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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 September 30, 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_X__ No ___.
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 October 25, 2000
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Common Stock, Par Value $.01 22,811,800
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i3 MOBILE, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I - Financial Information
Item 1. - Financial Statements (Unaudited)
Consolidated Balance Sheet as of September 30, 2000 and
December 31, 1999...................................................... 3
Consolidated Statement of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999............................... 4
Consolidated Statement of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999............................... 5
Notes to Consolidated Financial Statements............................... 6
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
Item 3. - Quantitative and Qualitative Disclosures about Market Risk..... 9
Part II - Other Information
Item 2. - Changes in Securities and Use of Proceeds...................... 10
Item 6. - Exhibits and Reports on Form 8-K............................... 10
Signatures............................................................... 11
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PART I - Financial Information
Item 1. - Financial Statements
i3 MOBILE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
2000 1999
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(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 93,155 $ 28,241
Accounts receivable ....................................... 884 397
Unbilled accounts receivable .............................. 220 --
Deferred advertising ...................................... 3,496 4,261
Prepaid expenses and other current assets ................. 1,954 168
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Total current assets ............................... 99,709 33,067
Fixed assets, net ......................................... 5,867 1,942
Other non-current assets .................................. 214 792
Deposits .................................................. 683 440
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Total assets ....................................... $ 106,473 $ 36,241
========= =========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .......................................... $ 970 $ 724
Accrued liabilities ....................................... 4,094 2,875
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Total current liabilities .......................... 5,064 3,599
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Mandatorily redeemable convertible preferred stock .......... -- 55,338
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Stockholders' equity (deficit):
Common stock; $.01 par value, 50,000,000 shares authorized,
24,695,800 and 7,655,500 shares issued .................. 247 77
Additional paid-in capital ................................ 167,981 27,253
Notes receivable from stockholders ........................ (11) (31)
Deferred compensation ..................................... (1,908) (764)
Accumulated deficit ....................................... (60,670) (45,001)
Treasury stock at cost, 1,885,000 shares .................. (4,230) (4,230)
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Stockholders' equity (deficit) ..................... 101,409 (22,696)
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Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
equity (deficit) ................................. $ 106,473 $ 36,241
========= =========
NOTE: The balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes to consolidated financial statements.
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i3 MOBILE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
Sept. 30 Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
Net revenue ................................................ $ 1,448 $ 382 $ 3,464 $ 1,325
Cost of revenue ............................................ 796 361 2,012 954
-------- -------- -------- --------
Gross profit ............................................... 652 21 1,452 371
-------- -------- -------- --------
Operating expenses:
Sales and marketing ...................................... 3,596 525 6,180 1,277
General and administrative ............................... 4,297 1,245 10,856 3,023
Stock compensation ....................................... 214 3 561 3
-------- -------- -------- --------
Operating expenses ......................................... 8,107 1,773 17,597 4,303
-------- -------- -------- --------
Operating loss ............................................. (7,455) (1,752) (16,145) (3,932)
Interest (income)/expense .................................. (1,632) 8 (3,304) 240
-------- -------- -------- --------
Net loss ................................................... (5,823) (1,760) (12,841) (4,172)
-------- -------- -------- --------
Dividends on mandatorily redeemable preferred stock ........ -- (665) (2,829) (1,691)
-------- -------- -------- --------
Loss applicable to common stock ............................ $ (5,823) $ (2,425) $(15,670) $ (5,863)
======== ======== ======== ========
Net loss per share - basic and diluted ..................... $ (0.26) $ (0.43) $ (0.93) $ (1.01)
======== ======== ======== ========
Shares used in computing net loss per share ................ 22,807 5,669 16,797 5,796
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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i3 MOBILE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
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Sept. 30, Sept. 30,
2000 1999
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(UNAUDITED)
Cash flows from operating activities:
Net loss ................................................... $(12,841) $ (4,172)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................ 863 72
Stock compensation ....................................... 561 3
Other .................................................... 65 242
Changes in operating assets and liabilities:
Increase in accounts receivable ........................ (793) (160)
Decrease in deferred advertising ....................... 765 --
Increase in other current assets and other assets ...... (1,268) (481)
Increase in accounts payable ........................... 246 22
Increase in accrued liabilities ........................ 1,219 508
Decrease in deferred revenue ........................... -- (47)
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Net cash used in operating activities ........................ (11,183) (4,013)
-------- --------
Cash flows from investing activities:
Purchase of intangible asset ............................... -- (100)
Purchase of fixed assets ................................... (4,741) (210)
-------- --------
Net cash used in investing activities ........................ (4,741) (310)
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock, net .................... 80,675 --
Proceeds from sale of preferred stock, net ................. -- 11,944
Proceeds from exercise of stock options .................... 143 --
Repurchase of common and preferred stock ................... -- (3,000)
Repayments of notes payable ................................ -- (703)
Issuance of notes receivable - related parties ............. -- (200)
Repayments of notes receivable - related parties ........... 20 116
-------- --------
Net cash provided by financing activities .................... 80,838 8,157
-------- --------
Increase in cash and cash equivalents ........................ 64,914 3,834
Cash and cash equivalents at beginning of period ............. 28,241 166
-------- --------
Cash and cash equivalents at end of period ................... $ 93,155 $ 4,000
======== ========
Supplemental disclosures of cash flow and non cash activities:
Interest paid in cash ...................................... $ 16 $ 119
Conversion of preferred stock for debt ..................... $ -- $ 5,000
Accretion of mandatorily redeemable preferred stock ........ $ 2,829 $ 1,690
Conversion of preferred to common stock .................... $ 58,167 $ --
See accompanying notes to consolidated financial statements.
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i3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
i3 Mobile, Inc. (the "Company") 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 consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States 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 and nine
month periods ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the 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.
Certain prior period balances have been reclassified to conform to current
period presentations.
NOTE 2 - INITIAL PUBLIC OFFERING
On April 6, 2000, the Company completed an initial public
offering (the "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
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.
In addition, all outstanding preferred stock was converted
into 11,316,765 shares of common stock upon completion of the Offering.
NOTE 3 - REVENUE RECOGNITION - PERCENTAGE OF COMPLETION:
On February 9, 2000, the Company entered into a 5-year
agreement with Mobile Media Group, Inc. (formerly known as
BroadcastEntertainment.com, Inc.) under which Mobile Media Group 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 Mobile Media Group to upgrade its website for the delivery of
content and related services directly to wireless devices and to offer Mobile
Media Group 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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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion of our financial condition and
results of operations should be read together with our 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 and other enterprise customers, 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 June 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 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, as well as development fees generated from providing enterprise
solutions that enable our clients to wirelessly deliver to their customers a
wide variety of customizable content, data or transactional services.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Net Revenue. Net revenue increased 279% to $1,448,000 for the three months ended
September 30, 2000 from $382,000 for the three months ended September 30, 1999.
The increase from the prior year is primarily attributable to development
revenue realized under agreements with Mobile Media Group and other enterprise
customers (approximately $0.7 million) and the growth of our subscriber base
(approximately $0.3 million) as a result of our agreements with wireless network
operators. Under the terms of the Mobile Media Group agreement, we will
wirelessly enable several of their websites in order to facilitate the delivery
of its content and related services directly to wireless devices.
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Cost of Revenue. Cost of revenue increased 120% to $796,000
for the three months ended September 30, 2000 from $361,000 for the three months
ended September 30, 1999. The increase was associated with costs directly
related to services provided to Mobile Media Group and other enterprise related
projects, an increase in costs associated with the acquisition of content and
delivery of information to wireless users and an increase in network operations
costs 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 585% to $3,596,000 for the three months ended September 30, 2000 from
$525,000 for the three months ended September 30, 1999. The increase from the
prior year three month period is attributable to the launch of the Company's
national and regional advertising campaign consisting of print, cable television
and radio broadcasts, e-mail and online advertising to increase market awareness
of the Company and its products and services and increased compensation
expenses, including the hiring of additional sales and marketing personnel.
Sales and marketing expenses during the three months ended September 30, 2000
includes non-cash marketing expenses of $680,000 associated with certain of the
Company's broadcast and online initiatives.
General and Administrative Expenses. General and
administrative expenses increased 245% to $4,297,000 for the three months ended
September 30, 2000 from $1,245,000 for the three months ended September 30,
1999. The increase was primarily due to increased compensation costs from the
addition of corporate and business development personnel, increased fees and
expenses associated with being a publicly traded company, rent and other related
infrastructure expenses.
Stock Compensation Expenses. Stock compensation expenses
relates to the issuance of incentive stock options to the extent that fair
market value exceeds the exercise price and warrants issued to third parties.
Compensation expense related to incentive stock options is recognized based on
the fair value of the options at their grant date, in accordance with Statement
of Financial Accounting Standard No. 123 ("FAS 123") and totaled $184,000 for
the three months ended September 30, 2000. Compensation expense related to
warrants is recognized based on the fair value as determined through the Black
- -Scholes pricing model utilizing the fair value of the Company's common stock as
of the measurement date and totaled $30,000 for the three months ended September
30, 2000. Stock compensation expenses for the three months ended September 30,
1999 was $3,000.
Interest (Income) Expense, Net. Net interest income was
$1,632,000 for the three months ended September 30, 2000. Interest income
consists of interest on the investment of the net proceeds from our initial
public offering in short-term, investment grade, interest-bearing instruments.
Net interest expense for the three months ended September 30, 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 our Series F preferred
stock.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Net Revenue. Net revenue increased 161% to $3,464,000 for the
nine months ended September 30, 2000 from $1,325,000 for the nine months ended
September 30, 1999. The increase from the prior year is primarily attributable
to development revenue realized under agreements with Mobile Media Group and
other enterprise customers (approximately $1.7 million) and the growth of our
subscriber base (approximately $0.5 million) as a result of our agreements with
wireless network operators.
Cost of Revenue. Cost of revenue increased 111% to $2,012,000
for the nine months ended September 30, 2000 from $954,000 for the nine months
ended September 30, 1999. The increase was associated with costs directly
related to services provided to Mobile Media Group and other enterprise related
projects, an increase in costs associated with the acquisition of content and
delivery of information to wireless users and an increase in network operations
costs 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 384% to $6,180,000 for the nine months ended September 30, 2000 from
$1,277,000 for the nine months ended September 30, 1999. The increase from the
prior year nine month period is
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attributable to the launch of the Company's national and regional advertising
campaign consisting of print, cable television and radio broadcasts, e-mail and
online advertising to increase market awareness of the Company and its products
and services and increased compensation expenses, including the hiring of
additional sales and marketing personnel. Sales and marketing expenses during
the nine months ended September 30, 2000 includes non-cash marketing expenses of
$765,000 associated with certain of the Company's broadcast and online
initiatives.
General and Administrative Expenses. General and
administrative expenses increased 259% to $10,856,000 for the nine months ended
September 30, 2000 from $3,023,000 for the nine months ended September 30, 1999.
The increase was primarily due to increased compensation costs from the addition
of corporate and business development personnel, increased fees and expenses
associated with being a publicly traded company, rent and other related
infrastructure expenses.
Stock Compensation Expenses. Stock compensation expenses
relates to the issuance of incentive stock options to the extent that fair
market value exceeds the exercise price and warrants issued to third parties.
Compensation expense related to incentive stock options is recognized based on
the fair value of the options at their grant date, in accordance with Statement
of Financial Accounting Standard No. 123 ("FAS 123") and totaled $498,000 for
the nine months ended September 30, 2000. Compensation expense related to
warrants is recognized based on the fair value as determined through the Black
- -Scholes pricing model utilizing the fair value of the Company's common stock as
of the measurement date and totaled $63,000 for the nine months ended September
30, 2000. Stock compensation expenses for the nine months ending September 30,
1999 was $3,000.
Interest (Income) Expense, Net. Net interest income was
$3,304,000 for the nine months ended September 30, 2000. Interest income
consists of interest on the investment of the net proceeds from the initial
public offering in short-term, investment grade, interest-bearing instruments.
Net interest expense for the nine months ended September 30, 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 our Series F preferred
stock.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily
through sales of our common and preferred securities and the issuance of
long-term debt which has resulted in aggregate cash proceeds of $130,063,000
through September 30, 2000.
Net cash used in operating activities was $11,183,000 for the
nine months ended September 30, 2000 and $4,013,000 for the nine months ended
September 30, 1999. The principal use of cash in each of these periods was to
fund our losses from operations.
Cash used in investing activities was $4,741,000 for the nine
months ended September 30, 2000 and $310,000 for the nine months ended September
30, 1999. Cash used in investing activities relates primarily to equipment and
computer purchases for our new operations center and headquarters.
Net cash provided by financing activities was $80,838,000 for
the nine months ended September 30, 2000 and $8,157,000 for the nine months
ended September 30, 1999. Cash provided by financing activities in the period
ended September 30, 2000 relates primarily to net proceeds from our initial
public offering on April 6, 2000. Cash provided by financing activities in the
period ended September 30, 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.
As of September 30, 2000, we had cash and cash equivalents of
$93,155,000.
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 estimated 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
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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, make strategic acquisitions of technologies or
businesses complimentary to ours or respond to competitive pressures, any of
which could harm our business.
Item 3. 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 significant 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 September 30, 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 $1,000,000 or approximately 5% of
budgeted net loss for each 1% change in interest rates.
Part II - Other Information
Item 2. Changes In Securities and Use of Proceeds
On April 6, 2000, our Registration Statement on Form S-1
(Commission File Number 333-94191) became effective. 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 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 proceeds from the exercise of this option.
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: November 10, 2000
i3 MOBILE, INC.
By:/s/ Michael P. Neuscheler
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Vice President and Chief
Financial Officer
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