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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________ to _________________
Commission File Number 333-94191
i3 MOBILE, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0335259
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
181 Harbor Drive 06902
Stamford, Connecticut (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 428-3000
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 No X .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class May 12, 2000
----- --------------
Common Stock, Par Value $.01 22,709,765
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i3 MOBILE, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I - Financial Information
Item 1. - Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 2000 and
December 31, 1999 ...................................................... 3
Condensed Consolidated Statement of Operations for the Three
Months Ended March 31, 2000 and 1999 ................................... 4
Condensed Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 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 .......................... 8
Item 3. - Quantitative and Qualitative Disclosures about Market Risk ..... 10
Part II - Other Information
Item 2. - Changes in Securities and Use of Proceeds ...................... 10
Item 6. - Exhibits and Reports on Form 8-K ............................... 11
Signatures ............................................................... 12
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PART I - Financial Information
Item 1. - Financial Statements
i3 MOBILE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA
March 31, March 31, December 31,
2000 2000 1999
--------- --------- ---------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 21,629 $ 105,292 $ 28,241
Accounts receivable, net of allowances .................... 350 350 397
Deferred advertising ...................................... 4,261 4,261 4,261
Prepaid expenses and other current assets ................. 174 174 168
--------- --------- ---------
Total current assets ............................... 26,414 110,077 33,067
Fixed assets, net ......................................... 3,251 3,251 1,942
Intangible assets, net .................................... 150 150 158
Other non-current assets .................................. 2,598 29 634
Deposits .................................................. 458 458 440
--------- --------- ---------
Total assets ....................................... $ 32,871 $ 113,965 $ 36,241
========= ========= =========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable .......................................... $ 321 $ 321 $ 724
Accrued liabilities ....................................... 3,112 3,112 2,775
Deferred revenue .......................................... 218 218 100
--------- --------- ---------
Total current liabilities .......................... 3,651 3,651 3,599
--------- --------- ---------
Mandatorily redeemable convertible preferred stock .......... 58,023 -- 55,338
--------- --------- ---------
Stockholders' equity (deficit):
Common stock; $.01 par value, 50,000,000 shares authorized,
7,655,500, 24,594,765 and 7,655,500 shares issued ....... 77 246 77
Additional paid-in capital ................................ 28,931 167,879 27,253
Notes receivable from stockholders ........................ (22) (22) (31)
Deferred compensation ..................................... (2,247) (2,247) (764)
Accumulated deficit ....................................... (51,312) (51,312) (45,001)
Treasury stock at cost, 1,885,000 shares .................. (4,230) (4,230) (4,230)
--------- --------- ---------
Stockholders' equity (deficit) .............................. (28,803) 110,314 (22,696)
--------- --------- ---------
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
deficit .......................................... $ 32,871 $ 113,965 $ 36,241
========= ========= =========
See accompanying notes to condensed consolidated financial statements.
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i3 MOBILE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
---------------------
March 31, March 31,
2000 1999
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(UNAUDITED)
Net revenue -- trade ....................................... $ 910 $ 487
Net revenue -- related parties ............................. -- 23
-------- --------
Net revenue ................................................ 910 510
Cost of revenue ............................................ 569 265
-------- --------
Gross profit ............................................... 341 245
-------- --------
Operating expenses:
Sales and marketing ...................................... 1,112 292
General and administrative ............................... 3,039 598
Stock compensation ....................................... 130 --
-------- --------
Operating expenses ......................................... 4,281 890
-------- --------
Operating loss ............................................. (3,940) (645)
Interest (income)/expense .................................. (314) 153
-------- --------
Net loss ................................................... (3,626) (798)
-------- --------
Dividends on mandatorily redeemable preferred stock ........ (2,685) (361)
-------- --------
Loss applicable to common stock ............................ $ (6,311) $ (1,159)
======== ========
Net loss per share - basic and diluted ..................... $ (1.09) $ (0.18)
======== ========
Shares used in computing net loss per share ................ 5,771 6,560
======== ========
Pro forma net loss per share - basic and diluted (Unaudited) $ (0.16)
========
Shares used in computing pro forma net loss per share ...... 22,710
See accompanying notes to condensed consolidated financial statements.
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i3 MOBILE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
--------------------
2000 1999
-------- --------
(UNAUDITED)
Cash flows from operating activities:
Net loss .................................................... $ (3,626) $ (798)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................. 217 8
Stock compensation expense ................................ 130 --
Non-cash charges from the issuance of common stock warrants 3 100
Other ..................................................... 26 26
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable .............. 20 (105)
Increase in other current assets and other assets ....... (1,927) --
Decrease in accounts payable ............................ (403) (88)
Increase in accrued liabilities ......................... 337 207
Increase (decrease) in deferred revenue ................. 118 (44)
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Net cash used in operating activities ......................... (5,105) (694)
-------- --------
Cash flows from investing activities:
Purchase of fixed assets .................................. (1,516) --
-------- --------
Net cash used in investing activities ......................... (1,516) --
-------- --------
Cash flows from financing activities:
Proceeds from sales of preferred stock, net ................. -- 11,944
Repurchase of common and preferred stock .................... -- (3,000)
Repayments of notes payable ................................. -- (634)
Repayments of notes receivable - related parties ............ 9 4
-------- --------
Net cash provided by financing activities ..................... 9 8,314
-------- --------
Increase (decrease) in cash and cash equivalents .............. (6,612) 7,620
Cash and cash equivalents at beginning of period .............. 28,241 166
-------- --------
Cash and cash equivalents at end of period .................... $ 21,629 $ 7,786
======== ========
Supplemental disclosures of cash flow and non cash activities:
Interest paid in cash ....................................... $ -- $ 26
Conversion of preferred stock for debt ...................... $ -- $ 5,000
Accretion of mandatorily redeemable preferred stock
dividends ................................................. $ 2,685 $ 361
See accompanying notes to condensed consolidated financial statements.
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i3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - BASIS OF PRESENTATION:
i3 Mobile, Inc., the "Company", formerly known as Intelligent Information
Incorporated, was incorporated in Delaware on June 28, 1991. The Company
provides personalized information to wireless phone and other wireless device
users. Its services enable wireless device users to have access to personalized
information and electronic commerce. The Company offers a range of
individualized information products, including customized stock quotes, news,
weather, sports, entertainment, traffic and travel information as well as
personal e-mail, calendar and commerce applications.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Certain information and note disclosures normally
included in financial statements have been omitted pursuant to Article 10 of
Regulation S-X. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2000.
These financial statements should be read in conjunction with the audited
financial statements and note disclosures included in the Company's prospectus
filed with the Securities and Exchange Commission on April 6, 2000.
NOTE 2 - PRO FORMA BALANCE SHEET:
Upon the closing of the Company's initial public offering (See Note 4),
each outstanding share of preferred stock automatically converted into 500
shares of common stock. These transactions have been reflected in the unaudited
pro forma balance sheet as if they occurred on March 31, 2000.
The unaudited pro forma balance sheet also gives effect to the sale of
5,100,000 shares of common stock upon the closing of the Company's initial
public offering and the sale of 522,500 shares of common stock to the
underwriters related to the exercise of their over-allotment option, at a price
of $16 per share, after deducting underwriting discounts and commissions, and
the application of the net proceeds. (See Note 4)
NOTE 3 - REVENUE RECOGNITION:
On February 9, 2000, the Company entered into a 5-year agreement with
BroadcastEntertainment.com under which BroadcastEntertainment.com will be the
exclusive provider to the Company for certain entertainment related content. The
agreement, among other items, includes that the Company will provide enterprise
services to BroadcastEntertainment.com to upgrade its website for the delivery
of content and related services directly to wireless devices and to offer
BroadcastEntertainment.com the capability to provide these web-to-wireless
services to up to five of its related companies. The Company applies the
American Institute of Certified Public Accountants' Statement of Position 81-1,
Accounting for Performance of Construction Type and Certain Production-Type
Contracts to recognize revenue on a percentage of completion basis related to
this agreement.
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i3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 4 - SUBSEQUENT EVENTS:
INITIAL PUBLIC OFFERING
On April 6, 2000, the Company completed an initial public offering of
5,100,000 shares of common stock at a price of $16 per share, generating net
proceeds of $75,888,000. In connection with the initial public offering, the
Company granted to the underwriters an option to purchase up to 765,000
additional common shares at the initial public offering price less the
underwriting discounts and commissions, to cover any over-allotments. On May 10,
2000, the underwriters exercised this option and purchased an additional 522,500
shares. After deducting underwriting discounts and commissions, the Company
received $7,774,800 in net proceeds from the exercise of this option.
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i3 MOBILE, INC.
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
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The following discussion of our financial condition and results of
operations should be read together with our condensed consolidated financial
statements and the related notes included in this document and with Management's
Discussion and Analysis of Financial Condition and Results of Operations and
audited financial statements and notes thereto for the years ended December 31,
1997, 1998 and 1999 included in our prospectus dated April 6, 2000.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This quarterly report contains forward-looking statements that involve
risks and uncertainties, including the statements in Liquidity and Capital
Resources regarding the adequacy of funds to meet funding requirements. Our
actual results may differ significantly from the results discussed in the
forward-looking statements. A number of uncertainties exist that could affect
our future operating results, including, without limitation, our history of
losses, our ability to retain existing wireless carriers and attract new
wireless carriers, our dependence on paying subscribers, intense competition,
our continuing ability to develop new programs which generate consumer interest,
and general economic factors. We have incurred significant operating losses
since our inception. Although we have experienced revenue growth in recent
quarterly periods, such growth rates may not be sustainable and may not be
indicative of future operating results. There can be no assurance that we will
be able to achieve or maintain profitability in the future.
OVERVIEW
We provide timely personalized information to users of wireless
communications devices in North America. We were founded in February 1991 as
Intelligent Information Incorporated and began operations in 1992. We develop
highly personalized, local, timely and interactive wireless content products and
services that meet the needs of our users. We currently distribute these
products and services primarily through wireless network operators, and, to a
lesser extent, through Internet media networks and corporate enterprises. Our
strategy is to position ourselves as the single-source wireless portal supplier
for our distributors by building innovative products and continually enhancing
our proprietary technology. We intend to diversify our distribution
relationships, to further expand our user and subscriber bases and to develop
advertising and transaction revenue streams.
RESULTS OF OPERATIONS
Our products and services are offered to subscribers on a monthly basis
based on pricing models designed to attract a large number of subscribers. We
derive the majority of our revenue from monthly subscription fees for
personalized news and information products and services delivered to users via
wireless devices, such as digital wireless phones, pagers and personal digital
assistants.
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Net Revenue. Net revenue increased 78% from $510,000 for the three months
ended March 31, 1999 to $910,000 for the three months ended March 31, 2000. This
increase is primarily attributable to development revenue realized under an
agreement with BroadcastEntertainment.com. Under the terms of this agreement, we
will wirelessly enable several BroadcastEntertainment.com websites in order to
facilitate the delivery of its content and related services directly to wireless
devices.
Cost of Revenue. Cost of revenue increased by 115% from $265,000 for the
three months ended March 31, 1999 to $569,000 for the three months ended March
31,
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2000. Approximately $170,000 of the increase was associated with labor costs
directly related to services provided to BroadcastEntertainment.com.
Approximately $90,000 of the increase was related to an increase in the delivery
of stock quote information and an increase in minimum fees associated with the
acquisition of additional general news content. Network operations costs also
increased by approximately $40,000 as a result of increased labor costs to
provide 24 hour customer care and operations support.
Sales and Marketing Expenses. Sales and marketing expenses increased by
280% from $292,000 for the three months ended March 31, 1999 to $1,112,000 for
the three months ended March 31, 2000. This increase was attributable to
increased compensation expenses, including the hiring of additional sales and
marketing personnel, and the expansion of our marketing programs to increase
market awareness of our company and our products and services.
General and Administrative Expenses. General and administrative expenses
increased by 408% from $598,000 for the three months ended March 31, 1999 to
$3,039,000 for the three months ended March 31, 2000. This increase was
primarily due to increased compensation costs from the addition of corporate and
business development personnel, increased professional fees, rent and other
related infrastructure expenses.
Interest Expense (Income), Net. Net interest income was $314,000 for the
three months ended March 31, 2000. Net interest expense was $153,000 for the
three months ended March 31, 1999 which included interest income of $29,000. Net
interest expense for the period ending March 31, 1999 was comprised primarily of
interest on our indebtedness to the Connecticut Development Authority and
Intelligent Investment Partners, Inc. Both notes were retired in the fourth
quarter of 1999 as part of the issuance of mandatorily redeemable Series F
convertible preferred stock. Interest income consists primarily of interest
earned on cash equivalents.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception we have financed our operations primarily through sales
of our equity securities and the issuance of long-term debt, which has resulted
in aggregate cash proceeds of $46,400,000 through March 31, 2000.
Net cash used in operating activities was $694,000 for the three months
ended March 31, 1999 and $5,105,000 for the three months ended March 31, 2000.
The principal use of cash in each of these periods was to fund our losses from
operations.
Net cash provided by financing activities was $8,314,000 for the three
months ended March 31, 1999 and $9,000 for the three months ended March 31,
2000. Cash provided by financing activities in the period ended March 31, 1999
was primarily attributable to proceeds from sales of our equity securities,
offset by the repurchase of common and preferred stock and repayments of notes
payable.
Cash used in investing activities was $0 for the three months ended March
31, 1999 and $1,516,000 for the three months ended March 31, 2000. Cash used in
investing activities relates primarily to equipment and computer purchases for
our new operations center and headquarters.
As of March 31, 2000, we had cash and cash equivalents of $21,630,000. On
April 6, 2000, we completed our initial public offering and raised net proceeds
(after expenses of the offering) of approximately $81.1 million, including the
net proceeds from the underwriters' exercise of their over-allotment option. As
of March 31, 2000, on a pro forma basis, including public offering, we would
have cash and cash equivalents of $105,292,000.
For the remainder of 2000, we expect to have the following expenditures and
requirements:
- Approximately $15 million for expansion of our sales and marketing
operations;
- Approximately $7 million for further development of our systems
infrastructure, including $2 million for expansion of our data center;
and
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- Approximately $27 million for working capital and other general
corporate purposes, including the development of technology alliances.
In addition, we may use a portion of our funds for acquisitions or other
investments.
We believe that existing cash balances, cash equivalents and cash generated
from operations will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
However, the underlying assumed levels of revenues and expenses may not prove to
be accurate. We may seek additional funding through public or private financings
or other arrangements prior to such time. Adequate funds may not be available
when needed or may not be available on favorable terms. If we raise additional
funds by issuing equity securities, dilution to existing stockholders will
result. If funding is insufficient at any time in the future, we may be unable
to develop or enhance our products or services, take advantage of business
opportunities or respond to competitive pressures, any of which could harm our
business.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have limited exposure to financial market risks, including changes in
interest rates. We do not currently transact business in foreign currencies and,
accordingly, are not subject to exposure from adverse movements in foreign
currency exchange rates. Our exposure to market risks for changes in interest
rates relates primarily to corporate debt securities. We place our investments
with high credit quality issuers and, by policy, limit the amount of the credit
exposure to any one issuer. Our general policy is to limit the risk of principal
loss and ensure the safety of invested funds by limiting market and credit risk.
All highly liquid investments with a maturity of less than three months at the
date of purchase are considered to be cash equivalents.
As of March 31, 2000 we had no debt outstanding. We currently have no plans
to incur debt during the next 12 months. As such, changes in interest rates will
only impact interest income. The impact of potential changes in hypothetical
interest rates on budgeted interest income in 2000 has been estimated at
approximately $500,000 or 2% of budgeted net loss for each 1% change in interest
rates.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
See disclosure in the section entitled "Quantitative and Qualitative
Disclosure About Market Risk" in Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 10.
Part II - Other Information
Item 2. - Changes In Securities and Use of Proceeds
On April 5, 2000, our Registration Statement on Form S-1 became effective.
All 5,100,000 shares of common stock, par value $.01, were sold upon completion
of the initial public offering at an aggregate offering price of $81,600,000 or
$16 per share. Deutsche Banc Alex. Brown, Chase H&Q and Credit Suisse First
Boston acted as managing underwriters for the offering. Underwriting discounts
and commissions totaled $5,712,000. After deducting underwriting discounts and
commissions, the net proceeds received was approximately $75,888,000.
In addition to the underwriting discounts and commissions, we incurred
approximately $2,570,000 of expenses associated with the offering. None of our
expenses in connection with the offering were paid directly or indirectly to our
directors or officers or their associates, or to persons owning 10% or more of
our common stock or other affiliates. After deducting underwriting discounts and
commissions and other expenses, we received net proceeds of approximately
$73,318,000 from the offering.
In connection with the offering, we granted to the underwriters an option
to purchase up to 765,000 additional common shares at the initial public
offering price, less the underwriting discounts and commissions, to cover any
over-allotments. On May
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10, 2000, the underwriters exercised this option and purchased an additional
522,500 shares. After deducting underwriting discounts and commissions, we
received $7,774,800 in proceeds from the exercise of this option.
None of the net proceeds from the initial public offering have been used to
date. The net proceeds have been invested in short-term, investment grade,
interest-bearing instruments.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
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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.
Dated: May 19, 2000
i3 MOBILE, INC.
By:/s/ Michael P. Neuscheler
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Vice President and Chief
Financial Officer
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