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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, 2001
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 0-30175
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 April 24, 2001
----- --------------
Common Stock, Par Value $.01 22,811,440
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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 March 31, 2001 and
December 31, 2000........................................................... 3
Consolidated Statement of Operations for the Three
Months Ended March 31, 2001 and 2000........................................ 4
Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 2001 and 2000........................................ 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 6. - Exhibits and Reports on Form 8-K.................................... 9
Signatures.................................................................... 10
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PART I - Financial Information
Item 1. - Financial Statements
i3 MOBILE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
2001 2000
----------- -----------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents $ 77,373 $ 84,900
Accounts receivable, net 933 536
Deferred advertising 3,349 3,349
Prepaid expenses and other current assets 409 416
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Total current assets 82,064 89,201
Fixed assets, net 9,027 9,217
Deposits and other non-current assets 811 829
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Total assets $ 91,902 $ 99,247
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 559 $ 2,019
Accrued liabilities 2,863 3,969
Capital lease obligation, current portion 751 801
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Total current liabilities 4,173 6,789
Capital lease obligation, less current portion 413 568
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Total liabilities 4,586 7,357
Stockholders' equity:
Common stock; $.01 par value, 50,000,000 shares authorized,
24,731,440 and 24,706,440 shares issued 247 247
Additional paid-in capital 167,575 168,007
Notes receivable from stockholders -- (4)
Deferred compensation (1,176) (1,724)
Accumulated deficit (75,100) (70,406)
Treasury stock at cost, 1,885,000 shares (4,230) (4,230)
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Stockholders' equity 87,316 91,890
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Total liabilities and stockholders'
equity $ 91,902 $ 99,247
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NOTE: The balance sheet at December 31, 2000 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
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March 31, March 31,
2001 2000
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(UNAUDITED)
Net revenue $ 1,333 $ 910
Cost of revenue (including $2 and $2 of stock compensation) 736 571
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Gross profit 597 339
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Operating expenses:
Sales and marketing (including $45 and $42 of stock compensation) 1,322 1,319
Product development (including $21 and $19 of stock compensation) 1,121 479
General and administrative (including $73 and $67 of stock compensation) 3,989 2,481
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Operating expenses 6,432 4,279
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Operating loss (5,835) (3,940)
Interest income, net (1,141) (314)
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Net loss (4,694) (3,626)
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Dividends on mandatorily redeemable preferred stock -- (2,685)
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Loss applicable to common stock $ (4,694) $ (6,311)
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Net loss per share - basic and diluted $ (0.21) $ (1.09)
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Shares used in computing net loss per share 22,830 5,771
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See accompanying notes to consolidated financial statements.
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i3 MOBILE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
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March 31, March 31,
2001 2000
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(UNAUDITED)
Cash flows from operating activities:
Net loss $ (4,694) $ (3,626)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 940 217
Stock compensation expense 141 130
Other -- 29
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (397) 20
(Increase) in other current assets and other assets (7) (1,927)
(Decrease) in accounts payable (1,460) (403)
(Decrease) increase in accrued liabilities (1,106) 455
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Net cash (used in) operating activities (6,583) (5,105)
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Cash flows from investing activities:
Purchase of fixed assets (750) (1,516)
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Net cash (used in) investing activities (750) (1,516)
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Cash flows from financing activities:
Payments on capital lease obligations (205) --
Proceeds from exercise of stock options 8 --
Repayments of notes receivable - related parties 4 9
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Net cash (used in) provided by financing activities (193) 9
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(Decrease) in cash and cash equivalents (7,526) (6,612)
Cash and cash equivalents at beginning of period 84,900 28,241
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Cash and cash equivalents at end of period $ 77,373 $ 21,629
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Supplemental disclosures of cash flow and non cash activities:
Accretion of mandatorily redeemable preferred stock
dividends $ -- $ 2,685
See accompanying notes to consolidated financial statements.
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i3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - OVERVIEW:
i3 Mobile, Inc., "i3" or the "Company", provides premium subscription
data services to wireless devices. The Company sells its services to consumers
on a subscription basis through its distribution network of over 25 wireless
network operators and businesses. The Company offers a range of individualized
information products, including news, finance, sports, weather, messaging,
travel, entertainment and local information.
NOTE 2 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America 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, 2001 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2001.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 2000.
Certain reclassifications have been made for consistent presentation.
NOTE 3 - 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 4 - SUBSEQUENT EVENT:
On April 16, 2001, the Company issued a press release announcing that
its Board of Directors had authorized a share repurchase program to acquire up
to 2.3 million shares of its common stock. Pursuant to this repurchase program,
such purchases will be made from time to time in the open market and through
privately negotiated transactions, subject to general market and other
conditions. The Company will finance the repurchase program through existing
cash resources. Shares acquired pursuant to this repurchase program will become
treasury shares and will be available for reissuance for general corporate
purposes.
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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, 2000,
1999 and 1998 included in our annual report on Form 10-K for the year ended
December 31, 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 develop and distribute information services for mobile telephones
and other wireless communications devices. We distribute our services to
consumers on a subscription basis through our distribution network of over 25
wireless network operators and businesses. This distribution network, reaching
substantially all major North American markets, includes major wireless network
operators, such as AT&T Wireless and Bell Mobility, regional network operators,
such as U.S. Cellular, and businesses, including New York Times Digital. This
distribution network reaches more than 40 million mobile telephone subscribers.
We currently provide information services in a variety of broad-based
categories, including news, finance, sports, weather, messaging, travel,
entertainment and local information.
We provide our current services primarily to North American wireless
subscribers using mobile phones, pagers, personal digital assistants and
in-vehicle devices. Our services allow subscribers to personalize their user
experience from a broad array of information choices based on their individual
preferences. Today, our subscribers can configure their services on a branded
web site, by calling into a live operator or through an interactive voice
response system and then accessing the information from their mobile telephones
or other devices. Personalization of services enhances the user experience by
allowing subscribers to access only the information they want. Subscribers
either receive alerts, e.g. "Traffic Alert: Accident on Interstate 95 Southbound
at Exit 3," or access information on-demand, e.g. "What is the current stock
price of Nokia?"
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
Net Revenue. Net revenue increased 46% to $1,333,000 for the three months
ended March 31, 2001 from $910,000 for the three months ended March 31, 2000.
This increase was attributable to increased subscription revenues as a result of
our agreements with wireless network operators partially offset by a decrease in
development revenues realized during the 2001 period.
Cost of Revenue. Cost of revenue increased by 29% to $736,000 for the three
months ended March 31, 2001 from $571,000 for the three months ended March 31,
2000. The increase was primarily attributable to the acquisition of additional
content necessary to
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support the subscription revenue as well as increased subscription and
enterprise development costs.
Sales and Marketing Expenses. Sales and marketing expenses remained
relatively consistent at $1,322,000 for the three months ended March 31, 2001 as
compared to $1,319,000 for the three months ended March 31, 2000.
Product Development Expenses. Product development expenses increased by
134% to $1,121,000 for the three months ended March 31, 2001 from $479,000 for
the three months ended March 31, 2000. This increase was a result of increased
compensation expenses from the addition of development personnel as well as
related costs incurred to support product development infrastructure.
General and Administrative Expenses. General and administrative expenses
increased by 61% to $3,989,000 for the three months ended March 31, 2001 from
$2,481,000 for the three months ended March 31, 2000. This increase was
primarily due to increased compensation costs from the addition of personnel,
increased professional fees, rent and other related infrastructure expenses.
Interest Income, Net. Net interest income was $1,141,000 for the three
months ended March 31, 2001 as compared to $314,000 for the three months ended
March 31, 2000. The increase in interest income was primarily attributable to
increased cash balances in the 2001 period as a result of the Company's initial
public offering in April 2000.
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 $130,063,000 through March 31, 2001.
Net cash used in operating activities was $6,583,000 for the three months
ended March 31, 2001 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 used in investing activities was $750,000 for the three months
ended March 31, 2001 and $1,516,000 for the three months ended March 31, 2000.
The principal use of cash in each of these periods relates primarily to
equipment and computer purchases for our operations center and headquarters.
Net cash used in financing activities was $193,000 for the three months
ended March 31, 2001 versus cash provided by financing activities of $9,000 for
the three months ended March 31, 2000. The principal use of cash during the
three months ended March 31, 2001 was for the repayment of certain capital lease
obligations.
As of March 31, 2001, we had cash and cash equivalents of $77,373,000.
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 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.
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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 March 31, 2001 we had no debt outstanding. We currently have no plans to
incur debt during the next twelve 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 2001 has been
estimated at approximately $0.7 million or approximately 2% 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. From the effective date of our
Registration Statement to March 31, 2001, we have used $3.3 million of the net
offering proceeds to fund our losses from operations.
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: April 26, 2001
i3 MOBILE, INC.
By:/s/ Michael P. Neuscheler
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Executive Vice President and
Chief Financial Officer
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