SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 0-25681
ILIFE.COM, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0423422
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11811 U.S. Highway One, Suite 101 33408
North Palm Beach, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (561) 627-7330
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
----- -----
The number of outstanding shares of the issuer's common stock as of July 31,
2000, is as follows: 13,979,904 shares of Common Stock, $.01 par value.
ilife.com, Inc. and Subsidiary
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2000
Index
PART 1. FINANCIAL INFORMATION PAGE NO.
Item 1. Interim Condensed Consolidated Financial Statements
(Unaudited):
Condensed Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999........................................ 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 2000 and 1999.............. 4
Condensed Consolidated Statements of Cash Flows for the three
and six months ended June 30, 2000 and 1999.............. 5
Notes to Condensed Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 20
Item 2. Changes in Securities and Use of Proceeds.................... 20
Item 3. Defaults Upon Senior Securities.............................. 20
Item 4. Submission of Matters to a Vote of Security Holders.......... 20
Item 5. Other Information............................................ 21
Item 6. Exhibits and Reports on Form 8-K............................. 21
Signatures............................................................. 22
2
Item 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ilife.com, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2000 1999
------------- -------------
Assets
Cash and cash equivalents $ 7,526,813 $ 22,491,794
Accounts receivable, net 1,494,272 1,449,765
Net assets of discontinued operations held for sale 3,488,319 3,880,595
Other current assets 437,620 383,292
------------ ------------
Total current assets 12,947,024 28,205,446
Furniture, fixtures and equipment, net 2,292,947 2,021,126
Intangible assets, net 737,537 951,290
Other assets 572,292 1,421,714
------------ ------------
Total assets $ 16,549,800 $ 32,599,576
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 465,071 $ 2,340,832
Accrued stock compensation expense 2,129,048 1,159,309
Other accrued expenses 2,720,355 5,886,919
Deferred revenue 559,816 656,058
Current portion of obligations under capital leases 234,910 221,151
Other current liabilities 144,192 127,860
------------ ------------
Total current liabilities 6,253,392 10,392,129
10% Convertible subordinated note payable 4,350,000 4,350,000
Other liabilities 509,435 412,002
------------ ------------
Total liabilities 11,112,827 15,154,131
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized and undesignated - -
Common stock, par value $.01 per share -- 100,000,000 shares
authorized; 13,979,904 and 13,540,988 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively 139,799 135,410
Additional paid in capital 60,591,066 59,543,111
Accumulated deficit (55,293,892) (42,233,076)
------------ ------------
Total stockholders' equity 5,436,973 17,445,445
------------ ------------
Total liabilities stockholders' equity $ 16,549,800 $ 32,599,576
============ ============
See accompanying notes to condensed consolidated financial statements.
ilife.com, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
Revenue: 2000 1999 2000 1999
----------- ----------- ------------ ------------
Online publishing $ 3,046,146 $ 1,925,849 $ 6,060,545 $ 3,295,685
Print publishing and licensing 749,501 886,104 1,491,390 1,742,536
----------- ----------- ------------ ------------
Total revenue 3,795,647 2,811,953 7,551,935 5,038,221
----------- ----------- ------------ ------------
Cost of revenue:
Online publishing 1,880,722 944,837 4,157,047 1,616,998
Print publishing and licensing 550,509 608,414 1,085,247 1,190,970
----------- ----------- ------------ ------------
Total cost of revenue 2,431,231 1,553,251 5,242,294 2,807,968
----------- ----------- ------------ ------------
Gross margin 1,364,416 1,258,702 2,309,641 2,230,253
----------- ----------- ------------ ------------
Operation expenses:
Sales 715,168 771,982 1,560,404 1,283,392
Marketing 1,175,548 1,986,675 3,000,488 2,700,755
Product research 745,661 658,816 1,514,853 1,227,978
General and administrative expenses 1,642,132 1,161,509 3,583,492 1,738,107
Restructuring charge 1,298,097 - 1,298,097 -
Depreciation and amortization 232,025 105,210 455,276 176,535
Goodwill amortization 73,593 - 147,186 -
Noncash stock based compensation 96,560 711,085 1,014,600 2,618,867
----------- ----------- ------------ ------------
5,978,784 5,395,277 12,574,396 9,745,634
----------- ----------- ------------ ------------
Loss from operations (4,614,368) (4,136,575) (10,264,755) (7,515,381)
----------- ----------- ------------ ------------
Other income (expense):
Interest income 170,389 232,704 417,994 249,450
Interest expense (124,126) (24,627) (247,695) (40,023)
Noncash financing charge - - - (2,656,000)
Other - 4,325 - 10,457
----------- ----------- ------------ ------------
Other income (expense), net 46,263 212,402 170,299 (2,436,116)
----------- ----------- ------------ ------------
Loss before income taxes and
discontinued operations (4,568,105) (3,924,173) (10,094,456) (9,951,497)
Income taxes from continuing operations - - - -
----------- ----------- ------------ ------------
Loss before discontinued operations (4,568,105) (3,924,173) (10,094,456) (9,951,497)
----------- ----------- ------------ ------------
Discontinued operations:
Loss from discontinued operations (1,379,845) - (2,966,360) -
----------- ----------- ------------ ------------
Net loss (5,947,950) (3,924,173) (13,060,816) (9,951,497)
Accretion of Convertible Series A and
Series B preferred stock to redemption value - (429,000) - (2,281,000)
----------- ----------- ------------ ------------
Net loss applicable to common stock $(5,947,950) $(4,353,173) $(13,060,816) $(12,232,497)
=========== =========== ============ ============
Basic and diluted net loss per share:
Loss before discontinued operations $ (0.33) $ (0.43) $ (0.73) $ (1.50)
Discontinued operations (0.10) - (0.21) -
----------- ----------- ------------ ------------
Net loss (0.43) (0.43) (0.94) (1.50)
Accretion of Convertible Series A and
Series B preferred stock to redemption value - (0.04) - (0.34)
----------- ----------- ------------ ------------
Net loss applicable to common stock $ (0.43) $ (0.47) $ (0.94) $ (1.84)
=========== =========== ============ ============
Weighted average shares outstanding used in
basic and diluted per-share calculation 13,960,937 9,195,503 13,828,246 6,661,558
=========== =========== ============ ============
See accompanying notes to condensed consolidated financial statements.
ilife.com, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2000 1999
------------ -----------
Cash flows from operating activities:
Net loss $(13,060,816) $(9,951,497)
------------ -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss from discontinued operations 2,966,360 -
Depreciation and amortization 602,462 176,535
Allowance for doubtful accounts 151,055 -
Noncash stock compensation 1,014,600 2,618,867
Noncash financing charge - 2,656,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (260,204) (502,352)
(Increase) decrease in deferred initial public offering costs - (1,014,369)
(Increase) decrease in other assets 906,872 (662,298)
Increase (decrease) in accounts payable (1,875,761) 1,206,030
Increase (decrease) in accrued expenses (3,182,696) 443,769
Increase (decrease) in other current liabilities 233,832 109,644
Increase (decrease) in deferred revenue (96,242) (58,457)
------------ -----------
Total adjustments 460,278 4,973,369
------------ -----------
Net cash used in continuing operations (12,600,538) (4,978,128)
Net cash used in discontinued operations (2,574,084) -
------------ -----------
Net cash used in operating activities (15,174,622) (4,978,128)
------------ -----------
Cash flows used in investing activities:
Purchases of equipment (681,891) (370,219)
Acquisitions, net of cash acquired - (66,700)
------------ -----------
Net cash used in investing activities (681,891) (436,919)
------------ -----------
Cash flows from financing activities:
Loans from stockholders - 1,000,000
Principal payments on capital lease obligations (106,308) (135,167)
Proceeds from issuance of common stock, net 997,840 42,315,000
------------ -----------
Net cash provided by financing activities 891,532 43,179,833
------------ -----------
Net increase (decrease) in cash and cash equivalents (14,964,981) 37,764,786
Cash and equivalents, beginning of period 22,491,794 1,633,100
------------ -----------
Cash and equivalents, end of period $ 7,526,813 $39,397,886
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 30,195 $ 40,023
============ ===========
Supplemental schedule of noncash investing and finance activities:
Equipment acquired under capital leases $ - $ 314,000
============ ===========
Accretion of Series A and Series B preferred stock to redemption value - $ 2,281,000
============ ===========
See accompanying notes to condensed consolidated financial statements.
5
ILIFE.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Company
Ilife.com, Inc. (the "Company") is an Internet consumer banking marketplace
which owns and operates a portfolio of Internet-based personal finance channels
including banking, investing, taxes and small business finance. The Company's
flagship site, bankrate.com, is an aggregator of information on over 100
financial products including mortgages, credit cards, new and used automobile
loans, money market accounts, certificates of deposit, checking and ATM fees,
home equity loans and online banking fees. Additionally, the Company provides
financial applications and information to a network of distribution partners and
also through national and state publications. The Company's former wholly-owned
subsidiary, Professional Direct Agency, Inc. ("Pivot"), is a virtual insurance
agency and fulfillment/call center specializing in direct insurance sales over
the Internet and through other direct media. The Company is organized under the
laws of the state of Florida.
The Company has incurred net losses in each of its last four fiscal years.
The Company had an accumulated deficit of approximately $56 million as of June
30, 2000. The Company anticipates that it will incur operating losses and
negative cash flows in the foreseeable future due to high levels of planned
expenditures to enhance the Company's services, develop new content, build brand
awareness and hire personnel to support growth.
The Company is working to manage its cash by actively controlling expenses
and pursuing additional sources of revenue. For instance, the Company
substantially reduced marketing expenditures beginning in January 2000 compared
to the second half of 1999, and has followed through with plans to sell or
curtail development of certain under-performing, non-core business units. The
Company sold Cpnet.com in May 2000 and sold Pivot in July 2000 (see Note 5).
These divestitures yielded cash to the Company of $4,350,000 and will result in
lower operating expenses. In June 2000, the Company reduced employment levels of
continuing operations by approximately 10% and began efforts to consolidate its
physical locations. Based on these actions and the Company's current plan, the
Company believes its existing liquidity and capital resources will be sufficient
to satisfy its cash requirements into 2001. There are no assurances that such
actions will ensure cash sufficiency into 2001 or that reducing marketing
expenses would not potentially curtail revenue growth.
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including a merger or sale of the
Company, or an acquisition; or raising new debt and/or equity capital. There
can be no assurance that the Company will be able to raise such funds or realize
its strategic alternatives on favorable terms or at all.
Further, due to the purported class-action lawsuit discussed in Note 3, which
the Company intends to vigorously defend, management could be required to spend
significant amounts of time and resources defending this matter which may
impact the operations of the Company.
Basis of Presentation
The unaudited interim condensed consolidated financial statements for the
three and six months ended June 30, 2000 and 1999, included herein have been
prepared in accordance with the instructions for Form 10-Q under the Securities
Exchange Act of 1934, as amended, and Article 10 of Regulation S-X under the
Securities Act of 1933, as amended. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements. In the opinion
of management, the accompanying unaudited interim condensed consolidated
financial statements reflect all adjustments, consisting only of normal,
recurring adjustments, necessary to present fairly the financial position of the
Company at June 30, 2000, and the results of its operations and its
6
cash flows for the three and six months ended June 30, 2000 and 1999,
respectively. The results for the three and six months ended June 30, 2000 are
unaudited and are not necessarily indicative of the expected results for the
full year or any future period.
The unaudited condensed consolidated financial statements included herein
should be read in conjunction with the financial statements and related
footnotes included in the Company's Annual Report on Form 10-K, as amended, for
the year ended December 31, 1999, filed with the Securities and Exchange
Commission.
Net Loss Per Share
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is also
computed using the weighted average number of common shares outstanding during
the period. Common stock equivalents, consisting of stock options and a
convertible subordinated promissory note payable, have been excluded from the
computation of diluted earnings per share as their effect is anti-dilutive.
Reclassification
Certain amounts reported in prior periods have been reclassified to conform
with the current presentation.
NOTE 2 - SEGMENT INFORMATION
The Company operates in three business divisions consisting of six
reportable segments. The three business divisions consist of online publishing,
print publishing and licensing and insurance sales. The online publishing
division is primarily engaged in the sale of advertising, sponsorships, and
hyperlinks in connection with our Internet sites bankrate.com, theWhiz.com,
IntelligentTaxes.com, GreenMagazine.com, Consejero.com and our former Internet
site CPNet.com which was sold on May 17, 2000. Bankrate.com, theWhiz.com and
Consejero.com constitute segments within this division. The print publishing and
licensing division and segment is primarily engaged in the sale of advertising
in the Consumer Mortgage Guide rate tables, newsletter subscriptions and
licensing of research information. We also charge a commission for the placement
of the Consumer Mortgage Guide in a print publication. The former insurance
division which was sold on July 14, 2000, constituted a segment and operated
through a virtual insurance agency and fulfillment/call center specializing in
direct insurance sales on the Internet and through other direct media.
GreenMagazine.com has met the threshold for reportable segments and is expected
to continue to do so. The Company evaluates the performance of its operating
segments based on contribution margin.
Although no one customer accounted for greater than 10% of total revenues for
the three and six months ended June 30, 2000 and 1999, the five largest
customers accounted for approximately 24% and 25%, and 17% and 15%,
respectively, of total revenues for those periods.
Summarized segment information as of June 30, 2000 and 1999, and for the three
and six months ended June 30, 2000 and 1999, is presented below.
7
Six Months Ended June 30, 2000
Print
Online Publishing Publishing
bankrate.com theWhiz.com Consejero.com GreenMagazine.com Other and Licensing
------------ ----------- ------------- ----------------- --------- -------------
Revenue $5,724,634 $ 95,698 $ 12,819 $ 101,212 $ 126,182 $1,491,390
Direct cost of operations 3,141,890 560,423 657,240 1,388,487 903,993 1,085,247
Contribution margin 2,582,744 (464,725) (644,421) (1,287,275) (777,811) 406,143
Sales - - - - - -
Product research - - - - - -
General and administrative
expenses - - - - - -
Restructuring charge - - - - - -
Depreciation and
amortization - - - - - -
Noncash stock based
compensation - - - - - -
Other, net - - - - - -
Segment profit (loss) 2,582,744 (464,725) (644,421) (1,287,275) (777,811) 406,143
Loss from discontinued
operations - - - - - -
Net loss 2,582,744 (464,725) (644,421) (1,287,275) (777,811) 406,143
Total assets - - - - - -
Net assets of discontinued
operations - - - - - -
Capital expenditures - - - - 681,891 -
Other Total
------------ -----------
Revenue $ - $ 7,551,935
Direct cost of operations - 7,737,280
Contribution margin - (185,345)
Sales 1,560,404 1,560,404
Product research 1,514,853 1,514,853
General and administrative
expenses 4,088,994 4,088,994
Restructuring charge 1,298,097 1,298,097
Depreciation and
amortization 602,462 602,462
Noncash stock based
compensation 1,014,600 1,014,600
Other, net 170,299 170,299
Segment profit (loss) (9,909,111) (10,094,456)
Loss from discontinued
operations (2,966,360) (2,966,360)
Net loss (12,875,471) (13,060,816)
Total assets 16,549,800 16,549,800
Net assets of discontinued
operations 3,488,319 3,488,319
Capital expenditures - 681,891
Six Months Ended June 30, 1999
Print
Online Publishing Publishing
bankrate.com theWhiz.com Consejero.com GreenMagazine.com Other and Licensing
------------ ----------- ------------- ----------------- --------- -------------
Revenue $3,092,962 $ 187,067 $ 3,500 $ - $ 12,156 $1,742,536
Direct cost of operations 2,358,382 1,197,259 556,875 - 115,752 1,190,970
Contribution margin 734,580 (1,010,192) (553,375) - (103,596) 551,566
Sales - - - - - -
Product research - - - - - -
General and administrative
expenses - - - - - -
Restructuring charge - - - - - -
Depreciation and
amortization - - - - - -
Noncash stock based
compensation - - - - - -
Noncash financing charge - - - - - -
Other, net - - - - - -
Segment profit (loss) 734,580 (1,010,192) (553,375) - (103,596) 551,566
Total assets - - - - - -
Capital expenditures - - - - 370,219 -
Other Total
------------ ------------
Revenue $ - $ 5,038,221
Direct cost of operations - 5,419,238
Contribution margin - (381,017)
Sales 1,283,392 1,283,392
Product research 1,227,978 1,227,978
General and administrative
expenses 1,827,592 1,827,592
Restructuring charge - -
Depreciation and
amortization 176,535 176,535
Noncash stock based
compensation 2,618,867 2,618,867
Noncash financing charge 2,656,000 2,656,000
Other, net 219,884 219,884
Segment profit (loss) (9,570,480) (9,951,497)
Total assets 42,601,444 42,601,444
Capital expenditures - 370,219
Three Months Ended June 30, 2000
Print
Online Publishing Publishing
bankrate.com theWhiz.com Consejero.com GreenMagazine.com Other and Licensing
------------ ----------- ------------- ----------------- --------- -------------
Revenue $2,980,355 $ 18,835 $ 805 $ 30,351 $ 15,800 $749,501
Direct cost of operations 1,393,413 221,184 295,252 703,235 236,987 550,509
Contribution margin 1,586,942 (202,349) (294,447) (672,884) (221,187) 198,992
Sales - - - - - -
Product research - - - - - -
General and administrative
expenses - - - - - -
Restructuring charge - - - - - -
Depreciation and
amortization - - - - - -
Noncash stock based
compensation - - - - - -
Other, net - - - - - -
Segment profit (loss) 1,586,942 (202,349) (294,447) (672,884) (221,187) 198,992
Loss from discontinued
operations - - - - - -
Net loss 1,586,942 (202,349) (294,447) (672,884) (221,187) 198,992
Total assets - - - - - -
Net assets of discontinued
operations - - - - - -
Capital expenditures - - - - 524,095 -
Other Total
----------- ------------
Revenue $ - $ 3,795,647
Direct cost of operations - 3,400,580
Contribution margin - 395,067
Sales 715,168 715,168
Product research 745,661 745,661
General and administrative
expenses 1,848,331 1,848,331
Restructuring charge 1,298,097 1,298,097
Depreciation and
amortization 305,618 305,618
Noncash stock based
compensation 96,560 96,560
Other, net 46,263 48,098
Segment profit (loss) (4,963,172) (4,568,105)
Loss from discontinued
operations (1,379,845) (1,379,845)
Net loss (6,343,017) (5,947,950)
Total assets 16,549,800 16,549,800
Net assets of discontinued
operations 3,488,319 3,488,319
Capital expenditures - 524,095
Three Months Ended June 30, 2000
Print
Online Publishing Publishing
bankrate.com theWhiz.com Consejero.com GreenMagazine.com Other and Licensing
------------ ----------- ------------- ----------------- -------- -------------
Revenue $1,806,290 $ 103,903 $ 3,500 $ - $ 12,156 $886,104
Direct cost of operations 1,640,017 778,169 384,920 - 70,117 608,414
Contribution margin 166,273 (674,266) (381,420) - (57,961) 277,690
Sales - - - - - -
Product research - - - - - -
General and administrative
expenses - - - - - -
Restructuring charge - - - - - -
Depreciation and
amortization - - - - - -
Noncash stock based
compensation - - - - - -
Other, net - - - - - -
Segment profit (loss) 166,273 (674,266) (381,420) - (57,961) 277,690
Total assets - - - - - -
Capital expenditures - - - - 277,738 -
Other Total
----------- ------------
Revenue $ - $ 2,811,953
Direct cost of operations - 3,481,637
Contribution margin - (669,684)
Sales 771,982 771,982
Product research 658,816 658,816
General and administrative
expenses 1,219,798 1,219,798
Restructuring charge - -
Depreciation and
amortization 105,210 105,210
Noncash stock based
compensation 711,085 711,085
Other, net 212,402 212,402
Segment profit (loss) (3,254,489) (3,924,173)
Total assets 42,601,444 42,601,444
Capital expenditures - 277,738
NOTE 3 - COMMITMENTS AND CONTINGENCIES
In September 1999, the Company entered into a lease agreement for a new office
facility to be constructed in North Palm Beach, Florida. The Company provided
to the developer a $300,000 letter of credit as a security deposit. The lease
provides an initial lease term of ten years commencing from the date of
occupancy and includes two five-year renewal options. The annual base rent
during the initial term ranges from $660,000 in the first two years to $760,000.
The lease contemplates that occupancy would commence on September 15, 2000. In
connection with the lease agreement, the Company also entered into an agreement
with the developer to purchase an adjoining tract of land for $609,000. The
Company paid a deposit of $60,000 to close the transaction no later than June
30, 2000. The Company currently is in a dispute with the developer with respect
to the lease agreement and the agreement to purchase the adjacent tract. In
light of the fact that the developer has not begun construction of the building,
the facility will not be available for occupancy on September 15, 2000. The
deposit paid by the Company for the land purchase is being held in escrow
pending resolution of that dispute. On August 3, 2000, the developer made
demand on the bank that issued the letter of credit and the bank paid the
developer the full $300,000 under the letter of credit. The Company denies that
it is in default under the lease agreement or that the developer was entitled to
the proceeds from the letter of credit.
On February 25, 2000 the Company announced that William P. Anderson resigned
as its President and Chief Executive Officer and as a director. Under the terms
of his Executive Employment Agreement entered into on March 10, 1999, Mr.
Anderson will receive cash compensation totaling approximately $150,000 and will
continue to vest in his stock options through November 15, 2000, which resulted
in a noncash charge of approximately $860,000. Both the cash charge ($150,000)
and the noncash charge ($860,000) were recorded in the quarter ended March 31,
2000. Further, in accordance with the terms of his agreement, if there is a
change in control of the Company prior to November 15, 2000, Mr. Anderson would
immediately vest in 100% of the remaining unvested shares and accordingly, an
additional noncash charge would be recorded at that time.
On March 28, 2000, a purported class-action lawsuit was filed against the
Company in the United States District Court for the Southern District of New
York. The suit alleges that the Company violated federal securities laws by,
among other things, misrepresenting and/or omitting material information
concerning the Company's financial results for the quarter ended March 31, 1999,
and other financial information, in the Company's registration statement filed
with the Securities and Exchange Commission in connection with the Company's
initial public offering. The action was filed purportedly on behalf of all
stockholders who purchased shares of the Company's common stock during the
period from May 13, 1999, through March 27, 2000. The Company has filed a motion
to dismiss this complaint and intends to vigorously defend against the lawsuit.
In the opinion of management, the ultimate disposition of this matter will not
have a material adverse effect on the Company's financial position, results of
operations or liquidity.
On April 5, 2000, Jeffrey M. Cunningham was appointed to the Company's Board
of Directors as non-executive chairman. In accordance with the terms of a Stock
Purchase Plan and Subscription Agreement (the "Purchase Agreement") entered into
on that date, Mr. Cunningham purchased 431,499 shares of the Company's common
stock for $997,840 in cash (or $2.313 per share). The purchase price of the
shares is equal to the closing price per share of the Company's common stock on
April 5, 2000, as reported by the Nasdaq National Market. The Purchase Agreement
provided that the Company must hold the purchase price in escrow until the date
and time the Company's stockholders vote on a proposal to ratify and approve the
issuance and sale of the shares under the Purchase Agreement. The stockholders
approved the proposal at the annual meeting of the Company's stockholders held
on June 8, 2000 and the purchase price was released from escrow to the Company
and the Company delivered the shares to Mr. Cunningham. In addition, on April 5,
2000, Mr. Cunningham was granted stock options under the 1999 Equity
Compensation Plan to purchase 141,905 shares of common stock at $4.50 per share
and 125,622 shares at $3.75 per share. One-half of the options vest and become
exercisable on March 31, 2001, and the balance vest and become exercisable in
equal monthly increments commencing on April 30, 2001 and concluding on March
31, 2002. The Company will recognize compensation expense of approximately
$217,000 over the vesting period.
On April 27, 2000, Elisabeth DeMarse was appointed to the Company's Board of
Directors as well as elected President and Chief Executive Officer of the
Company. Ms. DeMarse entered into an employment agreement with the Company on
that date. Pursuant to the terms of her employment agreement, Ms. DeMarse is
entitled to receive an annual base salary of $300,000 and a bonus of $100,000
payable in quarterly installments. The Company has agreed to provide other
benefits, including $500,000 in term life insurance and participation in the
Company's benefit plans available to other executive officers. Under the terms
of the employment agreement, Ms. DeMarse agrees to assign to the Company all of
her copyrights, trade secrets and patent rights that relate to the business of
the Company. Additionally, during the term of her employment and for a period
of one year thereafter, Ms. DeMarse agrees not to compete with the Company and
not to recruit any of the Company's employees, unless the Company terminates her
without cause or she resigns for good reason. Upon Ms. DeMarse's termination of
employment for certain reasons (i.e., without cause, disability, resignation for
good reason (as defined in the agreement), or a change of control), the Company
agrees to pay her a severance equal to 12 months' base salary, as well as
reimburse her for health, dental and life insurance coverage premiums for one
year after such termination. The agreement terminates on April 27, 2002, unless
otherwise extended by the parties. Ms. DeMarse was also granted options to
purchase 541,936 shares of the Company's common stock under the 1999 Equity
Compensation Plan at $2.688 per share, the fair market value on the date of
grant. The options vest over a 24 month period. The options vest as to 25% of
the shares six months from the date of grant; and as to the remaining 75%, in
equal monthly installments over the next 18 months thereafter, with 100% vesting
on the second anniversary of the date of grant.
10
NOTE 4 - RESTRUCTURING CHARGE
In June 2000, the Company recorded a restructuring charge of $1,298,000, or
$0.09 per share, as a result of implementing certain strategic reorganization
initiatives. Approximately $364,000 of this charge pertains to severance, legal
and other employee related costs incurred in connection with a reduction of
approximately 10% of the workforce in continuing operations and the elimination
of positions in under-performing, non-core business units. Approximately
$145,000 of this amount will be paid in the quarter ending September 30, 2000.
The remaining $934,000 of this charge relates to the write-off of certain costs,
primarily software, licenses and other installation costs, of an abandoned
systems installation.
NOTE 5 - DIVESTITURES
On May 17, 2000, the Company sold the assets of The College Press Network
(CPNet.com) to Colleges.com, Inc. for 190,000 shares of Colleges.com, Inc.
common stock of which 125,041 shares were delivered at the time of closing. The
transfer of the remaining 64,959 shares is contingent upon the Company assigning
certain contracts to Colleges.com, Inc. through February 2001. The Company
recorded such shares at the net book value of the CPNet.com assets which, at
the time of the sale, was approximately $71,000.
On July 14, 2000, the Company sold Pivot, its wholly-owned online insurance
subsidiary for $4,350,000 in cash. Pivot's results of operations have been
classified as discontinued operations in the accompanying condensed consolidated
statements of operations. The Company expects to record a gain on the sale of
approximately $800,000 in the quarter ending September 30, 2000.
Summary operating results of discontinued operations for the three and six
months ended June 30, 2000 are as follows:
Three Months Six Months
------------- ------------
Revenue $ 200,204 $ 375,220
Costs and expenses 1,580,049 3,341,580
Operating loss (1,379,845) (2,966,360)
As of June 30, 2000, the net assets of discontinued operations were
approximately $3,086,000 which consisted of current assets of approximately
$79,000 and current liabilities of approximately $516,000. The net book value of
goodwill and other intangible assets was $3,324,000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Ilife.com, Inc. has included in this filing certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, statements regarding our expectations, beliefs,
intentions or future strategies that are signified by words such as "expects",
"anticipates", "intends", "believes", "may", "could", "should", "would" or
similar language. All forward-looking statements included in this document are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements.
Actual results could differ materially from those projected in the forward-
looking statements. Any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties.
11
Important factors that could cause actual results to differ materially from
those in forward-looking statements are set forth in the Company's Annual Report
on Form 10-K, as amended, for the year ended December 31, 1999 and in this
Quarterly Report on Form 10-Q.
Overview
Ilife.com, Inc. (the "Company") is an Internet consumer banking marketplace
which owns and operates a portfolio of Internet-based personal finance channels
including banking, investing, taxes and small business finance. The Company's
flagship site, bankrate.com, is an aggregator of information on over 100
financial products including mortgages, credit cards, new and used automobile
loans, money market accounts, certificates of deposit, checking and ATM fees,
home equity loans and online banking fees. Additionally, the Company provides
financial applications and information to a network of distribution partners and
also through national and state publications. The Company's former wholly-owned
subsidiary, Professional Direct Agency, Inc. ("Pivot"), is a virtual insurance
agency and fulfillment/call center specializing in direct insurance sales over
the Internet and through other direct media.
Content from ilife.com is published on co-branded Internet sites through more
than 160 relationships, including Snap.com/NBC Internet, Inc. (NASDAQ: NBCI),
Yahoo! (NASDAQ: YHOO), CNN, America Online (NYSE: AOL) and Smart Money. The
Company's original research is also distributed through more than 120 national,
regional and local print publications. Ilife.com web sites have approximately
1.3 million unique visitors per month, according to Media Metrix.
The Company's online operations are the principal focus of its activities
today. Prior to 1995, the Company's principal businesses were the publication of
print newsletters and syndication of bank and credit product research to
newspapers and magazines. In 1995, the Company introduced the Consumer Mortgage
Guide, which is an advertisement for newspapers consisting of product and rate
information in tabular form from local mortgage companies that pay a weekly fee
for inclusion in the table.
In 1996, the Company started its online operations by displaying our
editorially unbiased research through its web site, bankrate.com. By offering
its information online, the Company created new revenue opportunities through
the sale of graphical and hyperlink advertising associated with its rate and
yield tables. In 1997, the Company implemented a strategy to concentrate on
building our online operations. Since that time, the Company has significantly
expanded the scope and depth of bankrate.com and made investments in seven new
online Internet Web sites: theWhiz.com, Consejero.com, CPNet.com,
GreenMagazine.com, IntelligentTaxes.com, Pivot.com and the Company's personal
finance portal, ilife.com. Additionally, the Company formed a broadcast group to
syndicate ilife.com branded television segments that reach an estimated 2.5
million viewers per week, according to the November 1999 Nielson ratings.
The Company believes that the recognition of its research as a leading source
of independent, objective information on banking and credit products is
essential to its success. As a result, the Company has sought to maximize
distribution of its research to gain brand recognition as a research authority.
The Company seeking to build greater brand awareness of all of its Web sites and
to reach a greater number of online users.
The Company is working to manage its cash by actively controlling expenses and
pursuing additional sources of revenue. For instance, the Company substantially
reduced marketing expenditures beginning in January 2000 compared to the second
half of 1999, and has followed through with plans to sell or curtail development
of certain under-performing, non-core business units. In May 2000, the Company
sold Cpnet.com and in July 2000, the Company sold Pivot (see Note 5 to the
condensed consolidated financial statements included herein). These divestitures
yielded cash to the Company of $4,350,000 and will result in lower operating
expenses. In June 2000 the Company reduced employment levels of continuing
operations by approximately 10% and began efforts to consolidate its physical
locations. Based on these actions and the Company's current plan, the Company
believes its existing liquidity and capital resources will be sufficient to
satisfy its cash requirements into 2001. There are no assurances that such
actions will ensure cash sufficiency into 2001 or that reducing marketing
expenses would not potentially curtail revenue growth.
12
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including a merger or sale of the
Company, or an acquisition; or raising new debt and/or equity capital. There
can be no assurance that we will be able to raise such funds or realize our
strategic alternatives on favorable terms or at all.
Further, due to the purported class-action lawsuit discussed below in Recent
Developments and in Note 3 to the condensed consolidated financial statements
included herein, which the Company intends to vigorously defend, management
could be required to spend significant amounts of time and resources defending
this matter which may impact the operations of the Company.
Recent Developments
On August 20, 1999, the Company acquired Pivot pursuant to a Stock Purchase
Agreement, dated August 20, 1999, by and between the Company, the shareholders
of Pivot and The Midland Life Insurance Company ("Midland"), a note and warrant
holder of Pivot (the "Agreement"), for approximately $4,744,000 including
acquisition costs. Pursuant to the Agreement, the Company acquired a 100%
interest in Pivot and as a result of the acquisition, Pivot became a wholly-
owned subsidiary. The transaction was accounted for using the purchase method of
accounting. The net assets acquired were estimated to be at fair market value.
The excess of the purchase price over the fair value of the net assets acquired
(approximately $4,609,000) was recorded as goodwill and is being amortized over
three years, the expected benefit period. The total consideration paid in
connection with the acquisition consisted of $290,000 in cash paid to the Pivot
shareholders and a $4,350,000 five-year convertible subordinated note to
Midland. The note bears interest at 10% and is due in one payment on August 20,
2004. Interest is due beginning on August 20, 2002 and thereafter every six
months until conversion or payment in full. The note is convertible at any time
by Midland into 625,000 shares of our common stock. The Company has the right to
require conversion beginning any time after the earlier of (1) August 20, 2000
or (2) the date that the Company files a registration statement under the
Securities Act of 1933, as amended (the "Act"), registering the conversion
shares for sale under the Act; provided that, within the 55-day period
immediately prior to the date the Company notifies Midland of the required
conversion, the closing price of our common stock has been at least $10.00 per
share for at least twenty consecutive trading days. On July 14, 2000, the
Company sold Pivot for $4,350,000 in cash. Pivot's results of operations have
been classified as discontinued operations in the accompanying condensed
consolidated statements of operations and include estimated losses from
operations and selling expenses of approximately $402,000 through the closing
date. The Company expects to record a gain on the sale of approximately
$1,200,000 in the quarter ending September 30, 2000.
On August 27, 1999, the Company acquired certain assets and assumed certain
liabilities of Green Magazine, Inc. ("Green") pursuant to an Asset Purchase
Agreement, dated August 27, 1999, by and among the Company, Green, Kenneth A.
Kurson, John F. Packel and James Michaels (the "Agreement"), for approximately
$831,000 including acquisition costs. Pursuant to the Agreement, the Company
acquired the rights to all agreements, contracts, commitments, licenses,
copyrights, trademarks and the subscriber/customer list of Green. Kenneth A.
Kurson and John F. Packel were also employed by the Company. The total
consideration paid was approximately $784,000 consisting of $200,000 in cash and
100,000 unregistered shares of the Company's common stock valued at
approximately $584,000. The transaction was accounted for using the purchase
method of accounting. The net assets acquired were estimated to be at fair
market value. The excess of the purchase price over the fair value of the net
assets acquired (approximately $883,000) was recorded as goodwill and is being
amortized over three years, the expected benefit period.
On February 25, 2000, the Company announced that William P. Anderson resigned
as its President and Chief Executive Officer and as a director. Under the terms
of his Executive Employment Agreement entered into on March 10, 1999, Mr.
Anderson will receive cash compensation totaling approximately $150,000 and will
continue to vest in his stock options through November 15, 2000, which will
result in a noncash charge of approximately $860,000. Both the cash charge
($150,000) and the noncash charge ($860,000) were recorded in the quarter ended
March 31, 2000. Further, in accordance with the terms of his agreement, if there
is a change in control of the Company prior to November 15, 2000, Mr. Anderson
would immediately vest in 100% of the remaining unvested shares and
accordingly, a additional noncash charge would be recorded at that time.
13
On April 5, 2000, Jeffrey M. Cunningham was appointed to the Company's Board
of Directors as non-executive chairman. In accordance with the terms of a Stock
Purchase Plan and Subscription Agreement (the "Purchase Agreement") entered into
on that date, Mr. Cunningham purchased 431,499 shares of the Company's common
stock for $997,840 in cash (or $2.313 per share). The purchase price of the
shares is equal to the closing price per share of the Company's common stock on
April 5, 2000, as reported by the Nasdaq National Market. The Purchase Agreement
provided that the Company must hold the purchase price in escrow until the date
and time the Company's stockholders vote on a proposal to ratify and approve the
issuance and sale of the shares under the Purchase Agreement. The stockholders
approved the proposal at the annual meeting of the Company's stockholders held
on June 8, 2000 and the purchase price was released from escrow to the Company
and the Company delivered the shares to Mr. Cunningham. In addition, on April 5,
2000, Mr. Cunningham was granted stock options under the 1999 Equity
Compensation Plan to purchase 141,905 shares of common stock at $4.50 per share
and 125,622 shares at $3.75 per share. One-half of the options vest and become
exercisable on March 31, 2001, and the balance vest and become exercisable in
equal monthly increments commencing on April 30, 2001 and concluding on March
31, 2002. The Company will recognize compensation expense of approximately
$217,000 over the vesting period.
On April 27, 2000, Elisabeth DeMarse was appointed to the Company's Board of
Directors as well as elected President and Chief Executive Officer of the
Company. Ms. DeMarse entered into an employment agreement with the Company on
that date. Pursuant to the terms of her employment agreement, Ms. DeMarse is
entitled to receive an annual base salary of $300,000 and a bonus of $100,000
payable in quarterly installments. The Company has agreed to provide other
benefits, including $500,000 in term life insurance and participation in the
Company's benefit plans available to other executive officers. Under the terms
of the employment agreement, Ms. DeMarse agrees to assign to the Company all of
her copyrights, trade secrets and patent rights that relate to the business of
the Company. Additionally, during the term of her employment and for a period
of one year thereafter, Ms. DeMarse agrees not to compete with the Company and
not to recruit any of the Company's employees, unless the Company terminates her
without cause or she resigns for good reason. Upon Ms. DeMarse's termination of
employment for certain reasons (i.e., without cause, disability, resignation for
good reason (as defined in the agreement), or a change of control), the Company
agrees to pay her a severance equal to 12 months' base salary, as well as
reimburse her for health, dental and life insurance coverage premiums for one
year after such termination. The agreement terminates on April 27, 2002, unless
otherwise extended by the parties. Ms. DeMarse was also granted options to
purchase 541,936 shares of the Company's common stock under the 1999 Equity
Compensation Plan at $2.688 per share, the fair market value on the date of
grant. The options vest over a 24 month period. The options vest as to 25% of
the shares six months from the date of grant; and as to the remaining 75%, in
equal monthly installments over the next 18 months thereafter, with 100% vesting
on the second anniversary of the date of grant.
On May 17, 2000, the Company sold the assets of The College Press Network
(CPNet.com) to Colleges.com, Inc. for 190,000 shares of Colleges.com, Inc.
common stock of which 125,041 shares were delivered at the time of closing. The
transfer of the remaining 64,959 shares is contingent upon the Company assigning
certain contracts to Colleges.com, Inc. through February 2001. The Company
recorded such shares at the net book value of the CPNet.com assets which, at the
time of the sale, was approximately $71,000.
In June 2000, the Company recorded a restructuring charge of $1,298,000, or
$0.09 per share, as a result of implementing certain strategic reorganization
initiatives. Approximately $364,000 of this charge pertains to severance, legal
and other employee related costs incurred in connection with a reduction of
approximately 10% of the workforce in continuing operations and the elimination
of positions in under-performing, non-core business units. Approximately
$145,000 of this amount will be paid in the quarter ending September 30, 2000.
The remaining $934,000 of this charge relates to the write-off of certain costs,
primarily software, licenses and other installation costs, of an abandoned
systems installation.
14
On July 14, 2000 the Company sold Pivot, its wholly-owned online insurance
subsidiary for $4,350,000 in cash. Pivot's results of operations have been
classified as discontinued operations in the accompanying condensed consolidated
statements of operations. The Company expects to record a gain on the sale of
approximately $800,000 in the quarter ending September 30, 2000.
Legal Proceedings
On March 28, 2000, a purported class-action lawsuit was filed against the
Company and certain of its directors and officers, its auditor and underwriters
in the United States District Court for the Southern District of New York (Civil
Action No. 00CIV.2337). The action, which seeks an unspecified amount of money
damages, was filed purportedly on behalf of all stockholders who purchased
shares of our stock during the period from May 13, 1999 through March 27, 2000.
The plaintiff alleges that the Company violated federal securities laws by,
among other things, misrepresenting and/or omitting material information
concerning the Company's financial results for the quarter ended March 31, 1999,
and other financial information, in its registration statement and prospectus
filed with the Securities and Exchange Commission in connection with the
Company's initial public offering. More particularly, the plaintiff alleges,
among other things, that the Company failed to disclose in its registration
statement and prospectus the fact that the Company incurred a net loss of
approximately $6 million in the quarter ended March 31, 1999. The plaintiff
alleges that the information was not made public until May 24, 1999, when the
Company issued a press release with respect to the results for that quarter. The
Company contends that the loss for the quarter ended March 31, 1999 was properly
disclosed. The Company has filed a motion to dismiss this complaint and intends
to vigorously defend against the lawsuit.
Overview of Revenue and Expenses
The following are descriptions of the revenue and expense components of our
online and print publishing operations:
Online publishing revenue represents the sale of advertising, sponsorships and
hyperlinks in connection with our web sites. Such advertising is sold to
advertisers according to the cost per thousand impressions, or CPM, the
advertiser receives. The amount of advertising we sell is a function of (1) the
number of advertisements we have per page, (2) the number of visitors viewing
our pages, and (3) the capacity of our sales force. Revenue from advertising
sales is invoiced monthly based on the expected number of advertisement
impressions, or number of times that an advertisement is viewed. Revenue is
recognized monthly based on the percentage of impressions received to the total
number of impressions purchased. Revenue for impressions that have been invoiced
but not delivered is deferred. Hyperlinks to various third-party web sites are
sold for a fixed monthly fee, which is recognized as revenue in the month
earned. For our revenue sharing distribution arrangements with web site
operators, revenue is recorded on a gross basis, with payments for our
distribution arrangements being included in online publishing costs.
Print publishing and licensing revenue represents advertising revenue from the
sale of advertising in Consumer Mortgage Guide rate tables, newsletter
subscriptions, and licensing of research information. We charge a commission for
placement of Consumer Mortgage Guide in a print publication. Advertising revenue
and commission income is recognized when Consumer Mortgage Guide runs in the
publication. Revenue from our newsletters is recognized ratably over the period
of the subscription, which is generally up to one year. Revenue from the sale of
research information is recognized ratably over the contract period.
Online publishing costs represent expenses directly associated with the
creation of online publishing revenue. These costs include contractual revenue
sharing obligations resulting from our distribution arrangements (distribution
payments), editorial costs, and allocated overhead. Distribution payments are
made to Web site operators for visitors directed to our Web sites. These costs
increase with gains in traffic to our sites. Editorial costs relate to writers
and editors who create original content for our online publications and
associates who build web pages. These costs have increased as we have added
online publications and co-branded versions of our sites under distribution
arrangements. These sites must be maintained on a daily basis.
15
Print publishing and licensing costs represent expenses directly associated
with print publishing revenue. These costs include contractual revenue sharing
obligations with newspapers related to Consumer Mortgage Guide, personnel costs,
printing and allocated overhead.
Sales costs represent direct selling expenses, principally for online
advertising, and include sales commissions, personnel costs and allocated
overhead.
Marketing costs represent expenses associated with expanding brand awareness
of our products and services to consumers and include advertising, including
banner advertising, marketing and promotion costs.
Product research costs represent expenses related to gathering data on banking
and credit products and include compensation and benefits, facilities costs,
telephone costs and computer systems expenses.
General and administrative costs represent compensation and benefits for
administration, advertising management, accounting and finance, facilities
expenses, professional fees and non-allocated overhead.
Depreciation and amortization represents the cost of capital asset
acquisitions spread over their expected useful lives. These expenses are spread
over three to seven years and are calculated on a straight-line basis.
Goodwill amortization represents the excess of the purchase price over the
fair market value of net assets acquired spread over the expected benefit
periods which is between three to five years.
Noncash stock based compensation represents expenses associated with stock
grants to our officers and employees as additional compensation for their
services.
Other income (expense) is comprised of interest income on invested cash and
interest expense. Also included is a noncash finance charge recorded upon the
conversion of a note payable to a stockholder into shares of convertible
preferred stock which, upon completion of our initial public offering in March
1999, was subsequently converted into common stock.
Results of Operations
As discussed in Recent Developments above, the Company sold its wholly-owned
online insurance subsidiary, Pivot, on July 14, 2000 for $4,350,000 in cash.
Pivot's results of operations for the three and six months ended June 30, 2000
have been classified as discontinued operations in the condensed consolidated
financial statements included herein and are excluded from the specific
financial statement line items in the analysis below.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenue
Total revenue for the three months ended June 30, 2000 of $3,795,647 increased
$983,694, or 35%, over the comparable period in 1999. Online publishing revenue
increased $1,120,297, or 58%, to $3,046,146 and represented 80% of total revenue
in 2000 compared to 68% in 1999. These increases were due to higher levels of
advertising sales and higher advertising rates (approximately 52% higher average
rates in 2000 compared to 1999) facilitated by an increase in advertising
inventory (approximately 43% higher available inventory in 2000 compared to
1999).
Print publishing and licensing revenue decreased $136,603, or 15%, to
$749,501 during the three months ended June 30, 2000 compared to the same period
in 1999 due primarily to a $155,047, or 24%, decrease in Consumer Mortgage
Guide revenues. This decrease was a result of increasing interest rates which
slowed the refinance markets and caused advertisers not to publish their higher
rates.
Online publishing costs increased 99% to $1,880,722 for the three months ended
June 30, 2000 from $944,837 in the comparable period in 1999. This $935,885
increase was due primarily to an increase in human resource costs in
bankrate.com, theWhiz.com and Consejero.com supporting an increase in headcount.
Additional costs were
16
incurred in the quarter ended June 30, 2000 for GreenMagazine.com, ilife.com and
IntelligentTaxes.com which were launched in the fourth quarter of 1999.
Marketing expenses of $1,175,548 for the three months ended June 30, 2000 were
$811,127, or 41%, lower than the comparable quarter in 1999, and were $929,652,
or 44%, lower than the prior quarter ended March 31, 2000. These reductions are
in line with the Company's strategic initiatives to control and curtail certain
expenditures.
General and administrative expenses of $1,642,132 for the three months ended
June 30, 2000 were $480,623, or 41%, higher than the comparable period in 1999
due primarily to higher human resource costs, facilities and professional
services expenses supporting the growth in the business.
In June 2000, the Company recorded a restructuring charge of $1,298,000, or
$0.09 per share, as a result of implementing certain strategic reorganization
initiatives. Approximately $364,000 of this charge pertains to severance, legal
and other employee related costs incurred in connection with a reduction of
approximately 10% of the workforce in continuing operations and the elimination
of positions in under-performing, non-core business units. Approximately
$145,000 of this amount will be paid in the quarter ending September 30, 2000.
The remaining $934,000 of this charge relates to the write-off of certain costs,
primarily software, licenses and other installation costs, of an abandoned
systems installation.
Depreciation and amortization of $232,025 for the three months ended June 30,
2000 was $126,815, or 121%, higher compared to the same period in 1999 due to
purchases of software and computer equipment. Goodwill amortization of $73,593
is a result of the Green Magazine.com acquisition in the third quarter of 1999.
Noncash stock based compensation expense of $96,560 was recorded in the three
month period ended June 30, 2000, compared to $711,085 in the same period in
1999. During 1999, approximately $331,000 was recorded in connection with the
reclassification of redeemable common stock to common stock, and approximately
$335,000 was recorded for options granted under the 1997 and 1999 Equity
Compensation Plans during the quarter ended March 31, 1999, of which $234,000
related to options granted to the Company's former President and Chief Executive
Officer.
Interest income of $170,389 for the three months ended June 30, 2000 was down
from $232,704 in the comparable 1999 period due to declining cash balances.
Interest expense was up $99,499 over the comparable period in 1999 due to the
increase in debt associated with equipment under capital leases and the 10%
convertible subordinated note payable issued in connection with the Pivot
acquisition in August 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenue
Total revenue for the six months ended June 30, 2000 of $7,551,935 increased
$2,513,714, or 50%, over the comparable period in 1999. Online publishing
revenue increased $2,764,860, or 84%, to $6,060,545, and represented 80% of
total revenue in 2000 compared to 65% in same period in 1999. These increases
were due to higher levels of advertising sales and higher advertising rates
(approximately 41% higher average rates in 2000 compared to 1999) facilitated by
an increase in advertising inventory (approximately 52% higher available
inventory in 2000 compared to 1999).
Print publishing and licensing revenue decreased $251,146, or 14%, to
$1,491,390 during the six months ended June 30, 2000 due primarily to a
$267,570, or 21%, decrease in Consumer Mortgage Guide revenues. This decrease
was a result of increasing interest rates which slowed the refinance markets and
caused other advertisers not to publish their higher rates.
Online publishing costs increased 157% to $4,157,047 for the six months ended
June 30, 2000, from $1,616,998 in the comparable period in 1999. This $2,540,049
increase was due primarily to an increase in human resource costs in
bankrate.com, theWhiz.com, Consejero.com and CPNet.com supporting an increase in
headcount.
17
Additional costs were incurred in the six months ended June 30, 2000 for
GreenMagazine.com, ilife.com and IntelligentTaxes.com which were launched in the
fourth quarter of 1999.
Marketing expenses of $3,000,488 for the six months ended June 30, 2000 were
$299,733, or 11%, higher than the comparable quarter in 1999 due primarily to
the $2,105,200 spent during the quarter ended March 31, 2000 for online
advertising for bankrate.com, GreenMagazine.com, ilife.com and
IntelligentTaxes.com with the goal of sustaining brand awareness and driving
traffic to the newly launched web sites.
Product research costs of $1,514,853 for the six months ended June 30, 2000
were $286,875, or 23%, higher than the comparable period in 1999 due to higher
personnel and consulting expenses supporting the growth in revenue and web sites
launched during the fourth quarter of 1999.
General and administrative expenses of $3,583,492 for the six months ended
June 30, 2000 were $1,845,385, or 106%, higher than the comparable period in
1999 due primarily to higher human resource costs, facilities and professional
services expenses supporting the growth in the business.
In June 2000, the Company recorded a restructuring charge of $1,298,000, or
$0.09 per share, as a result of implementing certain strategic reorganization
initiatives. Approximately $364,000 of this charge pertains to severance, legal
and other employee related costs incurred in connection with a reduction of
approximately 10% of the workforce in continuing operations and the elimination
of positions in under-performing, non-core business units. Approximately
$145,000 of this amount will be paid in the quarter ending September 30, 2000.
The remaining $934,000 of this charge relates to the write-off of certain costs,
primarily software, licenses and other installation costs, of an abandoned
systems installation.
Depreciation and amortization of $455,276 for the six months ended June 30,
2000 was $278,741, or 158%, higher compared to 1999 due to purchases of software
and computer equipment. Goodwill amortization of $147,186 is a result of the
Green Magazine.com acquisition in the third quarter of 1999.
Noncash stock based compensation expense of $1,014,600 was recorded in the six
month period ended June 30, 2000 compared to $2,618,867 in the same period in
1999. During the six months ended June 30, 2000, the Company recorded $860,000
of noncash charges upon the resignation of the Company's former president and
chief executive officer related to the continued vesting of stock options under
the terms of an employment agreement. The remaining expense relates to stock
options granted under the 1997 and 1999 Equity Compensation Plans at less than
fair market value on the date of grant. In 1999, the Company recorded
approximately $2,113,000 of noncash charges when a note receivable for a
restricted stock grant to the former president and chief executive officer was
forgiven, the unvested shares under the grant (264,932) were reacquired by the
Company, the associated put right was cancelled and 189,238 shares of redeemable
common stock were reclassified to common stock and vested immediately.
Approximately $126,000 was recorded for options granted under the 1997 Equity
Compensation Plan in March 1999.
The Company recorded a noncash financing charge of $2,656,000 in March 1999
compared to none in 2000. In March 1999, one of the Company's Series B
convertible preferred stockholders loaned the Company $1,000,000, at 8% interest
due April 9, 1999. On April 9, 1999, the principal amount of the loan plus
accrued interest was converted, pursuant to its terms, into 6,784 shares of
Series B convertible preferred stock and, accordingly, the finance charge was
recorded.
Interest income of $417,994 for the six months ended June 30, 2000 was
$168,544, or 68%, higher than the comparable amount in 1999 due to higher cash
balances during the period since the proceeds from the Company's initial public
offering of common stock was received in May 1999. Interest expense was up
$207,672 over the comparable period in 1999 due to the increase in debt
associated with equipment under capital leases and the 10% convertible
subordinated note payable issued in connection with the Pivot acquisition in
August 1999.
Liquidity and Capital Resources
Ilife.com, Inc. has funded its operations using capital raised from
shareholders, from the proceeds of its initial public offering of common stock
in May 1999, and from its operating revenue. As of June 30, 2000, the Company
18
had working capital of $6,693,632. Cash used in operating activities for the six
months ended June 30, 2000 was $15,174,622 (includes cash used in discontinued
operations of $2,574,084) and was primarily the result of funding operating
losses due to the continued expansion of its online publishing efforts and
payments made in connection with the 1999 marketing campaigns.
Cash used in investing activities was primarily for the purchase of computer
and office equipment and furniture.
In connection with the acquisition of Pivot in August 1999, the Company issued
a $4,350,000 five-year convertible subordinated note payable to Pivot's former
owner. The note bears interest at 10% and the principal is due in one payment on
August 20, 2004. Interest is due beginning August 20, 2002 and thereafter every
six months until conversion or payment in full. The note is convertible at any
time by the holder into 625,000 shares of our common stock.
We have incurred net losses in each of our last four fiscal years. We had an
accumulated deficit of approximately $56 million as of June 30, 2000. We
anticipate that we will incur operating losses and negative cash flows in the
foreseeable future due to high levels of planned expenditures to enhance our
services, develop new content, build brand awareness and hire personnel to
support our growth.
The Company is working to manage its cash by actively controlling expenses
and pursuing additional sources of revenue. For instance, the Company
substantially reduced marketing expenditures beginning in January 2000 compared
to the second half of 1999, and has followed through with plans to sell or
curtail development of certain under-performing, non-core business units. In May
2000, the Company sold Cpnet.com and in July 2000 sold Pivot. These divestitures
yielded cash to the Company of $4,350,000 and will result in lower operating
expenses. In June 2000, the Company reduced employment levels of continuing
operations by approximately 10% and began efforts to consolidate its physical
locations. Based on these actions and the Company's current plan, the Company
believes its existing liquidity and capital resources will be sufficient to
satisfy its cash requirements into 2001. There are no assurances that such
actions will ensure cash sufficiency into 2001 or that reducing marketing
expenses would not potentially curtail revenue growth.
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including a merger or sale of the
Company, or an acquisition; or raising new debt and/or equity capital. There
can be no assurance that we will be able to raise such funds or realize our
strategic alternatives on favorable terms or at all.
Further, due to the purported class-action lawsuit discussed in Note 3 to the
condensed consolidated financial statements, which the Company intends to
vigorously defend, management could be required to spend significant amounts of
time and resources defending this matter which may impact the operations of the
Company.
Year 2000 Compliance
We have experienced no material Year 2000 problems. We continue to monitor our
systems for Year 2000 compliance.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The primary objective of our investment strategy is to preserve principal
while maximizing the income we receive from investments without significantly
increasing risk. To minimize this risk, to date we have maintained our portfolio
of cash equivalents in short-term and overnight investments which are not
subject to market risk as the interest paid on such investments fluctuates with
the prevailing interest rates. As of June 30, 2000 all of our cash equivalents
mature in less than one year.
19
Exchange Rate Sensitivity
Our exposure to foreign currency exchange rate fluctuations is minimal to none
as we do not have any revenues denominated in foreign currencies. Additionally,
we have not engaged in any derivative or hedging transactions to date.
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On March 28, 2000, a purported class-action lawsuit was filed against the
Company and certain of its directors and officers, its auditor and underwriters
in the United States District Court for the Southern District of New York (Civil
Action No. 00CIV.2337). The action, which seeks an unspecified amount of money
damages, was filed purportedly on behalf of all stockholders who purchased
shares of our common stock during the period from May 13, 1999 through March 27,
2000. The plaintiff alleges that the Company violated federal securities laws
by, among other things, misrepresenting and/or omitting material information
concerning the Company's financial results for the quarter ended March 31, 1999,
and other financial information, included in its registration statement and
prospectus filed with the Securities and Exchange Commission in connection with
the Company's initial public offering. More particularly, the plaintiff alleges,
among other things, that the Company failed to disclose in its registration
statement and prospectus the fact that the Company incurred a net loss of
approximately $6 million in the quarter ended March 31, 1999. The plaintiff
alleges that the information was not made public until May 24, 1999, when the
Company issued a press release with respect to the results for that quarter. The
Company contends that the loss for the quarter ended March 31, 1999 was properly
disclosed. The Company has filed a motion to dismiss this complaint and intends
to vigorously defend against the lawsuit.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of the Company's registration statement, filed on Form S-1
under the Securities Act of 1933, as amended (File No. 333-74291), relating to
the Company's initial public offering of its common stock, was May 13, 1999. A
total of 3,500,000 shares of the Company's common stock were sold to an
underwriting syndicate at $13.00 per share. The managing underwriters were ING
Baring Furman Selz LLC and Warburg Dillon Read LLC. The initial public offering
resulted in gross proceeds of $45,500,000, $3,185,000 of which was applied to
the underwriting discount and approximately $1,014,000 of which was applied to
related expenses. As a result, the net proceeds of the offering to the Company
were approximately $41,301,000. From the date of receipt through June 30, 2000,
approximately $16,300,000 of the net proceeds was used for marketing,
advertising and promotional expenditures, and the remainder was used for working
capital or invested on short-term interest bearing investments. None of the net
proceeds of the offering were paid directly or indirectly to any director or
officer of the Company or any of their associates, or to any persons owning ten
percent or more of the Company's common stock, or to any affiliates of the
Company. The offering has been completed.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on June 8, 2000. Four
matters were voted on and approved at the meeting.
Proposal 1 Election of Directors
- ----------
The results of the voting were as follows:
For Withheld
---------- --------
Randall E. Poliner 12,426,582 34,540
Robert P. O'Block 12,426,582 34,540
Jeffrey M. Cunningham 12,462,232 34,890
Elisabeth DeMarse 12,383,482 77,640
William Martin 12,425,182 35,940
20
Proposal 2 Amendment to the 1999 Equity Compensation Plan
The results of the voting were as follows:
For - 7,994,162 Against - 170,440 Abstain - 9,400 Broker non-vote - 4,287,120
Proposal 3 Ratification and Approval of Sale of Stock to Jeffrey M. Cunningham
For - 8,077,893 Against - 70,242 Abstain - 25,867 Broker non-vote - 4,287,120
Proposal 4 Ratification of Selection of KPMG LLP as Independent Auditors for 2000
For - 12,430,360 Against - 16,000 Abstain - 14,762
Item 5. OTHER INFORMATION
On June 22, 2000, Edward V. Blanchard, Jr. resigned from his position as
Executive Vice President - Strategy & Acquisitions of the Company. The Company
will pay Mr. Blanchard cash compensation equal to approximately 25% of his
annual salary and will provide certain other noncash benefits in connection with
his separation from employment. There are no current plans to replace his
position with the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Stock Purchase Plan and Subscription Agreement, dated April
5, 2000, between Jeffrey Cunningham and ilife.com, Inc.
2.2 Stock Option Grant to Jeffrey Cunningham dated April 5, 2000
under the ilife.com, Inc. 1999 Equity Compensation Plan for
125,622 shares of common stock.
2.3 Stock Option Grant to Jeffrey Cunningham dated April 5, 2000
under the ilife.com, Inc. 1999 Equity Compensation Plan for
141,905 shares of common stock.
2.4 Executive Employment Agreement dated April 27, 2000 between
Elisabeth DeMarse and ilife.com, Inc.
2.5 Stock Option Grant to Elisabeth DeMarse dated April 27, 2000
under the ilife.com, Inc. 1999 Equity Compensation Plan for
541,936 shares of common stock.
2.6 Asset Sale and Assignment Agreement dated May 17, 2000 between
ilife.com, Inc. and Colleges.com, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
21
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.
ilife.com, Inc.
Dated: August 14, 2000 By: /s/ Robert J. DeFranco
-------------------------------
Robert J. DeFranco
Vice President-Finance
and Chief Accounting Officer
EXHIBIT INDEX
Exhibit
- -------
2.1 Stock Purchase Plan and Subscription Agreement, dated April 5, 2000,
between Jeffrey Cunningham and ilife.com, Inc.
2.2 Stock Option Grant to Jeffrey Cunningham dated April 5, 2000 under the
ilife.com, Inc. 1999 Equity Compensation Plan for 125,622 shares of
common stock.
2.3 Stock Option Grant to Jeffrey Cunningham dated April 5, 2000 under the
ilife.com, Inc. 1999 Equity Compensation Plan for 141,905 shares of
common stock.
2.4 Executive Employment Agreement dated April 27, 2000 between Elisabeth
DeMarse and ilife.com, Inc.
2.5 Stock Option Grant to Elisabeth DeMarse dated April 27, 2000 under the
ilife.com, Inc. 1999 Equity Compensation Plan for 541,936 shares of
common stock.
2.6 Asset Sale and Assignment Agreement dated May 17, 2000 between ilife.com,
Inc. and Colleges.com, Inc.
27 Financial Data Schedule.
22