SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission File No. 33-19139-NY
RATEXCHANGE CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-2936371
------------------------------- ------------------------
(State or Other Jurisdiction of (IRS Employer ID Number)
Incorporation or Organization)
185 Berry Street, Suite 3515, San Francisco, CA 94107
----------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (415) 371-9800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
17,783,000 shares common stock as of August 13, 2001
(Title of Class)
RATEXCHANGE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
PART I - FINANCIAL INFORMATION Page
Item 1 -
Financial Statements (Restated)
Consolidated balance sheet as of June 30, 2001
(unaudited) and December 31, 2000 3
Consolidated statement of operations (unaudited) for the
three months and six months ended June 30, 2001 and 2000 4
Consolidated statement of cash flows (unaudited) for the
six months ended June 30, 2001 and 2000 5
Notes to consolidated financial statements 6
Item 2 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 22
Item 2 - Changes in Securities 22
Item 6 - Exhibits and Reports on Form 8-K 22
SIGNATURES 23
Page 2
Part I - Financial Information
Item 1. Financial Statements
RATEXCHANGE CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS June 30, December 31,
2001 2000
------------ ------------
(Restated)
(Unaudited)
Current assets
Cash and cash equivalents $ 4,859,630 $ 2,115,152
Accounts receivable (net of an allowance for doubtful accounts
of $9,460 at June 30, 2001 and $4,960 at December 31, 2000) 224,418 41,170
Investment securities available for sale 12,124,635
Interest receivable 204,755
Prepaid expenses 32,743 116,360
------------ ------------
Total current assets 5,116,791 14,602,072
Property, equipment and Software (net of accumulated depreciation of 6,019,659 1,401,888
$1,095,589 and $240,791 in 2001 and 2000)
Other assets
Investment in affiliate 75,000 75,000
Deposits 175,114 184,856
------------ ------------
Total assets $ 11,386,564 $ 16,263,816
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses $ 1,901,446 $ 1,061,960
Accounts payable 601,831 1,538,910
Notes payable 500,000 --
------------ ------------
Total current liabilities 3,003,277 2,600,870
Convertible Note Payable and Accrued Interest $ 402,762 --
------------ ------------
Total Liabilities $ 3,406,039 2,600,870
Stockholders' equity
Preferred stock, $.0001 par value, 60,000,000 shares authorized;
2,000,000 issued and outstanding 200 --
Common stock, $.0001 par value; 300,000,000 shares
authorized; issued and outstanding: 17,783,000 shares
in 2001 and 2000 1,778 1,778
Additional paid-in capital 79,662,807 72,132,890
Accumulated deficit 70,736,664 (57,393,548)
Deferred compensation (684,500)
Notes receivable on sales of common stock (263,096) (363,661)
Accumulated other comprehensive loss (714,513)
------------ ------------
Total stockholders' equity 7,980,525 13,662,946
------------ ------------
Total liabilities and stockholders' equity $ 11,386,564 $ 16,263,816
============ ============
See notes to financial statements
Page 3
RATEXCHANGE CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
Beginning of
Development Stage
(September 30,
Three Months ended June 30, Six Months ended June 30, 1998)
(unaudited) (unaudited) through
------------------------------ ------------------------------ June 30,
2001 2000 2001 2000 2001
------------ ------------ ------------ ------------ ------------
(restated) (restated) (restated) (unaudited)
REVENUE
Trading and consulting $ 370,516 $ 4,500 $ 710,344 $ 4,500 $ 801,567
EXPENSES
Selling, general and
administrative (includes
non-cash expenses of
$2,965,000 and $2,458,000
for the three month periods
in 2001 and 2000 and
$4,510,000 and $11,547,000
for the six month periods in
2001 and 2000) 5,499,449 6,778,223 12,690,365 19,259,432 64,312,261
Write off advances to potential
investee -- -- 1,298,681
Depreciation and amortization 458,803 77,182 854,797 101,279 1,096,342
Purchase of subsidiaries
(non-cash) -- -- -- -- 1,597,118
------------ ------------ ------------ ------------ ------------
Total Expenses 5,958,252 6,855,405 13,545,162 19,360,711 68,304,402
OTHER INCOME (EXPENSE)
Interest income 124,003 305,502 274,280 212,261 1,445,473
Interest expense (11,512) (301,184) (11,512) (301,472) $ 1,864,017
Loss on securities (199,923) (744,197) (744,197)
Other expenses (net) (1,500,000) (1,498,500) (1,822,875)
------------ ------------ ------------ ------------ ------------
Loss before taxes (5,675,168) (8,346,587) (13,316,247) (20,943,922) (70,488,451)
Income tax provision (benefit) -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET LOSS $ (5,675,168) (8,346,587) $(13,316,247) $(20,943,922) $(70,488,451)
============ ============ ============ ============ ============
Basic and diluted net loss per
share $ (0.32) $ (0.49) $ (0.75) $ (1.33)
Weighted average number of
shares of common stock 17,783,000 17,133,613 17,783,000 15,817,530
See notes to the financial statements
Page 4
RATEXCHANGE CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
Beginning of
the Development
Stage September
For the six months 30, 1998 to
ended June 30, June 30,
2001 2000 2001
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
(restated) (restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(13,316,247) $(20,943,922) $(70,488,451)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 854,797 300,525 1,095,588
Write off advances to potential investee 206,898
Stock options and warrants granted to service providers and
strategic partners 540,000 3,653,514 17,930,213
Stock options granted to employees below fair market value 1,135,000 7,643,921 11,526,432
Stock options - termination adjustment 565,875 -- 1,612,333
Warrants issued in relation to bridge financing -- 1,657,988
Warrants for purchase of common stock issued for services -- 1,559,461
Purchase of outstanding shares of RateXchange -- 1,507,408
Deferred lease payments 643,000 643,000
Deferred compensation and other 733,371 733,371
Loss on securities 744,197 744,197
(Increase) decrease in security deposits 9,741 (157,395) (175,115)
(Increase) decrease in receivables and other advances (105,125) (249,278) (467,411)
Increase (decrease) in accounts payable and accrued expenses (97,593) 1,286,896 2,393,762
------------ ------------ ------------
Net cash used in operating activities (8,292,984) (8,465,739) (29,520,326)
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for purchase of equipment (42,900) (602,397) (1,685,580)
Purchase of Halo Stock (631,251)
Purchase of investments available for sale (18,734,934) (32,975,313)
Sale of investments available for sale 11,580,361 3,300,858 32,347,776
Investment in Affiliates (500,000) (575,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 11,037,461 (16,036,473) (3,519,368)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans and other debt -- 1,200,000 1,500,000
Proceeds from common stock sales (net) -- 30,135,000 35,242,893
Proceeds from notes receivable -- 1,541,050 1,590,319
Loan to employee stock purchase program -- -- (433,889)
------------ ------------ ------------
Net cash provided by financing activities -- 32,876,050 37,899,323
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,744,477 8,373,838 4,859,630
CASH and CASH EQUIVALENTS BEGINNING OF PERIOD 2,115,152 451,615 --
------------ ------------ ------------
CASH and CASH EQUIVALENTS END OF PERIOD $ 4,859,630 $ 8,825,453 $ 4,859,630
============ ============ ============
See notes to financial statements
Page 5
RATEXCHANGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 INTERIM FINANCIAL STATEMENTS -- AS RESTATED; COMPANY BACKGROUND AND
HISTORY
The interim financial statements presented herein are unaudited and
have been prepared in accordance with the instructions to Form 10-Q.
These statements should be read in conjunction with the financial
statements and notes thereto included in our annual report on Form 10-K
for the year ended December 31, 2000. The accompanying financial
statements have not been audited. The results of operations and cash
flows for the six months ended June 30, 2001 may not be indicative of
the results that may be expected for the year ended December 31, 2001.
The Company has restated its Form 10Q for the period ending June 30,
2001. As discussed in Note 11, the Company modified its severance
agreement with a former executive which was not properly reflected in
the previously filed 10-Q. To correct this misstatement, the revised
financial statements reflect a $425,000 increase in compensation
expense not previously recorded, offset by a $68,000 reduction in
compensation related to the continued amortization of option related
expense which should not have been reported. Additionally, the company
recorded the related note payable plus accrued interest totaling
$402,762.
RateXchange Corporation (the Company) is a consolidated group of
companies including the parent corporation, RateXchange Corporation
(RateXchange Corp.), and its subsidiaries, RateXchange I, Inc., Xpit
Corporation, RMG Partners Corporation, and PolarCap, Inc. (PolarCap).
PolarCap is in the process of being liquidated.
RateXchange Corp. (formerly NetAmerica.com Corporation) is a Delaware
corporation organized on May 6, 1987 for the purpose of seeking out and
developing any general business opportunity. The Company's operating
subsidiary RateXchange I, Inc., a Delaware corporation organized in
June 1999, has developed proprietary trading software to support its
electronic trading system for bandwidth and other telecommunications
products. In March 2001, the Company acquired Xpit.com. This
acquisition enables the Company to offer trading and risk management
systems to the futures industry. In April 2001, RateXchange formed RMG
Partners Corporation, a wholly owned subsidiary, to provide
market-based solutions through the use of derivative trading
strategies.
The Company has generated nominal revenues from its planned operations.
The Company is defined as a development stage company in accordance
with Financial Accounting Standard No. 7. The Company had no operations
or business before September 30, 1998. Cumulative results of operations
since the start of the development stage, September 30, 1998, when the
Company purchased PolarCap, have been reported separately.
From inception, the Company has been primarily engaged in
organizational activities, including designing and developing its
website, recruiting personnel, establishing office facilities, raising
capital, developing infrastructure and developing a marketing plan. The
Company began revenue generation activities in 1999 but nominal revenue
has been generated as of June 30, 2001. Accordingly, the Company is
classified as a development stage company. Successful completion of the
Company's development program and, ultimately, the attainment of
profitable operations is dependent upon future events, including
increasing its customer base, implementing and successfully executing
its business and marketing strategy and hiring and retaining quality
personnel. Negative developments in any of these events could have a
material adverse effect on the Company's business, financial condition
and results of operations.
As previously disclosed in the 2000 Form 10K, in April 2001, the
Company received an irrevocable commitment from two investors to
acquire a total of $9 million of newly issued common shares. During the
second quarter, management was informed by those investors that they
did not expect to honor the original commitment due to the decline in
the Company's share price. As a result of this development, management
is seeking a reduced amount of financing from the original investors,
as well as other potential investors.
Page 6
RATEXCHANGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company will need to raise additional capital prior to year end. In
November 2000, new management began to implement cost cuts in order to
more closely tie costs to revenue. Significant expense reductions have
continued through July, which included, among other things, staff
reductions and completion of certain development efforts that have
significantly reduced expenditures for outside consulting expertise.
The Company may sell additional debt or equity securities or enter into
new credit facilities to meet its cash needs. The Company cannot make
assurances that it will be able to complete any financing, that such
financing will be adequate for the Company's needs, or that a financing
will be completed prior to the Company running out of funds.
The factors discussed above create substantial doubt about the
Company's ability to continue as a going concern and an uncertainty as
to the recoverability and classification of recorded asset amounts and
the amounts and classification of liabilities. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
NOTE 2 CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
We consider all highly liquid investment securities with original
maturities of three months or less from date of purchase to be cash
equivalents. Short-term investments consist of debt securities with
maturities between three months and twelve months.
Management determines the appropriate classification of investments at
the time of purchase and reevaluates such determination at each balance
sheet date. To date, all marketable securities have been classified as
available-for-sale and are carried at fair value with unrealized gains
and losses, if any, included in stockholders' equity. At June 30, the
company had no investments in securities available for sale. Realized
gains and losses and declines in value of securities judged to be other
than temporary are included in other income, net. Interest and
dividends on all securities are included in other income, net.
NOTE 3 SERIES A PREFERRED STOCK
In the first quarter of 2001, the Company issued 2,000,000 shares of its Series
A Convertible Preferred Stock with a cumulative dividend of 6% based on a share
price of $2.75 per share. Dividends are paid in shares of Series A Preferred
Stock. The Series A Preferred Stock is convertible on a one for one basis into
common shares of the Company at the discretion of the holders. The holder of
each share of Series A Preferred Stock has the right to one vote for each share
of Common Stock into which such share of Series A Preferred Stock could then be
converted. In the event of any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, the holders of the Series A Preferred
Stock are entitled to receive, prior and in preference to any distribution of
any assets or surplus funds of the Company to the holders of common stock, the
aggregate amount of $2.75 per share (as adjusted for any stock dividend,
combinations, or splits with respect to such shares). The Series A preferred
stock is not redeemable.
NOTE 4 LOSS PER SHARE AND AVERAGE SHARES OUTSTANDING
Basic loss per share is computed by dividing the net loss, less accrued
dividends on preferred stock ($99,500 and $82,500 for the first six months and
second quarter of 2001), by the weighted average number of common shares
Page 7
outstanding. Options, warrants and convertible preferred stock on shares of
common stock were not included in computing diluted loss per share because their
effects were antidilutive. (10,774,000 options, 5,910,000 warrants and 2,000,000
convertible preferred shares).
NOTE 5 COMMITMENTS AND CONTINGENCIES
The Company is involved in the following lawsuits:
Concentric v. NetAmerica, Inc.
On February 24, 2000, Concentric Network Corporation filed a lawsuit
against NetAmerica, Inc., aka A1 Internet, Inc., and the Company in the
Superior Court of California for the County of Santa Clara (CV 784335).
The lawsuit involves claims for breach of contract and common counts
based on A1 Internet's nonperformance in a service agreement between A1
Internet and Concentric related to the Company's former operations
during 1999. The matter was heard in binding arbitration on April 4,
2001. The arbitrator awarded Concentric $197,245.60, plus interest
thereon at the legal rate of 10% per annum from July 1, 1999, until
paid in full.
Switch & Data Facilities Company v. RateXchange Corporation
On May 18, 2001, Switch & Data Facilities Company filed a lawsuit
against the Company in the Superior Court of California for the County
of San Francisco (Action No. 321470). The lawsuit involves a claim for
breach of contract based on a lease for colocation space in North
America. The suit specifies damages in the amount of $566,600.
See note 11 for events subsequent to June 30, regarding these lawsuits.
NOTE 6 COMPREHENSIVE LOSS
The comprehensive loss for the first six months and second quarter of
2001 and 2000 was:
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net loss $ (5,675,168) $ (8,346,587) $(13,316,247) $(20,943,922)
Other Comprehensive Income:
Unrealized gains on short term
investments net of realized losses 159,798 159,798
------------ ------------ ------------ ------------
Comprehensive loss $ (5,675,168) $ (8,186,789) $(13,316,247) $(21,103,720)
============ ============ ============ ============
NOTE 7 OPERATING LEASES
In connection with the Company's business activities, it has entered
into various leases for office space and related office equipment,
including computers. In addition, the Company entered into various
operating leases associated with its delivery hubs, including various
telecommunications routing equipment and other infrastructure.
Future annual minimum lease payments related to equipment and office
space under noncancelable operating leases as of June 30, 2001 were:
Year
----------
2001 (Last six months) $ 607,520
2002 1,790,059
2003 4,776,996
----------
$7,174,575
==========
Page 8
During the second quarter the Company restructured its equipment lease.
The terms of the restructured lease are 12 monthly payments of $74,056
beginning on May 1, 2001, 12 monthly payments of $148,113 beginning on
May 1, 2002 followed by one payment on May 1, 2003 of $4,184,544. The
Company issued 467,000 warrants to the lessor to purchase stock in
connection with this restructuring. This table excludes one lease which
was cancelled in August. (See footnote 11 for events subsequent to June
30, 2001).
NOTE 8 ACQUISITION OF SUBSIDIARY
On March 12, 2001, the Company completed the acquisition of Xpit.com,
Inc., a privately held Idaho Corporation for $5.5 million in preferred stock,
cash and notes payable. The acquisition enables the Company to offer trading and
risk management systems to the futures industry via the RateXchange Futures
System (RFS). Xpit will operate as a wholly-owned subsidiary of RateXchange.
Under the terms of the transaction, the Company acquired 100% of the outstanding
common shares of Xpit in exchange for $500,000 in cash; a $500,000 two-year note
bearing interest at 7%; 2,000,000 Series A Convertible Preferred Shares; and
$4.9 million in royalty payments tied to the achievement of Xpit's projected
revenues from 2001 through 2003. The acquisition price of $5.5 million has been
allocated primarily to the software technology acquired.
NOTE 9 STOCK COMPENSATION
In April 2001, the Company formed RMG Partners Corporation (RMG) as a wholly
owned subsidiary created to provide market based solutions through the use of
derivative trading strategies. Certain employees of RMG have been given the
right to acquire a specific number of shares of the Company with additional
purchase rights upon achievement of revenue targets in the future. This deferred
compensation is reflected as a component of equity in the balance sheet.
NOTE 10 NEW ACCOUNTING STANDARD
In the first quarter of 2001, the Company was required to adopt the
provisions of Financial Accounting Standard Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities (FAS 133) as amended by FAS 137
and FAS 138. This statement establishes accounting and reporting standards for
derivative contracts and for hedging activities. As the Company does not
currently use any derivative instruments or engage in hedging activities,
adoption of this new standard had no impact on the Company's consolidated
results of operations or consolidated financial position.
NOTE 11 SEVERANCE AGREEMENT WITH FORMER OFFICER
In May 2001, the Company renegotiated the terms of the severance included in its
employment agreement with Donald Sledge, former Chairman and CEO of RateXchange
Corporation. Upon his leaving the Company, Mr. Sledge was originally to receive
one year's salary, or $300,000, in addition to a $150,000 severance payment in
cash and the accelerated vesting of certain stock option grants. In lieu of the
original agreement, the Company renegotiated these terms to payments of $25,000
cash in May 2001, $25,000 cash in July 2001 and the issuance of a $400,000
two-year convertible promissory note from the Company with interest at 7.0% per
annum. The principal can be converted to shares of common stock at $2.75 per
share conversion rate at any time during the term. Additionally, an option to
purchase 300,000 shares of common stock that was granted to Mr. Sledge was
terminated as part of the negotiation.
NOTE 12 SUBSEQUENT EVENTS
Concentric v. NetAmerica, Inc.
The Court entered the arbitrator's award as a judgment on July 13, 2001. On
August 6, 2001, the Company paid Concentric (now known as XO Communications,
Inc.) $239,991 in full and complete satisfaction of Concentric's claims. This
matter is closed. The Company had fully accrued for this liability.
The arbitrator's award also granted the Company's request for express and
equitable indemnity against co-Defendant NetAmerica, Inc. By the terms of the
arbitrator's award, the Company has made a demand to NetAmerica, Inc. for
reimbursement of all damages paid by the Company to Concentric. The demand
letter also seeks to recover the Company's costs and attorney's fees associated
with the lawsuit. During the handling of the case, counsel for NetAmerica, Inc.
represented that NetAmerica, Inc. was insolvent. The Company has not received a
response from NetAmerica, Inc. to its demand.
Other
Page 9
In August the Company renegotiated the terms of one of its leases by providing
consideration of $275,000 in cash and a note payable of $95,000 in return for
elimination of all liabilities related to the lease, which approximated $1.2
million, to eliminate all future payments. The cost of this agreement will be
reflected in the third quarter results.
Page 10
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our
Consolidated Financial Statements and the notes thereto presented in "Item 1 -
Financial Statements." The information set forth in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
includes forward-looking statements that involve risks and uncertainties. Many
factors could cause actual results to differ materially from those contained in
the forward-looking statements below. See "Outlook."
General Development of Business
On June 28, 2001, RateXchange announced that Teleglobe Communications
Corp. was posting bids and offers for capacity on the RateXchange Trading System
(RTS). Signing on in the first quarter of 2001, Teleglobe is one of 30 companies
currently using the RTS to buy and sell bandwidth.
On June 27, 2001 RateXchange announced it had selected Telseon's IP
(Internet Protocol) Service to distribute its metropolitan area bandwidth
traffic. Combining RateXchange's long-haul customers with Telseon's dense metro
footprint will enable buyers, sellers, and traders of IP bandwidth to reduce
lapsed time between the completion of a transaction and its actual delivery over
a secure, national IP network.
On April 26, 2001, RateXchange announced the establishment of a
licensing agreement with Refco Group Ltd., LLC, the world's largest non-bank
futures commission merchant (FCM) to use the RateXchange Futures System to
electronically execute futures trades entered into by it's clients.
On April 9, 2001, announced its continued expansion into risk
management services through the formation of RMG Partners Corporation ("RMG"), a
wholly owned subsidiary created to provide market based solutions through the
use of derivative trading strategies.
Subsequent to the end of the second quarter, on July 16, 2001,
RateXchange announced an agreement with Avantrust, LLC, a joint venture between
American International Group, Inc. and Dun & Bradstreet, whereby Avantrust
Passport and TradeCredit Insurance will be provided to participants on all
RateXchange telecom markets.
Results of Operations for Three and Six Months Ended June 30, 2001
The following table summarizes our results of operations for the first
six months and second quarter of 2001, compared to the same periods of 2000.
Six Months Ended Three Months Ended
June 30 June 30
--------------------------------- ---------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(restated)
Revenue $ 710,344 $ 4,500 $ 370,516 $ 4,500
Expenses (including selling,
general and administrative) $ 13,545,162 $ 19,360,711 $ 5,958,252 $ 6,855,405
Net income (loss) $(13,316,247) $(20,943,922) $ (5,675,168) $ (8,346,587)
Revenue
We generated revenue of $710,000 during the first six months of 2001
and $371,000 during the second quarter of 2001. Revenue in both periods was
primarily from consulting and trading commissions. In the comparable periods of
2000, we generated $4,500 from banner advertising.
Page 11
Expenses
Our total expenses for the first six months of 2001 were $13,545,000
compared to $19,361,000 in the first six months of 2000. The major components of
our expenses for the six month periods were:
Non-cash Expenses
o $1,135,000 in the first half of 2001 compared to $7,644,000 in
the first half of 2000 for amortization expense associated
with the year 2000 grant of below market stock options to
employees;
o $566,000 in the first half of 2001 for option revaluation
related to terminated employees. There were no such expenses
in the first half of 2000;
o $540,000 in the first half of 2001 compared to $3,653,000 for
the first half of 2000 for options and warrants granted to
service providers.
o $1,116,000 for deferred and accrued compensation. There were
no such expenses in the first half of 2000.
o $643,000 related to amortization of deferred lease payments.
There were no such expenses in the first half of 2000.
o $310,000 of accruals related to contingent liabilities. The
comparable amount in 2000 period was $250,000.
o $200,000 related to a write down in value of a security, where
the decline in value was judged to be other than temporary.
Cash Expenses
o $2,322,000 in payroll costs during the first half of 2001
compared to $2,243,000 in the first half of 2000;
o $1,775,000 in outside services during the first half of 2001
compared to $1,875,000 during the first half of 2000, and;
o $2,436,000 in the first half of 2001 compared to $711,000 in
the first half of 2000 for delivery equipment costs.
For the second quarter of 2001 our total expenses were $5,958,000
compared to $6,855,000 in the second quarter of 2000. The major components of
our expenses for the second quarter were:
Non-cash Expenses
o $411,000 in the second quarter of 2001 compared to $1,540,000
in the second quarter of 2000 for amortization expense
associated with the year 2000 grant of below market stock
options to employees;
o $285,000 in the second quarter of 2001 compared to $668,000 in
the second quarter of 2000 for options and warrants granted to
service providers.
o $1,116,000 for deferred and accrued compensation. There were
no such expenses in the second quarter of 2000.
o $643,000 related to amortization of deferred lease payments.
There were no such expenses in the second quarter of 2000.
o $310,000 of accruals related to contingent liabilities. The
comparable amount in the 2000 period was $250,000.
Page 12
o $200,000 related to a write down in value of a security, where
the decline in value was judged to be other than temporary.
Cash Expenses
o $1,037,000 in payroll costs during the second quarter of 2001
compared to $1,127,000 in the second quarter of 2000;
o $743,000 in outside services during the second quarter of 2001
compared to $1,293,000 during the second quarter of 2000, and;
o $613,000 in the second quarter of 2001 compared to $420,000 in
the second quarter of 2000 for delivery equipment costs.
Interest Income:
Interest income for the first six months of 2001 was $274,000 compared
to $212,000 for the same period in 2000. Interest income for the second quarter
of 2001 was $124,000 compared to $305,000 for the second quarter of 2000.The
decrease in interest income is due to less interest earned on a smaller average
investment portfolio.
Net Loss:
During the first half of 2001, we incurred a loss of $13,316,000
compared to $20,944,000 during the same period of 2000. The major components of
the net loss for the first half of 2001, were non cash expenses for stock
options and warrants to purchase company stock of $2,241,000 and additional
expenditures associated with developing the business of $12,059,000. During the
second quarter of 2001 we incurred a loss of $5,675,000 compared to a loss of
$8,347,000 in the second quarter of 2000 and a loss of $7,641,000 in the first
quarter of 2001. The second quarter loss of 2001 comprised non cash expenses for
stock options and warrants to purchase company stock of $698,000 and additional
expenditures associated with developing the business of $5,472,000. Cash
expenditures in the first quarter were $6,396,000. Because we are developing
liquidity in new marketplaces , we anticipate that we will continue to incur
operating losses and cash flow deficiencies for the foreseeable future.
Liquidity and Capital Resources
We have financed our operations to date primarily through the sale of
equity securities. We have been unprofitable since inception and we have
incurred net losses in each year.
We had working capital of $2,114,000 at June 30, 2001 compared to
$12,001,000 on December 31, 2000.
As previously disclosed in the 2000 Form 10K, in April, 2001, the
Company received an irrevocable commitment from two investors to acquire a total
of $9 million of newly issued common shares of the Company. During the second
quarter, management was informed by those investors that they do not expect to
honor the original commitment due to the decline in the Company's share price.
As a result of this development, management is seeking a reduced amount of
financing from the original investors, as well as other potential investors.
The Company will need to raise additional capital prior to year end .
In November 2000, new management began to implement cost cuts in order to more
closely tie costs to revenue. Significant expense reductions have continued
through July, which included, among other things, staff reductions and the
elimination of nearly all outside consulting services. We may sell additional
debt or equity securities or enter into new credit facilities to meet our cash
needs. We cannot assure you that we will be able to complete any financing, that
such financing will be adequate for the Company's needs, or that a financing
will be completed prior to the Company running out of funds.
The factors discussed above create substantial doubt about the
Company's ability to continue as a going
Page 13
concern and an uncertainty as to the recoverability and classification of
recorded asset amounts and the amounts and classification of liabilities. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
The Company has continued to lower its operating costs, including a
reduction in its workforce, a further reduction in management salaries and the
elimination of additional operating expenses, including all consulting expenses.
Management is working aggressively on these factors to ensure that it is fully
able to execute on its current business plan. We are taking the following steps
to achieve profitability:
o We are pursuing additional revenue generating opportunities
such as acquisition of profitable securities broker-dealers
that may accelerate our development of a financial services
business model;
o We are reviewing our options regarding the delivery hub
business, which include: exploring potential sales to
operators of delivery hubs whereby they would operate and own
our delivery hub equipment, or redeploying the hubs toward one
of our developing revenue lines,
o We have restructured and deferred payments on the operating
lease underlying our delivery equipment, resulting in a net
savings of $75,000 per month for 12 months,
o We have reduced our headcount and associated personnel costs;
our employee headcount in our San Francisco location has been
reduced from 37 at December 31, 2000 to 17 currently. In
addition the formation of RMG Partners and Xpit Corporation
added 12 new employees in these new lines of business; and
o We have significantly reduced our marketing and public
relations costs.
In addition, we have substantially completed the development of the RateXchange
Trading System and do not anticipate significant expenditures related to it.
Nevertheless, we need to seek additional financing during the remainder of 2001
in order to accelerate market penetration through the execution of our business
plan. As the Company is determining how it will utilize its delivery hub
equipment, we are currently in the process of assessing the status and likely
use of the operating leases covering the related equipment. We expect to make
final determination as to the likely use of these leases in the near future and
may take a non-cash charge at that time.
Our operating activities used $8.3 million during the first six months
of 2001 due primarily to:
o Costs associated with the development of the RateXchange
Futures System;
o Costs associated with accelerating the deployment of the
RateXchange Trading System;
o increased and ongoing business development activities.
Our investing activities generated $11.0 million during the first six
months of 2001, due to sales of investments.
We are executing an overall business plan that will require additional capital
for among other uses:
o expansion into new domestic and international markets;
o development of additional products and services, and
o acquisitions.
Furthermore, our funding of working capital and current and future operating
losses will require additional capital investment. We do not currently possess a
bank source of financing and we have had nominal revenues.
Page 14
Our business and operations have not been materially affected by
inflation during the periods for which financial information is presented.
OUTLOOK
We provide trading, consulting and information services enabling market
participants to maximize their assets. These trading solutions allow network
providers, energy merchants, financial institutions, and commodity managers
engaged on the RateXchange Trading System (RTS) and RateXchange Futures System
(RFS) the ability to trade bandwidth and futures globally. Our consulting
solutions practice provides asset valuation tools, risk management strategies
and analytics. The information solutions group provides pricing information,
market research, and industry background. We are a trading solutions company
enabling the creation of liquid marketplaces for bandwidth and other
telecommunications products. We plan to move into the brokering of additional
products following the consulting, trading and information solutions model and
are pursuing the acquisition of profitable securities broker-dealers that may
accelerate the development of a financial services business model.
We are a development stage company and we are subject to all the risks
inherent in the establishment of a new business enterprise. To address these
risks, we must:
o Establish market acceptance for our electronic trading system
and other products and services;
o Continue to retain, attract and motivate qualified personnel;
o Effectively manage our capital to support the expenses of
developing and marketing new products and services;
o Implement and successfully execute our business and marketing
strategy;
o Respond to competitive developments and market conditions in
the global communications industry; and
o Continue to develop and upgrade our electronic trading system.
The foregoing contains forward-looking statements that involve risks
and uncertainties, including but not limited to changes in our business
strategy, our inability to raise sufficient capital, general market trends and
conditions, and other risks detailed below in "Factors That May Affect Future
Results." Actual results may vary materially from any future results expressed
or implied by the forward-looking statements.
Forward-Looking Statements
This Outlook section, and other sections of this document, include
certain "forward-looking statements" within the meaning of that term in Section
27A of the Securities Act of 1933, and Section 21E of the Securities Act of
1934, including, among others, those statements preceded by, following or
including the words "believe," "expect," "intend," "anticipate" or similar
expressions. These forward-looking statements are based largely on our current
expectations and are subject to a number of risks and uncertainties. Our actual
results could differ materially from these forward-looking statements. Important
factors to consider in evaluating such forward-looking statements include:
o changes in our business strategy or an inability to execute
our strategy due to unanticipated changes in the market;
o our ability to raise sufficient capital to meet operating
requirements;
o various competitive factors that may prevent us from competing
successfully in the marketplace;
o changes in external competitive market factors or in our
internal budgeting process which might impact trends in our
results of operations, and
o other risks described below in "Factors That May Affect Future
Results."
Page 15
In light of these risks and uncertainties, there can be no assurance that the
events contemplated by the forward-looking statements contained in this Form
10-Q will in fact occur.
FACTORS THAT MAY AFFECT FUTURE RESULTS
We operate in a highly competitive and rapidly changing market that
involves a number of risks. While we are optimistic about our long-term
prospects, the following discussion highlights some risks and uncertainties that
should be considered in evaluating our growth outlook.
We will need additional capital in the future and it may not be available on
acceptable terms.
As previously discussed, we will need additional working capital for
enhancement of the RateXchange Futures System, marketing and general and
administrative costs and to fund losses before achieving profitability. We will
need to raise additional funds through additional equity and/or debt financing
to meet our capital requirements. We cannot assure you that such financings will
be available in amounts or on terms needed to meet our requirements, or at all.
Further, our lack of tangible assets to pledge could prevent us from
establishing a source of financing. The inability to raise all needed funding
would adversely affect our ability to successfully implement the objectives of
our business plan.
As a development stage company with a limited operating history in a new and
rapidly changing industry, it is difficult to evaluate our business and
prospects.
We are a development stage company. Our activities to date have
concentrated primarily on planning and developing our electronic trading system
for trading bandwidth and other telecommunications products. In September 2000,
we began operating the RateXchange Trading System for trading bandwidth.
Accordingly, we have a limited operating history on which to base an evaluation
of our business and prospects. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, particularly companies in new and rapidly evolving
markets such as online commerce. There can be no assurance that we will be
successful in addressing these risks and our failure to do so could have a
material adverse effect on our business and results of operations.
We have a history of losses and expect to incur losses in the future, and we may
never achieve profitability.
At June 30, 2001, our accumulated deficit since inception was
$70,129,000, including $38,137,000 related to stock grants, options and
warrants. For the second quarter of 2001, we incurred a net loss of $5,315,000,
including $2,999,000 related to stock grants and warrants. We have incurred a
net loss in each year of our existence, and have financed our development stage
operations primarily through sales of equity securities. We have recorded
nominal revenues from operations. We expect to incur net losses for the
foreseeable future. We may never achieve or sustain significant revenues or
profitability on a quarterly or annual basis.
If the RateXchange Trading System and RateXchange Futures System do not achieve
commercial acceptance, our results will suffer.
We expect to rely largely on fees and commissions from transactions
facilitated on the RateXchange Trading System, RateXchange Futures System and
related consulting and brokerage services, for the foreseeable future. Online
trading of telecommunications bandwidth and minutes currently has only limited
market acceptance, as does online trading of futures contracts. As a result, our
future ability to gain commercial acceptance of the RateXchange Trading System
and RateXchange Futures System is critical to our success. Any failure to
successfully gain commercial acceptance of the RateXchange Trading System and
RateXchange Futures System would not only have a material adverse effect on our
business and operating results, but also on our ability to seek additional
revenue opportunities.
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We depend on the efforts of the Amerex Bandwidth, Ltd. brokers who execute
trades on our trading system to generate revenues for us.
In September 2000, we entered into a strategic alliance with Amerex
Bandwidth, Ltd., a leading energy and power broker. Under our agreement with
Amerex, Amerex brokers execute trades for the sale or purchase of
telecommunications capacity, Internet protocol products and/or other
telecommunications-related products on our trading system, and we share with
Amerex the revenues generated by these trades. As a result, we depend on the
efforts of the Amerex brokers who execute those trades to generate revenues for
us. There can be no assurance that these brokers will be successful in expanding
our business.
We may not be able to compete successfully against current and future
competitors.
The market for online bandwidth, minutes and derivatives trading
services is new, rapidly evolving and highly competitive, as are the online
commerce and business-to-business markets generally. We expect competition in
this market to intensify in the future. Several of the existing online
exchanges, such as E-Speed, Intercontinental Exchange and Altra currently
operate online marketplaces in commodities and have large established customer
bases. These companies may start bandwidth trading marketplaces. Our ability to
compete with them will depend largely upon our ability to capture market share
by obtaining sufficient customers for the RateXchange Trading System and our
brokerage activities.
In addition, we compete with companies who trade, broker or otherwise
assist in the buying and selling of telecommunications bandwidth and minutes.
Therefore, we currently or potentially compete with a variety of other
companies, including lead-generation services and traditional offline brokers.
Many companies, such as Band-X, and Arbinet, offer services to buyers and
sellers of bandwidth and other telecommunications products. The increased use
and acceptance of any other method of facilitating the buying and selling of
excess telecommunications bandwidth and minutes may adversely impact the
commercial viability of the RateXchange Trading System.
Large telecommunications and energy companies have the ability and
resources to compete in the online bandwidth and minutes trading services market
if they choose to do so, including launching their own online exchanges or other
trading services. Many of our competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in the
industry than we have. In addition, a number of these competitors may combine or
form strategic partnerships. As a result, our competitors may be able to offer,
or bring to market earlier, products and services that are superior to our own
in terms of features, quality, pricing or other factors. Our failure to compete
successfully with any of these companies could have a material adverse effect on
our business and results of operations.
Increased pressure created by any present or future competitors, or by
our competitors collectively, could have a material adverse effect on our
business and operating results. Increased competition may result in reduced
commissions and loss of market share. Further, as a strategic response to
changes in the competitive environment, we may from time to time make certain
pricing, service or marketing decisions or acquisitions that could have a
material adverse effect on our business and operating results. There can be no
assurance that we will be able to compete successfully against current and
future competitors. In addition, new technologies and the expansion of existing
technologies may increase the competitive pressures on us.
Page 17
We face online commerce security risks.
We rely on encryption and authentication technology licensed from third parties
to provide the security and authentication necessary to effect secure
transmission of confidential information, such as bank account or credit
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography, or other events or developments
will not result in a compromise or breach of the algorithms used by us to
protect transaction data. Any compromise of our security could have a material
adverse effect on our reputation and us. A party who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations. We may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by such breaches. To the extent that our activities or
those of third party contractors involve the storage and transmission of
proprietary information, such as bank account or credit information, security
breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability which could have a material adverse effect on
our business and results of operations.
Our operating results could be impaired if we are or become subject to
burdensome governmental regulation of online commerce.
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, including online companies. However, due to the increasing popularity
and use of the Internet and other online services, it is possible that a number
of laws and regulations may be adopted with respect to the Internet or other
online services covering issues such as:
o User privacy;
o Pricing;
o Content;
o Intellectual property;
o Distribution; and
o Characteristics and quality of products and services.
Page 18
The adoption of any additional laws or regulations may decrease the
growth of the Internet or other online services, which could, in turn, decrease
the demand for our products and services and increase our cost of doing
business, or otherwise have an adverse effect on our business and results of
operations. Moreover, the applicability of existing law to the Internet and
other online services governing issues such as property ownership, sales and
other taxes and personal privacy to the Internet and other online services is
uncertain and may take years to resolve.
We plan to facilitate transactions between numerous customers residing
in various states and foreign countries, and such jurisdictions may claim that
we are required to qualify to do business as a foreign corporation in each such
state and foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject us to taxes and
penalties. Any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could have a material adverse effect on our business
and results of operations.
We may face liability for information retrieved from our web site.
Due to the fact that material may be downloaded from our web site and
subsequently distributed to others, there is a potential that claims may be made
against us for negligence, copyright or trademark infringement or other theories
based on the nature and content of such material. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to cover all costs incurred in defense of potential
claims or to indemnify us for all liability that may be imposed. Any costs or
imposition of liability that is not covered by insurance or in excess of
insurance coverage could have a material adverse effect on our business and
results of operations.
We are at risk of capacity constraints and face system development risks.
The satisfactory performance, reliability and availability of the
RateXchange Trading System and RateXchange Futures System is critical to our
reputation and our ability to attract and retain users and maintain adequate
customer service levels. Our revenues depend on the number of users of our
systems and the volume of trading that is facilitated. Any system interruptions
that result in the unavailability of our web site or reduced performance of
these Systems could reduce the volume of bandwidth and futures traded.
There may be a significant need to upgrade the capacity of the
RateXchange Trading System and RateXchange Futures System in order to handle
thousands of simultaneous users and transactions. Our inability to add
additional software and hardware or to develop and upgrade further our existing
technology, transaction processing systems or physical infrastructure to
accommodate increased traffic on these systems or increased trading volume
through our online trading or transaction processing systems may cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service and impaired quality and speed of trade processing, any of
which could have a material adverse effect on our business and operating
results.
Our business and operations would suffer in the event of system failures.
Our success, in particular our ability to successfully facilitate
bandwidth and derivative trades and provide high quality customer service,
largely depends on the efficient and uninterrupted operation of our computer and
communications hardware systems. Our systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunication failures,
break-ins, earthquake and similar events. Despite the implementation of network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to accept and fulfill customer orders.
If we do not respond effectively to technological change, our service could
become obsolete and our business will suffer.
Page 19
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of the RateXchange Trading System and
RateXchange Futures System. The Internet and the online commerce industry are
characterized by rapid technological change, changes in user and customer
requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and
practices that could render our existing systems and proprietary technology
obsolete. Our success will depend, in part, on our ability to license leading
technologies useful in our business, enhance our existing services, develop new
services and technology that address the increasingly sophisticated and varied
needs of our prospective customers, and respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis.
The development of the RateXchange Trading System and RateXchange
Futures System and other proprietary technology entails significant technical
and business risks. There can be no assurance that we will successfully use new
technologies effectively or adapt our systems and proprietary technology to user
requirements or emerging industry standards. Our failure to adapt in a timely
manner for technical, legal, financial or other reasons, to changing market
conditions or customer requirements, could have a material adverse effect on our
business and results of operations.
If we do not effectively manage growth, our ability to provide trading services
will suffer.
To manage the expected growth of our operations and personnel, we will
be required to improve existing, and implement new, transaction-processing,
operational and financial systems, procedures and controls, and to expand, train
and manage a growing employee base. Further, we will be required to maintain and
expand our relationships with various hardware and software vendors, Internet
and other online service providers and other third parties necessary to our
business. If we are unable to manage growth effectively, we will be materially
adversely affected.
We need to hire and retain qualified personnel to sustain our business.
We are currently managed by a small number of key management and
operating personnel. We do not maintain "key man" insurance on any employee. Our
future success depends, in part, on the continued service of our key executive,
management and technical personnel, many of whom have recently been hired, and
our ability to attract highly skilled employees. If any key officer or employee
were unable or unwilling to continue in his or her present position, our
business could be harmed. From time to time we have experienced, and we expect
to continue to experience, difficulty in hiring and retaining highly skilled
employees. If we are unable to retain our key employees or attract, assimilate
or retain other highly qualified employees in the future, that may have a
material adverse effect on our business and results of operations.
Our success is dependent on our ability to protect our intellectual property.
Our performance and ability to compete is dependent to a significant
degree on our proprietary technology, including, but not limited to the design
of the RateXchange Trading System and RateXchange Futures System. We regard our
copyrighted material, software design, trade secrets and similar intellectual
property as critical to our success, and we rely on trademark and copyright
laws, trade secret protection and confidentiality and/or license agreements with
our employees, customers, partners and others to protect our proprietary rights.
We cannot assure you that we will be able to secure significant protection for
any of our intellectual property. It is possible that our competitors or others
will adopt product or service names similar to our marks, thereby inhibiting our
ability to build brand identity and possibly leading to customer confusion.
Page 20
We generally have entered into agreements containing confidentiality
and non-disclosure provisions with our employees and consultants who have
limited access to and distribution of our software, documentation and other
proprietary information. We cannot assure you that the steps we take will
prevent misappropriation of our technology or that agreements entered into for
that purpose will be enforceable. Notwithstanding the precautions we have taken,
it might be possible for a third party to copy or otherwise obtain and use our
software independently. Policing unauthorized use of our technology is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted. The laws of other countries may afford us little or no
effective protection of our intellectual property.
Effective trademark, service mark, copyright and trade secret
protection may not be available in every country where our services are made
available online. In the future, we may also need to file lawsuits to enforce
our intellectual property rights, protect our trade secrets and determine the
validity and scope of the proprietary rights of others. Such litigation, whether
successful or unsuccessful, could result in substantial costs and diversion of
resources, which could have a material adverse effect on our business and
operating results.
The volatility of our securities prices may increase.
The market price of our common stock has in the past been, and may in
the future continue to be, volatile. A variety of events may cause the market
price of our common stock to fluctuate significantly, including:
o Quarter to quarter variations in operating results;
o Adverse news announcements;
o The introduction of new products and services;
o Market conditions in the telecommunications industry in
general, Internet-based services and e-commerce; and
o General market conditions.
In addition, the stock market in recent years has experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many companies in our business and that
often have been unrelated to the operating performance of such companies. These
market fluctuations have adversely impacted the price of our common stock and
may do so in the future.
Any exercise of outstanding options and warrants will dilute then-existing
stockholders' percentage of ownership of our common stock.
Page 21
We have a significant number of outstanding options and warrants. The
exercise of all of the outstanding options and warrants would dilute the
then-existing stockholders' percentage ownership of our common stock. Any sales
resulting from the exercise of options and warrants in the public market could
adversely affect prevailing market prices for our common stock. Moreover, our
ability to obtain additional equity capital could be adversely affected since
the holders of outstanding options and warrants may exercise their options and
warrants at a time when we would also wish to enter the market to obtain capital
on terms more favorable than those provided by the options. We lack control over
the timing of any exercise or the number of shares issued or sold if exercises
occur.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Short Term Investments
Our exposure to market risks for changes in interest rates relate
primarily to investments in debt securities issued by U.S. government agencies
and corporate debt securities. We place our investments with high credit quality
issuers and, by policy, limit the amount of the credit exposure to any one
issuer.
Our general policy is to limit the risk of principal loss and ensure
the safety of invested funds by limiting market and credit risk. All highly
liquid investments with less than three months to maturity are considered to be
cash equivalents. Investments with maturities between three and twelve months
are considered to be short-term investments. Investments with maturities in
excess of twelve months are considered to be long-term investments. We do not
expect any material loss with respect to our short term investment portfolio.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Switch & Data Facilities Company v. RateXchange Corporation
On May 18, 2001, Switch & Data Facilities Company filed a lawsuit
against the Company in the Superior Court of California for the County
of San Francisco (Action No. 321470). The lawsuit involves a claim for
breach of contract based on a lease for colocation space in North
America. The suit prays for damages in the amount of $566,600. The
Company answered the complaint and discovery has begun.
Item 2. Changes in Securities and Use of Proceeds.
a) Not applicable.
b) Not applicable.
c) Not applicable
d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
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a) Exhibits
Exhibit No. Exhibit Name
----------- ------------
10.1 Employment agreement with Robert Ford
10.2 Contract by and between RMG Partners and RateXchange
b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Dated this 18th day of August, 2001.
RATEXCHANGE CORPORATION
By: /s/ D. Jonathan Merriman
----------------------------
D. Jonathan Merriman
Chairman and Chief Executive Officer
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