Aliso Viejo-based FreeRealTime.com Inc., which filed for bankruptcy protection earlier this year, has signed an agreement to sell its RedChip.com Inc. subsidiary.
FreeRealTime, which is trying to turn around its operations and make itself marketable, said the sale will allow it to focus on doing what it is best at: providing live stock quotes via the Internet.
The sale “gives us the opportunity to focus on our core competency,” said Michael Neufeld, president and chief financial officer of FreeRealTime.com.
The deal is expected to close in a couple of months.
A new company, RedChip LLC, is set to assume some liabilities of RedChip.com and take over operations from FreeRealTime.
RedChip LLC was formed recently by Spokane, Wash.-based ICM Asset Management. It plans to operate and manage RedChip.com until the asset sale is completed.
RedChip.com, originally Red Chip Review, is a financial research firm covering small-cap and emerging growth companies.
The firm sells its research to retail and institutional investors.
In September 1999, Newport Beach-based Roth Capital Partners LLC, then Cruttenden Roth, bought a majority stake in Red Chip from founder Marc Robbins. RedChip.com was acquired by FreeRealTime.com in last year.
Roth Capital now has slightly more than a 10% stake, or 1.6 million shares, in FreeRealTime.com as a result of the sale.
FreeRealTime filed for bankruptcy on April 24 as the company’s advertising-based business model of providing real-time quotes for free failed to generate sufficient revenue.
In the past six months, the company has laid off two-thirds of its staff in an effort to bring down its losses. It now has 35 employees,20 at RedChip,compared with 120 six months ago.
To achieve profitability, the online financial service provider now is focusing on paid service rather than relying on advertising revenue to fund the offering of free quotes.
“Clearly, the advertising-based model has not worked,” said Neufeld.
A few weeks ago, FreeRealTime launched two fee-based services. The firm has 1.6 million registered users, most using the free quote service. It says it gets about 100 million page views a month.
With the sale of RedChip.com, Neufeld expects to get some cash and at the same time lower his overhead.
The sale, he said, “does help long-term preservation of capital.”
Neufeld also said the RedChip unit has struggled.
“It’s difficult to be paid for research in this environment,” he said.
Neufeld said that at the current rate, FreeRealTime should be able to break even in a couple of months.
“We are marketing the company for sale, as well,” he said. n
