SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
: QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2001
----------------------
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-15586
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 15, 2001 WAS AS FOLLOWS: 17,959,955 SHARES OF COMMON STOCK
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREAMLIFE, INC.
(A Development Stage Enterprise)
Balance Sheets
(in thousands, except share amounts)
ASSETS
March 31, December 31,
2001 2000
----------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 48 $ 244
Prepaid expenses and other current assets 34 65
---------- --------------
Total current assets 82 309
Property and equipment, net of accumulated depreciation
of $733 and $553, respectively 795 975
Deferred costs 100 100
Security deposits 280 277
---------- --------------
Total assets $ 1,257 $ 1,661
========== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 602 $ 260
Accrued expenses 1,620 1,386
Notes payable 2,250 1,500
Obligations under capital lease, current portion 55 81
---------- --------------
Total current liabilities 4,527 3,227
Obligations under capital lease, net of current portion 1 1
Stockholders' deficit:
Common stock - $.01 par value. Authorized 100,000,000 shares;
issued and outstanding 40,368,351 shares 403 403
Additional paid-in capital 34,399 34,399
Deferred compensation (1,136) (1,256)
Deficit accumulated during the development stage (36,937) (35,113)
---------- --------------
Total stockholders' deficit (3,271) (1,567)
---------- --------------
Total liabilities and stockholders' deficit $ 1,257 $ 1,661
========== ==============
See accompanying notes to financial statements.
2
DREAMLIFE, INC.
(A Development Stage Enterprise)
Statements of Operations
(in thousands, except per share amount)
Period from April 21, 1999
Three Months Ended Three Months Ended (date of inception)
March 31, 2001 March 31, 2000 to March 31, 2001
------------------ ------------------ --------------------------
(unaudited) (unaudited) (unaudited)
Revenues:
Interactive services revenue $ 6 $ 14 $ 55
Commerce 6 1 18
-------- -------- --------
Total revenue 12 15 73
Cost of revenues 7 6 55
-------- -------- --------
5 9 18
Expenses:
Noncash compensation expense $ 120 $ 1,086 $ 10,583
Write-down and amortization of intangible assets -- 594 7,130
Advertising and marketing 138 608 3,422
General and administrative 1,524 2,639 16,374
-------- -------- --------
Total operating expenses 1,782 4,927 37,509
Operating Loss (1,777) (4,918) (37,491)
Other income (expense):
Interest expense (48) -- (63)
Interest income 1 120 617
-------- -------- --------
Net loss (1,824) (4,798) (36,937)
Beneficial conversion attributable to preferred stock -- -- 13,617
-------- -------- --------
Net loss to common stockholders $ (1,824) $ (4,798) $(50,554)
======== ======== ========
Basic and diluted net loss per common share $ (0.05) $ (0.12) $ (1.61)
======== ======== ========
Basic and diluted outstanding common shares 40,368 40,368 31,418
======== ======== ========
See accompanying notes to financial statements.
3
DREAMLIFE, INC.
(A Development Stage Enterprise)
Statements of Stockholders' (Deficit) Equity
Period from April 21, 1999 (date of inception)
to March 31, 2001
(in thousands, except share amounts)
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
SERIES A PAR VALUE $.01 SERIES B PAR VALUE $.01
COMMON STOCK ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ---------- ---------- ----------
Issuance of shares pursuant to
merger of dreamlife, inc. and
CYL (notes 1 and 3) 7,047,828 $ 70 -- $ -- -- $ --
Issuance of shares to members
of CYL pursuant to merger
(note 3) -- -- 99,059 1 -- --
Issuance of shares in private
placement, net of expenses -- -- -- -- 178,582 2
Issuance of shares to acquire Concept
Development, Inc. (note 4) -- -- -- -- -- --
Issuance of shares pursuant to
exclusive license agreement
(note 4) -- -- -- -- -- --
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 -- -- -- -- -- --
Issuance of warrants -- -- -- -- -- --
Net loss for the year
ended December 31, 2000 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2000 40,368,351 403 -- -- -- --
Deferred compensation expense* -- -- -- -- -- --
Net loss for the three months
ended March 31, 2001* -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2001* 40,368,351 $ 403 -- $ -- -- $ --
========== ========== ========== ========== ========== ==========
CONVERTIBLE DISTRIBUTION OF DEFICIT
PREFERRED STOCK DISCONTINUED ACCUMULATED
SERIES C PAR VALUE $.01 ADDITIONAL OPERATION TO DURING THE
------------------------ PAID-IN COMMON DEFERRED DEVELOPMENT
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION STAGE TOTAL
---------- ---------- ---------- ------------ ------------ ---------- ----------
Issuance of shares pursuant to
merger of dreamlife, inc. and
CYL (notes 1 and 3) -- $ -- $ 4,169 $ (1,239) $ -- $ -- $ 3,000
Issuance of shares to members
of CYL pursuant to merger
(note 3) -- -- (1) -- -- -- --
Issuance of shares in private
placement, net of expenses -- -- 15,064 -- -- -- 15,066
Issuance of shares to acquire Concept
Development, Inc. (note 4) 50,000 1 4,499 -- -- -- 4,500
Issuance of shares pursuant to
exclusive license agreement
(note 4) 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 -- -- (3,476) -- 3,476 -- --
Deferred compensation expense -- -- -- -- 1,891 -- 1,891
Issuance of warrants -- -- 833 -- (833) -- --
Net loss for the year
ended December 31, 2000 -- -- -- -- -- (20,409) (20,409)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2000 -- -- 34,399 -- (1,256) (35,113) (1,567)
Deferred compensation expense* -- -- -- -- 120 -- 120
Net loss for the three months
ended March 31, 2001* -- -- -- -- -- (1,824) (1,824)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2001* -- $ -- $ 34,399 $ -- $ (1,136) $ (36,937) $ (3,271)
========== ========== ========== ========== ========== ========== ==========
- ----------
* Indicates unaudited amounts
See accompanying notes to financial statements
4
DREAMLIFE, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
(in thousands)
Period from
Three Months Three Months April 21, 1999
Ended Ended (date of inception)
March 31, 2001 March 31, 2000 to March 31, 2001
-------------- -------------- -------------------
(unaudited) (unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (1,824) $ (4,798) $(36,937)
Adjustments to reconcile net loss to net cash used in operating activities:
Noncash compensation expense 120 1,086 10,583
Depreciation and amortization 180 694 3,902
Write-down of intangible assets -- -- 3,961
Changes in:
Accounts receivable -- (14) --
Prepaid expenses and other 31 54 (34)
Cash held in escrow -- 100 --
Accounts payable and accrued expenses 576 38 2,222
-------- -------- --------
Net cash used in operating activities (917) (2,840) (16,303)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment -- (223) (1,320)
Payment of deferred costs -- -- (100)
Acquisition of Concept Development, Inc. -- -- (2,113)
Payment of security deposits (3) -- (280)
-------- -------- --------
Net cash used in investing activities (3) (223) (3,813)
-------- -------- --------
Cash flows from financing activities:
Proceeds from line of credit 750 -- 2,250
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 (26) (29) (152)
-------- -------- --------
Net cash provided by (used in) financing activities 724 (29) 20,164
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (196) (3,092) 48
Cash and cash equivalents at beginning of period 244 10,459 --
-------- -------- --------
Cash and cash equivalents at end of period $ 48 $ 7,367 $ 48
======== ======== ========
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. Since then, the Company has
derived insignificant revenues from fees for interactive products and
services and electronic commerce. The Company operates in one business
segment.
On January 31, 2001, the Board of Directors of Dreamlife approved a
change in the Company's business strategy. Under the new strategy, the
Company will be focusing on utilizing its website to provide education,
inspiration and training tools for the sales forces of direct selling
companies which Dreamlife seeks to acquire.
The interim financial statements of the Company as of and for the three
months ended March 31, 2001 and 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, 2001, are not necessarily indicative of the
results to be expected for any future interim period or for the year
ending December 31, 2001.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, historical operating losses,
dependence upon strategic alliances and the limited history of the need
for Internet access and enhanced services.
(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.
6
(2) CHANGE IN ACCOUNTING ESTIMATES
On January 23, 2001, the Company entered into a Surrender Agreement with
the lessor of its office space, which provides for the early termination of
its lease. As such, beginning on February 1, 2001, the remaining balance of
leasehold improvements is being amortized over the six months remaining on
the lease, the estimated useful life of these improvements.
(3) COMMITMENTS
In December 1999, the Company entered into a Content License Agreement with
Yahoo! Inc. whereby the Company's content would be placed within Yahoo!'s
web site for one year. As of March 31, 2001, under the terms of the Content
License Agreement and a media insertion order, the Company remains
obligated to pay Yahoo! an additional $229,167, which is included in
accrued expenses. The Company is currently in negotiations with Yahoo! for
a settlement of this obligation.
In April 2000, the Company entered into a one-year engagement letter with
Wit SoundView Corporation (Wit) whereby Wit SoundView Corporation and Wit
Capital Corporation will act as the Company's exclusive financial advisors.
In connection with this engagement letter, the Company has agreed to pay a
monthly retainer fee and to compensate Wit in connection with specified
business and financing transactions involving Dreamlife. As of March 31,
2001, $100,000 of deferred costs relate to fees owed Wit for a pending
acquisition. In April 2000, the Company issued to Wit a five-year warrant
to purchase 400,000 shares of common stock at $7.00 per share. The fair
value of the warrants, amounting to $833,000, has been recorded as a
deferred charge, reflected as a reduction to stockholders' equity in the
accompanying balance sheets, pending the consummation of the related
transaction.
In July 2000, the Company entered into a content and distribution agreement
with America Online, Inc. whereby the Company agreed to provide content
aimed at small business users to AOL and Netscape Netcenter for eighteen
months, in addition to receiving promotion across several AOL properties.
As of March 31, 2001, the Company is obligated to pay America Online
$500,000 through December 2001. The Company is currently in negotiations
with America Online for a settlement of this obligation.
(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 three months ended March 31, 2001 and 2000 since the effect of
all potential dilutive common stock equivalents was antidilutive. As of
March 31, 2001 and December 31, 2000, there were options and warrants
exercisable into 5,459,852 and 6,057,464 shares of common stock,
respectively.
7
(5) LINE OF CREDIT
Under the terms of a Grid Time Promissory Note signed on October 24, 2000
to the order of The Chase Manhattan Bank, the Company obtained a line of
credit for $1,500,000. The note bears interest at the prime rate (8.0% at
March 31, 2001) and was due on November 30, 2000. On November 28, 2000, the
maturity date of the note was extended to January 31, 2001. On January 15,
2001, the principal amount of the note was increased to $2.0 million and
the maturity date was extended to April 30, 2001. On March 13, 2001, the
principal amount of the note was further increased to $2.25 million.
On April 12, 2001, the Company obtained a $50,000 short-term loan from an
affiliate of CYL Development Holdings, LLC, a principal stockholder of the
Company, which expired on April 30, 2001. On April 26, 2001, the line of
credit with Chase Manhattan Bank was further increased to $2.4 million and
the maturity date was extended to August 31, 2001. A portion of the
proceeds of the increase in the line of credit was used to repay the
$50,000 short-term loan (See note 10). An affiliate of CYL Development
Holdings, LLC provides credit support for the line of credit.
(6) SEVERANCE COSTS
In May 2000, the Company entered into a Retention and Severance Agreement
with Beth Polish, Dreamlife's then President and Chief Operating Officer,
whereby, in addition to adjustments in stock option compensation, Dreamlife
paid to Ms. Polish a bonus of $50,000 and agreed to pay to Ms. Polish
severance in the amount of $300,000 in semi-monthly installments through
May 2001. As of March 31 2001, unpaid severance costs of $50,000 are
included in accrued liabilities.
(7) EMPLOYMENT AGREEMENT
In July 2000, the Company entered into a compensation arrangement with
Peter A. Lund, Dreamlife's new Chief Executive Officer. Under the agreement
between Mr. Lund and Dreamlife, Mr. Lund will receive an annual base salary
of $300,000, subject to change at the discretion of the Board of Directors.
The agreement also provides for a discretionary bonus that may be granted
as determined by the Board of Director's and a guaranteed deferred bonus of
up to $3,000,000 payable in a lump sum on May 22, 2003. The deferred bonus
is subject to vesting requirements, based on continued employment and is
therefore being expensed over the two-year vesting period. Mr. Lund also
received grants of 2,400,000 stock options under the Company's 1999 Stock
Option Plan and 100,000 stock options from a principal shareholder. As of
March 31, 2001, $1,286,000 in unpaid bonus expense is included in accrued
expenses.
8
(8) ACQUISITION
In February 2001, Dreamlife entered into a non-binding letter of intent to
issue common stock to acquire Discovery Toys, a direct seller of
educational toys, books, games and software for children. The final
transaction is subject to customary conditions, including the successful
completion of due diligence, board approval, the negotiation and execution
of a definitive purchase agreement and approval of the stockholders of
Discovery Toys. If the acquisition is completed on the terms currently
contemplated it would be accounted for as a reverse acquisition.
(9) SHARE CONTRIBUTIONS
On February 1, 2001, two of the Company's principal stockholders, Anthony
Robbins and CYL Development Holdings, LLC, agreed to contribute common
shares back to Dreamlife. The share contributions were effected on April
12, 2001 (see note 10).
(10) SUBSEQUENT EVENTS
On April 12, 2001, the share contributions (see note 9) were effected. As
a result of these contributions, Dreamlife's total number of common shares
outstanding has been reduced from 40,368,351 to 17,959,955. Anthony Robbins
and his affiliates contributed 17,031,297 shares to the Company and CYL
Development Holdings, LLC contributed 5,377,099 shares to the Company.
On April 12, 2001, the Company obtained a $50,000 short-term loan from an
affiliate of CYL Development Holdings, LLC, a principal stockholder of the
Company, which expired on April 30, 2001.
On April 26, 2001, the Company's line of credit with The Chase Manhattan
Bank was further increased to $2.4 million and the maturity date was
extended to August 31, 2001. A portion of the proceeds from the increase in
the line of credit was used to repay the $50,000 short-term loan.
9
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PLAN OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The words or phrases "can be," "expects," "may
affect," "may depend," "believes," "estimate," "project," and similar words and
phrases are intended to identify such forward-looking statements. Such
forward-looking statements are subject to various known and unknown risks and
uncertainties and dreamlife, inc. ("Dreamlife") cautions you that any
forward-looking information provided by or on our behalf is not a guarantee of
future performance. Our actual results could differ materially from those
anticipated by such forward-looking statements due to a number of factors, some
of which are beyond our control, including those discussed under "Risk Factors"
in our Annual Report on Form 10-K for the year ended December 31, 2000 (filed
with the Securities and Exchange Commission on April 17, 2001), including
without limitation, (i) our ability to secure additional financing or complete a
strategic transaction, (ii) the volatile and competitive nature of the Internet
industry, (iii) changes in domestic and foreign economic and market conditions,
(iv) the effect of federal, state and foreign regulation on our business, (v)
our ability to attract and maintain relationships with content providers, (vi)
intellectual property and other claims, (vii) our ability to successfully
implement and execute our acquisition strategy, and (viii) our ability to
maintain our relationships with our customers in addition to the risks described
below, as well as those discussed in our other public filings. All such
forward-looking statements are current only as of the date on which such
statements were made. We do not undertake any obligation to publicly update any
forward-looking statement to reflect events or circumstances after the date on
which any such statement is made or to reflect the occurrence of unanticipated
events.
"Dreamlife," the Dreamlife logo and "Quick Coach" are service marks of
dreamlife, inc. Other marks are the property of their respective owners.
OVERVIEW
We officially launched our website, WWW.DREAMLIFE.COM, in February 2000.
The site was designed to 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. In January 2001, we changed our business
strategy. The change came in response to our inability to generate significant
revenues under our original business model, as well as the increasingly
difficult climate that business to consumer content-oriented sites face in the
capital markets. Under the new strategy, we intend to focus on utilizing our
website to provide education, inspiration and training tools for the sales
forces of direct selling companies which we seek to acquire.
10
In February 2001, we announced that we had entered into a non-binding
letter of intent to acquire Discovery Toys, Inc., a leading direct seller of
educational toys, books, games and software for children. If the transaction is
consummated on the terms contemplated, it would be accounted for as a reverse
acquisition. If the transaction is successfully completed, this will represent
our first step in the implementation of our new strategy. There can be, however,
no assurance that this transaction will be consummated.
If the transaction is not completed or we are unable to secure additional
financing before the end of the second quarter of 2001, we may be forced to
cease operations.
RESULTS OF OPERATIONS
REVENUES
We generated an immaterial amount of revenue during the first three months
of 2001. Revenues for the three months ended March 31, 2001 and 2000 were
$12,000 and $15,000, respectively, and were primarily a result of the sale of
online courses and related products to our users. Cost of revenues were $7,000
and $6,000 for the three months ended March 31, 2001 and 2000, respectively, and
are comprised of revenue share amounts due to our content providers and service
fees due to our digital commerce service provider.
INTEREST INCOME
We earned interest of approximately $1,000 on our cash balances for the
three months ended March 31, 2001 versus $120,000 for the same period in 2000.
The decrease is primarily a result of the significant decline in our cash
balances.
EXPENSES
Operating expenses for the three months ended March 31, 2001 totaled $1.8
million, of which $120,000 related to non-cash compensation expense for
compensatory stock options previously granted to our directors. The remaining
$1.7 million of expenses primarily consisted of internal salaries, business
insurance, legal fees and other administrative expenses. Operating expenses for
the period decreased by approximately $3.1 million compared to the first quarter
of 2000 in which our operating expenses were $4.9 million. Of this amount, $1.6
million of the decrease was driven by a decline in non-cash items, including
compensation expense for compensatory stock options and amortization of
intangible assets we acquired from our transactions with the Concept Development
and The Learning Annex. The remaining balance of the intangible assets was
written-off during the third quarter of 2000, as a result of our decision to
discontinue our relationship with The Learning Annex. The remaining $1.5 million
decrease in operating expenses was primarily driven by a decline in advertising
and marketing activities, a significant reduction in our staffing levels, as
well as other reductions in administrative expenses.
11
LIQUIDITY AND CAPITAL RESOURCES
We had $48,000 in cash and cash equivalents at March 31, 2001, compared to
$244,000 at December 31, 2000.
For the three months ended March 31, 2001, cash used in operating
activities was $917,000, of which internal salaries and benefits expenses
totaled approximately $500,000 and other operating expenses totaled
approximately $400,000.
For the three months ended March 31, 2001, cash used in investing
activities was $3,000 for the payment of additional security deposits.
Cash provided by financing activities was approximately $724,000,
consisting of proceeds of $750,000 from a line of credit with The Chase
Manhattan Bank partially offset by $26,000 for payments under capital lease
obligations.
We believe that we will need additional financing to meet cash
requirements for our operations, and the availability of such financing when
needed, on terms acceptable to us, or if at all, is uncertain. If we are unable
to raise additional financing or generate sufficient cash flow, we may be unable
to continue as a going concern.
Our financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should we be unable to
continue as a going concern. We believe our ability to continue as a going
concern is dependent upon our ability to generate sufficient cash flow to meet
our obligations on a timely basis, to obtain additional financing or refinancing
as may be required, and ultimately to achieve profitable operations.
We believe that we will continue to incur operating losses through at
least 2001. In October 2000, the Company obtained a $1.5 million line of credit
from The Chase Manhattan Bank. On January 15, 2001, our line of credit with The
Chase Manhattan Bank was increased to $2.0 million and the maturity date was
extended to April 30, 2001. On March 13, 2001, the line of credit was further
increased to $2.25 million. On April 26, 2001, the line of credit was further
increased to $2.4 million and the maturity date was extended to August 31, 2001.
There can be no assurance that we will have sufficient funds to repay the loan
when due.
On April 12, 2001, the Company obtained a $50,000 short-term loan from an
affiliate of CYL Development Holdings, LLC, a 12.8% stockholder, which expired
on April 30, 2001. On April 30, 2001, the Company repaid this loan, utilizing a
portion of the proceeds of the increase in the line of credit with The Chase
Manhattan Bank. We expect that we will require additional financing before the
end of the second quarter of 2001. 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. If we are unable to obtain additional financing, we may be
forced to cease operations.
In December 1999, we entered into a Content License Agreement with
Yahoo! Inc. whereby our content was placed within Yahoo!'s web site for one
year. As of December 31, 2000, under the terms of the Content License
Agreement and a media insertion order, we remain obligated to pay Yahoo! an
additional $229,167, which is included in accrued expenses. We are currently
negotiating with Yahoo! for a settlement of this obligation.
12
In July 2000, we entered into an agreement with America Online, Inc.
whereby we agreed to provide content aimed at small business users to AOL and
Netscape Netcenter for eighteen (18) months, in addition to receiving promotion
across several AOL properties. As of December 31, 2000, we are obligated to pay
America Online $500,000 through December 2001. We are currently negotiating with
America Online for a settlement of this obligation.
As of May 2000, we entered into a compensation arrangement with Peter A.
Lund, our new Chief Executive Officer. Under an agreement between Mr. Lund and
Dreamlife, Mr. Lund will receive an annual base salary of $300,000, subject to
change at the discretion of the Board of Directors. The agreement also provides
for a discretionary bonus that may be granted as determined by the Board of
Directors and a guaranteed deferred bonus of up to $3,000,000 payable in a lump
sum on May 22, 2003. The deferred bonus is subject to vesting requirements based
on continued employment and is therefore being expensed over the two-year
vesting period. Mr. Lund also received stock option grants under our 1999 Stock
Option Plan and from a principal shareholder.
SUBSEQUENT EVENTS
On February 1, 2001, two of the Company's principal shareholders, Anthony
J. Robbins and his affiliates and CYL Development Holdings, LLC agreed to
contribute back shares to the Company. The share contributions were effected on
April 12, 2001. As a result of these contributions, our total number of common
shares outstanding has been reduced from 40,368,351 to 17,959,955. Anthony
Robbins and his affiliates contributed 17,031,297 shares to the Company and CYL
Development Holdings, LLC contributed 5,377,099 shares to the Company. After
giving effect to the contributions, Mr. Robbins and his affiliates own
approximately 33.4% of our outstanding common stock and Development Holdings
owns approximately 12.8% of our outstanding common stock.
On April 26, 2001, the Company's line of credit with The Chase Manhattan
Bank was further increased to $2.4 million and the maturity date was extended to
August 31, 2001. The interest on the note is at the bank's prime rate. An
affiliate of CYL provides credit support for the line of credit. We expect that
we will require additional financing before the end of the second quarter of
2001. 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. If we are
unable to obtain additional financing, we may be forced to cease operations.
13
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)
10.1 Grid Time Promissory Note to The Chase Manhattan Bank for
$2,000,000 dated January 15, 2001(7).
10.2 Grid Time Promissory Note to The Chase Manhattan Bank for
$2,250,000 dated March 9, 2001(7)
10.3 Grid Time Promissory Note to The Chase Manhattan Bank for
$2,400,000 dated April 26, 2001
10.4 Surrender Agreement by and between CFG/AGSCB 75 Ninth Avenue, LLC
and dreamlife, inc. dated January 23, 2001(7)
10.5 Grid Time Promissory Note to Van Beuren Management, Inc. for
$50,000 dated April 12, 2001(7)
- ----------
(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.
(7) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 2000.
14
(b) Reports on Form 8-K
On January 17, 2001 Dreamlife filed a report on Form 8-K dated January
15, 2001 under Item 5 (Other Events) and Item 7 (Financial Statements, PRO FORMA
Information and Exhibits) to report the increase of the $1.5 million short-term
financing previously received to $2.0 million and the extension of the maturity
date to April 30, 2001.
On February 2, 2001 Dreamlife filed a report on Form 8-K dated February
1, 2001 under Item 5 (Other Events) and Item 7 (Financial Statements, PRO FORMA
Information and Exhibits) to report the proposed transaction among dreamlife,
inc., Discovery Toys, Inc. and certain other parties.
On March 14, 2001, Dreamlife filed a report on Form 8-K dated March 14,
2001 under Item 5 (Other Events) and Item 7 (Financial Statements, PRO FORMA
Information and Exhibits) to report the increase of the $2.0 million short-term
financing previously received to $2.25 million.
On May 3, 2001, Dreamlife filed a report on Form 8-K dated April 30,
2001 under Item 5 (Other Events) and Item 7 (Financial Statements, Pro Forma
Information and Exhibits) to report the increase of the $2.25 million short-term
financing previously received to $2.4 million and the extension of the maturity
date to August 31, 2001.
15
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 15, 2001 By: /s/ Peter A. Lund
----------------- -----------------------------------
Peter A. Lund
Chief Executive Officer
By: /s/ Philicia G. Levinson
-----------------------------------
Philicia G. Levinson
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
16
EXHIBIT INDEX
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)
10.1 Grid Time Promissory Note to The Chase Manhattan Bank for
$2,000,000 dated January 15, 2001(7).
10.2 Grid Time Promissory Note to The Chase Manhattan Bank for
$2,250,000 dated March 9, 2001(7)
10.3 Grid Time Promissory Note to The Chase Manhattan Bank for
$2,400,000 dated April 26, 2001
10.4 Surrender Agreement by and between CFG/AGSCB 75 Ninth Avenue, LLC
and dreamlife, inc. dated January 23, 2001(7)
10.5 Grid Time Promissory Note to Van Beuren Management, Inc. for
$50,000 dated April 12, 2001(7)
- ----------
(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.
(7) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 2000.