costs and amounted to
$3,586,000, or 65%, of total cost of revenues in Fiscal 2000, as compared to
$1,896,000, or 74%, of total cost of revenues in the prior year. This
improvement in our gross margin, as well as the reduction in the percentage of
total cost of sales attributable to stock exchange fees, is primarily the result
of significant reductions during Fiscal 2000 in the exchange fees charged for
real time market data by the Nasdaq, and the New York and American Stock
Exchanges. In addition, during Fiscal 2000 we renegotiated and amended our
datafeed and co-location provider contracts to result in significant reductions
in our per-page view costs for these services. Despite these declines in our
unit costs, we anticipate that total cost of revenues will continue to increase
over the foreseeable future as we realize growth in users and page views on our
Web sites. Prior to the renegotiation of the datafeed contract, we paid fees on
a "per user" basis to the datafeed provider and following the renegotiation, we
currently pay a fixed monthly charge regardless of the number of monthly users
and page views. The change to a fixed fee has resulted in approximately a 90%
reduction in our per page-view datafeed costs for the month of March 2000 as
compared to the month of March 1999. The Company should continue to enjoy
greater cost savings as a result of economies of scale associated with
anticipated growth in user traffic.
Co-location fees are paid to a provider of facilities for our active
computer servers which support both our FreeRealTime.com and BullSession.com Web
sites. These fees are fixed based on the number of servers installed.
Communications fees are paid to this same provider and are paid for connection
and transmission to and from the Internet for both Web sites. These fees include
a fixed and variable charge. The fixed charge is based on the number of and
types of internet connections. The variable charge pertains to the bandwidth or
"size" of transmission, and has been effectively reduced from $1,300 per megabit
immediately prior to the
19
<PAGE> 21
renegotiation to $700 per megabit immediately following the renegotiation. The
Company currently utilizes a total of approximately 150 to 200 megabits of
bandwidth, but this number can change on a daily basis.
OPERATING EXPENSES
Sales and Marketing. Sales and Marketing expense for the twelve months
ended March 31, 2000 totaled $1,525,000 (21% of revenues), as compared to
$404,000 (29% of revenues) for Fiscal 1999, and primarily reflected advertising
commissions paid to third party ad sales firms and networks that represented the
FreeRealTime.com Web site to advertisers and media buyers, amounts paid to a
marketing consulting firm engaged to manage our advertising sales function for a
portion of the year, and compensation to sales and marketing personnel
responsible for selling banner ads, buttons, and sponsorships and managing ad
serving and collateral production for FreeRealTime.com. Subject to the
availability of sufficient funds, we plan to hire additional sales and marketing
personnel, and to implement new marketing programs during Fiscal 2001. As such,
we anticipate that total sales and marketing expense will increase over the
foreseeable future; however, sales and marketing expense as a percentage of net
revenues may fluctuate depending on the timing of the addition of new sales and
marketing personnel and on new marketing initiatives.
General and Administrative. General and administrative expense totaled
$2,835,000, (39% of revenues), for Fiscal 2000 as compared to $552,000 (40% of
revenues) for Fiscal 1998, representing growth of approximately 414%. General
and administrative expense consists primarily of compensation and benefits for
various administrative and technical personnel, fees for independent consultants
providing management advisory and investor relations services, occupancy costs,
legal and accounting fees, depreciation, insurance, telecommunications costs,
provision for uncollectible amounts, and other overhead costs. We plan to hire
additional personnel in all areas of the organization including web site
operations, technical support, legal, accounting, and administrative support
during Fiscal 2001. As such, we anticipate that general and administrative
expenses will increase over the foreseeable future; however, general and
administrative expense as a percentage of net revenues may fluctuate depending
on the timing of the addition of these new personnel and of future expenditures
in general and administrative related activities.
Product Development. Product development expense primarily consists of
compensation and benefits for software developers, project managers, and quality
assurance personnel, as well as fees paid to third party developers and systems
consultants. These individuals are located primarily in Calgary, Alberta. Total
Product Development expense for Fiscal 2000 was $357,000 (5% of revenues) as
compared to $60,000 (4% of revenues) for Fiscal 1999, representing 495% growth.
This primarily reflects cash compensation paid to these individuals for the
period. In addition, certain of these employees have received non-cash
compensation in the form of stock option grants. Such non-cash compensation is
reflected in our financial statements as unearned compensation and is amortized
as an expense to the company as described below under "Non Cash Charges-Stock
Option Grants". We employ a technical staff that includes a Director of Software
Development, a Product Architect, an Information Architect, two Senior Project
Managers, several developers and programmers, quality assurance personnel, and
office support staff. These individuals, along with third party consultants,
have developed our Web sites during Fiscal 2000. To date, all internal product
development costs have been expensed as incurred. Up until the fourth quarter of
fiscal 2000, our software development team (employees and consultants) was very
limited in size and no amounts were eligible for capitalization. The product and
content development team was expanded substantially during our fourth quarter of
fiscal 2000 in anticipation of expanded development activities. Through the end
of fiscal 2000, none of those activities have qualified for capitalization. It
is expected however, that certain of these expenditures may qualify for
capitalization beginning in fiscal 2001. We believe that significant investments
in product development are required to remain competitive. Consequently, we plan
to hire additional personnel in this area of the organization including product
managers, additional software developers, and quality assurance personnel. As
such, we anticipate that product development expense will increase over the
foreseeable future as we continue to enhance our existing Web sites and develop
new products; however, product development expense as a percentage of net
revenues may fluctuate depending on the timing of the addition of these new
personnel and related overhead.
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<PAGE> 22
Non Cash Charges-Stock Option Grants. During Fiscal 2000, we recorded
aggregate unearned compensation of $1,547,000 reflecting the grant of stock
options to employees and non-employees, as compared to $520,000 for Fiscal 1999.
The deferred compensation is being amortized to compensation expense over the
vesting period of the options. Of the total deferred compensation recorded in
the amount of $1,751,000 ($204,000 unamortized deferred compensation granted in
prior periods remaining as of the end of the prior fiscal year, plus $1,547,000
deferred compensation recorded during Fiscal 2000), $1,425,000 was amortized as
a non-cash charge during Fiscal 2000 and the balance of $326,000 will be
amortized in future periods. See Note 6 of Notes to Consolidated Financial
Statements.
INTEREST INCOME (EXPENSE), NET
Net interest income (expense) of $71,000 for Fiscal 2000 and ($18,000) for
Fiscal 1999 resulted from interest income earned on our cash balances, offset by
interest expense incurred on debt obligations, including a bank loan, capital
leases, and loans from an officer and director.
INCOME TAXES
We have incurred losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes in
Fiscal 2000 or Fiscal 1999. Deferred tax assets for the year ended March 31,
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 re-assess the need to record such valuation allowances, or a current or
deferred tax liability as appropriate, over future periods. For a more detailed
discussion see Note 5 of notes to the audited financial statements.
LIQUIDITY AND CAPITAL RESOURCES
To date, our operations have been financed primarily from, the sale of
equity securities, and to a lesser extent, a non-revolving loan from Royal Bank
in Calgary, loans from stockholders, Directors, and other outside parties, and
from capital lease arrangements. As of March 31, 2000, approximately $2.5
million in cash and cash equivalents was on hand.
OPERATING ACTIVITIES
We used net cash in our operating activities in the amount of $1,515,000
during Fiscal 2000 compared to $374,000 during Fiscal 1999, which was primarily
the result of our net losses for these periods, and an increase in accounts
receivable, partially offset by an increase in accounts payable and accrued
liabilities. Our operating activities for Fiscal 2000 and Fiscal 1999 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 2000 YEAR ENDED MARCH 31, 1999
------------------------- -------------------------
<S> <C>
- Net loss of approximately - Net loss of approximately
$4,380,000; $2,521,000;
- An increase in accounts receivable - An increase in accounts receivable
of approximately $1,116,000; of approximately $424,000;
- An increase in accounts payable - An increase in accounts payable
and accrued expenses of and accrued expenses of
approximately $2,750,000; approximately $2,078,000;
- Depreciation of approximately - Depreciation of approximately
$122,000; $47,000;
- Provision for doubtful accounts of - Provision for doubtful accounts of
approximately $150,000; approximately $66,000
- Non-cash charges-stock option - Non-cash charges-stock option
grants of approximately grants of approximately $316,000;
$1,425,000;
</TABLE>
Accounts payable increased as a result of an overall increase in our cost of
sales and operating expenses over the course of Fiscal 2000 and Fiscal 1999.
This increase in accounts payable primarily reflects amounts due to our major
suppliers of market data. The amount of our accounts receivable at each
period-end varies,
21
<PAGE> 23
primarily due to the timing of revenue recognition associated with the running
of our advertising and sponsorship campaigns, and the growth in our Web-host
related revenue and subscription revenue. To date, we have not experienced
material collection difficulties, but have recorded certain write-offs of bad
debts, as well as an allowance for uncollectible accounts primarily associated
with one account.
INVESTING ACTIVITIES
Cash used in investing activities was approximately $743,000 during Fiscal
2000 compared to $246,000 in Fiscal 1999, and consisted of property and
equipment expenditures in both periods.
FINANCING ACTIVITIES
Net cash provided by financing activities was approximately $4,266,000
during Fiscal 2000 compared to approximately $1,058,000 in Fiscal 1999. Cash
used in financing activities was approximately $867,000 during Fiscal 2000
compared to approximately $157,000 during Fiscal 1999, and consisted of payments
of debt obligations and stock issuance costs. Cash provided by financing
activities was approximately $5,133,000 during Fiscal 2000 as compared to
$1,215,000 during Fiscal 1999, and consisted primarily of proceeds from the sale
of common stock.
We have no material financial commitments other than obligations under our
bank loan agreements, and to one of our stockholders, and under our leases.
Subject to cash availability, we anticipate significant increases in our
operating and capital expenditures over the foreseeable future, including:
- web-site development and enhancement for FreeRealTime.com and
BullSession.com, including functionality, content, and back-end systems;
- computer servers and other computer equipment to support growth in site
traffic;
- software developers and computer programmers;
- information systems management;
- bandwidth and networking equipment and infrastructure;
- computer equipment and furniture and fixtures for new employees and
facilities expansion;
- additional personnel in the areas of sales, marketing, business
development, customer support, accounting, and administration;
- increased promotional activities and branding efforts;
- content development and acquisition;
- expenses incurred in conjunction with the proposed merger with
RedChip.com, Inc.
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 we
plan to spend up to $2,000,000 for additional computer hardware, software,
office equipment, and tenant improvements, cash flow permitting. We lease our
Irvine, California facility under a noncancelable operating lease that expires
on November 30, 2000. We lease our Calgary, Alberta facility under a cancelable
operating lease which expires on December 31, 2004. We do not currently intend
to renew our Irvine lease, but intend to relocate our Irvine facility to a
larger facility in Aliso Viejo, California. We will incur additional costs
related to the relocation of the Irvine facility and may have to pay rent on two
leases for a period of time.
The timing of these additional capital and operating expenditures, as well
as the timing of hiring additional personnel to support our growth plans, and
our ability to continue sustaining net losses and negative cash flows from
operations will depend largely on our ability to continue to obtain additional
capital through financing transactions. The failure to raise such capital when
needed could have a material adverse effect on
22
<PAGE> 24
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, develop or enhance our Web
sites, or otherwise respond to competitive pressures, could be significantly
limited. Based on net proceeds received from the sale of equity securities
subsequent to the end of Fiscal 2000 of $171,206, and management contingency
plans to curtail our growth plans and reduce our current scope of operations in
the event that additional capital funds are not available to us, management
believes we can continue our operations through Fiscal 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 Fiscal 2000, we completed two private equity financings in which we
sold an aggregate of 1,019,200 shares of common stock and stock purchase
warrants to purchase 182,500 shares of common stock, for total proceeds of
$4,913,500 (less stock issuance costs of $522,000). For a more detailed
discussion see "Market for Common Equity and Related Stockholder
Matters -- Recent Sales of Unregistered Securities." Concurrent with the second
private equity financing in September 1999, we entered into a strategic co-
marketing and cross-licensing agreement with Telescan, Inc. covering certain of
each other's Web-based products and services. Telescan purchased $3,000,000 of
the shares of our common stock sold in the private equity financing.
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<PAGE> 25
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Stockholders
Freerealtime.com, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of
Freerealtime.com, Inc. and subsidiary (the Company) as of March 31, 2000 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the two-year period then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Freerealtime.com, Inc. and subsidiary as of March 31, 2000 and the results of
their operations and their cash flows for each of the years in the two-year
period then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Orange County, California
June 8, 2000
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<PAGE> 26
FREEREALTIME.COM, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
2000
---------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,501
Accounts receivable, net of allowance for doubtful
accounts of $166....................................... 1,322
Prepaid expenses and other current assets................. 564
-------
Total current assets.............................. 4,387
-------
Property, plant and equipment, net.......................... 886
Other assets, net........................................... 333
-------
$ 5,606
=======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to bank...................................... $ 15
Current portion of capital lease obligations.............. 26
Trade accounts payable.................................... 4,815
Accrued expenses.......................................... 24
Deferred revenue.......................................... 494
-------
Total current liabilities......................... 5,374
-------
Notes payable to stockholder................................ 12
Capital lease obligations, net of current portion........... 25
Stockholders' equity (deficit):
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; 7,213,670 issued and outstanding as of
March 31, 2000......................................... 7,708
Accumulated deficit....................................... (7,187)
Unearned compensation..................................... (326)
-------
Total stockholders' equity........................ 195
Commitments and contingencies...............................
-------
$ 5,606
=======
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 27
FREEREALTIME.COM, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
Advertising revenue....................................... $ 4,751 $ 631
Subscription revenue...................................... 1,788 586
Web host and co-brand revenue............................. 659 179
---------- ----------
Total revenues.............................................. $ 7,198 $ 1,396
Cost of revenues............................................ 5,507 2,567
---------- ----------
Gross profit (loss)............................... 1,691 (1,171)
---------- ----------
General, administrative, selling and development expenses... 4,717 1,016
Non-cash charge -- stock option grants...................... 1,425 316
---------- ----------
Total general, administrative, selling and
development expenses............................ 6,142 1,332
---------- ----------
Operating loss.................................... (4,451) (2,503)
Interest income............................................. 91 4
Interest expense............................................ (20) (22)
---------- ----------
Net loss.......................................... $ (4,380) $ (2,521)
========== ==========
Basic and diluted loss per common share..................... $ (0.69) $ (0.45)
========== ==========
Common shares used in computing basic and diluted per share
amounts................................................... 6,392,543 5,601,073
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 28
FREEREALTIME.COM, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON
SHARES COMMON ACCUMULATED UNEARNED
OUTSTANDING STOCK DEFICIT COMPENSATION TOTAL
----------- ------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1998........................ 4,544,990 $ 140 $ (286) -- $ (146)
FIFC-Delaware stock offering..................... 215,000 215 -- -- 215
Shares issued to acquire FreeRealTime.com, Inc.
(the former Pub Singin', Inc.)................. 528,000 -- -- -- --
Stock offering, net of issuance costs of $575.... 1,250,000 675 -- -- 675
Issuance of options as compensation, net of
amortization................................... -- 520 -- $(204) 316
Net loss......................................... -- -- (2,521) -- (2,521)
--------- ------ ------- ----- -------
Balance at March 31, 1999........................ 6,537,990 1,550 (2,807) (204) (1,461)
Stock offering, net of issuance costs of $522.... 1,035,934 4,392 -- -- 4,392
Cancellation of shares........................... (773,992) -- -- -- --
Exercise of options.............................. 413,738 219 -- -- 219
Issuance of options as compensation, net of
amortization................................... -- 1,547 -- (122) 1,425
Net loss......................................... -- -- (4,380) -- (4,380)
--------- ------ ------- ----- -------
Balance at March 31, 2000........................ 7,213,670 $7,708 $(7,187) $(326) $ 195
========= ====== ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 29
FREEREALTIME.COM, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,380) $(2,521)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 122 47
Provision for doubtful accounts........................ 150 66
Non-cash charge -- stock options....................... 1,425 316
Receivables............................................ (1,116) (424)
Inventories, prepaid expenses and other assets......... (881) (15)
Trade accounts payable and accrued liabilities......... 2,750 2,078
Unearned revenue....................................... 415 79
------- -------
Net cash used in operating activities............. (1,515) (374)
------- -------
Cash flows from investing activities:
Capital expenditures...................................... (743) (246)
------- -------
Net cash used in investing activities............. (743) (246)
------- -------
Cash flows from financing activities:
Advances payable.......................................... (250) 250
Borrowings (Repayments) of long-term debt................. (72) (75)
Repayments of short-term debt............................. (23) (7)
Proceeds from issuance of common stock.................... 5,133 965
Stock issuance costs...................................... (522) (75)
------- -------
Net cash provided by financing activities......... 4,266 1,058
------- -------
Net increase in cash.............................. 2,008 438
Cash at beginning of period................................. 493 55
------- -------
Cash at end of period....................................... $ 2,501 $ 493
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 17 $ 18
======= =======
Supplemental disclosure of noncash investing and financing
activities:
Borrowings related to the acquisition of assets........... 51 22
======= =======
Unearned compensation related to stock options............ 1,547 520
======= =======
Common stock issued to pay for stock issuance fees........ 84 500
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 30
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BUSINESS DESCRIPTION AND ORGANIZATION
FreeRealTime.com, Inc. ("the Company" or "FreeRealTime.com") is a web based
provider of real-time financial market information services and analytical
tools. The Company has a free web site and web site which is accessible only to
paid subscribers. The Company derives its revenues from the sale of advertising
space on its free web site, from the sale of email marketing campaigns and from
the collection of subscription and transaction fees.
FreeRealTime.com. Inc., is the result of a merger in September 1998 between
our predecessor company, FIFC-Delaware and FreeRealTime.com, Inc., a public
company located in the State of Colorado ("FreeRealTime -- Colorado")
(previously incorporated as Pub Singin', Inc. on May 3, 1989). Prior to the
merger, FreeRealTime.com, Inc. had approximately 528,000 shares of common stock
issued and outstanding (after giving effect to a 5-for-1 reverse stock split)
and FIFC-Delaware had approximately 4,760,000 shares of common stock issued and
outstanding. Pursuant to the merger agreement, all shares of FIFC-Delaware were
exchanged on a 1-for-1 basis for shares of FreeRealTime.com, Inc.
Accordingly, following the merger the former shareholders of FIFC-Delaware
held approximately a 90% controlling interest in FreeRealTime.com, Inc. From the
period of its inception through the time of its merger with FIFC-Delaware, Pub
Singin had no business operations and sustained minimal losses each year. The
Company's business began in Canada through FIFC-Alberta. FIFC-Alberta was
originally named Divitae Financial Corporation and was formed in July 1994 under
the laws of Alberta, Canada by founder Brad Gunn. Mr. Gunn formed FIFC-Alberta
as an investment vehicle for his family but the company never conducted any
business operations until January 1996, when Divitae Financial Corporation
changed its name to First International Financial Corporation. At that time,
FIFC-Alberta sold capital stock in several private placements and began to
develop its Internet business.
FIFC-Delaware was formed on June 25, 1997 under the laws of the State of
Delaware under the name First International USA Corp. with the intent of moving
the business of FIFC-Alberta into the United States and into an entity governed
by the laws of the State of Delaware. FIFC-Delaware did not have any business
operations until July 31, 1998 when FIFC-Delaware acquired 566,689 shares of
common stock of FIFC-Alberta, representing all of the outstanding capital stock,
from the stockholders of FIFC-Alberta. FIFC-Delaware issued, in the aggregate,
4,544,990 shares of common stock in a private placement to the stockholders of
FIFC-Alberta in exchange for their shares of FIFC-Alberta. As a result of the
foregoing acquisition, FIFC-Alberta became a wholly-owned subsidiary of
FIFC-Delaware.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS COMBINATIONS AND BASIS OF PRESENTATION
The combination between FIFC-Delaware and Pub Singin', Inc. was accounted
for as a recapitalization. The increase in common stock for the fair value of
the shares issued was treated as a reduction of capital. The combination between
FIFC-Delaware and FIFC-Alberta was a combination between commonly controlled
corporations and has been accounted for using the "as if pooling" method of
accounting. The accompanying financial statements have been restated as if the
pooling took place at the beginning of the earliest year presented. All share
and per share information has been retroactively restated for the effects or all
stock splits and share exchanges. All intercompany balances and transactions
have been eliminated in consolidation.
29
<PAGE> 31
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities to prepare the consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
FOREIGN CURRENCY
The financial statements of the Canadian subsidiary are measured using the
local currency as the functional currency. Assets and liabilities of the
Canadian subsidiary are translated using the rate of exchange at the balance
sheet date. Income and expense items are translated at the average rate of
exchange during each period. Translation gains and losses are nil. Foreign
currency transaction gains and losses are included in income currently and were
minor in both 2000 and 1999.
REVENUE RECOGNITION
Advertising revenues are recognized during the period the advertising is
displayed. Subscription fees are recognized on a straight-line basis over the
subscription period. Co-Branding and web hosting revenues are recognized during
the period the related advertising is displayed, at the time the real-time
quotes are served, or on a straight-line basis over the subscription period.
Sales commissions earned by a third party agent on advertising sales are charged
to selling expense and totaled $1,217,486 in fiscal 2000.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation has been provided on a
straight-line basis over periods ranging from 5 to 7 years.
LONG LIVED ASSETS
Long lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
ADVERTISING, START-UP COSTS AND DEVELOPMENT COSTS
The Company charges all advertising costs, start-up costs and development
costs to expense as incurred. Selling expenses of the Company include
advertising and promotion costs of approximately $-0- and $12 for the years
ended March 31, 2000 and 1999, respectively.
30
<PAGE> 32
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SOFTWARE DEVELOPMENT COSTS FOR INTERNAL USE SOFTWARE
Commencing on April 1, 1999, the Company began applying the provisions of
AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." No software or web-site development
costs qualified for capitalization in fiscal 2000 or fiscal 1999.
STOCK BASED COMPENSATION
The Company measures the compensation cost of employee stock option plans
using the intrinsic value based method prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company makes pro forma
disclosures of net loss and loss per share as if the fair value method
prescribed by Statement of Financial Accounting Standards No. 123 had been
applied.
INCOME TAXES
Income taxes are accounted for using the asset and liability method. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
EARNINGS PER SHARE
Basic and diluted earnings per share have been retroactively restated to
give effect to stock splits and the Company's business combination accounted for
using the "as if pooling" method.
OTHER COMPREHENSIVE INCOME
Net income and other comprehensive income are substantially identical for
all periods presented because foreign currency translation adjustments are nil.
BUSINESS SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information" effective
in the fiscal year ended March 31, 1999. SFAS No. 131 establishes new standards
for reporting information about business segments and related disclosures about
products, geographic areas and major customers, if applicable. Management of the
Company has determined that it operates in only one reportable business segment.
The Company does not have any individually significant customers. Substantially
all sales are derived from customers located in the United States.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the fair value of its financial instruments
approximates their recorded historical cost due to the short term maturities of
the instruments and where applicable, the similarity of stated interest rates
with market rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
modifies the accounting for derivative and hedging activities and is effective
for fiscal years beginning after June 15, 2000. Since the Company and its
31
<PAGE> 33
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsidiaries do not presently invest in derivatives or engage in hedging
activities, SFAS No. 133 should not impact the Company's financial position or
results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company adopted
SOP 98-1 effective April 1, 1999. The adoption of SOP 98-1 required the Company
to modify its method of accounting for software. The Company believes the impact
of SOP 98-1 to be minor.
In April 1998, The American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities." SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. The Company adopted SOP 98-5
effective April 1, 1999. Based on information currently available, the Company
does not expect the adoption of SOP 98-5 did not have a significant impact on
the Company's financial position or results of operations.
(3) PROPERTY, PLANT AND EQUIPMENT
A summary of the Company's property, plant and equipment follows:
<TABLE>
<CAPTION>
1999
------
<S> <C>
Computer hardware and software............................ $1,018
Office equipment.......................................... 33
Furniture and fixtures.................................... 25
------
1,076
Less accumulated depreciation and amortization............ (190)
------
$ 886
======
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
2000
----
<S> <C>
Collateralized bank loan, bearing interest at the rate of
bank's prime rate plus 4%. Interest only payments until
June 30, 1998. Commencing June 1, 1998, principal payments
of $6 plus interest monthly for 36 months................. 12
Unsecured shareholder loan, bearing interest at the rate of
10%. Interest only payments until maturity. Matures on
April 24, 2001............................................ 15
---
Total long-term debt.............................. 27
Less current installments of long-term debt................. 15
---
Long-term debt, excluding current installments.............. $12
===
</TABLE>
Under the terms of the collateralized bank loan, the Company is required to
meet certain non-financial covenants and ratios. The Company was in compliance
with all covenants and ratios at March 31, 2000.
32
<PAGE> 34
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt for the next five years for the periods
ended March 31 are as follows:
<TABLE>
<CAPTION>
2000
----
<S> <C>
2001........................................................ $15
2002........................................................ 12
2003........................................................ 0
2004........................................................ 0
2005........................................................ 0
---
$27
===
</TABLE>
(5) INCOME TAXES
The Company has no significant net, taxable temporary differences which
would require recognition of deferred tax liabilities and, due to the
uncertainty of future realizability, has recorded a valuation allowance against
all deferred tax assets for deductible temporary differences and tax operating
loss carryforwards. The Company increased its valuation allowance by
approximately $2,799 for the year ended March 31, 2000, primarily as a result of
the increase in tax operating loss carryforwards.
The Company has had losses since inception and therefore has not provided
for income taxes. At March 31, 2000, the Company has net operating loss
carryforwards of approximately $2.5 million and $1.7 million for both Federal
and state income tax reporting purposes which begin to expire in 2011 and 2004,
respectively. The Company also has Canadian net operating loss carryforwards of
$3.2 million which expire between 2004 and 2007. Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes, as well as operating loss and tax credit carryforwards.
Significant components of the Company's deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
2000
-------
<S> <C>
Net operating loss carryforwards........................... $ 2,475
Deferred compensation...................................... 451
Other...................................................... 146
-------
3,072
Valuation allowance........................................ (3,072)
-------
Net deferred tax assets.................................... $ --
=======
</TABLE>
Due to the uncertainty surrounding the realization of the benefits of the
net operating loss carryforward, the Company has established a valuation
allowance for all of its deferred tax asset as of March 31, 2000. In assessing
the potential realization of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. In addition, the
utilization of the net operating loss carryforwards may be limited due to
restrictions imposed under applicable Federal and state tax law due to a change
in ownership.
33
<PAGE> 35
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) SHAREHOLDERS' EQUITY
SALES OF UNREGISTERED SECURITIES
FIFC-Delaware merged with FreeRealTime.com (formerly Pub Singin) in
September 1998. Prior to the merger, FIFC-Delaware had completed two issuances
of its common stock. The first occurred in July 1998. FIFC-Delaware, whose
shareholders were identical to those of FIFC-Alberta, issued approximately 8
shares of FIFC-Delaware common stock to acquire each outstanding common share of
FIFC-Alberta. FIFC-Delaware issued a total of 4,544,990 shares of common stock
in this exchange. All share amounts prior to this acquisition reflect the
8-for-1 share exchange. This share exchange relied on the registration exemption
in Section 4(2) of the Securities Act of 1933 (the "1933 Act") to issue those
shares without registration. As a result of this acquisition, each shareholder
of FIFC-Alberta became a shareholder of FIFC-Delaware and FIFC-Delaware became
the sole shareholder of FIFC-Alberta, making FIFC-Alberta a wholly-owned
subsidiary of FIFC-Delaware. In August 1998, FIFC-Delaware issued 215,000 shares
of its common stock at $1.00 per share for a total of $215. FIFC-Delaware relied
on the registration exemption in Section 4(2) of the 1933 Act to issue these
shares without registration.
In September 1998, FIFC Delaware acquired the company formerly known as Pub
Singin (Pub Singin changed its name to FreeRealTime.com, Inc. just prior to the
acquisition). To complete the acquisition, FIFC Delaware issued 528,000 shares
of common stock with a market value of $528 to acquire all of the common stock
belonging to the former Pub Singin shareholders. The increase in common stock
for the fair value of the shares issued was offset by a reduction in capital to
consider the nil value of the assets acquired. The acquisition described above
was accounted for as a recapitalization. Accordingly, the accompanying
Consolidated Statements of Operations do not include any revenues or expenses
related to Pub Singin prior to the closing date.
In October 1998, the Company offered 1 million shares of common stock in
FreeRealTime.com, Inc. The aggregate offering price for the issuance was $1,000.
The Company relied on the registration exemption in Rule 504 of the 1933 Act to
issue these units without registration. Three investors purchased a total of
750,000 shares for $750 (less issuance costs of $75 paid in cash). In addition,
the Company issued 500,000 shares of common stock with a fair market value of
$500 as stock issuance costs which had no net effect on stockholders' equity.
In June and July 1999, the Company offered at $4.00 per unit a total of
1,250,000 units consisting of one share of common stock and one warrant to
purchase and additional share of common stock at $4.75. Seven investors elected
to participate and 182,500 units were sold for a total of $730,000 (less
issuance costs of $96,000 paid in cash). We relied on the registration exemption
in Section 4(2) of the 1933 Act to issue these units without registering the
underlying securities. No underwriters were involved in this offering.
In September and October 1999, the Company offered a total of 1,200,000
shares of common stock at $5 per share. Twenty-one investors purchased 836,700
shares for a total purchase price of $4,183,500 (less costs incurred of
$426,000, a portion of which was paid with 16,734 shares of common stock in lieu
of cash). Of the total proceeds raised, $3,449,000 (689,800 shares) was raised
in September and $734,500 (146,900 shares) was raised in October. We relied on
the registration exemption in Section 4(2) of the 1933 Act to issue these
shares. No underwriters were involved in this offering.
In November 1999, the Company entered into an agreement with certain
stockholders for the resolution of outstanding matters pursuant to which the
stockholders returned an aggregate of 773,992 shares of common stock for
cancellation.
34
<PAGE> 36
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
As of March 31, 2000, the Company had the 1999 Equity Incentive Plan and an
individual Non-Qualified Stock Option Plan for each employee and consultant who
was granted Non-Qualified options outside the 1999 Equity Incentive Plan. Stock
options are granted at the discretion of the Board of Directors. Options vest at
varying rates from the date of grant up to 36 months. Compensation expense,
related to stock options granted with exercise prices below fair market value,
are amortized over the option vesting period. Options expire at varying rates of
up to 36 months from the date of grant. The total number of options exercisable
as of March 31, 2000 was 1,932,000 with a weighted average exercise price of
$2.02.
Option compensation expense in fiscal 2000 for consultants and
employees/directors was $552 and $872, respectively. Compensation expense in
fiscal 1999 for consultants and employees/directors was $1 and $315,
respectively. Compensation for consultants in 2000 was calculated using a risk
free interest rate of 5.05%, no stock dividend yield, an expected life of 28 to
36 months and an expected volatility of 20% for options granted before the
Company commenced public reporting and an expected volatility of 74% after
public reporting commenced.
The following tables summarize the Company's option activity:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
--------- ----------------
<S> <C> <C>
Outstanding at March 31, 1998..................... -- --
Granted......................................... 1,436,000 $1.02
--------- -----
Outstanding at March 31, 1999..................... 1,436,000 1.02
Granted 31, 2000................................ 1,745,000 4.11
Exercised....................................... (414,000) 0.34
Forfeited....................................... (117,000) 5.96
---------
Outstanding at March 31, 2000..................... 2,650,000 $2.90
========= =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- --------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES MARCH 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
--------------- -------------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ .10 - 1.25 1,070,000 1.08 $0.79 1,010,000 $0.78
2.00 - 3.00 584,000 2.18 2.55 524,000 2.50
3.20 - 4.50 550,000 1.97 4.00 284,000 3.93
5.00 - 7.50 315,000 2.12 6.53 114,000 6.00
8.00 - 12.00 131,000 1.84 8.17 -0- 8.00
--------- ---------
Total 2,650,000 1.67 $2.90 1,932,000 $2.02
========= ==== ===== ========= =====
</TABLE>
35
<PAGE> 37
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents pro forma information as if the Company had
recorded compensation cost using the fair value method of SFAS No. 123 for the
issued stock options using the minimum value valuation model:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Net loss:
As reported............................................ $(4,380) $(2,521)
Assumed stock compensation cost........................ (148) (5)
------- -------
Pro forma, adjusted................................. $(4,528) $(2,526)
======= =======
Net loss per share:
Basic and diluted loss per share as reported........... (0.69) (0.45)
Basic and diluted loss per share on a pro forma
basis............................................... (0.71) (0.45)
======= =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted-average
assumptions: risk-free interest rate ranging from 5.5% to 6.5% in 2000 and 5.5%
in 1999; no stock dividend yield; expected lives of approximately 18 to 48
months in 2000 and 6 months in 1999, and a volatility of 67% in 2000 and 0% in
1999. The average fair value of options granted amounted to $0.06 and $0.02 per
option granted in 2000 and 1999, respectively.
(7) COMMITMENTS AND CONTINGENCIES
LEASES
The Company is obligated under various capital leases for computer hardware
that expire at various dates during the next two years. At March 31, 2000, the
gross amount of computer hardware and related accumulated amortization recorded
under capital leases are as follows:
<TABLE>
<CAPTION>
2000
----
<S> <C>
Computer hardware........................................... $ 93
Less accumulated amortization............................... (40)
----
$ 53
====
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
36
<PAGE> 38
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has two noncancelable operating leases for buildings, one
that expires in 2000 and another that expires in 2005. Future minimum lease
payments under the noncancelable operating leases (with initial or remaining
terms in excess of one year) and future minimum capital lease payments as of
March 31, 2000 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2001.............................................. $34 $ 75
2002.............................................. 29 63
2003.............................................. 63
2004.............................................. 63
2005.............................................. 41
--- ----
Total minimum lease payments............ 63 $305
=== ====
Less amount representing.......................... 12
---
Present value of net minimum capital
lease payments........................ 51
Less current installments of obligations under
capital leases.................................. 26
---
$25
===
</TABLE>
Total rental expense, including month-to-month rentals, approximated $119
in 2000.
CONTINGENT LIABILITY
As of this date, the Company has an outstanding issue with the American
Stock Exchange as to the amount of past due obligations of the Company. The
Company believes that it has accrued the proper amount of expense in these
financial statements pertaining to its obligations pursuant to this vendor
relationship. However, this issue may result in an additional liability that the
Company believes will not exceed $300,000 above and beyond what has already been
accrued.
(8) SUBSEQUENT EVENTS
In June 2000, the Company had one offering of its common stock. In the
offering, the Company offered 59,603 shares of its common stock at $4.50 per
share. Eleven investors purchased 40,268 shares for a total purchase price of
$181,206 (less estimated costs incurred of $10,000). We relied on an exemption
from registration in Section 5 of the United States Securities Act of 1933 to
issue these shares.
On June 6, 2000, the Company entered into an Agreement and Plan of Merger
with RedChip.com, Inc, a privately owned stock research company headquartered in
Portland, Oregon. Upon the closing of this transaction, the Company will issue
4,000,000 new shares of its common stock to the shareholders of RedChip.com,
Inc. in exchange for all of the shares outstanding in RedChip.com, Inc.
Following the close, the current shareholders of RedChip.com, Inc. will own
approximately 33% of the total shares outstanding in the Company on a pro forma,
fully diluted basis. The Company anticipates closing the transaction by the end
of July 2000. The Company anticipates that the transaction will be accounted for
as a purchase.
37
<PAGE> 39
FREEREALTIME.COM, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
38
<PAGE> 40
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names and principal positions of the
directors and executive officers of the Company as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Brad G. Gunn..................... 30 President, Co-Chief Executive Officer, Founder &
Director
Geoffrey Moore................... 43 Co-Chief Executive Officer, Chairman of Board of
Directors
Michael Neufeld.................. 34 Executive Vice President, Chief Financial Officer
Gordon Rix....................... 40 Vice President Interactive Marketing
Brian Probolsky.................. 30 Senior Vice President Digital Financial Services
Scott Brown...................... 36 Senior Vice President Corporate Development,
Director
David Armitage................... 40 Senior Vice President Sales and Marketing
Bob Harris....................... 52 Vice President Customer Care
Ari Engelberg.................... 28 Director
Stephen N. Livingston............ 47 Director
David Gale....................... 41 Director
Ronald (Clancy) Woods............ 43 Director
</TABLE>
Brad G. Gunn, is our President, Co-Chief Executive Officer and a member of
our board of directors. He has served as the President and Chief Executive
Officer since 1996. As a co-founder, Mr. Gunn has spent the last two years with
the Company involved in strategic planning, overseeing the development teams,
overseeing revenue initiatives, raising financing, acting as a subscriber
liaison and overseeing market research, developing new products, developing new
strategic alliances, and managing existing strategic relationships. Mr. Gunn was
previously an equities trader with the Toronto Dominion Bank, and an equities
trader and options specialist with Royal Bank of Canada. In 1992, Mr. Gunn
received a bachelor's degree in Economics with a minor in Management from The
University of Calgary. Mr. Gunn is also a member of the Board of Directors and
has served as such since 1996.
Geoffrey Moore, is the Chairman of our board of directors and our Co-Chief
Executive Officer and has been since January 28, 2000. Mr. Moore was the
Managing Director of the Shamrock Group, the primary investment vehicle for the
Roy E. Disney Family and Shamrock executives from March 1992 through September
1998. From September 1985 to March 1992 he was a First Vice President with Paine
Webber, Inc.
Michael B. Neufeld, CPA, became our Executive Vice President and Chief
Financial Officer on January 28, 2000. In March, 1999, Mr. Neufeld formed
Neufeld and Co., Inc, a private management advisory firm in Irvine, California,
of which he is the President. Prior to his election as an officer of
FreeRealTime.com, Neufeld and Co. rendered consulting services to us during the
period April 1999 to January 2000. For the period June, 1994 to March, 1999 he
was the Chief Financial Officer and Chief Operating Officer of Rand Technology,
Inc., a semiconductor distributor based in Irvine, California. From September
1991 through November 1992, Mr. Neufeld was a Business Manager with Breslauer,
Jacobson, Rutman & Sherman in Los Angeles. Mr. Neufeld was an Assistant Vice
President with Bankers Trust Company from December 1992 through June 1994 in
their Tax and Regulatory Reporting Group. Mr. Neufeld's public accounting career
was spent with Arthur Andersen & Co. from January 1988 to August 1991.
Gordon Rix, became our Vice President of Interactive Marketing on January
28, 2000. Prior to joining us, Mr. Rix served as the President and Chief
Operating Officer of NexX America Inc., an internet software, technology and
financial services company for the period September, 1996 to June, 1998. Mr. Rix
provided consulting services in internet product design and product marketing
management to NetX America Inc. through Cogent Co. as its Vice President from
July of 1998 through April of 1999. Mr. Rix provided contract sales and
marketing to various businesses through Cogent Co. from January 1990 through
September of 1996.
Brian Probolsky, became our Senior Vice President of Digital Financial
Services on November 8, 1999. Prior to joining us, Mr. Probolsky co-founded
Securities Systems Integration & Consulting (SSIC) in 1991, a
39
<PAGE> 41
provider of high-end financial information and execution systems. Mr. Probolsky
sold SSIC to Computer Clearing Services in 1996 and continued with SSIC as a
Senior Vice President until leaving to join us.
Scott Brown, became our Senior Vice President of Corporate Development and
a member of our board of directors on January 28, 2000. Mr. Brown was President
of the acquisition division of Asset Growth Corporation from 1997 to 1999 and
the President of Telebuild, L.C., a subsidiary of Telescan, Inc., from 1996 to
1997. Prior to becoming the President at Telebuild, Mr. Brown was Vice President
Marketing and Sales and Senior Vice President Operations of Telescan, Inc.
David Armitage, became our Senior Vice President, Sales and Marketing, on
March 1, 2000. Prior to joining us, he was with Peterson Publications in several
positions. From February 1995 to 1998, he was Group Advertising Director. From
May 1987 to March 1989, he was a Senior Advertising Executive with Peterson.
Robert E. Harris, became our Vice President of Customer Care on January 17,
2000. Mr. Harris was Vice President of Operations at Pinnacle Micro, Inc. from
October 1997 to January 2000. Prior to October 1997 he held various positions
with Pinnacle Micro, Inc. in information systems, manufacturing, procurement and
customer care from November 1993.
Ari Engelberg, became a member of our board of directors on January 28,
2000. Mr. Engelberg is a co-founder of Stamps.com, Inc., and has held several
management positions with Stamps.com in the areas of business development,
product marketing and management and Web operations. Prior to founding
Stamps.com, Mr. Engelberg was the founding editor of the University of
California at Los Angeles Bulletin of Law and Technology. Mr. Engelberg
graduated from the University of California at Los Angeles with a Juris Doctor
and Masters of Business Administration in June 1999.
Stephen N. Livingston, became a member of our board of directors on January
28, 2000. He is currently a candidate for a Juris Doctor Degree from the
Whittier School of Law. Prior to attending the Whittier School of Law, he was
the Director of Management Information Systems for America Online West and prior
to that he was a founder and director of Johnson-Grace Company, which was
purchased in October 1996 by America Online. Mr. Livingston also spent ten years
working for IBM in various positions including Systems Engineering Manager and
Senior Marketing Representative, in which capacity he managed computer
professionals responsible for providing consulting services to IBM clients.
David Gale, became a member of our board of directors on January 28, 2000.
He is the President of the Delta Dividend Group, Inc. and has been since
December, 1992. From January, 1990 to January, 1992 he was a Managing Director
of Lehman Brothers and from February, 1983 to January, 1990 he was a Principal
with Morgan Stanley. Currently, he is also a member of the board of directors of
Preferred Income Fund, Preferred Opportunity Fund and Stone Container Corp.
Ronald Paul (Clancy) Woods, became a member of our board of directors on
January 28, 2000. In February 1999, he was appointed the Executive Vice
President/Marketing Manager of AMFM, Inc., and in August 1999 he was appointed
Chief Executive Officer of Lobo Media Group. He continues to hold those
positions currently. From September 1998 to August 1999 he was Co-Founder,
President and Chief Operating Officer of Radio Marketing Group; from January
1996 to August 1998 he was Vice President of Radio of Nationwide Communications,
Inc.; from December 1994 through January 1996 he was Vice President/ General
Manager of WHTZ Radio/New York, Shamrock Broadcasting; from October 1993 to
December 1994 he was Vice President and General Manager of WFOX Atlanta,
Shamrock Broadcasting and from January 1990 through October 1993 he was Radio
Group Manager of Nationwide Communications Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), requires the directors and executive officers, and persons who own more
than 10% of a registered class of the equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
FreeRealTime.com. Such persons are required by SEC regulations to furnish us
with copies of all Section 16(a) forms they file.
40
<PAGE> 42
Based solely on our review of copies of such forms received by us with
respect to fiscal year ended March 31, 2000, or written representations from
certain reporting persons, we believe that during fiscal year ended March 31,
2000 all of our directors and executive officers and persons who own more than
10% of our common stock complied with the reporting requirements of Section
16(a), except that David Armitage failed to timely file a Form 3 and Stuart
Robson, who resigned from office as a director and officer on January 28, 2000,
failed to timely file a Form 4 to report two (2) stock option exercises on March
23, 2000.
ITEM 10. EXECUTIVE COMPENSATION
The tables below set forth certain information concerning the annual rates
of compensation paid by us to our Chief Executive Officers and our other
executive officers whose total salary and compensation exceeded $100,000 for
services rendered in all capacities during the year ended March 31, 2000 (our
"Executive Officers"), for each of the last three completed fiscal years ending
March 31, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- ---------------------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND POSITION YEAR SALARY COMPENSATION UNDERLYING OPTIONS COMPENSATION
----------------- ---- -------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C>
Brad G. Gunn...................... 2000 $133,278 -- -- $2,635
Co-Chief Executive Officer 1999 -- -- 237,802 --
1998 -- -- 118,901 --
Geoffrey Moore(1)................. 2000 10,000 $110,000 -- --
Co-Chief Executive Officer 1999 -- -- 525,000 --
1998 -- -- -- --
</TABLE>
---------------
(1) Mr. Moore became our Co-Chief Executive Officer on January 28, 2000. Prior
to that time his company, Arete Advisors, Inc., rendered consulting services
to us. Other Annual Compensation consists of payments to Arete for
consulting services rendered by Arete to us.
There were no stock options or stock appreciation rights awarded to our
Executive Officers during Fiscal 2000.
The following table sets forth certain information with respect to
exercisable and unexercisable options held by our Executive Officers as of March
31, 2000.
FY-END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR YEAR END
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ---------------------- ------------- -------------------------
<S> <C> <C> <C>
Brad Gunn.................... 237,802/118,901 0 0/$71,341
Geoffrey Moore............... 525,000/0 0 0
</TABLE>
---------------
(1) There were no options exercised in Fiscal 2000 by our Executive Officers.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive directors fees of
$2,000 for each Board of Directors meeting attended and $500 for each Board of
Directors meeting attended by telephone. With respect to committee meetings held
on a day other than the date on which a board meeting is held outside members
receive fees of $1,000 for each committee meeting attended in person and $250
for each meeting attended by telephone conference call.
41
<PAGE> 43
COMMITTEES OF THE BOARD
The Company currently has a Compensation Committee which consists of Ari
Engleberg, Dave Gale and Steve Livingston and an Audit Committee which consists
of Ari Engleberg, Dave Gale and Ronald (Clancy) Woods.
1999 EQUITY INCENTIVE PLAN
On November 22, 1999, we adopted the FreeRealTime.com 1999 Equity Incentive
Plan, or (the "Plan"), pursuant to which 2,500,000 shares of our common stock
have been reserved for issuance to our officers, directors, employees and
consultants upon exercise of options granted under the Plan. The primary
purposes of the Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
employees, officers, directors and consultants and to promote the success of our
business by offering individuals a greater personal interest in our business
through stock ownership. Options granted under the Plan may be incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, or the Code, or non-qualified stock options, which are options that are
not designated as incentive stock options by the plan administrator or options
that are designated as incentive stock options but fail to qualify as such under
Section 422 of the Code. Stock purchase rights can also be granted under the
Plan. The Plan is administered by our compensation committee, which determines,
among other things, the persons to be granted options or stock purchase rights,
the number of shares subject to each award granted under the Plan and the terms
and conditions of each award. The Plan terminates on January 1, 2009.
Non-qualified stock options and stock purchase rights may be granted to our
employees, directors and consultants. Incentive stock options may only be
granted to our employees. The exercise price of any incentive stock option
granted under the plan must be equal to the fair market value of the shares on
the date of the grant, unless the person receiving such option already owns more
than 10% of our outstanding common stock, in which case the exercise price must
be at least 110% of the fair market value of the shares on the date of the
grant. The exercise price of any non-qualified stock option granted under the
Plan must be equal to at least 85% of the fair market value of the shares on the
date of the grant, unless the person receiving such options already owns more
than 10% of our outstanding common stock, in which case the exercise price must
be at least 110% of the fair market value of the shares on the date of the
grant. The plan administrator determines the term of each option and the manner
in which it may be exercised, provided that no option granted under the Plan can
be exercisable more than ten years from the date of the grant and no incentive
stock options granted to a person that already holds 10% or more of our
outstanding common stock can exercisable more than five years from the date of
the grant. Additionally, no options granted under the Plan may vest and become
exercisable at a rate of less than 20% per year for five years. Our compensation
committee has the power to impose additional limitations, conditions and
restrictions in connection with the grant of any options.
As of June 23, 2000 there are issued and outstanding options to purchase an
aggregate of 1,589,038 shares under the Plan.
42
<PAGE> 44
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of June 23, 2000, the number of shares
and percentage of voting interest (on a fully diluted basis) represented by
shares of Common Stock held by each of our directors and executive officers and
of each person who beneficially owns more than 5% of our Common Stock. Except as
specified below, management is not aware of any individual or entity that owns
5% or more of the voting securities of the Company; unless otherwise stated,
each of the stockholders below has sole voting and dispositive power with
respect to shares beneficially owned by stockholder.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIAL OWNER(1)(2) COMMON STOCK CLASS
---------------------- ------------------- -------------
<S> <C> <C>
Brad Gunn............................................. 2,913,353(3) 37.0%
Geoffrey Moore........................................ 525,000(4) 6.4
Michael Neufeld....................................... 325,000(5) 4.1
Scott Brown........................................... 94,476(6) 1.2
Ari Engelberg......................................... 1,662(7) (12)
Stephen N. Livingston................................. 203,662(8) 2.6
David Gale............................................ 2,662(9) (12)
Ronald (Clancy) Woods................................. 1,662(10) (12)
Telescan, Inc. ....................................... 600,000 7.8
Stuart Robson......................................... 777,786 10.2
All directors and officers as a group (13 persons).... 4,422,479(11) 49.1
</TABLE>
---------------
(1) The address for each of the persons listed herein, other than Telescan, is
3333 Michelson Drive, Suite 430, Irvine, California 92612.
(2) The address for Telescan is 5959 Corporate Drive, Suite 2000, Houston,
Texas 77036
(3) Brad Gunn. This amount includes 237,302 currently exercisable stock
options.
(4) Geoffrey Moore. This amount reflects the number of shares Mr. Moore
currently has the right to acquire pursuant to stock options which are
fully vested.
(5) Michael Neufeld. This amount reflects the number of shares Mr. Neufeld
currently has the right to acquire pursuant to vested stock options and
also includes 25,000 shares which Mr. Neufeld has the right to acquire
within sixty days.
(6) Scott Brown. This amount includes 31,976 shares of common stock which are
owned by Mr. Brown as well as vested options to purchase 62,500 shares of
common stock.
(7) Ari Engelberg. This amount reflects the number of shares Mr. Engelberg
currently has the right to acquire pursuant to vested stock options and
also includes 554 shares which Mr. Engelberg has the right to acquire
within sixty days.
(8) Stephen N. Livingston. This amount includes 127,000 shares held by the
Livingston Trust, warrants to purchase 75,000 shares of common stock held
by the Livingston Trust, 1108 shares which Mr. Livingston currently has the
right to acquire pursuant to currently exercisable stock options and 554
shares which Mr. Livingston has the right to acquire within 60 days.
(9) Dave Gale. This amount includes 1,000 shares of common stock owned by Mr.
Gale as well as 1108 shares which Mr. Livingston currently has the right to
acquire pursuant to currently exercisable stock options and 554 shares
which Mr. Gale has the right to acquire within 60 days.
(10) Ronald (Clancy) Woods. This amount reflects the number of shares Mr. Woods
currently has the right to acquire pursuant to 1108 vested stock options
and 554 share which Mr. Woods has the right to acquire within 60 days.
(11) Includes 1,346,450 options which are currently vested or will be
exercisable within 60 days.
(12) Less than 1.0%.
43
<PAGE> 45
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We are unaware of any transactions during the last two years in which we
were a party and any of our directors or executive officers, or any family
member of our directors or officers, had a direct or indirect material interest.
ITEM 13. REPORTS ON 8-K AND EXHIBITS
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation(1)
3.2 Agreement and Plan of Merger of by and between
Freerealtime.com Delaware, Inc., a Delaware corporation and
Freerealtime.com, Inc., a Colorado corporation, dated
November 23, 1999 (the "Freerealtime Merger Agreement")(1)
3.3 Bylaws(1)
4.1 Article IV of the Certificate of Incorporation(1)
4.2 Article V of Bylaws(1)
4.3 Section III of the Freerealtime Merger Agreement(1)
4.3.1 July 1999 Stockholders Agreement and Warrant Agreement
4.3.2 September 1999 Stockholders Agreement
10.1 Agreement for Receipt and Use of Market Data between First
International Financial Corporation and the New York Stock
Exchange, Inc., dated December 23, 1997(1)
10.2 NQDS Information Vendor Agreement between The Nasdaq Stock
Market, Inc. and First International Financial Corporation
(Alberta), dated March 25, 1997(1)
10.2.1 Amendment to Attachment A -- System Description of NQDS
Information Vendor Agreement, dated April 25, 1997(1)
10.2.2 Addendum to the Vendor Agreements for Level 1 Service and
Last Sale Service of The National Stock Market, Inc.,
between The Nasdaq Stock Market, Inc. and First
International Financial Corporation (Alberta), dated May 20,
1999(1)
10.3 S&P Comstock Information Distribution License Agreement
between S&P Comstock, Inc. and First International Financial
Corporation (Alberta), dated June 13, 1997(1)
10.3.1 Addendum to Exhibit C of License Agreement by and between
S&P Comstock, Inc. and First International Financial
Corporation (Alberta), dated June 13, 1997(1)
10.4 Options Price Reporting Authority Vendor Agreement, between
First International Financial Corporation (Alberta) and the
American Stock Exchange, Inc., Chicago Board Options
Exchange, Incorporated and Philadelphia Stock Exchange,
Inc., dated August 12, 1997(1)
10.4.1 Electronic Contracting Vendor Agreement/Rider, between First
International Corporation and the AMEX, Chicago Board of
Options Exchange Incorporated NYSE, Pacific Exchange
Incorporated and Philadelphia Stock Exchange, Inc. ("OPRA")
dated October 18, 1999.
10.5 Representation Agreement between 2CAN Media, Inc. and
FreeRealTime.com dated March 10, 1999(1)
10.5.1 Amendment #1 to Representation Agreement by and between
Adsmart Corporation (successor in interest to 2CAN Media,
Inc.) and FreeRealTime.com dated December 1, 1999(2)
10.6 Marketing and License Agreement dated September 30, 1999
between FreeRealTime.com, Inc. and Telescan, Inc.(1)
10.6.1 Amendment #1 to Marketing and License Agreement dated
September 30, 1999 by and between FreeRealTime.com, Inc. and
Telescan, Inc.
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.7 Equipment Lease between Balboa Capital Corporation and
FreeRealTime.com, dated March 25, 1999(1)
10.8 Master Services Agreement between Exodus Communications,
Inc. and FreeRealTime.com, Inc. dated August 6, 1999(1)
10.8.1 Order Form/Addendum to Master Services Agreement by and
between Exodus Communications, Inc. and FreeRealTime.com,
dated December 21, 1999(2)
10.9 Web Hosting and Internet Access Service Agreement between
Qwest Internet Solutions, Inc., a Delaware corporation and
FreeReelTime.com dated May 1, 2000
10.10 Lease between Certus Developments, Inc. and FreeRealTime.com
dated October 25, 1999(2)
10.10.1 Assignment of Certus Developments, Inc. Lease dated October
25, 1999
10.11 License Agreement for premises known as 3333 Michelson
Drive, Irvine, CA dated May 15, 2000 by and between Jamboree
LLC and FreeRealTime.com, Inc.
10.12 FreeRealTime.com 1999 Equity Incentive Plan
10.13 Website Development, Hosting and License Agreement between
Imperial Capital LLC and FreeRealTime.com, Inc. dated
February 22, 2000
10.14 Agreement and Plan of Merger by and Among FreeRealTime.com
and RedChip.com, Inc. dated June 6, 2000(3)
10.15 Letter Agreement with Jeffries & Company, Inc. dated May 25,
2000 to act as financial advisor and to render a fairness
opinion on the RedChip.com transaction
27.1 Financial Data Schedule
</TABLE>
---------------
(1) Previously filed as an exhibit to Registrant's Form 10-SB which became
effective December 1, 1999.
(2) Previously filed as an exhibit to Registrant's Form 10-Q for the quarter
ended December 31, 1999.
(3) Previously filed as an exhibit to a Current Report on Form 8-K filed on June
6, 2000.
REPORTS ON FORM 8-K
a. On January 28, 2000, we filed a Current Report on Form 8-K reporting
under Item 5 that we were expanding our board of directors to seven members,
that two of our board members had resigned and that six new board members had
been elected. The Current Report included a press release which identified each
of the new board members and provided a brief biographical sketch.
b. On June 6, 2000, 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., a Delaware corporation, pursuant to which we would form a new
subsidiary that would merge with and into RedChip. Following the merger, RedChip
would be a wholly-owned subsidiary of FreeRealTime. The Current Report included
a copy of the Agreement and Plan of Merger which was attached as an exhibit
thereto.
45
<PAGE> 47
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this the 29th day of June, 2000
Freerealtime.com, Inc.
By: /s/ BRAD G. GUNN
------------------------------------
Brad G. Gunn
Co-Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
indicated on the this the 29th day of June, 2000.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ BRAD G. GUNN Co-Chief Executive Officer, President
---------------------------------------------------
Brad G. Gunn
/s/ GEOFFREY MOORE Co-Chief Executive Officer and Chairman of the
--------------------------------------------------- Board
Geoffrey Moore
/s/ MICHAEL NEUFELD Chief Financial Officer
--------------------------------------------------- (Principal Accounting Officer)
Michael Neufeld
/s/ ARI ENGLEBERG Director
---------------------------------------------------
Ari Engleberg
Director
---------------------------------------------------
Stephen N. Livingston
/s/ SCOTT L. BROWN Director
---------------------------------------------------
Scott L. Brown
/s/ DAVID GALE Director
---------------------------------------------------
David Gale
/s/ RONALD (CLANCY) WOODS Director
---------------------------------------------------
Ronald (Clancy) Woods
</TABLE>
46
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation(1)
3.2 Agreement and Plan of Merger of by and between
Freerealtime.com Delaware, Inc., a Delaware corporation and
Freerealtime.com, Inc., a Colorado corporation, dated
November 23, 1999 (the "Freerealtime Merger Agreement")(1)
3.3 Bylaws(1)
4.1 Article IV of the Certificate of Incorporation(1)
4.2 Article V of Bylaws(1)
4.3 Section III of the Freerealtime Merger Agreement(1)
4.3.1 July 1999 Stockholders Agreement and Warrant Agreement
4.3.2 September 1999 Stockholders Agreement
10.1 Agreement for Receipt and Use of Market Data between First
International Financial Corporation and the New York Stock
Exchange, Inc., dated December 23, 1997(1)
10.2 NQDS Information Vendor Agreement between The Nasdaq Stock
Market, Inc. and First International Financial Corporation
(Alberta), dated March 25, 1997(1)
10.2.1 Amendment to Attachment A -- System Description of NQDS
Information Vendor Agreement, dated April 25, 1997(1)
10.2.2 Addendum to the Vendor Agreements for Level 1 Service and
Last Sale Service of The National Stock Market, Inc.,
between The Nasdaq Stock Market, Inc. and First
International Financial Corporation (Alberta), dated May 20,
1999(1)
10.3 S&P Comstock Information Distribution License Agreement
between S&P Comstock, Inc. and First International Financial
Corporation (Alberta), dated June 13, 1997(1)
10.3.1 Addendum to Exhibit C of License Agreement by and between
S&P Comstock, Inc. and First International Financial
Corporation (Alberta), dated June 13, 1997(1)
10.4 Options Price Reporting Authority Vendor Agreement, between
First International Financial Corporation (Alberta) and the
American Stock Exchange, Inc., Chicago Board Options
Exchange, Incorporated and Philadelphia Stock Exchange,
Inc., dated August 12, 1997(1)
10.4.1 Electronic Contracting Vendor Agreement/Rider, between First
International Corporation and the AMEX, Chicago Board of
Options Exchange Incorporated NYSE, Pacific Exchange
Incorporated and Philadelphia Stock Exchange, Inc. ("OPRA")
dated October 18, 1999.
10.5 Representation Agreement between 2CAN Media, Inc. and
FreeRealTime.com dated March 10, 1999(1)
10.5.1 Amendment #1 to Representation Agreement by and between
Adsmart Corporation (successor in interest to 2CAN Media,
Inc.) and FreeRealTime.com dated December 1, 1999(2)
10.6 Marketing and License Agreement dated September 30, 1999
between FreeRealTime.com, Inc. and Telescan, Inc.(1)
10.6.1 Amendment #1 to Marketing and License Agreement dated
September 30, 1999 by and between FreeRealTime.com, Inc. and
Telescan, Inc.
10.7 Equipment Lease between Balboa Capital Corporation and
FreeRealTime.com, dated March 25, 1999(1)
10.8 Master Services Agreement between Exodus Communications,
Inc. and FreeRealTime.com, Inc. dated August 6, 1999(1)
10.8.1 Order Form/Addendum to Master Services Agreement by and
between Exodus Communications, Inc. and FreeRealTime.com,
dated December 21, 1999(2)
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<PAGE> 49
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<CAPTION>
EXHIBIT
NO. DESCRIPTION
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<C> <S>
10.9 Web Hosting and Internet Access Service Agreement between
Qwest Internet Solutions, Inc., a Delaware corporation and
FreeReelTime.com dated May 1, 2000
10.10 Lease between Certus Developments, Inc. and FreeRealTime.com
dated October 25, 1999(2)
10.10.1 Assignment of Certus Developments, Inc. Lease dated October
25, 1999
10.11 License Agreement for premises known as 3333 Michelson
Drive, Irvine, CA dated May 15, 2000 by and between Jamboree
LLC and FreeRealTime.com, Inc.
10.12 FreeRealTime.com 1999 Equity Incentive Plan
10.13 Website Development, Hosting and License Agreement between
Imperial Capital LLC and FreeRealTime.com, Inc. dated
February 22, 2000
10.14 Agreement and Plan of Merger by and Among FreeRealTime.com
and RedChip.com, Inc. dated June 6, 2000(3)
10.15 Letter Agreement with Jeffries & Company, Inc. dated May 25,
2000 to act as financial advisor and to render a fairness
opinion on the RedChip.com transaction
27.1 Financial Data Schedule
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(1) Previously filed as an exhibit to Registrant's Form 10-SB which became
effective December 1, 1999.
(2) Previously filed as an exhibit to Registrant's Form 10-Q for the quarter
ended December 31, 1999.
(3) Previously filed as an exhibit to a Current Report on Form 8-K filed on June
6, 2000.
