SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
/ / Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number 0-15586
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DREAMLIFE, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 52-1373960
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
425 West 15th Street , 3rd floor, New York, New York 10011
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(Address of principal executive offices) (Zip Code)
(212) 313-9400
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Issuer's telephone number, including area code
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(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check 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
--- ---
The number of shares outstanding of each of the issuer's classes of common
equity as of May 11, 2000 was as follows: 40,368,351 shares of common stock
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DREAMLIFE, INC.
(A Development Stage Enterprise)
Balance Sheets
(in thousands, except share amounts)
March 31, December 31,
2000 1999
---------- ------------
C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 7,367 $ 10,459
Accounts receivable 14 --
Prepaid expenses and other current assets 525 579
Cash held in escrow -- 100
-------- --------
Total current assets 7,906 11,138
Property and equipment, net of accumulated depreciation of $183 and $83, respectively 1,153 1,013
Intangible assets, net of accumulated amortization of $1,980 and $1,386, respectively 5,150 5,744
Security deposits 277 277
-------- --------
Total assets $ 14,486 $ 18,172
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 903 $ 745
Accrued expenses 190 310
Obligations under capital lease, current portion 99 93
-------- --------
Total current liabilities 1,192 1,148
Obligations under capital lease, net of current portion 55 73
Stockholders' equity:
Common stock - $0.01 par value. Authorized 100,000,000 shares;
40,368,351 shares issued and outstanding at March 31, 2000
and December 31, 1999 403 403
Additional paid-in capital 36,792 37,042
Deferred compensation (4,454) (5,790)
Deficit accumulated during the development stage (19,502) (14,704)
-------- --------
Total stockholders' equity 13,239 16,951
-------- --------
Total liabilities and stockholders' equity $ 14,486 $ 18,172
======== ========
See accompanying notes to financial statements.
2
DREAMLIFE, INC.
(A Development Stage Enterprise)
Statements of Operations
(in thousands, except share and per share amounts)
Period from April 21, 1999
Three Months Ended (date of inception)
March 31, 2000 to March 31, 2000
------------------ --------------------------
(unaudited) (unaudited)
Revenues:
Interactive Services Revenue $ 14 $ 14
Commerce 1 1
----------- -----------
Total Revenue 15 15
Cost of Revenues 6 6
----------- -----------
9 9
Expenses:
Noncash compensation expense 1,086 9,658
Amortization of intangible assets 594 1,980
Advertising and marketing 608 608
General and administrative 2,639 7,758
----------- -----------
Total operating expenses 4,927 20,004
----------- -----------
Operating Loss (4,918) (19,995)
Interest income 120 493
----------- -----------
Net loss (4,798) (19,502)
Beneficial conversion attributable to preferred stock -- 13,617
----------- -----------
Net loss attributable to common stockholders $ (4,798) $ (33,119)
=========== ===========
Basic and diluted net loss per common share $ (0.12) $ (1.51)
----------- -----------
Shares used in basic and diluted net loss per common share calculation 40,368,351 21,971,530
=========== ===========
See accompanying notes to financial statements.
3
DREAMLIFE, INC.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
Period from April 21, 1999 (date of inception)
to March 31, 2000
(in thousands except share amounts)
Convertible preferred stock Convertible preferred stock
Common Stock Series A par value $.01 Series B par value $.01
------------------------------ ------------------------------ -----------------------------
Shares Amount Shares Amount Shares Amount
------------ ---------------- ------------ ---------------- ------------- --------------
Issuance of shares pursuant to
merger of dreamlife, inc.
and CYL 7,047,828 $ 70 - $ - - $ -
Issuance of shares to members
of CYL, pursuant to merger - - 99,059 1 - -
Issuance of shares in private
placement, net of expenses - - - - 178,582 2
Issuance of shares to acquire
Concept Development, Inc. - - - - - -
Issuance of shares pursuant to
exclusive license agreement - - - - - -
Exercise of stock options 268,857 3 - - - -
Issuance of common stock
options - - - - - -
Deferred compensation
expense - - - - - -
Conversion of Convertible
Preferred Stock Series B 1,785,820 18 - - (178,582) (2)
Conversion of Convertible
Preferred Stock Series C 557,450 5 - - - -
Distribution of discontinued
operations - - - - - -
Conversion of Convertible
Preferred Stock Series A 30,708,396 307 (99,059) (1) - -
Net loss for the period
from April 21, 1999 (date
of inception) to
December 31, 1999 - - - - - -
------------ ---------------- ------------ ---------------- ------------- --------------
Balance at December 31, 1999 40,368,351 $ 403 - $ - - $ -
Cancellation of stock options* - - - - - -
Deferred compensation expense* - - - - - -
Net loss for the three months*
ended March 31, 2000 - - - - - -
------------ ---------------- ------------ ---------------- ------------- --------------
Balance at March 31, 2000* 40,368,351 $ 403 - $ - - $ -
============ ================ ============ ================ ============= ==============
* Indicates unaudited amounts.
See accompanying notes to financial statements.
Distribution of
Convertible preferred stock discontinued
Series C par value $.01 Additional operation to
-------------------------- paid-in common Deferred Accumulated
Shares Amount capital stockholders compensation deficit Total
------------ ----------- ----------- ---------------- ------------- ----------- --------
Issuance of shares pursuant to
merger of dreamlife, inc.
and CYL - $ - 4,169 (1,239) - - 3,000
Issuance of shares to members
of CYL, pursuant to merger - - (1) - - - -
Issuance of shares in private
placement, net of expense - - 15,064 - - - 15,066
Issuance of shares to acquire
Concept Development, Inc. 50,000 1 4,499 - - - 4,500
Issuance of shares pursuant to
exclusive license agreement 5,745 - 517 - - - 517
Exercise of stock options - - (3) - - - -
Issuance of common stock
options - - 14,362 - (14,362) - -
Deferred compensation
expense - - - - 8,572 - 8,572
Conversion of Convertible
Preferred Stock Series B - - (16) - - - -
Conversion of Convertible
Preferred Stock Series C (55,745) (1) (4) - - - -
Distribution of discontinued
operations - - (1,239) 1,239 - - -
Conversion of Convertible
Preferred Stock Series A - - (306) - - - -
Net loss for the period
from April 21, 1999 (date
of inception) to
December 31, 1999 - - - - - (14,704) (14,704)
------------ ------- -------- -------- -------- -------- -------
Balance at December 31, 1999 - - 37,042 - (5,790) (14,704) 16,951
Cancellation of stock options* - - (250) - (250) - -
Deferred compensation expense* - - - - 1,086 - 1,086
Net loss for the three months*
ended March 31, 2000 - - - - - (4,798) (4,798)
------------ ------- -------- -------- -------- -------- -------
Balance at March 31, 2000* - - 36,792 - (4,454) (19,502) 13,239
============ ======= ======== ======== ======== ======== =======
* Indicates unaudited amounts.
See accompanying notes to financial statements.
4
DREAMLIFE, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
(in thousands)
Period from April 21, 1999
Three Months Ended (date of inception)
March 31, 2000 to March 31, 2000
------------------ --------------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(4,798) $(19,502)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash compensation expense 1,086 9,658
Depreciation and amortization 694 2,163
Changes in:
Accounts receivable (14) (14)
Prepaid expenses and other 54 (525)
Cash held in escrow 100 --
Accounts payable and accrued expenses 38 1,093
------- --------
Net cash used in operating activities (2,840) (7,127)
------- --------
Cash flows from investing activities:
Acquisition of property and equipment (223) (1,128)
Acquisition of Concept Development, Inc. -- (2,113)
Payment of security deposits -- (277)
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Net cash used in investing activities (223) (3,518)
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Cash flows from financing activities:
Net proceeds from sale of Series B Convertible Preferred Stock -- 15,066
Cash acquired pursuant to merger of dreamlife, inc. and Change
Your Life.com -- 3,000
Payments under capital lease obligations (29) (54)
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Net cash (used in) provided by financing activities (29) 18,012
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Net (decrease) increase in cash and cash equivalents (3,092) 7,367
Cash and cash equivalents at beginning of period 10,459 --
------- --------
Cash and cash equivalents at end of period $ 7,367 $ 7,367
======= ========
SUPPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock dividend to effect USN spin-off $ -- $ 1,239
======= ========
Computer equipment acquired under capital lease $ 17 $ 208
======= ========
Issuance of Series C Convertible Preferred Stock in acquisition of
Concept Development, Inc. $ -- $ 4,500
======= ========
Stock issued for exclusive license agreement $ -- $ 517
======= ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
DREAMLIFE, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF PRESENTATION
dreamlife, inc. (a development stage enterprise) (the "Company"
or "Dreamlife") commenced development stage activities in April
1999 that included plans for an online network to focus on
personal and professional improvement. The Company launched its
website www.dreamlife.com on February 12, 2000.
The interim financial statements of the Company as of and for the
three months ended March 31, 2000, are unaudited. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
the rules and regulations of the SEC relating to interim financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the financial position and the results of
operations and cash flows have been included in such unaudited
financial statements. The results of operations for the three
months ended March 31, 2000, are not necessarily indicative of the
results to be expected for any future interim period or for the
year ending December 31, 2000.
(b) USE OF ESTIMATES
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) RECOGNITION OF REVENUE
Revenue derived from interactive services, such as online courses,
is recognized when the service is provided.
Revenue derived from electronic commerce is recognized when the
products are delivered.
Advertising revenues are recognized as the advertisement is
displayed, provided that no significant company obligations
remain.
(2) RELATED PARTY TRANSACTIONS
A director of the Company was paid consulting fees during the three-month
period ended March 31, 2000 of $42,000.
6
(3) Commitment
In December 1999, the Company entered into a Content License Agreement
with Yahoo! Inc. whereby the Company's content will be placed within
Yahoo!'s web site for one year. As of March 31, 2000, under the terms
of the Content License Agreement and a media insertion order, the
Company is obligated to pay Yahoo! $1,500,000 through December 2000.
(4) LOSS PER SHARE
Basic loss per share excludes dilution and is computed by dividing the
loss available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted loss per share reflects
the potential dilution that could occur if potentially dilutive
securities such as convertible preferred stock, stock options and
warrants were exercised or converted into common stock. Basic and diluted
loss per share were the same for the period April 21, 1999 (date of
inception) through March 31, 2000 since the effect of all potential
dilutive common stock equivalents was antidilutive. As of March 31, 2000
and December 31, 1999, there were options and warrants exercisable into
4,138,750 and 4,503,750 shares of common stock, respectively.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Plan of Operations
On February 12, 2000, Dreamlife officially launched its web site,
www.dreamlife.com. We believe our web site will enable our members to reach
personal and professional goals by assessing, defining and pursuing their
aspirations through the use of technology, coaching, communities, courses,
education tools and an interface with experts and peer support.
Our web site is undergoing continuing development. We have, therefore,
not yet engaged in significant marketing activities. Over the next several
months, as additional courses and features are added to the site, we expect to
increase our online and offline marketing and promotional activities.
We plan to derive revenues from sponsorships, electronic commerce,
advertising and fees for interactive products and services. During the quarter
ended March 31, 2000, we began to generate an immaterial amount of revenues
through the sale of online courses to users of our web site and through the sale
of related products, such as books and tapes, through our affiliate program with
Barnes & Noble. Through March 31, 2000, we did not generate any advertising or
sponsorship revenues. We believe we will begin to generate advertising and
sponsorship revenues by the end of 2000 as we increase our marketing activities
and build our membership base.
We do not expect to generate significant revenues until 2001. Our
ability to continue to develop our web site and related functionalities will
directly affect the timing of future revenues. As with any development stage
enterprise, unforeseen difficulties may arise.
8
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
No comparison of prior periods is presented below as we did not conduct
operations prior to May 27, 1999.
REVENUES
We began to generate an immaterial amount of revenue during the first
quarter of 2000. Revenues for the period ended March 31, 2000 were $15,000 and
were primarily a result of the sale of online courses to users of our web site.
Costs of revenues were $6,000, comprised of revenue share amounts due to
Dreamlife's content providers and service fees due to Dreamlife's digital
commerce service provider.
INTEREST INCOME
For the three months ended March 31, 2000, we earned interest of
approximately $120,000 on our cash balances.
EXPENSES
Our operating expenses for the three months ended March 31, 2000
totaled $4.9 million, of which $1.7 million related to non-cash items including
$1.1 million of compensation expense for compensatory stock options granted to
our employees and directors and $0.6 million related to the amortization of
intangible assets acquired in the Concept Development and The Learning Annex
transactions (see Note 4 to Dreamlife's financial statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999). Advertising
and marketing expenses totaled $0.6 million and the remaining $2.6 million of
expenses primarily consisted of expenses relating to internal salaries,
continuing development of our web site, and expenses related to the acquisition
and development of content. We believe that the general and administrative
expenses will significantly increase as we continue to acquire staff and
equipment and that the amortization of intangibles may increase depending on the
amount and nature of future content acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
We had $7.4 million of cash and cash equivalents at March 31, 2000.
For the quarter ended March 31, 2000, cash used in operating activities
was $2.8 million, of which internal salaries and benefits expenses totaled
approximately $1.0 million, advertising and promotional expenses totaled $0.6
million, web site development and content development expenses totaled $0.4
million and other operating expenditures totaled $0.8 million.
For the three months ended March 31, 2000, cash used in investing
activities was $223,000 for the acquisition of property and equipment.
Cash used in financing activities was approximately $29,000 for
payments under capital lease obligations.
We believe that we will continue to incur operating losses through at
least 2001. We expect that cash and cash equivalents at March 31, 2000 will
adequately fund initial significant
9
technology hardware and software expenditures necessary to develop our business
and allow us to meet our operating needs through July 2000. We also expect to
significantly increase the number of employees devoted to our Internet business
from 53 at March 31, 2000 to approximately 80 at July 31, 2000. We believe
existing cash will fund increased costs related to our anticipated hirings
through at least July 31, 2000. To the extent that such increased costs exceed
existing resources and the acquisition or development of content and/or
marketing requires significant cash consideration, we anticipate the need to
obtain additional financing before July 31, 2000. We cannot assure you that we
will be able to secure additional financing or that such financing, if any, will
be available on favorable terms.
In December 1999, we entered into a Content License Agreement with
Yahoo! Inc. whereby our content will be placed within Yahoo!'s web site for one
year. As of March 31, 2000, under the terms of the Content License Agreement and
a media insertion order, we are obligated to pay Yahoo! $1.5 million through
December 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133," which deferred the
effective date of SFAS No. 133. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. We are analyzing the
impact of SFAS No. 133 on our financial statements.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. On March 24, 2000,
the SEC issued SAB 101A which amends the transition guidance for SAB 101. Under
the revised guidance, the staff will not object if registrants that have not
applied the accounting requirements in SAB 101 do not restate prior financial
statements provided they report a change in accounting principle in accordance
with APB Opinion No. 20, "Accounting Changes". The staff believes that the
change must be reported no later than the first fiscal quarter of the fiscal
year beginning after December 15, 1999, except that registrants with fiscal
years that begin between December 16, 1999 and March 15, 2000 may report a
change in accounting principle no later than their second fiscal quarter of the
fiscal year beginning after December 15, 1999. If a registrant with a fiscal
year beginning between December 16, 1999 and March 15, 2000 elects to avail
itself of this delay, the change must be reported in accordance with FASB
Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements".
We believe the adoption of SAB 101 will not have a significant effect on our
financial statements.
In March 2000, FASB Interpretation No. 44 - "Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No.
25" (FIN 44) was issued. FIN 44 clarifies the application of APB No. 25
regarding (a) the definition of EMPLOYEE for purposes of applying APB No. 25,
(b) the criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequence of various modifications to the terms of a
10
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 does not address
the application of the fair value method of Statement No. 123. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000.
We have not yet assessed the impact of FIN 44.
FORWARD LOOKING STATEMENTS
THIS QUARTERLY REPORT, INCLUDING THE DISCUSSION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. OUR ACTUAL RESULTS AND TIMING OF CERTAIN EVENTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS
A RESULT OF, AMONG OTHER THINGS, THOSE FACTORS DESCRIBED ELSEWHERE IN THIS
QUARTERLY REPORT AND IN OTHER FILINGS MADE BY US WITH THE COMMISSION.
11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description and Method of Filing
--------- ----------------------------------------
3(i).1 Restated Certificate of Incorporation (1)
3(i).2 Certificate of Amendment to Certificate of Incorporation dated June 18, 1987 (2)
3(i).3 Certificate of Amendment to Certificate of Incorporation dated November 17, 1989 (3)
3(i).4 Certificate of Amendment to Certificate of Incorporation filed November 3, 1999 (4)
3(i).5 Certificate of Amendment to Certificate of Incorporation filed December 13, 1999
(5)
3(ii) Amended and Restated By-Laws (6)
27.1 Financial Data Schedule
(1) Incorporated by reference from Exhibit 3.1 to the registrant's Registration
Statement No. 33-4532-W on Form S-18.
(2) Incorporated by reference from Exhibit 3(b) to the registrant's 1987 Annual
Report on Form 10-K.
(3) Incorporated by reference to Exhibit 3(c) to the registrant's 1988 Annual
Report on Form 10-K.
(4) Incorporated by reference to the registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
(5) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1999.
(6) Incorporated by reference to the registrant's Form 8-K/A dated May 27, 1999
and filed with the Securities and Exchange Commission as of June 11, 1999.
(b) Reports on Form 8-K
On February 15, 2000, Dreamlife filed a report on Form 8-K dated
February 15, 2000 under Item 5 (Other Events) in connection with the
announcement of the launch of Dreamlife's web site, www.dreamlife.com.
On February 17, 2000, Dreamlife filed a report on Form 8-K/A dated May
27, 1999 amending Item 7 (Financial Statement, Pro Forma Financial Information
and Exhibits) of its Form 8-K originally filed on June 11, 1999. This amendment
was filed to include revised exhibits originally filed with the Securities and
Exchange Commission on June 11, 1999 to reflect the results of a request for
confidential treatment filed by Dreamlife.
12
SIGNATURES
In accordance with 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.
dreamlife, inc.
Dated: May 12, 2000 By: /s/ Philicia G Levinson
-------------------- ----------------------------------
Philicia G. Levinson
Senior Vice President
Chief Financial Officer
13
EXHIBIT INDEX
Number Description and Method of Filing
- --------- ---------------------------------------
3(i).1 Restated Certificate of Incorporation (1)
3(i).2 Certificate of Amendment to Certificate of Incorporation dated June 18, 1987 (2)
3(i).3 Certificate of Amendment to Certificate of Incorporation dated November 17, 1989 (3)
3(i).4 Certificate of Amendment to Certificate of Incorporation filed November 3, 1999 (4)
3(i).5 Certificate of Amendment to Certificate of Incorporation filed December 13, 1999 (5)
3(ii) Amended and Restated By-Laws (6)
27.1 Financial Data Schedule
- --------------------
1. Incorporated by reference from Exhibit 3.1 to the registrant's Registration
Statement No. 33-4532-W on Form S-18.
2. Incorporated by reference from Exhibit 3(b) to the registrant's 1987 Annual
Report on Form 10-K.
3. Incorporated by reference to Exhibit 3(c) to the registrant's 1988 Annual
Report on Form 10-K.
4. Incorporated by reference to the registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
5. Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1999.
6. Incorporated by reference to the registrant's Form 8-K/A dated May 27, 1999
and filed with the Securities and Exchange Commission as of June 11, 1999.