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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 June 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.
<TABLE>
<CAPTION>
Outstanding at
Class August 10, 2000
----- ---------------
<S> <C>
Common Stock, Par Value $.01 22,805,750
</TABLE>
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i3 MOBILE, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I - Financial Information
Item 1. - Financial Statements
Consolidated Balance Sheet as of June 30, 2000 and
December 31, 1999...................................................... 3
Consolidated Statement of Operations for the Three and Six
Months Ended June 30, 2000 and 1999.................................... 4
Consolidated Statement of Cash Flows for the Six
Months Ended June 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)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 99,594 $ 28,241
Accounts receivable ....................................... 492 397
Unbilled accounts receivable .............................. 420 --
Deferred advertising ...................................... 4,176 4,261
Prepaid expenses and other current assets ................. 328 168
--------- ---------
Total current assets ............................... 105,010 33,067
Fixed assets, net ......................................... 4,071 1,942
Other non-current assets .................................. 256 792
Deposits .................................................. 471 440
--------- ---------
Total assets ....................................... $ 109,808 $ 36,241
========= =========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .......................................... $ 143 $ 724
Accrued liabilities ....................................... 2,672 2,875
--------- ---------
Total current liabilities .......................... 2,815 3,599
--------- ---------
Mandatorily redeemable convertible preferred stock .......... -- 55,338
--------- ---------
Stockholders' equity (deficit):
Common stock; $.01 par value, 50,000,000 shares authorized,
24,684,125 and 7,655,500 shares issued .................. 247 77
Additional paid-in capital ................................ 167,931 27,253
Notes receivable from stockholders ........................ (18) (31)
Deferred compensation ..................................... (2,091) (764)
Accumulated deficit ....................................... (54,846) (45,001)
Treasury stock at cost, 1,885,000 shares .................. (4,230) (4,230)
--------- ---------
Stockholders' equity (deficit) .............................. 106,993 (22,696)
--------- ---------
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
equity (deficit) ................................. $ 109,808 $ 36,241
========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue ....................................... $ 1,106 $ 433 $ 2,016 $ 943
Cost of revenue ................................... 646 328 1,215 593
-------- -------- -------- --------
Gross profit ...................................... 460 105 801 350
-------- -------- -------- --------
Operating expenses:
Sales and marketing ............................. 1,494 460 2,606 752
General and administrative ...................... 3,530 1,180 6,569 1,778
Stock compensation .............................. 184 -- 314 --
-------- -------- -------- --------
Operating expenses ................................ 5,208 1,640 9,489 2,530
-------- -------- -------- --------
Operating loss .................................... (4,748) (1,535) (8,688) (2,180)
Interest (income)/expense ......................... (1,358) 79 (1,672) 232
-------- -------- -------- --------
Net loss .......................................... (3,390) (1,614) (7,016) (2,412)
-------- -------- -------- --------
Dividends on mandatorily redeemable preferred stock (144) (665) (2,829) (1,026)
-------- -------- -------- --------
Loss applicable to common stock ................... $ (3,534) $ (2,279) $ (9,845) $ (3,438)
======== ======== ======== ========
Net loss per share - basic and diluted ............ $ (0.16) $ (0.40) $ (0.72) $ (0.56)
======== ======== ======== ========
Shares used in computing net loss per share ....... 21,628 5,669 13,743 6,119
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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i3 MOBILE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
June 30, June 30,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................................... $ (7,016) $ (2,412)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .................................................... 495 16
Stock compensation expense ....................................................... 314 --
Issuance of common stock warrants ................................................ 31 100
Other ............................................................................ 71 10
Changes in operating assets and liabilities:
(Increase) in accounts receivable ............................................... (586) (19)
Decrease in deferred advertising ............................................... 85 --
Decrease (increase) in other current assets and other assets ................... 569 (17)
(Decrease) increase in accounts payable ......................................... (581) 287
(Decrease) in accrued liabilities ............................................... (203) (56)
-------- --------
Net cash used in operating activities ................................................ (6,821) (2,091)
-------- --------
Cash flows from investing activities:
Purchase of fixed assets ......................................................... (2,607) --
-------- --------
Net cash used in investing activities ................................................ (2,607) --
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock, net ............................................ 80,654 --
Proceeds from sale of preferred stock, net ......................................... -- 11,944
Proceeds from exercise of stock options ............................................ 114 --
Repurchase of common and preferred stock ........................................... -- (3,000)
Repayments of notes payable ........................................................ -- (664)
Repayments of notes receivable - related parties ................................... 13 9
-------- --------
Net cash provided by financing activities ............................................ 80,781 8,289
-------- --------
Increase in cash and cash equivalents ................................................ 71,353 6,198
Cash and cash equivalents at beginning of period ..................................... 28,241 166
-------- --------
Cash and cash equivalents at end of period ........................................... $ 99,594 $ 6,364
======== ========
Supplemental disclosures of cash flow and non cash activities:
Interest paid in cash .............................................................. $ 8 $ 33
Conversion of preferred stock for debt ............................................. $ -- $ 5,000
Accretion of mandatorily redeemable preferred stock ................................ $ 2,829 $ 1,026
Conversion of preferred to common stock ............................................ $ 58,167 $ --
</TABLE>
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 six month
periods ended June 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
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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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, 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 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 JUNE 30, 2000 AND JUNE 30, 1999
Net Revenue. Net revenue increased 155% to $1,106,000 for the three
months ended June 30, 2000 from $433,000 for the three months ended June 30,
1999. The increase from the prior year is primarily attributable to development
revenue realized under an agreement with BroadcastEntertainment.com and the
growth of our subscriber base as a result of our agreements with existing
wireless network operators. Under the terms of the BroadcastEntertainment.com
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 97% to $646,000 for the
three months ended June 30, 2000 from $328,000 for the three months ended June
30, 1999. The increase was associated with labor costs directly related to
services provided to BroadcastEntertainment.com, an increase in content costs
associated with the delivery of stock quote information, an increase in minimum
fees associated with the acquisition of additional general news content, 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
225% to $1,494,000 for the three months ended June 30, 2000 from $460,000 for
the three months ended June 30, 1999. The increase from the prior year is
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 the Company and our products and
services.
General and Administrative Expenses. General and administrative
expenses increased 199% to $3,530,000 for the three months ended June 30, 2000
from $1,180,000 for the three months ended June 30, 1999. The increase was
primarily due to increased compensation costs from the addition of corporate and
business development personnel and increased professional fees related to the
Offering, rent and other related infrastructure expenses.
Interest (Income) Expense, Net. Net interest income was $1,358,000 for
the three months ended June 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 June 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.
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Net Revenue. Net revenue increased 114% to $2,016,000 for the six
months ended June 30, 2000 from $943,000 for the six months ended June 30, 1999.
The increase from prior year is primarily attributable to development revenue
realized under an agreement with BroadcastEntertainment.com and the growth of
our subscriber base as a result of our agreements with existing wireless network
operators.
Cost of Revenue. Cost of revenue increased 105% to $1,215,000 for the
six months ended June 30, 2000 from $593,000 for the six months ended June 30,
1999. The increase was associated with labor costs directly related to services
provided to BroadcastEntertainment.com, an increase in content costs associated
with the delivery of stock quote information, an increase in minimum fees
associated with the acquisition of additional general news content, 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
247% to $2,606,000 for the six months ended June 30, 2000 from $752,000 for the
six months ended June 30, 1999. The increase from prior year is 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 the Company and our products and services.
General and Administrative Expenses. General and administrative
expenses increased 269% to $6,569,000 for the six months ended June 30, 2000
from $1,778,000 for the six months ended June 30, 1999. The increase was
primarily due to increased compensation costs from the addition of corporate and
business development personnel and increased professional fees related to the
Offering, rent and other related infrastructure expenses.
Interest (Income) Expense, Net. Net interest income was $1,672,000 for
the six months ended June 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 six
months ended June 30, 1999 was comprised primarily of interest on our
indebtedness to the Connecticut
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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 June 30,
2000.
Net cash used in operating activities was $2,091,000 for the six months
ended June 30, 1999 and $6,821,000 for the six months ended June 30, 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 $8,289,000 for the six
months ended June 30, 1999 and $80,781,000 for the six months ended June 30,
2000. Cash provided by financing activities in the period ended June 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 June 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.
Cash used in investing activities was $0 for the six months ended June
30, 1999 and $2,607,000 for the six months ended June 30, 2000. Cash used in
investing activities relates primarily to equipment and computer purchases for
our new operations center and headquarters.
As of June 30, 2000, we had cash and cash equivalents of $99,594,000.
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.
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 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 June 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 3% of budgeted net loss
for each 1% change in interest rates.
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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: August 10, 2000
i3 MOBILE, INC.
By:/s/ Michael P. Neuscheler
---------------------------
Vice President and Chief
Financial Officer
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