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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, 1999
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25681
INTELLIGENT LIFE CORPORATION
(Exact name of registrant as specified in Its charter)
Florida 65-0423422
(State or other Jurisdiction of incorporation or organization) (I.R.S. Employer 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 o
The number of shares of the issuer's class of capital stock as of July 31, 1999,
the latest practicable date, is as follows: 13,440,988 shares of Common Stock,
$.01 par value.
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Intelligent Life Corporation
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1999
Index
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED):
Condensed Balance Sheets at June 30, 1999 and
December 31, 1998...........................................
Condensed Statements of Operations for the three and
six months ended June 30, 1999 and 1998.....................
Condensed Statements of Redeemable Stock and
Stockholders' Equity (Deficit) .............................
Condensed Statements of Cash Flows for the three and
six months ended June 30, 1999 and 1998.....................
Notes to Condensed Financial Statements.......................
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................
Item 3. Quantitative and Qualitative Disclosures About Market Risk....
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................
Item 2. Changes in Securities and Use of Proceeds.....................
Item 3. Defaults Upon Senior Securities...............................
Item 4. Submission of Matters to a Vote of Security Holders...........
Item 5. Other Information.............................................
Item 6. Exhibits and Reports on Form 8-K..............................
Signatures.............................................................
Intelligent Life Corporation
Condensed Balance Sheets
June 30,
1999 December 31,
(Unaudited) 1998
------------------ ----------------------
Assets
Cash and cash equivalents $ 39,397,886 $ 1,633,100
Accounts receivable, net of allowance for doubtful
accounts of $50,000 and $24,847 at June 30, 1998 and
December 31, 1998, respectively 1,040,888 538,536
Other current assets 750,711 109,488
------------ -------------
Total current assets 41,189,485 2,281,124
Furniture, fixtures and equipment, net 1,328,461 813,659
Intangible assets, net of accumulated amortization of $161,822 and
$152,976 at June 30, 1999 and December 31, 1998, respectively 83,498 4,569
------------ -------------
Total assets $ 42,601,444 $ 3,099,352
============ ============
Liabilities, Redeemable Stock and Stockholders' Equity (Deficit)
Liabilities:
Accounts payable $ 1,514,697 $ 308,667
Accrued stock compensation expense 488,072 -
Other accrued expenses 995,729 588,212
Deferred revenue 554,203 612,660
Current portion of obligations under capital leases 201,857 113,405
Other current liabilities 109,644 -
------------ ------------
Total current liabilities 3,864,202 1,622,944
Obligations under capital leases, long-term 353,744 263,009
------------ ------------
Total liabilities 4,217,946 1,885,953
------------ ------------
Commitments and contingencies
Redeemable Convertible Series A preferred stock, noncumulative,
par value $.01 per share, liquidation value $65 per share, stated
at redemption value -- 90,000 shares authorized; no shares issued
or outstanding at June 30, 1999 and 89,612 shares issued and
outstanding at December 31, 1998 - 10,215,768
Redeemable Convertible Series B preferred stock, noncumulative,
par value $.01 per share, liquidation value $114 per share, stated at
redemption value -- 30,000 shares authorized; no shares issued or
outstanding at June 30, 1999 and 17,575 shares issued and outstanding at
December 31, 1998 - 1,982,535
Redeemable Common Stock:
Redeemable common stock, par value $.01 per share, redemption value $0.52
per share -- no shares issued or outstanding at June 30, 1999 and
454,170 shares issued and outstanding at December 31, 1998 - 236,168
Loan receivable for redeemable common stock - (236,168)
Stockholders' equity (deficit):
Preferred stock, 10,000,000 shares authorized and undesignated - -
Common stock, par value $.01 per share -- 100,000,000 shares
authorized; 13,440,988 and 4,053,200 shares issued and outstanding
at June 30, 1999 and December 31, 1998, respectively 134,410 40,532
Additional paid in capital 58,960,331 -
Unamortized stock compensation expense (15,000) (280,690)
Accumulated deficit (20,696,243) (10,744,746)
------------ ------------
Total stockholders' equity (deficit) 38,383,498 (10,984,904)
------------ ------------
Total liabilities stockholders' equity (deficit) $ 42,601,444 $ 3,099,352
============ ============
See accompanying notes to condensed financial statements.
3
Intelligent Life Corporation
Condensed Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------- ------------
Revenue:
Online publishing $ 1,925,849 $ 445,359 $ 3,295,685 $ 773,567
Print publishing and licensing 886,104 757,322 1,742,536 1,378,770
----------- ----------- ------------ -----------
Total revenue 2,811,953 1,202,681 5,038,221 2,152,337
----------- ----------- ------------ -----------
Cost of operations:
Online publishing 944,837 331,372 1,616,998 541,348
Print publishing and licensing 608,414 468,253 1,190,970 1,004,267
Sales 771,982 409,245 1,283,392 547,219
Marketing 1,986,675 79,536 2,700,755 126,107
Product research 658,816 436,521 1,227,978 722,730
General and administrative expenses 1,161,509 546,383 1,738,107 968,301
Depreciation and amortization 105,210 21,039 176,535 42,828
Noncash stock based compensation 711,085 88,563 2,618,867 88,563
----------- ----------- ------------ -----------
6,948,528 2,380,912 12,553,602 4,041,363
----------- ----------- ------------ -----------
Loss from operations (4,136,575) (1,178,231) (7,515,381) (1,889,026)
----------- ----------- ------------ -----------
Other income (expense):
Interest income 232,704 8,939 249,450 17,081
Interest expense (24,627) (6,154) (40,023) (6,216)
Noncash financing charge - - (2,656,000) -
Other 4,325 - 10,457 -
----------- ----------- ------------ -----------
Other income (expense), net 212,402 2,785 (2,436,116) 10,865
----------- ----------- ------------ -----------
Loss before income taxes (3,924,173) (1,175,446) (9,951,497) (1,878,161)
Income taxes - - - -
----------- ----------- ------------ -----------
Net loss $(3,924,173) $(1,175,446) $ (9,951,497) $(1,878,161)
Accretion of Convertible Series A and
Series B preferred stock to redemption
value (429,000) - (2,281,000) -
----------- ----------- ------------ -----------
Net loss applicable to common stock $(4,353,173) $(1,175,446) $(12,232,497) $(1,878,161)
=========== =========== ============ ===========
Basic and diluted net loss per share $ (0.47) $ (0.31) $ (1.84) $ (0.49)
=========== =========== ============ ===========
Weighted average shares outstanding used
in basic and diluted per-share
calculation 9,195,503 3,846,200 6,661,558 3,846,200
=========== =========== ============ ===========
See accompanying notes to condensed financial statements.
4
Intelligent Life Corporation
Condensed Statements of Redeemable Stock and Stockholders' Equity (Deficit)
(Unaudited)
Redeemable Redeemable
Convertible Series A Convertible Series B Redeemable Common Stock Convertible Series A
Preferred Stock Preferred Stock Note Preferred Stock
Shares Amount Shares Amount Shares Amount Receivable Shares Amount
------ ------ ------ ------ ------ ------ ---------- ------ ------
Balances, June 30, 1998 - $ - - $ - 454,170 $236,168 $(236,168) 89,612 $5,777,627
Issuance of common stock - - - - - - - - -
Compensation expense related
to common stock grants - - - - - - - - -
Issuance of preferred stock,
net of issuance costs - - 17,575 1,982,535 - - - - -
Conversion of nonredeemable
convertible Series A
preferred stock to redeemable 89,612 10,215,768 - - - - - (89,612) (5,777,627)
Net loss for the period - - - - - - - - -
------- ----------- ------- --------- ------- ------- ------- ------- ----------
Balances, December 31, 1998 89,612 10,215,768 17,575 1,982,535 454,170 236,168 (236,168) - -
Accretion of Series A and
Series B preferred stock
to redemption value - 1,908,000 - 373,000 - - - - -
Conversion of Series A and
Series B preferred
stock to common stock (89,612)(12,123,768) (17,575) (2,355,535) - - - - -
Issuance and conversion of
promissory note to Series B
preferred stock and conversion
of Series B preferred stock to
common stock including finance
charge for beneficial conversion
feature on the promissory note
of $2,656,000 - - - - - - - - -
Forgiveness of note receivable
for redeemable common stock,
reclassification of redeemable
common stock to common stock,
cancellation of the put right
associated with such shares and
reacquisition of forfeited
shares, including associated
compensation charge - - - - (454,170)(236,168) 236,168 - -
Initial public offering of
common stock - - - - - - - - -
Compensation relating to stock
grants - - - - - - - - -
Net loss for the period - - - - - - - - -
------- ----------- ------- --------- ------- ------- ------- ------- ----------
Balances, June 30, 1999 - $ - - $ - - $ - $ - - $ -
======= =========== ======= ========= ======= ======= ======= ======= ==========
Unamortized Total
Additional Stock Stockholders'
Common Stock Paid in Compensation Accumulated Equity
Shares Amount Capital Expense Deficit (Deficit)
------ ------ ------- ------- ------- -------
Balances, June 30, 1998 3,846,200 $38,462 $354,253 $(265,690) $(5,247,570) $657,082
Issuance of common stock 207,000 2,070 266,930 (269,000) - -
Compensation expense related
to common stock grants - - 415,000 254,000 - 669,000
Issuance of preferred stock,
net of issuance costs - - - - - -
Conversion of nonredeemable
convertible Series A
preferred stock to redeemable - - (1,036,183) - (3,401,958) (10,215,768)
Net loss for the period - - - - (2,095,218) (2,095,218)
---------- ------- ---------- -------- ----------- -----------
Balances, December 31, 1998 4,053,200 40,532 - (280,690) (10,744,746) (10,984,904)
Accretion of Series A and
Series B preferred stock
to redemption value - - (2,281,000) - - (2,281,000)
Conversion of Series A and
Series B preferred
stock to common stock 5,359,350 53,593 14,425,710 - - 14,479,303
Issuance and conversion of
promissory note to Series B
preferred stock and conversion
of Series B preferred stock to
common stock including finance
charge for beneficial conversion
feature on the promissory note
of $2,656,000 339,200 3,392 3,659,608 - - 3,663,000
Forgiveness of note receivable
for redeemable common stock,
reclassification of redeemable
common stock to common stock,
cancellation of the put right
associated with such shares and
reacquisition of forfeited
shares, including associated
compensation charge 189,238 1,893 1,890,417 220,690 - 2,113,000
Initial public offering of
common stock 3,500,000 35,000 41,265,596 - - 41,300,596
Compensation relating to stock
grants - - - 45,000 - 45,000
Net loss for the period - - - - (9,951,497) (9,951,497)
---------- -------- ----------- -------- ------------ -----------
Balances, June 30, 1999 13,440,988 $134,410 $58,960,331 $(15,000) $(20,696,243) $38,383,498
========== ======== =========== ======== ============ ===========
See accompanying notes to condensed financial statements.
5
Intelligent Life Corporation
Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ----------- ------------
Cash flows from operating activities:
Net loss $(3,924,173) $(1,175,446) $(9,951,497) $(1,878,161)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 105,210 21,039 176,535 42,828
Noncash stock compensation 711,085 88,563 2,618,867 88,563
Noncash financing charge - - 2,656,000 -
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable (384,021) (117,023) (502,352) (37,224)
(Increase) decrease in deferred initial
public offering costs (708,757) - (1,014,369) -
(Increase) decrease in other current assets (671,472) (23,398) (662,298) (25,243)
Increase (decrease) in accounts payable
and accrued expenses 822,233 157,123 1,649,799 159,855
Increase (decrease) in other current liabilities 109,644 - 109,644 -
Increase (decrease) in deferred revenue 74,510 94,272 (58,457) 100,784
------------ ----------- ----------- -----------
Total adjustments 58,432 220,576 4,973,369 329,563
------------ ----------- ----------- -----------
Net cash used in operating activities (3,865,741) (954,870) (4,978,128) (1,548,598)
------------ ----------- ----------- -----------
Cash flows used in investing activities:
Purchases of equipment (277,738) (19,596) (370,219) (131,423)
Acquisitions, net of cash acquired - - (66,700) -
------------ ----------- ----------- -----------
Net cash used in investing activities (277,738) (19,596) (436,919) (131,423)
------------ ----------- ----------- -----------
Cash flows from financing activities:
Loans from stockholders - 484,257 1,000,000 484,257
Principal payments on capital lease obligations (41,715) - (135,167) -
Proceeds from issuance of preferred stock, net - 992,854 - 992,854
Proceeds from issuance of common stock, net 42,315,000 - 42,315,000 -
------------ ----------- ----------- -----------
Net cash provided by financing activities 42,273,285 1,477,111 43,179,833 1,477,111
------------ ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 38,129,806 502,645 37,764,786 (202,910)
Cash and equivalents, beginning of period 1,268,080 407,782 1,633,100 1,113,337
------------ ----------- ----------- -----------
Cash and equivalents, end of period $ 39,397,886 $ 910,427 $39,397,886 $ 910,427
============ =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 24,627 $ 6,154 $ 40,023 $ 6,216
============ =========== =========== ===========
Supplemental schedule of noncash investing
and finance activities:
Equipment acquired under capital leases $ 66,000 $ 18,000 $ 314,000 $ 18,000
============ =========== =========== ===========
Stockholder loans contributed to capital
for preferred stock $ - $ 500,000 $ - $ 500,000
============ =========== =========== ===========
Accretion of Series A and Series B
preferred stock to redemption value $ 429,000 $ - $ 2,281,000 -
============ =========== =========== ===========
See accompanying notes to condensed financial statements.
6
INTELLIGENT LIFE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Company
Intelligent Life Corporation (the "Company") is an online financial publisher
employing a staff of more than 80 editors and researchers. The Company creates
original content for its personal finance web sites bankrate.com, theWhiz.com,
consejero.com and CPNet.com. Bankrate.com provides consumers with independent,
objective research on banking and credit products including mortgages, home
equity loans and credit cards. In addition, this information is published on co-
branded Internet web sites through more than 70 distribution partners including
Yahoo!, CNNfn, SmartMoney and AOL. The Company's original research is also
distributed through major national and local publications. TheWhiz.com is a web
site designed for the financial novice where we offer free, easy to understand
personal finance information and information on various consumer financial
products. Our writers cover topics that include investing, real estate, credit,
taxes and insurance. Consejero.com is a comprehensive personal finance web site
in the Spanish language providing consumers with information about home buying
and financing, credit cards, savings, online banking and investing and other
financial topics. The site also offers users a secure site to interact, transact
and learn more about the financial options available to them. CPNet.com is an
advertising network of online college newspapers from across the country and
features an online directory of college newspapers and editorial content written
specifically for students. The Company is organized under the laws of the state
of Florida.
Basis of Presentation
The unaudited interim condensed financial statements for the three and six
months ended June 30, 1999 and 1998, respectively, 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 financial statements
reflect all adjustments, consisting only of normal, recurring adjustments,
necessary to present fairly the financial position of the Company at June 30,
1999, and the results of its operations and its cash flows for the three and six
months ended June 30, 1999 and 1998, respectively. The results for the three and
six months ended June 30, 1999 are not necessarily indicative of the expected
results for the full year or any future period.
In April 1999, the Company amended and restated its articles of incorporation
to authorize 100,000,000 shares of $.01 par value common stock, 90,000 shares of
$.01 par value Series A convertible preferred stock and 30,000 shares of $.01
par value Series B convertible preferred stock.
On April 9, 1999, the Company authorized and executed a five to one stock
split, effected as a stock dividend, of each issued and outstanding share of
common stock. The information in the accompanying unaudited condensed financial
statements has been retroactively restated to reflect the effect of this stock
dividend.
On April 12, 1999, the Company's Board of Directors approved changing the
Company's fiscal year-end from June 30 to December 31.
On May 13, 1999 the Company completed an initial public offering ("IPO") of
3,500,000 shares of the Company's common stock resulting in net proceeds of
approximately $41.3 million. Upon closing of the IPO, both classes of
outstanding redeemable convertible preferred stock converted to common stock at
50 shares of common stock for each share of redeemable convertible preferred
stock. Additionally, upon the
7
INTELLIGENT LIFE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
effective date of the IPO, the Company's articles of incorporation were further
amended and restated to among other matters, designate 10 million shares of
preferred stock with respect to which the Board will have the authority to
designate rights and privileges.
The unuaudited condensed financial statements included herein should be read
in conjunction with the financial statements and related footnotes included in
the Company's Form S-1 registration statement, as amended, filed with the
Securities and Exchange Commission in connection with the Company's IPO, as well
as the audited financial statements included in the Company's transition report
for the six months ended December 31, 1998 filed with the Securities and
Exchange Commission on Form 10-K.
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 have been
excluded from the computation as their effect is anti-dilutive.
NOTE 2 -- STOCK OPTION PLANS
1997 Equity Compensation Plan
In January 1999, the Company amended the 1997 Equity Compensation Plan (the
"1997 Plan") to increase the number of shares of common stock authorized for
issuance under the plan to 1,500,000 shares. On March 2 and March 12, 1999 the
Company granted 201,720 and 5,000 options, respectively, under the 1997 Plan to
purchase common stock at $2.97 per share. The options vest over a 48 month
period and, accordingly, the Company will recognize compensation expense of
approximately $1,620,000 ratably over the vesting period. Effective with the
IPO, the Company granted 472,500 options under the 1997 Plan to purchase common
stock at the IPO price which vest over a 48 month period. In June 1999, 20,000
options were granted to purchase common stock at fair market value on the date
of grant which vest over a 48 month period. Additionally, in July 1999, 40,000
options were granted to purchase common stock at the fair market value on the
date of grant which vest over a 48 month period.
On April 12, 1999, the Board approved an option plan for outside directors of
the Company. Under this plan, 80,000 options were granted on May 13, 1999 to
purchase common stock at $13.00 per share. The options vest over 48 months and
expire 10 years from date of grant, unless prohibited by the 1997 Plan. Under a
currently proposed Financial Accounting Series Interpretation of APB Opinion No.
25, Accounting for Certain Transactions Involving Stock Compensation, the
Company would recognize compensation expense of $800,000, or $50,000 per
quarter, ratably over the vesting period. No such compensation expense has been
recorded as the effects of applying this proposed Interpretation would be
recognized on a prospective basis from the effective date of the Interpretation.
Additionally, each outside director will receive an annual stock option grant of
5,000 shares at the beginning of each calendar year. These options will vest one
year from date of grant and will expire 10 years from date of grant, unless
prohibited by the 1997 Plan. Options granted under these programs will expire
immediately upon the director's departure from the Company's board.
1999 Equity Compensation Plan
In March 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"), to provide designated employees of the
Company, certain consultants and non-employee members of the Board of Directors
with the opportunity to receive grants of incentive stock options, nonqualified
stock options and restricted stock. The 1999 Plan is authorized to grant options
for up to 1,500,000 shares. In March 1999, the Company granted 358,500 options
to an officer (the "Officer") of the Company to
8
INTELLIGENT LIFE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
purchase shares of common stock at $2.97 which vest over a 36 month period.
The Company will recognize compensation expense of approximately $2,807,000
ratably over the vesting period.
NOTE 3 -- LOAN FROM STOCKHOLDER
On March 9, 1999, one of the Series B convertible preferred stockholders
loaned the Company $1,000,000 bearing interest at 8%, due April 9, 1999. If
unpaid on the due date, the note was to convert into fully paid Series B
convertible preferred stock at a conversion price of $2.97 per share. On April
9, 1999, the principal amount of the loan plus accrued interest was converted
into 6,784 shares of Series B convertible preferred stock. The Company recorded
a finance charge of $2,656,000 representing the difference between the estimated
fair market value of the common stock (as if the 6,784 shares were converted)
and the $2.97 conversion price.
NOTE 4 -- REDEEMABLE COMMON STOCK
In March 1998, the Company entered into a restricted stock grant agreement
with the Officer that provided for the issuance of restricted stock to the
Officer in accordance with the 1997 Equity Compensation Plan. Under the terms
of this agreement, 454,170 shares of common stock were issued to the Officer for
$236,168, which was paid by an interest-bearing promissory note from the
Officer. Restriction on such shares lapsed as follows: 113,450 shares on July 1,
1998, and 9,460 shares on the first day of each month starting August 1, 1998
and ending July 1, 2001. The Officer had a put right which required the Company
to repurchase shares at the same price paid for the shares including interest.
In accordance with Emerging Issues Task Force 95-16, this arrangement is being
accounted for as a variable plan which requires increases or decreases in stock
based compensation expense based on increases or decreases in the Company's fair
market value. On March 10, 1999 the note receivable was forgiven, the unvested
shares (264,932) were reacquired by the Company, the Officer's put right was
cancelled and the remaining 189,238 shares of redeemable common stock were
reclassified to common stock and vested immediately. Accordingly, fixed option
accounting treatment was established on this date and a compensation charge of
approximately $2,113,000 was recorded.
NOTE 5 -- ACQUISITION
In January 1999, the Company acquired all of the assets of CPNet.com,
excluding cash and real or personal property leases, for $25,000 in cash. The
sellers were employed by the Company and were granted 30,000 options under the
1997 Equity Compensation Plan with an exercise price of $1.30 which vest over a
48 month period. The Company will incur total compensation expense of
approximately $45,000 over the vesting period. CPNet.com's historical statements
of operations are not material to the Company.
NOTE 6 -- SEGMENT INFORMATION
The Company operates in two reportable business segments: online publishing
and print publishing and licensing. The online publishing segment is primarily
engaged in the sale of advertising, sponsorships and hyperlinks in connection
with our Internet web sites bankrate.com, theWhiz.com, Consejero.com and
CPNet.com. The print publishing and licensing 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.
Although no one customer accounted for greater than 10% of total revenues for
the three and six months ended June 30, 1999 and 1998, the five largest
customers accounted for approximately 17% and 15%, and 11% and 11%,
respectively, of total revenues for the three and six months ended June 30, 1999
and 1998.
9
INTELLIGENT LIFE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Summarized segment information as of June 30, 1999 and 1998, and for the
three and six months ended June 30, 1999 and 1998 is presented below.
Print
Online Publishing
Publishing and Licensing Other Total
--------------- ---------------- ---------------- ----------------
Six Months Ended June 30,1999:
Revenue $ 3,295,685 $1,742,536 $ - $ 5,038,221
Direct costs of operations 1,616,998 1,190,970 - 2,807,968
Sales and marketing 3,895,516 - 88,631 3,984,147
Product research 923,630 304,348 - 1,227,978
General and administrative expenses 1,136,959 601,148 - 1,738,107
Depreciation and amortization 123,575 52,961 - 176,535
Noncash stock based compensation - - 2,618,867 2,618,867
Noncash financing charge - - 2,656,000 2,656,000
Other income (expense), net - - 219,884 219,884
Net loss (4,400,993) (407,890) (5,143,614) (9,951,497)
Total assets 2,444,970 758,588 39,397,886 42,601,444
Six Months Ended June 30,1998:
Revenue $ 773,567 $1,378,770 $ - $ 2,152,337
Direct costs of operations 541,348 1,004,267 - 1,545,615
Sales and marketing 655,176 1,742 16,408 673,326
Product research 259,755 462,975 - 722,730
General and administrative expenses 348,015 620,286 - 968,301
Depreciation and amortization 29,980 12,848 - 42,828
Noncash stock based compensation - - 88,563 88,563
Noncash financing charge - - - -
Other income (expense), net - - 10,865 10,865
Net loss (1,068,696) (723,348) 2,446 (1,878,161)
Total assets 825,881 284,936 - 1,110,817
10
INTELLIGENT LIFE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Print
Online Publishing
Publishing and Licensing Other Total
--------------- ---------------- ---------------- ----------------
Three Months Ended June 30,1999:
Revenue $ 1,925,849 $ 886,104 $ - $ 2,811,953
Direct costs of operations 944,837 608,414 - 1,553,251
Sales and marketing 2,700,755 - 57,902 2,758,657
Product research 498,022 160,794 - 658,816
General and administrative expenses 781,175 379,334 - 1,161,509
Depreciation and amortization 73,646 31,564 - 105,210
Noncash stock based compensation - - 711,085 711,085
Noncash financing charge - - - -
Other income (expense), net - - 212,402 212,402
Net loss (3,073,587) (294,001) (556,585) (3,924,173)
Total assets 2,444,970 758,588 39,397,886 42,601,444
Three Months Ended June 30,1998:
Revenue $ 445,359 $ 757,322 $ - $ 1,202,681
Direct costs of operations 331,372 468,253 - 799,625
Sales and marketing 480,792 - 7,989 488,781
Product research 160,839 275,682 - 436,521
General and administrative expenses 202,197 344,186 - 546,383
Depreciation and amortization 14,727 6,311 - 21,039
Noncash stock based compensation - - 88,563 88,563
Noncash financing charge - - - -
Other income (expense), net - - 2,785 2,785
Net loss (744,568) (337,110) (93,767) (1,175,446)
Total assets 825,881 284,936 - 1,110,817
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Intelligent Life Corporation has included in this filing certain "forward-
looking statements" within the meaning of Section 27a of the Securities Act of
1933 and Section 21e of the Securities Exchange Act of 1934, including, without
limitation, statements regarding our expectations, beliefs, intentions or future
strategies that are signified by words such as "expects", "anticipates",
"intends", "believes", or similar language. All forward-looking statements
included in this document are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements.
11
Overview
Intelligent Life Corporation is an online financial publisher employing a
staff of more than 80 editors and researchers. The Company creates original
content for its personal finance web sites bankrate.com, theWhiz.com,
consejero.com and CPNet.com. Bankrate.com provides consumers with independent,
objective research on banking and credit products including mortgages, home
equity loans and credit cards. In addition, this information is published on co-
branded Internet web sites through more than 70 distribution partners including
Yahoo!, CNNfn, SmartMoney and AOL. The Company's original research is also
distributed through major national and local publications. TheWhiz.com is a web
site designed for the financial novice where we offer free, easy to understand
personal finance information and information on various consumer financial
products. Our writers cover topics that include investing, real estate, credit,
taxes and insurance. Consejero.com is a comprehensive personal finance web site
in the Spanish language providing consumers with information about home buying
and financing, credit cards, savings, online banking and investing and other
financial topics. The site also offers users a secure site to interact, transact
and learn more about the financial options available to them. CPNet.com is an
advertising network of online college newspapers from across the country and
features an online directory of college newspapers and editorial content written
specifically for students.
Prior to 1995, our principal businesses were the publication of print
newsletters and syndication of bank and credit product research to newspapers
and magazines. In 1995, we 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 fiscal 1996, we commenced our online operations by displaying our research
through an Internet site, bankrate.com. By putting our information online, we
were able to create new revenue opportunities through the sale of graphical and
hyperlink advertising associated with our rate and yield tables. In fiscal 1997,
we determined that we would concentrate principally on our online operations.
Since that time, we have significantly expanded the scope and depth of
bankrate.com and made investments in four new online Internet web sites:
theWhiz.com, bankrate.com en Espanol, consejero.com and CPNet.com.
In order to focus on our online activities, we have reduced the number of
print newsletters we publish from five to three and eliminated active marketing
of our print publications. We have also ceased marketing Consumer Mortgage Guide
as a separate product. We now provide this product to newspapers as part of a
broader relationship that is primarily directed toward online activities.
We believe that the recognition of our research as a leading source of
independent, objective information on banking and credit products is essential
to our success. As a result, we have sought to maximize distribution of our
research to gain brand recognition as a research authority. We are currently
seeking to build greater brand awareness at all of our web sites and reach a
grater number of online users.
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 delivered 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
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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 the Consumer Mortgage Guide rate tables, newsletter
subscriptions, and licensing of research information. We charge a commission for
placement of the Consumer Mortgage Guide in a print publication. Advertising
revenue and commission income is recognized when the 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.
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.
We have incurred net losses in each of our last three fiscal years and had a
net loss for the six months ended June 30, 1999 of approximately $9,951,000. We
had an accumulated deficit of approximately $20,696,000 as of June 30, 1999. We
also have a limited history of operations in the rapidly evolving online
business environment and have little experience forecasting our revenues.
Therefore, we believe that period-to-period comparisons of our financial results
should not be relied on as an indication of our future performance. 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 through marketing campaigns
and hire personnel to support our growth. We may also incur significant
additional costs related to the acquisition of businesses or technologies to
respond to the constant change in our industry. These costs could have an
adverse impact on our future financial condition and results of operations.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue
Total revenue for the six months ended June 30, 1999 of $5,038,221 increased
$2,885,884, or 134%, over the comparable period in 1998. Online publishing
revenue increased $2,522,118, or 326%, to $3,295,685 and represented 65% of
total revenue compared to 36% in 1998. These increases were due to higher levels
of advertising sales and higher advertising rates facilitated by an increase in
advertising inventory resulting from an increase in the number of distribution
partners and higher overall site traffic. Print publishing and licensing revenue
increased $363,766, or 26%, to $1,742,536 due primarily to a $454,296, or 56%,
increase in Consumer Mortgage Guide revenues. This increase was a result of an
increased sales effort, higher rates charged per unit sale and an increase in
the number of advertisers.
In June 1999, we were advised by Quicken.com that it would not be renewing
its distribution agreement with us. Quicken.com accounted for approximately 7%
of our total site traffic during the six months ended June 30, 1999. Management
does not believe that the loss of this distribution partner will have a material
adverse impact on future results of operations.
13
Cost of Operations
Online publishing costs increased 199% to $1,616,998 for the six months ended
June 30, 1999 from $541,348 in the comparable period in 1998. This $1,075,650
increase was due to higher advertising costs, expenses incurred in promoting and
staffing theWhiz.com and Consejero.com, increases in revenue sharing obligations
and higher personnel costs.
Print publishing and licensing costs increased 19% to $1,190,970 during the
six months ended June 30, 1999 from $1,004,267 in 1998, due primarily to higher
revenue sharing payments to newspapers based on higher levels of revenue.
Sales costs for the six months ended June 30, 1999 were $736,173, or 135%,
higher than 1998 due to higher human resource costs as a result of a doubling of
the sales force for sales staff, lead generators and telemarketers, and the
opening of the Northern California and Chicago sales offices.
Marketing expenses of $2,700,755 for the six months ended June 30, 1999 were
$2,574,648 higher than in 1998 primarily due to online advertising monies spent
for bankrate.com, theWhiz.com and Consejero.com with the goal of driving more
online traffic to our web sites.
Product research costs increased $505,248, or 70%, for the six months ended
June 30, 1999 compared to 1998 due to higher personnel expenses to support the
growth in hyperlinked advertisers, Consumer Mortgage Guide advertisers, new
editorial newspaper tables and an expanded number of markets to support
additional advertisements and co-branding. Additionally, quality control
personnel have been added to lend support to this growth.
General and administrative expenses of $1,738,107 for the six months ended
June 30, 1999 were $769,806, or 80%, higher than the comparable period in 1998
due primarily to higher human resource costs, facilities and professional
services expenses supporting the growth in the business.
Depreciation and amortization of $176,535 for the six months ended June 30,
1999 was $133,707, or 312%, higher compared to 1998 due to purchases of
software, computer equipment and components.
Noncash stock based compensation expense of $2,618,867 was recorded in the
six month period ended June 30, 1999 compared to $88,563 in the same period in
1998. Approximately $2,113,000 was recorded when a note receivable for a
restricted stock grant to our President was forgiven, the unvested shares under
the grant (264,932) were reacquired by us, the associated put right was
cancelled and 189,238 shares of redeemable common stock were reclassified to
common stock. Approximately $446,000 was recorded for options granted under the
1997 and 1999 Equity Compensation Plans during the six months ended June 30,
1999 and in prior years.
A noncash financing charge of $2,656,000 was recorded in March 1999 compared
to none in 1998. In March 1999 one of the Series B convertible preferred
stockholders loaned us $1,000,000, at 8% interest due April 9, 1999. If unpaid
on April 9, 1999 the loan, plus accrued interest, converted to fully paid Series
B convertible preferred stock at a conversion price of $2.97 per share. On April
9, 1999 the principal amount of the loan plus accrued interest was converted
into 6,784 shares of Series B convertible preferred stock and, accordingly, the
finance charge was recorded.
Interest income of $249,450 for the six months ended June 30, 1999 was up
from $17,081 in the comparable 1998 period due to investing the proceeds from
our initial public offering in short-term, interest bearing instruments.
Interest expense was up $33,807 over the comparable period in 1998 due to the
increase in debt associated with equipment under capital leases.
14
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenue
Total revenue for the three months ended June 30, 1999 of $2,811,953
increased $1,609,272, or 134%, over the comparable period in 1998. Online
publishing revenue increased $1,480,490, or 332%, to $1,925,849 and represented
68% of total revenue compared to 37% in 1998. These increases were due to higher
levels of advertising sales and higher advertising rates resulting from the
continuing increases in advertising inventory facilitated by an increase in the
number of distribution partners and higher overall site traffic. Print
publishing and licensing revenue increased $128,782, or 17%, to $886,104 due
primarily to a $186,162, or 41%, increase in Consumer Mortgage Guide revenues.
This increase was a result of an increased sales effort, higher rates charged
per unit sale and an increase in the number of advertisers.
Cost of Operations
Online publishing costs increased 185% to $944,837 for the three months ended
June 30, 1999 from $331,372 in the comparable period in 1998. This $613,465
increase was due to higher advertising costs, expenses incurred in promoting and
staffing theWhiz.com and Consejero.com, increases in revenue sharing obligations
and higher personnel costs.
Print publishing and licensing costs increased 30% to $608,414 during the
three months ended June 30, 1999 from $468,253 in 1998, due primarily to higher
revenue sharing payments to newspapers based on higher levels of revenue.
Sales costs for the three months ended June 30, 1999 were $771,982, or 89%,
higher than 1998 due to higher human resource costs as a result of a doubling of
the sales force for sales staff, lead generators and telemarketers, and the
opening of the Northern California and Chicago sales offices.
Marketing expenses of $1,986,675 for the three months ended June 30, 1999
were $1,907,139 higher than in 1998 primarily due to online advertising monies
spent for bankrate.com, theWhiz.com and Consejero.com with the goal of driving
more online traffic to our web sites.
Product research costs increased $222,295, or 51%, for the three months ended
June 30, 1999 compared to 1998 due to higher personnel expenses to support the
growth in hyperlinked advertisers, Consumer Mortgage Guide advertisers, new
editorial newspaper tables and an expanded number of markets to support
additional advertisements and co-branding. Additionally, quality control
personnel have been added to lend support to this growth.
General and administrative expenses of $1,161,509 for the three months ended
June 30, 1999 were $615,126, or 113%, higher than the comparable period in 1998
due primarily to higher human resource costs, facilities and professional
services expenses supporting the growth in the business.
Depreciation and amortization of $105,210 for the three months ended June 30,
1999 was $84,171, or 400%, higher compared to 1998 due to purchases of software,
computer equipment and components.
Noncash stock based compensation expense of $711,085 was recorded in the
three month period ended June 30, 1999 compared to $88,563 in the same period in
1998. Approximately $331,000 was recorded in connection with the
reclassification of redeemable common stock to common stock. Approximately
$335,000 was recorded for options granted under the 1997 and 1999 Equity
Compensation Plans during the six months ended June 30, 1999 and in prior years.
Interest income of $232,704 for the three months ended June 30, 1999 compared
to none in the comparable 1998 period due to investing the proceeds from our
initial public offering in short-term, interest bearing instruments. Interest
expense was up $18,473 over the comparable period in 1998 due to the increase in
debt associated with equipment under capital leases.
15
Liquidity and Capital Resources
Intelligent Life Corporation has been funded using capital raised from
shareholders, and most recently, from the proceeds of our initial public
offering. As of June 30, 1999, we had working capital of $37,325,283. Cash used
in operating activities of $4,978,128 for the six months ended June 30, 1999 was
$3,429,530 higher than in the comparable period in 1998 and was primarily for
funding operating losses due to the continued expansion of our online publishing
efforts through personnel acquisitions and marketing expenditures. Additionally,
we funded approximately $1,014,000 of costs related to our initial public
offering of common stock during the six months ended June 30, 1999.
Cash used in investing activities was primarily for the purchase of computer
and office equipment and furniture. Additionally, during the six months ended
June 30, 1999, cash was used to acquire CPNet.com and certain other intellectual
property rights.
Net cash provided from financing activities consisted of a $1,000,000
convertible promissory note to one of the Series B preferred stockholders which
was subsequently converted to shares of Series B preferred stock and ultimately
into common stock in connection with the initial public offering, as well as the
net cash proceeds from our initial public offering of $42,315,000. Other
financing activities included cash used for payments on capital lease
liabilities.
We have experienced significant increases in our capital expenditures which
is consistent with our overall business strategy. We anticipate that
expenditures will continue to increase in the foreseeable future as we continue
to evaluate potential investments in our business, technology and products. We
believe that our existing liquidity and capital resources supplemented with the
proceeds from the sale of our common stock in our initial public offering will
be sufficient to satisfy our cash requirements for the foreseeable future. To
the extent that such amounts are insufficient, we will be required to raise
additional funds through equity or debt financing. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
planned expansion, take advantage of unanticipated opportunities or otherwise
respond to competitive pressures would be significantly limited. There can be no
assurance that we will be able to raise such funds on favorable terms or, at
all.
Year 2000 Compliance
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure causing disruptions to our operations.
Our internal information technology and non-information technology systems
are generally licensed from third parties rather than being internally
developed. Our research and subscription systems are two of the major
information technology systems that have been internally developed. No non-
information technology systems have been internally developed. We have received
written certifications from all manufacturers of third-party systems that they
are Year 2000 compliant. We have completed the inventory and testing of our
mission critical hardware systems, including the routers and servers by which we
provide services to our customers.
Additionally, all of our mission critical operating software has been tested
by the manufacturers as well as internally tested. All of the mission critical
hardware and software passed our predetermined Year 2000 criteria for
compliance.
Our business is also dependent upon the computer-controlled systems of third
parties such as suppliers, customers and service providers. A systemic failure
outside of our control, such as a prolonged loss of Internet,
telecommunications, electrical or telephone services could prevent users from
accessing our web sites, which could have a material adverse effect on our
business.
16
To date, we have spent approximately $500,000 on Year 2000 compliance issues,
including the purchase of hardware and the cost of a third-party consultant.
Based on our current assessment, we do not anticipate that additional costs
associated with the Year 2000 issue will have a material adverse effect on our
business. We do not currently anticipate having to develop a contingency plan
for handling a Year 2000 problem that is not detected and corrected prior to its
occurrence.
There is general uncertainty inherent in the Year 2000 computer problem. The
consequences of Year 2000 failures could have a material adverse effect on our
business. In particular, unforeseen Year 2000 computer problems could require
substantial time and effort on the part of management.
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, 1999 all of our cash equivalents
mature in less than one year.
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
Intelligent Life Corporation is not a party to any material legal proceeding.
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 (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, 1999
approximately $1,224,000 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.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
17
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3.1 Form of Amended and Restated Articles of Incorporation of
Intelligent Life Corporation (incorporated by reference to
Amendment No. 1 to Form S-1 Registration Statement filed on April
15, 1999)
3.2 Form of Amended and Restated Bylaws of Intelligent Life
Corporation (incorporated by reference to Amendment No. 1 to Form
S-1 Registration Statement filed on April 15, 1999)
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1999.
18
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.
Intelligent Life Corporation
Dated: August 11, 1999 By: /s/ Peter W. Minford
--------------------------------------
Peter W. Minford
Senior Vice President-Administration
and Chief Financial Officer
Dated: August 11, 1999 By: /s/ Robert J. DeFranco
--------------------------------------
Robert J. DeFranco
Vice President-Finance
and Chief Accounting Officer
- --------------------------------------------------------------------------------
19