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[i3 Mobile, Inc. Logo]
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i3 MOBILE, INC.
5,100,000 SHARES
COMMON STOCK
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This is the initial public offering of i3 Mobile, Inc. We are offering
5,100,000 shares of our common stock.
Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "IIIM."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS I3 MOBILE, INC.
<S> <C> <C> <C>
Per Share $16.00 $1.12 $14.88
Total $81,600,000 $5,712,000 $75,888,000
</TABLE>
We have granted the underwriters the right to purchase up to an additional
765,000 shares to cover any over-allotments.
DEUTSCHE BANC ALEX. BROWN
CHASE H&Q
CREDIT SUISSE FIRST BOSTON
The date of this prospectus is April 6, 2000
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Inside Front Cover
[Description of Artwork:
FRONT COVER:
The front cover will be a single page with the i3 Mobile, Inc. logo centered
towards the upper middle section of the page. The logo is in the center of an
imaginary circle with seven arrows pointing at its top and seven sound waves
emanating from its bottom towards the bottom half of the page. At the top of
the page, on the other end of the arrows is the following text forming the top
half of the imaginary circle: ENTERTAINMENT, E-COMMERCE & ADVERTISING, NEWS,
FINANCIAL INFORMATION, SPORTS, INTERNET & INTRANET, WEATHER.
Behind the text is a graphic complementary to it:
- - a cloud with rain behind WEATHER;
- - a computer behind INTERNET & INTRANET;
- - sports equipment behind SPORTS;
- - stock chart behind FINANCIAL INFORMATION;
- - newspaper behind NEWS;
- - clenched fist behind E-COMMERCE & ADVERTISING; and
- - theater mask behind ENTERTAINMENT.
The seven sound waves lead to seven oval pictures of different men and women
using wireless devices (pagers, cell phones) in various situations (in the
office, in the car, in the park, on the street), forming the bottom half of the
imaginary circle.
In the lower third of the page, there are three pictures of wireless devices
lined up next to each other (a Nokia cell phone, a personal digital assistant,
and a NeoPoint cell phone) with different text messages on each one (horoscope,
stock quote, and sports score, respectively). Below that is the following text:
CONNECTING CONSUMERS, CONTENT & COMMERCE.
Centered at the bottom of the page is the "Powered by i3 Mobile" logo.
INSIDE OF GATEFOLD OF FRONT COVER:
The inside of the gatefold of the cover features some of the same graphics
(cloud with rain; newspaper; sports equipment; computer; stock chart). There are
also graphics of a wireless phone and a personal digital assistant in the
background as well. The i3 Mobile, Inc. corporate logo and the company name are
in the top left corner of the page. The bottom left corner has the following
text:
CONNECTING CONSUMERS, CONTENT & COMMERCE.
The page is divided into three sections by three large ovals with text in the
right side and graphics in the left side of each oval. On the top outer layer
of each oval box is the text:
INTEGRATION, PERSONALIZATION, DISTRIBUTION.
All three ovals are linked by sound waves.
The text of the INTEGRATION oval: i3 Mobile offers a wide range of content and
e-commerce services for distribution to small-screen wireless devices from over
50 third party content providers.
To the left of the text are 11 content provider logos (Dow Jones; Sports Ticker;
Associated Press; The Weather Channel; Los Angeles Times; The Canadian Press;
Comtex; FOX News; 1-800-flowers.com; infoUSA; cnbc.com).
The text of the PERSONALIZATION oval:
i3 Mobile has created proprietary systems to parse, filter and format data
based on personal preferences specified by our customers through the more than
20 interactive wireless portals we have built for wireless network operators and
Web sites.
To the left of and under the text are four screen shots of various
Web-provisioning sites that i3 has built (Omnipoint Communications; The
Weather Channel; Bell Mobility; Southwestern Bell Wireless).
The text of the DISTRIBUTION oval:
i3 Mobile has developed a network of distribution relationships with more than
15 wireless carriers in North America, who offer our services under the
"Powered by i3 Mobile" brand.
To the left of and under the text are logos of business partners through whom i3
Mobile distributes its services (Omnipoint Communications; Bell Mobility;
CellularOne; Southwestern Bell Wireless) and our "Powered by i3 Mobile"
logo.
Emanating from this oval are four sound waves that connect to pictures of
devices to which i3 delivers content: Nokia mobile phone, Neopoint phone,
PalmPilot, and pager.]
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and may
not contain all the information that is important to you. To learn about this
offering and our business, you should carefully read the entire prospectus,
including the risk factors and our financial statements and related notes.
Unless otherwise indicated, we present information in this prospectus
assuming:
- the conversion of all outstanding shares of preferred stock into an
aggregate of 11,316,765 shares of common stock upon the closing of this
offering; and
- the underwriters have not exercised their over-allotment option to
purchase additional shares of common stock.
OUR BUSINESS
We provide timely personalized information to users of wireless devices
such as mobile phones, pagers and personal digital assistants to address their
media content and electronic commerce needs. We currently deliver information
content in a variety of categories, including finance, news, weather, sports,
entertainment, traffic and travel, from over 50 content sources. We have also
begun to offer additional products and services, including advertising sales,
wireless electronic commerce, e-mail and personal information management
applications. We believe that our technical knowledge, business relationships
and experience will enable us to capitalize on the growth of the wireless data
medium.
We provide our products and services primarily through our distribution
relationships with wireless network operators. We currently provide personalized
wireless information services developed for, and provided under agreements with,
more than 15 wireless network operators, collectively representing approximately
48 million wireless phone subscribers at September 30, 1999, or more than 55% of
the North American market of wireless phone users. We have also developed
wireless message delivery systems for four Internet media networks and corporate
enterprises. At December 31, 1999, we had over 450,000 users of our products and
services, of which approximately 100,000 were paying subscribers and 350,000
were complimentary users.
OUR HISTORY OF OPERATING LOSSES
We incurred net losses of approximately $1.3 million for the year ended
December 31, 1996, approximately $2.4 million for the year ended December 31,
1997, approximately $2.9 million for the year ended December 31, 1998 and
approximately $10.3 million for the year ended December 31, 1999, resulting in
an accumulated deficit of approximately $45.0 million at December 31, 1999, of
which $26.6 million represents non-cash charges related to dividends on and
redemptions of our preferred stock in 1999. We expect to continue to operate at
a significant net loss and have negative operating cash flows as we incur costs
related to product development, sales and marketing and administrative expenses.
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PRODUCTS AND SERVICES
We market our products and services using the established distribution
channels of our distributors and the combined brand names of our distributors
and our own brand name. Our products and services are offered on both a
complimentary and subscription basis. Our complimentary service allows users to
select from a limited number of content categories, such as sports, weather or
finance, to receive a daily message at no cost to the user. Our subscription
service allows users to select from a larger number of content categories to
receive multiple personalized messages throughout the day for a fee. We have
proprietary technology and systems that have been designed to provide a network
and device independent platform for the creation and delivery of our products
and services.
In addition, we offer wireless network operators a package of services,
including personal profiling, content aggregation, content parsing, application
development, message delivery, billing and customer service, for the delivery of
customized content and information through their networks. We also offer any one
or more of these services to Internet media networks and corporate enterprises.
RISK FACTORS
Investing in our shares of common stock involves a high degree of risk. We
face a number of risks that you should consider before you decide to invest in
our common stock, including:
- our reliance on third parties to market and distribute our products and
services;
- our reliance on a limited number of wireless network operators for a
significant portion of our revenues;
- our ability to anticipate and respond to market competition and operate
in an industry with a growing number of competitors;
- our ability to attract and retain users; and
- the challenge of operating in a new and rapidly evolving industry that
may not gain market acceptance.
A number of these risks may make it more difficult for us to achieve our
objectives and execute our strategy. See the section entitled "Risk Factors"
which starts on page 7.
MARKET OPPORTUNITY
We believe that wireless mobile data is emerging as a powerful new medium,
uniquely capable of creating value through the ability to deliver highly
personalized, local, timely and interactive content and services to wireless
devices. According to DataQuest, wireless data subscribers will grow at a
compound annual growth rate of 82% from 3 million subscribers in 1999 to 36
million subscribers in 2003, creating a market with more than $3 billion in
annual revenue. The emergence of the mobile data medium is being driven by the
convergence of four major trends:
- growth in wireless communications;
- growth in internet services;
- evolution of media; and
- development of technology, applications and standards.
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The emergence of the Internet has significantly increased consumer demand
for access to information. As a group, on-line consumers are increasingly using
new methods, including wireless technologies, to access information typically
available on the Internet. International Data Corporation predicts that the
worldwide annual sales of Internet handheld devices, such as wireless phones and
personal digital assistants, will grow at a compound annual rate of 62% from
$1.2 billion in 1998 to $8.2 billion in 2002. The convergence of the Internet
and digital wireless technologies presents new opportunities for consumers to
access real-time information while away from their desktop computers. We believe
that, by using our platform, wireless network operators, Internet media networks
and corporate enterprises can differentiate their services to retain and
strengthen their existing customer relationships and attract new customers.
STRATEGY
Our objective is to be the leading provider of personalized wireless data
products and services that provide information, entertainment and electronic
commerce. The key elements of our strategy are to:
- position i3 Mobile as the single-source wireless portal for wireless
network operators, Internet media networks and corporate enterprises;
- continue to build innovative products;
- grow our user base and build i3 Mobile brand awareness;
- expand and diversify our distribution relationships;
- develop advertising and transactional revenue; and
- advance our technology and content delivery systems.
OUR OFFICES AND HISTORY
We were incorporated as Intelligent Information Incorporated under the laws
of the State of Delaware on June 28, 1991. On January 4, 2000, we changed our
name to i3 Mobile, Inc. Our principal executive office is located at 181 Harbor
Drive, Stamford, Connecticut, and our telephone number at that office is (203)
428-3000. In addition, we maintain offices at One Dock Street, Suite 500,
Stamford, Connecticut; 1237 Southridge Court, Suite 100, Hurst, Texas; and 305
N.E. Loop, Hurst, Texas. Our Web site is located at www.i3mobile.com.
Information contained on our Web site does not constitute part of this
prospectus.
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THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by i3 Mobile..... 5,100,000 shares.
Common Stock to be outstanding after
this offering....................... 22,187,265 shares.
Use of Proceeds....................... For expansion of sales and marketing,
further development of systems
infrastructure, working capital and
general corporate purposes, including
the development of technology
alliances. See Use of Proceeds for
more detailed information.
Nasdaq National Market Symbol......... "IIIM"
</TABLE>
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The outstanding share information shown in the table above is as of the date of
this prospectus and excludes:
- 1,939,084 shares of common stock issuable upon the exercise of warrants
at a weighted average exercise price of $3.53 per share;
- an aggregate of 1,005,300 shares of common stock issuable upon the
exercise of outstanding stock options under our 1995 Stock Incentive Plan
at a weighted average exercise price per share of $3.18;
- 252,600 shares of common stock issuable upon the exercise of outstanding
stock options under our 2000 Stock Incentive Plan at a weighted average
exercise price per share of $9.39; and
- 8,700 shares of common stock available for future grant under our 1995
Stock Incentive Plan and 997,400 shares of common stock available for
future grant under our 2000 Stock Incentive Plan.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes our consolidated statement of operations
data for each of the years ended December 31, 1995, 1996, 1997, 1998 and 1999,
and our consolidated balance sheet data as of December 31, 1999. The data for
the year ended December 31, 1995 is unaudited. This information should be read
along with the consolidated financial statements and the related notes included
elsewhere in this prospectus.
The pro forma net loss per share data below for the year ended December 31,
1999, reflects the conversion of all of our outstanding shares of preferred
stock into 11,316,765 shares of common stock upon the completion of this
offering as though this event occurred as of their issuance date.
The pro forma summary consolidated balance sheet data below reflects the
conversion of all of our outstanding shares of preferred stock into 11,316,765
shares of common stock upon the completion of this offering as though this event
occurred as of December 31, 1999.
The pro forma as adjusted balance sheet data below adjusts the pro forma
information to give effect to the sale of 5,100,000 shares of common stock
offered by us in this offering, after deducting underwriting discounts and
commissions and estimated offering expenses, and the application of the net
proceeds. See Use of Proceeds.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
----------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue..................................... $ 387 $ 645 $ 825 $ 1,405 $ 1,734
Cost of revenue................................. 190 465 700 1,081 1,302
------ ------- ------- ------- --------
Gross profit.................................... 197 180 125 324 432
Operating expenses.............................. 966 1,507 2,492 2,890 6,962
------ ------- ------- ------- --------
Operating loss.................................. (769) (1,327) (2,367) (2,566) (6,530)
Interest (income) expense - net................. (22) (8) 81 329 326
------ ------- ------- ------- --------
Loss before extraordinary item.................. (747) (1,319) (2,448) (2,895) (6,856)
Extraordinary loss on extinguishment of debt.... - - - - (3,434)
------ ------- ------- ------- --------
Net loss........................................ $ (747) $(1,319) $(2,448) $(2,895) $(10,290)
Dividends on and redemptions of preferred
stock......................................... - (8) (76) (274) (26,580)
====== ======= ======= ======= ========
Loss applicable to common stock................. $ (747) $(1,327) $(2,524) $(3,169) $(36,870)
====== ======= ======= ======= ========
Net loss per share -- basic and diluted:
Loss before extraordinary item.................. $(0.10) $ (0.18) $ (0.33) $ (0.42) $ (5.83)
Extraordinary item.............................. - - - - (0.60)
------ ------- ------- ------- --------
Net loss........................................ $(0.10) $ (0.18) $ (0.33) $ (0.42) $ (6.43)
====== ======= ======= ======= ========
Shares used in computing net loss per share..... 7,282 7,552 7,554 7,554 5,736
====== ======= ======= ======= ========
Pro forma net loss per share -- basic and
diluted:......................................
Pro forma loss before extraordinary item........ $ (0.57)
Extraordinary item.............................. (0.29)
--------
Net pro forma loss.............................. $ (0.86)
========
Shares used in computing pro forma net loss per
share......................................... 11,948
========
</TABLE>
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<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 28,241 $28,241 $102,412
Working capital............................................. 29,468 29,468 103,639
Total assets................................................ 36,241 36,241 109,949
Mandatorily redeemable convertible preferred stock.......... 55,338 - -
Total stockholders' equity (deficit)........................ (22,696) 32,642 106,350
</TABLE>
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The outstanding share information shown in the table above excludes:
- 1,939,084 shares of common stock issuable upon the exercise of warrants at
a weighted average exercise price of $3.53 per share, of which 1,929,084
shares were issuable upon the exercise of warrants issued as of December
31, 1999 at a weighted average exercise price of $3.50 per share and
10,000 shares were issuable upon the exercise of warrants issued after
December 31, 1999 at an exercise price of $10.00 per share;
- an aggregate of 1,005,300 shares of common stock issuable upon the
exercise of outstanding stock options under our 1995 Stock Incentive Plan
at a weighted average exercise price per share of $3.18, of which 914,000
shares were issuable upon the exercise of outstanding stock options issued
as of December 31, 1999 at a weighted average exercise price of $2.71 and
91,300 shares were issuable upon the exercise of outstanding stock options
issued after December 31, 1999 at an exercise price of $7.92;
- 252,600 shares of common stock issuable upon the exercise of outstanding
stock options issued after December 31, 1999 under our 2000 Stock
Incentive Plan at a weighted average exercise price per share of $9.39;
and
- 8,700 shares of common stock available for future grant under our 1995
Stock Incentive Plan and 997,400 shares of our common stock available for
future grant under our 2000 Stock Incentive Plan.
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RISK FACTORS
You should carefully consider the following risks and other information in
this prospectus before you decide to buy our common stock. An investment in our
common stock involves a high degree of risk. Our business, financial condition
or operating results may suffer if any of the following risks actually occur.
Additional risks and uncertainties not currently known to us may also adversely
affect our business, financial condition or operating results. If any of these
risks or uncertainties occurs, the trading price of our common stock could
decline.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE OPERATE IN A NEW AND RAPIDLY EVOLVING MARKET, OUR FUTURE
PROFITABILITY IS UNCERTAIN.
Although we were founded in 1991, the increased growth in digital wireless
capabilities and Internet use has occurred only recently and, as a result, the
focus of our business changed significantly. Due to changes in technology and
the emergence of wireless digital telephone networks, our business has expanded
from providing limited content to pagers to our current arrangements with
distributors who offer our products and services to many users and a wide
variety of wireless devices. When making your investment decision, you should
consider the risks, expenses and difficulties that we may encounter or incur in
a new and rapidly evolving market. We face a number of risks encountered by
companies in the rapidly evolving wireless telecommunications market. Our
business strategy may not be successful, and we may not successfully address
these risks.
BECAUSE WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO INCUR SIGNIFICANT
EXPENSES, WE EXPECT TO CONTINUE TO INCUR LOSSES.
We have incurred annual operating losses each year since our inception and
we expect to incur further losses for the foreseeable future. We have incurred
net losses of $10,290,000 for the year ended December 31, 1999, $2,895,000 for
the year ended December 31, 1998, $2,448,000 for the year ended December 31,
1997, and $1,319,000 for the year ended December 31, 1996. As of December 31,
1999, our accumulated deficit was $45,001,000, of which $26,580,000 represents
non-cash charges for dividends on and redemption of our preferred stock during
1999. Because we expect to continue to incur significant product development,
sales and marketing, and administrative expenses, we will need to generate
significant revenues to become profitable and sustain profitability on a
quarterly or annual basis. We may not achieve or sustain our revenue or profit
goals, and our ability to do so depends on a number of factors outside of our
control, including the extent to which:
- there is market acceptance of commercial services utilizing our products;
- our competitors announce and develop, or lower the prices of, competing
products; and
- our distributors dedicate resources to selling our products and services.
As a result, we cannot predict if we will ever achieve profitability. In
addition, our failure to achieve profitability within the time frame expected by
our investors may adversely affect the market price of our common stock.
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BECAUSE BOTH OUR BUSINESS MODEL AND THE USE OF WIRELESS DEVICES FOR DELIVERY OF
DATA SERVICES ARE EVOLVING AND UNPROVEN, WE CANNOT PREDICT WHETHER OUR PRODUCTS
AND SERVICES WILL GENERATE SUFFICIENT REVENUES.
Our business model is relatively new, unproven and likely to continue to
evolve. Accordingly, our business model may not be successful, and we may have
to adjust it. In addition, our future success depends on the continued increase
in wireless device use and the continued development of wireless devices as a
viable medium for the delivery of products and services. In particular, our
success depends on commercial acceptance of wireless telephones and other
wireless devices, and the Internet, to obtain timely personalized information.
We cannot predict whether demand for our products and services will continue to
develop, particularly at the volume or prices that we need to become profitable.
IF WIRELESS DEVICES ARE NOT WIDELY ACCEPTED FOR MOBILE DELIVERY OF CONTENT
SERVICES AND INTERNET-BASED SERVICES, OUR BUSINESS WILL SUFFER MATERIALLY.
Our future success depends upon the acceptance of wireless communications
for delivery of content and Internet-based services. Most mobile individuals
currently use portable computers to access the Internet, conduct electronic
commerce transactions and remotely retrieve real-time information and e-mail.
Computers are generally designed for the visual presentation of data, whereas
wireless telephones and pagers historically have been limited to messaging by
letters, numbers and a finite number of symbols. If users do not accept
text-based messages instead of a computer image to conduct electronic commerce
using wireless devices, our electronic commerce business may not develop as
expected. We cannot assure you that wireless users will accept the use of
handheld devices to receive content or Internet-based services.
BECAUSE WE DEPEND UPON WIRELESS NETWORKS OWNED AND CONTROLLED BY OTHERS FOR
ACCESS TO SUFFICIENT CAPACITY AND LEVEL OF SERVICE QUALITY, WE MAY BE UNABLE TO
DELIVER OUR PRODUCTS AND SERVICES AND OUR USER BASE AND REVENUE COULD DECREASE.
Our ability to grow and achieve profitability partly depends on our ability
to access sufficient capacity on the networks of wireless carriers such as AT&T
Wireless Services and Omnipoint Communications Services, and on the reliability
and security of their systems. All of our products and services are delivered
using transmission services provided by third parties. We depend on these
companies to provide uninterrupted and quality service and would not be able to
satisfy our users' needs if our wireless network operators fail to provide the
required capacity or level of service.
BECAUSE WE DEPEND ON THIRD PARTIES TO MARKET AND DISTRIBUTE OUR PRODUCTS AND
SERVICES, IF THEIR EFFORTS ARE NOT SUFFICIENT OR EFFECTIVE, WE MAY NOT ACHIEVE
PROFITABILITY.
We rely substantially on the efforts of others to actively market and
distribute our wireless data services. In order to increase the value of our
products and services to our users and encourage demand for content delivery via
wireless devices, we must successfully promote our products and services to
distributors. If our distributors fail to create sufficient interest in content
delivery services via
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wireless devices, we may be unable to attract new users and our business could
suffer materially. We may not be able to control how those who distribute and
market our products and services perform and we cannot be certain that their
marketing efforts are or will be satisfactory. If the marketing and/or
distribution efforts of wireless network operators, Internet media networks or
corporate enterprises fail to attract new users, we may be unable to acquire new
subscribers and our revenue could be adversely affected.
BECAUSE THREE OF OUR WIRELESS NETWORK OPERATORS ACCOUNTED FOR APPROXIMATELY 70%
OF OUR REVENUE FOR THE YEAR ENDED DECEMBER 31, 1999, A LOSS OF ANY OF THEM AS
DISTRIBUTORS OF OUR PRODUCTS AND SERVICES WOULD SIGNIFICANTLY REDUCE OUR
REVENUE.
To date, the largest distributors of our products and services in terms of
revenue generated have been Omnipoint Communications Services, SBC
Communications, Inc. and Bell Mobility Cellular, Inc. Subscription revenues
generated by users of these wireless networks together accounted for
approximately 70% of our revenue for the year ended December 31, 1999 and 52%
for the year ended December 31, 1998. In addition, Omnipoint Communications
Services alone accounted for over 41% of our total revenue for the year ended
December 31, 1999 and 41% for the year ended December 31, 1998. We expect that
we will generate a significant portion of our revenue from a small number of
wireless network operators for the foreseeable future. Our growth depends on
maintaining our relationships with these and our other wireless network
operators and developing distribution relationships with additional wireless
network operators. If we lose any of these wireless network operators our
revenue would be significantly reduced, which would harm our business.
BECAUSE OUR BUSINESS HAS GROWN RAPIDLY, WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE
OUR GROWTH.
Our growth has placed, and any further growth is likely to continue to
place, considerable strain on our management team and other personnel, our
internal accounting and management information systems and the third-party
systems on which we depend. If we fail to manage our growth effectively our
business would be adversely affected. In addition, we intend to use the net
proceeds of this offering to develop additional products and services and to
accelerate our growth. Our growth plans are likely to continue to place a
significant strain on our personnel, and we believe that our current accounting
and management information systems are inadequate to handle our anticipated
growth. Our failure to hire additional personnel or to improve our systems
increases the risk that we will not be able to achieve our growth objectives or,
if achieved, we will not be able to manage our operations effectively.
BECAUSE WE HAVE NON-EXCLUSIVE AGREEMENTS WITH THE WIRELESS NETWORK OPERATORS WHO
DISTRIBUTE OUR PRODUCTS AND SERVICES, OUR COMPETITORS MAY BE ABLE TO OBTAIN
ARRANGEMENTS SIMILAR TO OURS.
Our existing agreements with our wireless network operators are non-
exclusive. Some or all of our wireless network operators may decide to establish
relationships with our competitors. In addition, some of these wireless network
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operators are, or could become, our competitors by offering the same or similar
products and services. If the wireless network operators who distribute our
products and services began competing directly with us or offering our
competitors' products and services, our business and growth prospects would
suffer.
OUR EXPENSES WOULD INCREASE AND OUR PROFITABILITY COULD BE MATERIALLY ADVERSELY
AFFECTED IF OUR WIRELESS NETWORK OPERATORS CHANGE THEIR CURRENT FEE STRUCTURES.
Currently, we pay our wireless network operators a distribution fee for
allowing us to use their networks to deliver content to our direct subscribers
and for delivery of advertising and electronic commerce-enabling messages. If
the wireless network operators increase these fees or begin to charge additional
fees, our expenses would increase and our profitability could be materially
adversely affected. Further, if the wireless network operators require us to
lower the subscription rates we charge their customers for our products and
services, our revenues would also decrease, which would also affect our
profitability adversely.
BECAUSE OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, WE MAY
NOT MEET EXPECTATIONS OF INVESTORS AND OUR STOCK PRICE MAY DECLINE.
Our operating results are likely to fluctuate from period to period due to
a variety of factors, including the following:
- continued growth in the use and quality of wireless communications
products;
- the rate at which we are able to acquire new users;
- our ability to generate subscriptions among our user base;
- changes in our revenue arrangements with wireless network operators;
- timing of introduction of new products and services;
- changes in pricing policies and product offerings by us or our
competitors;
- continued growth in Internet usage;
- our ability to enter into revenue generating relationships with content
and electronic commerce providers;
- costs associated with advertising, marketing and promotional efforts to
acquire subscribers;
- changes in our fee arrangements with advertisers, electronic commerce
providers and content providers; and
- capital expenditures and other costs and expenses related to improving
our business, expanding our operations and adapting to new technologies
and changes in subscriber preferences.
In addition, our operating expenses are based on our expectations of the
future demand for our products and services. Moreover, we frequently will incur
expenses in connection with the integration and offering of new content, which
are likely to be incurred substantially in advance of related revenues. We may
be
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unable to adjust spending quickly enough to offset any unexpected demand
shortfall or delay in offering our products and services. Any shortfall in
revenues would have a direct impact on operating results for a particular
quarter, and these fluctuations could affect the market price of our common
stock. If we do not meet expectations of investors in a particular quarter, the
price of our common stock could decline.
IF WE LOSE KEY MANAGEMENT OR OTHER PERSONNEL, WE MAY EXPERIENCE DELAYS IN OUR
PRODUCT DEVELOPMENT AND OUR GROWTH PROSPECTS.
We believe that our success depends upon the continued efforts of our
senior management and key technical personnel, including Stephen G. Maloney, our
president and chief executive officer. Our growth and success also depend on our
ability to attract, hire and retain additional highly qualified management,
technical, marketing and sales personnel. These individuals are in high demand
and we may not be able to attract the staff we need. The hiring process is
intensely competitive, time consuming and may divert the attention of our
management from our operations. Competitors and other companies may attempt to
recruit our employees. If we lose the services of any of our senior management
or key technical personnel, or if we fail to continue to attract qualified
personnel, our business could suffer.
BECAUSE OUR BUSINESS DOES NOT GENERATE SUFFICIENT CASH TO FUND OUR OPERATIONS,
IF WE DO NOT OBTAIN ADDITIONAL CAPITAL ON ACCEPTABLE TERMS, WE MAY NOT BE ABLE
TO CONTINUE TO GROW OUR BUSINESS.
In the past, we have met our capital needs through private sales of
securities. In order to implement our strategy, we expect to spend significant
amounts of money to:
- advertise, market and promote our products and services;
- expand our technical infrastructure;
- secure agreements with content and electronic commerce providers;
- create advanced customer care and operations centers; and
- fund operating losses and working capital.
If additional funds are raised through a bank credit facility or the
issuance of debt securities, the holders of this indebtedness would have rights
senior to the rights of the holders of our common stock, and the terms of this
indebtedness could impose restrictions on our operations. We may not be able to
raise additional capital in the future on terms acceptable to us, or at all. If
alternative sources of financing are insufficient or unavailable, we will be
required to modify our growth and operating plans in accordance with the extent
of available funding.
IF WE ARE UNABLE TO MAINTAIN, IMPROVE AND DEVELOP OUR PRODUCTS AND SERVICES, WE
MAY NOT ACHIEVE PROFITABILITY.
We may not be able to develop and introduce new products, services and
enhancements that respond to technological changes, evolving industry standards
11
<PAGE> 14
or customer needs and trends on a timely basis, in which case our business would
suffer. We believe that our future business prospects depend in part on our
ability to maintain and improve our current products and services and to develop
new ones on a timely basis. Our products and services will have to achieve
market acceptance, maintain technological competitiveness and meet an expanding
range of customer requirements. As a result of the complexities inherent in our
offerings, major new wireless data services and service enhancements may require
long development and testing periods. We may experience difficulties that could
delay or prevent the successful development, introduction or marketing of new
products and services and service enhancements. Additionally, our new products,
services and enhancements may not achieve market acceptance. Also, our
competitors may develop alternative technologies that gain broader market
acceptance than our products and services. If we cannot effectively maintain,
improve and develop products and services we may not be able to recover our
fixed costs or otherwise become profitable.
BECAUSE THE ADOPTION PERIOD FOR OUR PRODUCTS AND SERVICES BY THE CUSTOMERS OF
THE WIRELESS NETWORK OPERATORS, INTERNET MEDIA NETWORKS AND CORPORATE
ENTERPRISES WHO DISTRIBUTE OUR PRODUCTS AND SERVICES IS LONG, OUR STOCK PRICE
COULD DECLINE IF REVENUES ARE DELAYED.
We cannot predict the rate of adoption by wireless users of our services or
the price they may be willing to pay for our products and services in the
future. Fluctuations in our operating performance are exacerbated by the length
of time between our first contact with a wireless network operator, Internet
media network or corporate enterprise and the first revenue from sales of
products and/or services to the end-user.
IF WE ARE UNABLE TO MIGRATE OUR COMPLIMENTARY USERS TO OUR SUBSCRIBER SERVICES,
OR GENERATE SUFFICIENT ADVERTISING REVENUE TO SUPPORT THESE COMPLIMENTARY USERS,
WE MAY NOT ACHIEVE PROFITABILITY.
At December 31, 1999, 22% of our users were paying subscribers. We intend
to migrate our complimentary users to paying subscribers through direct and
cooperative marketing efforts with our distributors, including advertising
messages describing the products and services attached to complimentary
messages, direct mail pamphlets included with wireless telephone invoices and
Internet-based promotions on distributors' Web sites. If a wireless network
operator limits the use of the complimentary service to the user to a limited
period and these complimentary users fail to become subscribers, our user base
may decline and we may not generate sufficient revenues to become profitable.
IF WE DO NOT CONTINUE TO OFFER DESIRED CONTENT, WE MAY NOT BE ABLE TO ATTRACT
AND RETAIN SUBSCRIBERS AND ADVERTISERS.
Currently, we rely on third parties, such as news, sports, weather and
financial information companies, to provide the content we offer our users. It
is important to our business that we maintain our existing relationships with
these content providers and enter into new relationships giving our users access
to content they find useful. Our content agreements frequently are for one-year
terms and are non-exclusive. Our content providers may choose not to renew their
agreements
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<PAGE> 15
with us or may terminate their agreements early if we do not fulfill our
contractual obligations. If that occurs, we would need to establish new
relationships with other content providers, and we would face the prospect of
losing users. In addition, we cannot assure you that our content providers will
not raise the prices they charge for content. If the pricing terms with our
content providers change, our revenues and profitability would be affected. Our
failure to provide useful content could result in decreased numbers of users,
which, in turn, would result in decreased revenue.
IF COMPETITION FOR OUR PRODUCTS AND SERVICES INCREASES, IT COULD REDUCE OUR
MARKET SHARE AND DECREASE OUR REVENUE.
We face competition from a wide variety of businesses that provide products
and services that compete with some or all of our products and services. We also
face competition from new products which could affect our business. Generally,
our agreements with wireless network operators, wireless handheld device
manufacturers and content providers are non-exclusive. As a result, our
competitors may establish relationships that allow them to use the same products
and services. With time and capital, it would be possible for competitors to
replicate our services. Competition could reduce our market share or force us to
lower prices to unprofitable levels.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST COMPETITORS THAT HAVE
SIGNIFICANTLY GREATER RESOURCES THAN WE DO WHICH COULD CAUSE US TO LOSE USERS
AND IMPEDE OUR ABILITY TO ATTRACT NEW USERS.
The business of providing wireless information services is highly
competitive and is affected by the introduction of new services by, and the
market activities of, major industry participants. Several of our competitors
are substantially larger and have greater financial, technical and marketing
resources than we do. In particular, larger competitors have certain advantages
over us which could cause us to lose our wireless network operators or users and
impede our ability to attract new users, including:
- brand recognition with distributors and users;
- financial, technical, marketing, personnel and other resources
substantially greater than ours;
- more established relationships with our targeted distributors;
- more funds to deploy services; and
- ability to lower prices of competitive products and services.
Furthermore, some competitors have and others may develop a different
approach to marketing the products and services we provide in that they may not
require subscribers to pay for the wireless information provided. As a result,
we may not be able to compete successfully in our market.
IF WE FAIL TO OBTAIN CONSENT FROM WIRELESS NETWORK OPERATORS TO PROVIDE
ADDITIONAL PRODUCTS AND SERVICES TO USERS, INCLUDING ADVERTISING AND ELECTRONIC
COMMERCE, WE MAY NOT BE ABLE TO SELL NEW AND EXISTING PRODUCTS AND SERVICES AT A
PROFIT.
We generally must obtain the consent of the wireless network operators in
order to offer additional products and services to our users on their networks.
If
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<PAGE> 16
wireless network operators limit our product and service offerings to their
subscribers, including advertising and electronic commerce, our revenue may not
increase.
BECAUSE OUR DISTRIBUTORS MAY EXPERIENCE A HIGH RATE OF CUSTOMER TURNOVER, OUR
COST OF OPERATIONS COULD INCREASE AND OUR REVENUE COULD DECREASE.
Many providers in the wireless services industry have experienced a high
rate of customer turnover. The rate of customer turnover may be the result of
several factors, including network coverage, reliability issues such as blocked
and dropped calls, handset problems, non-usage of phones, change of employment,
affordability and customer care concerns. Price competition and other
competitive factors could also increase customer turnover rates. When a user
chooses a new wireless services provider, he or she may or may not have the
opportunity to receive our products and services. We have little or no control
over customer turnover of our wireless network operators, and a high rate of
customer turnover could adversely affect our competitive position, results of
operations and our costs of obtaining new subscribers, including increased
marketing costs needed to attract new customers.
BECAUSE WE DO NOT RECONCILE OUR USER AND SUBSCRIBER COUNTS WITH THOSE OF OUR
DISTRIBUTORS MORE FREQUENTLY THAN ON A QUARTERLY BASIS, THESE COUNTS MAY NOT
REFLECT THE ACTUAL NUMBER OF OUR USERS AND SUBSCRIBERS AT ANY PARTICULAR POINT
IN TIME.
We maintain a database of user profiles created by each user at the time
they register for our services and we derive our user and subscriber counts from
this database. This database is a component of our message delivery system and
is not a part of our financial reporting systems. Our experience indicates that
each month a number of users of our products and services cancel their
agreements with us for a variety of reasons, including termination of their
subscriptions to our distributors' services. We continually update our database
of users and subscribers and generally reconcile our user and subscriber counts
with those of our distributors on a quarterly basis. Accordingly, the number of
users contained in our database at a particular point in time may not reflect
users or subscribers that have recently cancelled their service with their
wireless network operator. As a result, we cannot assure you that the user and
subscriber counts in our database are accurate at any particular date. Because
investors may value our company based on the number of users and subscribers of
our services, our stock price may fluctuate accordingly.
BECAUSE WE MAY LOSE SOME OF OUR WIRELESS NETWORK OPERATOR RELATIONSHIPS DUE TO
CONSOLIDATION IN THE INDUSTRY, WE COULD LOSE A SIGNIFICANT PORTION OF OUR USER
BASE.
The wireless communications industry has experienced significant
consolidation among service providers. If one or more of the wireless network
operators that distribute our products and services were to consolidate with
another entity, the newly consolidated entity may choose to discontinue its
relationship with us or select one of our competitors to provide them with
products and services. This could have a significant negative impact on our
ability to generate revenues.
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<PAGE> 17
BECAUSE WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS OR AVOID CLAIMS
THAT WE INFRINGED THE PROPRIETARY RIGHTS OF OTHERS, WE MAY INCUR SUBSTANTIAL
COSTS TO DEFEND OR PROTECT OUR BUSINESS AND INTELLECTUAL PROPERTY.
Our success and competitive position depend, in large part, upon our
ability to develop and maintain the proprietary aspects of our technology. We
have filed applications to register the marks "i3 Mobile," and "Powered by i3
Mobile" and "Powered by iii" in the United States but we cannot be certain that
we will be granted this registration. We have registered the marks "Eyes on the
Web," "Village Square," "News Alert Service," "Sports Alert Service," and
"Intelligent Information Incorporated" on the Principal Register of the United
States Patent and Trademark Office. We have filed a patent application for our
information messaging and advertising tagging system, Advanced Data Mining
Advertising Tagging and Transaction system. We also have a license agreement
with Portel Services Network, Inc. for Portel's patented process for transacting
some types of electronic commerce. If we fail to protect our intellectual
property, we may be exposed to expensive litigation or risk jeopardizing our
competitive position. We may have to litigate to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. This litigation could result in
substantial costs and the diversion of our management and technical resources
that would harm our business.
In addition, we joined the Wireless Application Protocol Forum Ltd., which
is an industry association of wireless service, wireless equipment and software
companies that has developed worldwide standards for wireless information and
telephone services on digital mobile phones and other wireless devices. As a
result of our affiliation with this association we have agreed to license our
intellectual property to other members on fair and reasonable terms to the
extent that the license is required to develop non-infringing products under the
specifications promulgated by the Wireless Application Protocol Forum Ltd. Each
other member of this association has entered into reciprocal agreements.
Although these agreements provide protections to prevent divulgence or
unauthorized use of such information, we cannot assure you that the other
members will take the steps necessary to protect our proprietary information.
Any claim of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and could distract
our management from our business. A party making a claim could secure a judgment
that requires us to pay substantial damages.
BECAUSE WE MAY NOT DEVELOP SIGNIFICANT REVENUES FROM ADVERTISING AND ELECTRONIC
COMMERCE, OUR BUSINESS MAY NOT GROW AS PLANNED.
We anticipate increasing our revenues from advertising and electronic
commerce transactions through our wireless portals. To generate additional
revenues from advertising and electronic commerce, we will have to continue to:
- increase our user base;
- attract users who purchase goods and services;
- obtain licenses, patents and other proprietary rights to use other
parties' intellectual property; and
- develop relationships with advertisers and electronic commerce companies.
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<PAGE> 18
BECAUSE WE INTEND TO EXPAND INTERNATIONALLY, WE WILL BE SUBJECT TO RISKS OF
CONDUCTING BUSINESS IN FOREIGN COUNTRIES.
If, as we anticipate, we expand our operations outside North America, we
will be subject to the risks of conducting business in foreign countries,
including:
- our inability to adapt our products and services to local cultural
traits, customs and mobile user preferences;
- our inability to locate qualified local employees, partners and
suppliers;
- the potential burdens of complying with a variety of foreign laws, trade
standards and regulatory requirements, including the regulation of
wireless communications and the Internet and uncertainty regarding
liability for information retrieved and replicated in foreign countries;
and
- general geopolitical risks, such as political and economic instability
and changes in diplomatic and trade relations.
If we fail to overcome any of the foregoing risks, or if we fail to
increase our revenues from advertising and electronic commerce transactions, we
will not grow as anticipated.
IF WE ACQUIRE OR INVEST IN ANOTHER COMPANY, THIS MAY DISRUPT OUR BUSINESS OR
DISTRACT OUR MANAGEMENT.
We have limited experience in acquiring businesses, technologies, services
or products. From time to time, we engage in discussions and negotiations with
companies regarding our acquiring or investing in these companies' businesses,
products, services or technologies. If we acquire or invest in another company,
we could have difficulty assimilating that company's personnel, operations,
products, services, technology and software. In addition, the key personnel of
the acquired company may decide not to work for us. These difficulties could
disrupt our ongoing business, distract our management and employees, increase
our expenses and adversely affect our results of operations. The issuance of
equity securities would be dilutive to our existing stockholders. As of the date
of this prospectus, we have no agreement to enter into any material investment
or acquisition transaction.
RISKS RELATED TO OUR TECHNOLOGY
IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE, OUR PRODUCTS AND SERVICES MAY BECOME OBSOLETE AND WE MAY LOSE USERS.
The wireless and data communications industries are characterized by
rapidly changing technologies, industry standards, customer needs and
competition, as well as by frequent new product and service introductions. Our
products and services must also be compatible with the data networks of wireless
carriers. We must respond to technological changes affecting both our users and
suppliers. We may not be successful in developing and marketing, on a timely and
cost-effective basis, new products and services that respond to technological
changes, evolving industry standards or changing customer requirements. Our
research and develop-
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<PAGE> 19
ment efforts may require significant capital and other resources. In addition,
major enhancements or improvements to our technology may require long
development and testing periods. If we fail to develop products and services in
a timely fashion, or if we do not enhance our products and services to meet
evolving user needs and industry standards, we may not remain competitive.
BECAUSE OUR NETWORK MAY BE VULNERABLE TO SECURITY RISKS, WE MAY INCUR
SIGNIFICANT COSTS TO PROTECT AGAINST THE THREAT OF SECURITY BREACHES OR TO
ALLEVIATE PROBLEMS CAUSED BY ANY BREACHES.
A significant barrier to the growth of wireless data services or
transactions on the Internet or by other electronic means has been the need for
secure transmission of confidential information. Unauthorized access, computer
viruses and other accidental or intentional actions could disrupt our systems.
We may incur significant costs to protect against the threat of security
breaches or to alleviate problems caused by such breaches. If a third party were
able to misappropriate our users' personal or proprietary information, we could
be subject to claims, litigation or other potential liabilities that could
materially adversely impact our revenue and may result in the loss of
subscribers.
IF WE EXPERIENCE ANY TYPE OF SYSTEMS FAILURE, IT COULD RESULT IN LOWER REVENUES,
INCREASED COSTS OR CLAIMS OF LIABILITY.
Our products and services depend on real-time, continuous information feeds
from our content providers including the Nasdaq Stock Market, Inc., The New York
Stock Exchange, Inc. and others. Our business strategy is focused on subscribers
that typically require timely receipt of information. Any disruption from our
satellite transmissions or backup landline transmissions could result in delays
in our subscribers' ability to receive information. We currently maintain a
backup generator system to deliver messages during power outages. We cannot
assure you that our systems will operate effectively if we experience a hardware
or software failure or if there is an earthquake, fire or other natural
disaster, a power or telecommunications failure, an act of God or an act of war.
A failure in our systems could cause delays in transmitting data, and as a
result we may lose subscribers and users or face litigation that could involve
material costs and distract management from operating our business. In July
1999, we experienced a systems failure due to a facility air conditioning outage
at our Stamford, Connecticut location for approximately six hours. The costs
related to the failure were less than $10,000.
RISKS RELATED TO REGULATION OF THE INTERNET, WIRELESS TELEPHONE
AND SERVICES PROVIDERS
IF NEW LAWS AND REGULATIONS ARE ENACTED OR THE APPLICATION OR INTERPRETATION OF
EXISTING LAWS AND REGULATIONS CHANGES WE COULD INCUR COSTS IN ORDER TO COMPLY.
The wireless network operators who distribute our products and services are
subject to regulation by the Federal Communications Commission and regulations
that affect them could increase our costs or reduce our ability to continue
distributing our products and services. In addition, there is an increasing
number of laws and regulations pertaining to wireless telephones and the
Internet under
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<PAGE> 20
consideration in the United States and elsewhere. These current and potential
laws or regulations relate to, among other things:
- liability of information providers for the transmission of indecent,
obscene or offensive content over the Internet; and
- liability of information for user privacy in respect of the collection,
distribution, disclosure, security, accuracy and other use of personal
information obtained from individuals accessing Internet sites.
Moreover, the applicability to the Internet of existing laws governing
issues such as intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment and personal privacy is
uncertain and developing. Any new legislation or regulation, or the application
or interpretation of existing laws, may have a material and adverse effect on
our business, results of operations and financial condition.
CHANGES IN GOVERNMENT REGULATIONS WHICH SUBJECT US TO SALES AND OTHER TAXES FOR
ELECTRONIC TRANSACTIONS COULD DECREASE THE DEMAND FOR OUR PRODUCTS AND SERVICES
AND NEGATIVELY IMPACT OUR RESULTS.
We do not currently collect sales tax or other similar taxes for electronic
commerce transactions executed using a wireless device. A number of legislative
proposals are under consideration by federal, state, local and foreign
governmental organizations that would impose additional taxes on the sale of
goods and services over the Internet. One or more local, state or foreign
jurisdictions may require that companies located in other jurisdictions collect
sales taxes when engaging in electronic commerce in those jurisdictions.
Imposition of new taxes or fees by one or more states, the Federal government of
the United States or foreign governments on Internet transactions or on the use
of the Internet as a means of communication could adversely affect us.
IF WE ARE HELD LIABLE FOR ONLINE CONTENT PROVIDED BY THIRD PARTIES, OUR
INSURANCE COVERAGE MAY NOT BE ADEQUATE TO PROTECT US AND WE MAY INCUR
SUBSTANTIAL COSTS.
As a distributor of content, we may be liable for claims against us based
on a variety of grounds, including defamation, obscenity, negligence, copyright
or trademark infringement or other grounds based on the nature, publication and
distribution of this content. These types of claims have been brought, sometimes
successfully, against providers of Internet services in the past. It is also
possible that if any information provided through our wireless portals contains
errors or false or misleading information or we fail to provide information to
subscribers on a timely basis, third parties could make claims against us for
losses incurred in reliance on such information or our failure to provide
information on a timely basis. Although we generally require that our content
providers indemnify us for liability based on their content and we carry general
liability insurance, our insurance may not cover potential claims of this type
or the indemnity or insurance limits may not be adequate to cover all costs
incurred in defense of potential claims or to indemnify us for all liability
that may be imposed. If we are found liable in excess of the amount of indemnity
or of our insurance coverage, we could be liable for substantial damages and our
reputation and business may suffer.
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<PAGE> 21
We require our users to accept the terms and conditions of our online
contracts by executing agreements in order to receive our products and services.
Most of the agreements are executed through the use of an electronic signature,
meaning that each subscriber answers a number of questions in which he or she
agrees to be bound by the terms of the subscription agreement. Although
contracts containing electronic signatures have generally been enforced, this
area of the law is relatively new and may be subject to change. Accordingly, if
the law should develop in this area to hold that electronic signatures are not a
valid method of contract execution, we could lose the protections afforded to us
in the limitation of liability and disclaimer of liability provisions contained
in our subscription agreements.
RISKS RELATED TO THIS OFFERING
BECAUSE WE WILL HAVE BROAD DISCRETION IN USING THE NET PROCEEDS OF THIS
OFFERING, WE MAY NOT USE THE PROCEEDS TO THE SATISFACTION OF INVESTORS.
Our management will have broad discretion over the allocation of the net
proceeds from this offering as well as over the timing of their expenditure
without stockholder approval. We intend to use the net proceeds from this
offering for expansion of our sales and marketing operations, further
development of our systems infrastructure, funding operating losses, working
capital and other general corporate purposes, including the development of
technology alliances. In addition, we may use a portion of the proceeds for
acquisitions or other investments. It is likely, however, that our spending
patterns will change following this offering. As a result, you will be relying
upon management's judgment with only limited information about its specific
intentions for the use of the net proceeds of this offering. Our failure to
apply these proceeds effectively could cause our business to suffer.
BECAUSE OUR COMMON STOCK PRICE, LIKE THAT OF MANY TECHNOLOGY COMPANIES, IS
LIKELY TO BE HIGHLY VOLATILE, THE MARKET PRICE OF OUR COMMON STOCK MAY BE LOWER
THAN YOU EXPECTED.
The market price of our common stock is likely to be highly volatile,
because the stock market in general, and the market for technology companies in
particular, has experienced significant volume and price fluctuations. You may
not be able to resell your shares during or following periods of volatility. The
trading prices of many technology companies' stocks have reached historical
highs within the last year and have reflected relative valuations substantially
above historical levels. However, during the same period, these companies'
stocks have also been highly volatile and several companies' stocks have
recorded lows well below their historical highs. We cannot assure you that our
stock will trade at the same levels as other technology stocks.
Factors that could cause volatility in our common stock price include,
among other things:
- actual or anticipated variations in quarterly operating results;
- the introduction of new products or services or customer and/or
distributor discontent with our existing products or services;
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<PAGE> 22
- conditions or trends generally affecting the wireless services and
Internet industry;
- changes in the market valuations of other wireless services and Internet
companies;
- announcements by us or our competitors of technological developments,
significant acquisitions, or joint ventures;
- capital commitments;
- additions or departures of key personnel; and
- sales of common stock or other equity securities.
These factors may materially and adversely affect the market price of our
common stock, regardless of our operating performance.
BECAUSE OUR EARLY INVESTORS PAID SUBSTANTIALLY LESS THAN THE INITIAL PUBLIC
OFFERING PRICE WHEN THEY PURCHASED THEIR SHARES, NEW INVESTORS WILL INCUR
IMMEDIATE AND SUBSTANTIAL DILUTION OF $11.21 IN THE BOOK VALUE OF THEIR
INVESTMENT.
Investors purchasing shares in this offering will incur immediate and
substantial dilution of $11.21 in net tangible book value per share because the
price that investors pay will be substantially greater than the net tangible
book value per share of the shares acquired. This dilution figure is based on
the initial public offering price of $16.00 per share and is calculated on a pro
forma basis assuming conversion of all of our outstanding shares of preferred
stock and no exercise of the underwriters' over-allotment option and deducts the
underwriting discounts and commissions and estimated offering expenses payable
by us. This dilution is due in large part to the fact that our earlier investors
paid substantially less than the initial public offering price when they
purchased their shares. In addition, there are currently options and warrants
for the purchase of 3,196,984 shares of common stock outstanding. To the extent
such options and/or warrants are exercised in the future, there will be further
dilution to new investors.
THE SALE OF ADDITIONAL SHARES OF OUR COMMON STOCK AFTER THIS OFFERING COULD
ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK, AND STOCKHOLDERS WILL
INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
In the event that we require additional capital to fund our operating
needs, we may need to raise funds through public or private equity financings.
As a result of these equity offerings and the increased number of outstanding
shares of common stock, the demand for our common stock could decrease and cause
the market price of our common stock to decline. If funds are raised through the
issuance of equity securities, the percentage ownership of our then-current
stockholders may be reduced and the holders of new equity securities may have
rights, preferences or privileges senior to those of the holders of our common
stock. Furthermore, we may issue equity securities within the next 12 months to
pay for any future acquisitions.
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<PAGE> 23
BECAUSE WE EXPECT APPROXIMATELY 11,437,232 SHARES OF COMMON STOCK TO BECOME
AVAILABLE FOR SALE 180 DAYS FROM THE DATE OF THIS PROSPECTUS, OUR SHARE PRICE
MAY BE LOWER THAN YOU EXPECT.
After this offering, we will have 22,187,265 shares of common stock
outstanding. Sales of a substantial number of our shares of common stock in the
public market following this offering or the expectation of such sales could
cause the market price of our common stock to decline. All the shares sold in
this offering will be freely tradable. The remaining shares of common stock
outstanding after this offering will be available for sale in the public markets
as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
- ----------------------------- ----------------
<S> <C>
October 3, 2000 (180 days after the date of this
prospectus)...................................... 11,437,232
At various times thereafter upon the expiration of
one-year holding periods......................... 5,088,485
</TABLE>
Of these shares, 10,069,756 shares are subject to a limitation on the
number of shares that can be sold in any three-month period. We are required,
however, to register the resale of substantially all of these shares upon demand
beginning six-months after the date of this prospectus. We also intend to file a
registration statement after consummation of this offering to register all
shares of common stock that we may issue to our employees under our stock option
plan. After this registration statement is effective, these shares will be
eligible for resale in the public market without restriction. In addition,
stockholders that own shares available for sale 180 days after the date of this
prospectus following the expiration of lock-up agreements with the underwriters
described in the above table may be released by Deutsche Bank Securities Inc.
from these arrangements at any time and without notice. This would allow for the
earlier sale of shares in the public market.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
We are a Delaware corporation. Anti-takeover provisions of Delaware law and
provisions contained in our certificate of incorporation and by-laws could make
it more difficult for a third party to acquire control of us, even if a change
in control would be beneficial to stockholders. These provisions include the
following:
- authorizing the board to issue preferred stock;
- prohibiting cumulative voting in the election of directors;
- limiting the persons who may call special meetings of stockholders; and
- establishing advance notice requirements for nominations for election of
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
These provisions could have the effect of delaying, deterring or preventing
a change in the control of our company, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of a sale of our
company or may otherwise discourage a potential acquirer from attempting to
obtain control of us, which in turn could materially adversely affect the market
price of our common stock.
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FORWARD LOOKING STATEMENTS
Many of the statements included in this prospectus contain forward-looking
statements and information relating to our company. We generally identify
forward-looking statements by the use of terminology such as "may," "will,"
"expect," "intend," "plan," "estimate," "anticipate," "believe," or similar
phrases. We base these statements on our beliefs as well as assumptions we made
using information currently available to us. Because these statements reflect
our current views concerning future events, these statements involve risks,
uncertainties and assumptions. Our actual future performance could differ
materially from these forward-looking statements. These forward-looking
statements involve a number of risks and uncertainties. Important factors that
could cause actual results to differ materially from our expectations include
those risks identified in the foregoing "Risk Factors," as well as other matters
not yet known to us or not currently considered material by us.
We caution you not to place undue reliance on these forward-looking
statements. All written and oral forward-looking statements attributable to us
or persons acting on our behalf are qualified in their entirety by those
cautionary statements.
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<PAGE> 25
USE OF PROCEEDS
We will receive approximately $73.7 million in net proceeds from this
offering, or $85.1 million if the underwriters' over-allotment option is
exercised in full, based on the initial public offering price of $16.00 per
share and after deducting the underwriting discounts and commissions and
estimated expenses payable by us.
We expect to use the net proceeds from this offering as follows:
- approximately $15.0 million for expansion of our sales and marketing
operations;
- approximately $5.0 million for further development of our systems
infrastructure, including $1.2 million for expansion of our data center;
- approximately $53.7 million for working capital and other general
corporate purposes, including the development of technology alliances.
In addition, we may use a portion of the net proceeds for acquisitions or other
investments. However, as of the date of this prospectus, we have no agreement
relating to any material acquisition or investment. Further, changing business
conditions and unforeseen circumstances could cause the actual amounts used for
these purposes to vary from these estimates.
Management will have significant flexibility in applying the net proceeds
of the offering. Pending their use, we intend to invest the net proceeds of the
offering in short-term, investment grade interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
intend to retain our earnings for use in the operation of our business and do
not anticipate paying any cash dividends on our common stock in the foreseeable
future.
23
<PAGE> 26
CAPITALIZATION
The following table shows our capitalization as of December 31, 1999, on an
actual basis, a pro forma basis and a pro forma as adjusted basis.
The pro forma information below reflects the conversion of all of our
outstanding preferred stock into 11,316,765 shares of common stock upon the
completion of this offering as though this transaction occurred as of December
31, 1999.
The pro forma as adjusted information adjusts the pro forma information to
give effect to the sale of 5,100,000 shares of common stock offered by us in
this offering, at the initial public offering price of $16.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses, and the application of the estimated net proceeds. See Use of
Proceeds.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 28,241 $ 28,241 $102,412
======== ======== ========
Mandatorily redeemable preferred stock:
Series B mandatorily redeemable preferred stock, $.01 par
value; 1,705 shares authorized; 1,705 shares issued and
outstanding, actual; no shares issued and outstanding,
pro forma and pro forma as adjusted.................... 1,460 - -
Series D mandatorily redeemable preferred stock, $.01 par
value; 843 shares authorized; 843 shares issued and
outstanding, actual; no shares issued and outstanding,
pro forma and pro forma as adjusted.................... 1,292 - -
Series E mandatorily redeemable preferred stock, $.01 par
value; 9,643.2 shares authorized; 9,643.2 shares issued
and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted....... 17,104 - -
Series F mandatorily redeemable preferred stock, $.01 par
value; 8,248.33 shares authorized; 8,248.33 shares
issued and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted....... 35,482 - -
-------- -------- --------
Total mandatorily redeemable preferred stock........... $ 55,338 $ - -
-------- -------- --------
Stockholders' equity:
Series C convertible preferred stock at par value, $.01
par value; 2,194 shares authorized; 2,194 shares issued
and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted....... - - -
-------- -------- --------
Common stock at par value, $.01 par value; 50,000,000
shares authorized; 7,655,500 shares issued and
outstanding, actual; 18,972,265 shares issued, pro
forma; 24,072,265 shares issued, pro forma as
adjusted............................................... 77 190 241
Additional paid-in capital.................................. 27,253 82,478 156,135
Notes receivable from stockholders.......................... (31) (31) (31)
Deferred compensation....................................... (764) (764) (764)
Accumulated deficit......................................... (45,001) (45,001) (45,001)
Treasury stock at cost, 1,885,000 shares.................... (4,230) (4,230) (4,230)
-------- -------- --------
Total stockholders' equity (deficit)...................... (22,696) 32,642 106,350
-------- -------- --------
Total capitalization...................................... $ 32,642 $ 32,642 $106,350
======== ======== ========
</TABLE>
24
<PAGE> 27
- -------------------------
The outstanding share information shown in the table above excludes:
- 1,939,084 shares of common stock issuable upon the exercise of warrants
at a weighted average exercise price of $3.53 per share, of which
1,929,084 shares were issuable upon the exercise of warrants issued as of
December 31, 1999 at a weighted average exercise price of $3.50 per share
and 10,000 shares were issuable upon the exercise of warrants issued
after December 31, 1999 at an exercise price of $10.00 per share;
- an aggregate of 1,005,300 shares of common stock issuable upon the
exercise of outstanding stock options under our 1995 Stock Incentive Plan
at a weighted-average exercise price per share of $3.18 of which 914,000
shares were issuable upon the exercise of outstanding stock options
issued as of December 31, 1999 at a weighted average exercise price of
$2.71 and 91,300 shares were issuable upon the exercise of outstanding
stock options issued after December 31, 1999 at an exercise price of
$7.92;
- 252,600 shares of common stock issuable upon the exercise of outstanding
stock options issued after December 31, 1999 under our 2000 Stock
Incentive Plan at a weighted average exercise price per share of $9.39;
and
- 8,700 shares of common stock available for future grant under our 1995
Stock Incentive Plan and 997,400 shares of our common stock available for
future grant under our 2000 Stock Incentive Plan.
25
<PAGE> 28
DILUTION
Our pro forma net tangible book value at December 31, 1999 was $32.5
million or $1.90 per share of common stock. "Pro forma net tangible book value"
per share represents the amount of our pro forma total tangible assets reduced
by the amount of our total liabilities, divided by the number of pro forma
shares of common stock outstanding as of December 31, 1999. Our pro forma as
adjusted net tangible book value at December 31, 1999, assuming no changes in
our pro forma net tangible book value other than the sale of 5,100,000 shares of
common stock in this offering at the initial public offering price of $16.00 per
share and application of estimated net proceeds of $73.7 million from such sale
after deducting the underwriting discounts and commissions and estimated
offering expenses, would have been approximately $106.2 million or $4.79 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.89 per share to existing stockholders and an immediate dilution of
$11.21 per share to new investors. Immediate dilution is the difference between
the purchase price per share paid by a new investor and the net tangible book
value of each share immediately after this offering. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per share................... $16.00
Pro forma net tangible book value per share as of
December 31, 1999.................................... $1.90
Increase per share attributable to new investors....... 2.89
-----
Pro forma as adjusted net tangible book value per share
after this offering.................................... 4.79
------
Dilution per share to new investors....................... $11.21
======
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma as adjusted net tangible book value at December 31, 1999 would have been
approximately $5.12 per share, representing an immediate increase in net
tangible book value of $3.22 per share to existing stockholders and an immediate
dilution in net tangible book value of $10.88 per share to new investors.
The following table summarizes at December 31, 1999:
- the number of shares of common stock purchased by existing stockholders,
the total consideration and the average price per share paid to us for
those shares;
- the number of shares of our common stock purchased by new investors, the
total consideration and the price paid by them for these shares; and
- the percentage of shares purchased by the existing stockholders and new
investors and the percentages of consideration paid to us for these
shares.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders........ 17,087,265 77% $ 52,956,929 39.4% $ 3.10
New investors......... 5,100,000 23% 81,600,000 60.6% $16.00
----------- ---- ------------ ---- ------
Total............. 22,187,265 100% $134,556,929 100% $ 6.06
=========== ==== ============ ==== ======
</TABLE>
26
<PAGE> 29
In the event that the underwriters' over-allotment option is exercised in
full, the New Investors line in the above table would include: 5,865,000 shares
purchased or 25.6%, $93,840,000 of total consideration paid or 63.9% and a
$16.00 average price per share and the Total line would include: 22,952,265
shares purchased, $146,796,929 of total consideration paid and a $6.40 average
price per share.
- -------------------------
The outstanding share information shown in the table above excludes:
- - 1,939,084 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price per share of $3.53, of which
1,929,084 shares were issuable upon the exercise of warrants issued as of
December 31, 1999 at a weighted average exercise price of $3.50 per share and
10,000 shares were issuable upon the exercise of warrants issued after
December 31, 1999 at an exercise price of $10.00 per share;
- - an aggregate of 1,005,300 shares of common stock issuable upon the exercise of
outstanding stock options under our 1995 Stock Incentive Plan, at a
weighted-average exercise price per share of $3.18, of which 914,000 shares
were issuable upon the exercise of outstanding stock options issued as of
December 31, 1999 at a weighted average exercise price of $2.71 and 91,300
shares were issuable upon the exercise of outstanding stock options issued
after December 31, 1999 at an exercise price of $7.92;
- - 252,600 shares of common stock issuable upon the exercise of outstanding stock
options issued after December 31, 1999 under our 2000 Stock Incentive Plan at
a weighted average exercise price per share of $9.39; and
- - 8,700 shares of common stock available for future grant under our 1995 Stock
Incentive Plan and 997,400 shares of our common stock available for future
grant under our 2000 Stock Incentive Plan.
27
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data set forth below as of
December 31, 1998 and 1999 and for the fiscal years ended December 31, 1997,
1998 and 1999 are derived from the audited consolidated financial statements
which are included elsewhere in this prospectus. The selected consolidated
financial data as of December 31, 1997 and as of and for the year ended December
31, 1996 is derived from the audited consolidated financial statements not
included in this prospectus. The selected consolidated financial data as of and
for the fiscal year ended December 31, 1995 is derived from our unaudited
consolidated financial statements.
The selected consolidated financial data should be read along with such
consolidated financial statements and the related notes and the section of the
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................................. $ 387 $ 645 $ 825 $ 1,405 $ 1,734
Cost of revenue (excluding $14 of stock compensation)... 190 465 700 1,081 1,302
------ ------- ------- ------- --------
Gross profit............................................ 197 180 125 324 432
------ ------- ------- ------- --------
Operating expenses:
Sales and marketing (excluding $94 of stock
compensation)....................................... 110 180 234 584 1,938
General and administrative (excluding $145 of stock
compensation)....................................... 856 1,327 2,258 2,306 4,771
Stock compensation.................................... - - - - 253
------ ------- ------- ------- --------
Total operating expenses.............................. 966 1,507 2,492 2,890 6,962
------ ------- ------- ------- --------
Operating loss.......................................... (769) (1,327) (2,367) (2,566) (6,530)
Interest expense (income) - net......................... (22) (8) 81 329 326
------ ------- ------- ------- --------
Loss before extraordinary item.......................... (747) (1,319) (2,448) (2,895) (6,856)
Extraordinary loss on extinguishment of debt............ - - - - (3,434)
------ ------- ------- ------- --------
Net loss................................................ $ (747) $(1,319) $(2,448) $(2,895) $(10,290)
Dividends on and redemptions of preferred stock......... - (8) (76) (274) (26,580)
====== ======= ======= ======= ========
Loss applicable to common stock......................... $ (747) $(1,327) $(2,524) $(3,169) $(36,870)
====== ======= ======= ======= ========
Net loss per share - basic and diluted.................. $(0.10) $ (0.18) $ (0.33) $ (0.42) $ (6.43)
====== ======= ======= ======= ========
Shares used in computing net loss per
share................................................. 7,282 7,552 7,554 7,554 5,736
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 139 $ 1,168 $ 215 $ 166 $ 28,241
Working capital.......................................... 229 756 (533) (687) 29,468
Total assets............................................. 262 1,343 375 682 36,241
Long-term debt, less current portion..................... - 646 573 455 -
Mandatorily redeemable preferred stock................... - 1,138 1,412 2,500 55,338
Total stockholders' equity (deficit)..................... 201 (916) (2,488) (3,578) (22,696)
</TABLE>
28
<PAGE> 31
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 the financial statements and the related
notes included in another part of this prospectus and which are deemed to be
incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties.
OVERVIEW
i3 Mobile, Inc. provides 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 with
the launch of our Quote Alert Service, a stock quote and related financial
information service offered directly to our subscribers. A subscriber is a user
who pays for our products and services and a user is an individual who receives
our products and services either at no cost or as a subscriber. Between 1992 and
1996, the primary distribution channel for our products and services was paging
carriers. During this period, we entered into distribution agreements with a
number of the leading paging carriers to distribute our personalized content
services and on-demand products on their networks. In late 1996, we expanded our
product and service focus and signed our first distribution agreement with a
wireless network operator and launched our products and services on the digital
personal communication services network of Omnipoint Communications Services.
The Omnipoint launch included both alert products, which are messages sent to a
subscriber when our network detects that a specific event has occurred based on
that individual's personal profile, and on-demand content products, which are
messages sent to a subscriber shortly after information is requested. A
subscriber can request information from a two-way wireless device, such as a
pager or wireless digital telephone, by sending a text message containing a
request for information, such as a stock quote for a specific company or a
weather forecast for a specific zip code. The request is processed by our
systems and the requested information is sent back to the subscriber via a
wireless network.
Our Omnipoint launch was followed in 1997 by our introduction of tiered
subscription service offerings on the PrimeCo PCS network. Tiered subscription
service offerings are product packages that are differentiated by both price and
service offerings. A higher monthly subscription fee is charged as more services
are included in the package. In 1997, we also deployed our first wireless
microbrowser-based products on AT&T's PocketNet platform in conjunction with
Phone.com. A microbrowser is similar to an Internet browser but runs on data-
capable wireless devices. A microbrowser retrieves information from Web site
servers in a format that conforms to the smaller viewing screens of wireless
devices. Microbrowser-based products allow users to access specially formatted
Web sites to obtain content and to conduct transactions from their wireless
devices. In 1998, we expanded our distribution network by entering into
agreements with other digital wireless network operators such as Bell Mobility
Cellular, Inc. (Canada), US Cellular and SBC Communications, Inc., including its
subsidiaries Pacific Bell, Southwestern Bell Mobile Systems, Inc. and its
Cellular One properties in Baltimore, Boston and Washington, D.C. In 1999, we
entered
29
<PAGE> 32
into distribution agreements with AirTouch Cellular, Clearnet PCS, MTT Mobility
(Canada), US West Wireless and AT&T Wireless Services. Under these non-
exclusive distribution agreements, we provide the wireless network operators
with personalized content products and services which are marketed to their
subscribers and generally charge them a monthly fee based on the number of
subscribers. In 1999, we also introduced electronic commerce through 1-800-
FLOWERS and advertising-supported services through Omnipoint, and we began
offering corporate enterprise services with The Weather Channel through its
Weather.com Internet site. Revenue generated from electronic commerce,
advertising-supported services and corporate enterprise services during 1999 was
minimal.
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 us 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. We work closely with our
distributors to develop specific content applications and marketing plans and
build and host user provisioning interfaces such as Web sites, telephone systems
and device-based wireless portals. Our distributors typically provide us with
some or all of the following services: marketing, planning and support, Internet
promotion, local sales force and point of sale promotion, and delivery of
messages over their networks.
Our distribution agreements generally are non-exclusive, have terms of one
to three years and may be terminated by either party, with or without cause. We
believe that our distribution model gives us the opportunity to substantially
increase the number of both users and subscribers while minimizing our sales and
marketing expenses. As revenue is generated from non-subscription sources such
as advertising and electronic commerce, we believe that sales and marketing
costs will become a smaller percentage of our total revenue per user.
We believe that our future success will depend on our ability to deliver a
variety of wireless content, advertising and electronic commerce products and
services through our distributors. Our objectives will require significant
capital expenditures and increased operating expenses in the next several years.
Accordingly, we expect to continue operating at a substantial loss for the
foreseeable future. Our objectives include:
- expanding our network of distributors to include additional wireless
network operators, Internet media networks and corporate enterprises,
such as airlines, package delivery companies, banking and financial
services companies, or any company with a need to deliver information to
its employees or customers via wireless devices;
- expanding our product development, sales, marketing and technology staffs
to support emerging demand, opportunities and technologies;
- expanding our focus to include additional international markets;
30
<PAGE> 33
- expanding our product offerings in content, commerce and technology;
- expanding our advertising and promotional activities; and
- further developing our technology platforms, operational capabilities and
infrastructure.
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
recognize subscriber revenue when products and services are provided. Since we
sell information service products that are provided to our users, these products
are not considered tangible products for financial reporting purposes. Deferred
revenue is comprised of payments received from our distributors in advance of
wireless information services being provided.
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. Our content services include:
- tiered packages offering users choices from a wide range of news and
information selections to create a personalized content delivery profile,
typically billed on a monthly subscription basis. An example of tiered
packages is AT&T Wireless Services Personal News where all digital
subscribers can receive one complimentary service for free, select an
additional three services for $3.99 per month or select a package of
eight services for $7.99 per month;
- on-demand information products offering users the ability to request
information from and receive information on their wireless devices,
typically billed on a per-request basis;
- complimentary services offering users the ability to receive daily
information on their wireless devices from a limited range of content
providers; and
- wireless portal applications offering users with Internet-enabled devices
the ability to both create personalized content delivery profiles and
receive content on demand, which is billed partially on a subscription
basis and partially on a per-request basis.
We billed wireless network operators directly for over 75% in 1997, 82% in
1998 and 98% in 1999 of our subscription revenues. Our more recent agreements,
that were signed in 1999, with wireless network operators require that we bill
the user directly. In these cases, the user would receive one bill from the
wireless network operator for phone services, and we would bill the user's
credit card directly for information services. We expect our individual service
offerings to continue to decline in price from current levels, but expect per
subscriber revenue to increase over time as the number of our products and
services purchased by subscribers increases. In 1997, subscription services
accounted for approximately 94% of our revenues. In each of 1998 and 1999,
subscription services accounted for 98%. We may also generate revenue from other
sources including software development services, advertising-supported services
and processing of electronic commerce transactions although revenue to date for
such services has been nominal.
31
<PAGE> 34
We offer complimentary services to build awareness of our products and
services and to generate revenue. We believe that by offering selected products
and services to users on a complimentary basis we will accelerate the awareness
and usage of our services and migrate users to pay for subscription-based
products and services. We provide content to wireless network operators who, in
turn, offer this content to their wireless customer base. The prices we charge
to the wireless network operators for this service varies by wireless network
operator based upon, among other things, geography, size, subscriber growth
considerations, and the specific content offering. The wireless network
operators are responsible for determining the price, if any, to be charged to
their customers for this service. Where wireless network operators have
expressed an interest in providing their customers with a complimentary product
offering, we have offered these wireless network operators a limited product
offering at a correspondingly reduced sales price. Under these agreements with
reduced pricing terms, we recognize revenue, albeit at reduced rates, at the
time these services are provided. Since our inception, we have entered into only
one agreement where we agreed to provide a wireless network operator's customers
with our product at no cost to the user. This agreement, which was executed in
November 1998, automatically renews for a one year period unless specifically
terminated by either party. Since we provide our product to this wireless
network operators' customers at no cost to the user, we have not, at any time,
recognized any revenue under this agreement.
As a result of our entry into the personal communications services
marketplace in late 1996 and the expansion of our wireless network operator
distribution base in 1998, we have experienced accelerating user growth. The
number of users of our products and services was approximately 29,000 as of
December 31, 1997, 107,000 as of December 31, 1998 and 450,000 as of December
31, 1999. For the periods ending December 31, 1997 and 1998, the number of
complimentary users
was less than 5% of the total number of users. For the period ending December
31,
1999, the number of complimentary users was over 350,000 or 78% of our total
users.
Cost of revenues consists primarily of costs associated with purchasing our
content, direct labor costs, royalty payments, network operations expenses and
distribution fees. We pay our content providers either a flat monthly fee, a fee
based on the number of users requesting the content, a fee based on a percentage
of our revenues generated from the content they provide, a fee based on the
number of on-demand messages requested or a combination of these arrangements.
Distribution fees, which were approximately $197,000 for the year ended December
31, 1999, $103,000 for the year ended December 31, 1998 and $169,000 for the
year ended December 31, 1997, are paid to wireless network operators for
allowing us to use their network to deliver advertising and electronic
commerce-enabling messages and for delivery of content to our direct
subscribers. Management believes that the cost of revenues and gross margin on
our related party revenues are not significantly different from the cost of
revenues and gross margins we earned on our third party revenues.
Sales and marketing expenses consist primarily of advertising and
promotions, sales and marketing personnel, travel and entertainment, and brand
management. Additionally, we pay some of our distributors a marketing fee for
the acquisition and retention of their subscribers. We believe that this is a
cost-effective way to acquire new customers while limiting our sales and
marketing costs. These fees are based
32
<PAGE> 35
on a flat fee per subscriber or on a percentage of revenue generated from that
subscriber. We believe that sales and marketing expenses will increase as we
develop new markets and implement programs to increase awareness of our products
and services.
General and administrative expenses consist primarily of employee
compensation and related costs for customer care, general corporate and business
development personnel, along with rent, travel and other infrastructure costs.
Depreciation and amortization expenses consist primarily of depreciation
expenses arising from our operations centers and other property and equipment
purchases and amortization of a license agreement with Portel Services Network,
Inc.
Stock compensation represents non-cash charges related to the issuance of
stock options and stock purchase warrants for our common stock. In 1999, we
recognized $253,000 of stock compensation costs and at December 31, 1999 we had
deferred compensation included in our balance sheet of $764,000. We have also
recorded additional deferred compensation of approximately $1,704,000 related to
options and warrants issued since December 31, 1999. These deferred charges
represent future stock compensation expense that will be recognized over the
remaining vesting period of the related options or the remaining agreement term
for the related warrants. Deferred compensation will be amortized to the
statement of operations in the amount of $690,000 for 2000, $695,000 for 2001,
$668,000 for 2002 and $415,000 for 2003.
Net interest expense is 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 with proceeds
received from the sale of Series F convertible preferred stock. Interest income
consists primarily of interest earned on cash equivalents.
Our expense levels are based, in part, on our expectations regarding future
revenues. As a result, any changes in revenues relative to our expectations
could cause significant changes in our operating results. We face a number of
risks and uncertainties encountered by companies in the rapidly evolving
wireless telecommunications market and the Internet industries. Due to the
foregoing factors, the following period to period comparisons of our revenue
levels and operating results may not be meaningful and should not be relied on
to predict our future performance.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999
Net Revenue. Net revenues increased 23% from $1,405,000 for the year ended
December 31, 1998 to $1,734,000 for the year ended December 31, 1999. This
increase was primarily due to the recognition of revenues from the successful
1998 launches of PrimeCo PCS, Bell Mobility, and SBC Communications and the
growth of our subscriber base as a result of our agreements with other wireless
network operators. The percentage increase in revenue lagged substantially
behind the percentage increase in users due to an increase in users receiving
our new complimentary services and a decrease in the price of individual
subscription services. Subscription fees decreased in 1999 from 1998 levels due
to management's decision to increase market penetration by reducing prices for
our basic and advanced services. Revenue generated by subscribers of Omnipoint
Commu-
33
<PAGE> 36
nications Services, SBC Communications and Bell Mobility together accounted for
approximately 70% of our total revenue for the year ended December 31, 1999 and
52% for the year ended December 31, 1998. In addition, Omnipoint Communications
Services alone accounted for 41% of our total revenue for the years ended
December 31, 1999 and 1998. Net revenues from SkyTel Communications, Inc., a
related party, decreased from $160,000 for the year ended December 31, 1998 to
$106,000 for the year ended December 31, 1999. Only $23,000 of the net revenues
from SkyTel in 1999 is included as net revenues from related parties. In
February 1999, SkyTel liquidated its ownership of our common stock and Series A
preferred stock and relinquished its seat on our board of directors. Subsequent
to these actions it was no longer considered a related party.
Cost of Revenue. Cost of revenue increased by 20% from $1,081,000 for the
year ended December 31, 1998, to $1,302,000 for the year ended December 31,
1999. Approximately $55,000 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 $100,000 in the year ended December 31,
1999 compared to the year ended December 31, 1998 as a result of increased labor
costs to provide 24 hour customer care and operations support. The increases in
content-related costs and network operations costs were offset by a $64,000
reduction during this period in distribution fees payable primarily to paging
carriers as a result of our elimination of unprofitable two-way paging services
during the fourth quarter of 1998.
Sales and Marketing Expenses. Sales and marketing expenses increased by
232% from $584,000 for the year ended December 31, 1998 to $1,938,000 for the
year ended December 31, 1999. This increase during 1999 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 107% from $2,306,000 for the year ended December 31, 1998 to
$4,771,000 for the year ended December 31, 1999. 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 expense of $329,000 for the
year ended December 31, 1998 was comparable to net interest expense of $326,000
for the year ended December 31, 1999. The increased interest expense on the
$5,000,000 note payable to Intelligent Investment Partners, Inc. for the year
ended December 31, 1999 was offset by one-time interest charges of $210,000 in
the year ended December 31, 1998 for the issuance of warrants to purchase shares
of common stock in connection with debt obligations.
Extraordinary Loss. In December 1999, we converted two notes into shares
of Series F mandatorily redeemable preferred stock. This debt extinguishment
resulted in an extraordinary loss on redemption of $3,434,000.
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Net Loss. We incurred net losses of $2,895,000 for the year ended December
31, 1998 and $10,290,000 for the year ended December 31, 1999. The net loss for
the year ended December 31, 1999 reflects a non-recurring charge of $3,434,000
for a one time loss on the early extinguishment of debt.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
Net Revenue. Net revenue increased from $825,000 for the year ended
December 31, 1997 to $1,405,000 for the year ended December 31, 1998. The
increase in 1998 was primarily attributable to new distribution agreements with
personal communications services wireless network operators and the further
development of our Omnipoint Communications Services relationship. In 1998, we
received 40% of our revenues from Omnipoint Communications Services. Net revenue
from SkyTel Communications, Inc., a related party, was $149,000 for the year
ended December 31, 1997 and $160,000 for the year ended December 31, 1998.
Throughout these periods the prices of subscription services have decreased as a
result of competitive pressures in the marketplace. However, the impact of these
price decreases has been offset by increases in service offerings and increased
subscribers counts.
Cost of Revenue. The cost of revenue of providing our products and
services increased from $700,000 for the year ended December 31, 1997, to
$1,081,000 for the year ended December 31, 1998. The increase in cost of revenue
for 1998 was attributable to higher subscriber volume partially offset by
reduced content costs as we terminated our higher-cost content agreements.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$234,000 for the year ended December 31, 1997, to $584,000 for the year ended
December 31, 1998. The increase for the year ended December 31, 1998 was
attributable to the initiation of an aggressive marketing program to attract new
users and subscribers and the addition of sales and marketing personnel.
General and Administrative Expenses. General and administrative expenses
increased from $2,258,000 for the year ended December 31, 1997 to $2,306,000 for
the year ended December 31, 1998. This increase was the result of increased
personnel and higher infrastructure costs, including expenditures for network
systems and software.
Interest Expense, Net. Net interest expense increased from $81,000 for the
year ended December 31, 1997 to $329,000 for the year ended December 31, 1998 as
a result of a one-time interest charge of $210,000 in 1998 for the issuance of
warrants to purchase shares of common stock in connection with debt obligations.
Net Loss. We incurred losses of $2,448,000 for the year ended December 31,
1997 and $2,895,000 for the year ended December 31, 1998. Our net loss for each
of these three years increased primarily as a result of increased operating
expenses in those years.
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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 December 31, 1999.
Net cash used in operating activities was $2,381,000 for the year ended
December 31, 1997, $2,644,000 for the year ended December 31, 1998 and
$4,589,000 for the year ended December 31, 1999. The principal use of cash in
each of these periods was to fund our losses from operations.
Net cash provided by financing activities was $1,446,000 for the year ended
December 31, 1997, $2,652,000 for the year ended December 31, 1998, and
$34,464,000 for the year ended December 31, 1999. Cash provided by financing
activities in each of these periods was primarily attributable to proceeds from
sales of our equity securities and the issuance of debt.
In February 1999, we sold, 7,714.56 shares of Series E mandatorily
redeemable convertible preferred stock for $12,000,000 to a private investor
group. As the equivalent conversion price per share of common stock related to
the February 1999 issuance is equal to or greater than the estimated fair value
of our shares of common stock at the time of issuance no beneficial conversion
charge is applicable to the February issuance. On November 23, 1999, the same
private investor group, in accordance with its contract with us, purchased an
additional 1,928.64 shares of Series E mandatorily redeemable convertible
preferred stock for $3,000,000. We recognized a $3,000,000 deemed dividend as a
charge to additional paid-in capital and an increase to net loss available to
common stockholders for the beneficial conversion feature, calculated as the
difference between the per share conversion price and the estimated fair value
of the common stock into which the preferred stock is convertible, measured at
the commitment date. This beneficial conversion feature is limited to the amount
of the proceeds received, or $3,000,000. The Series E preferred stock is
convertible into 4,821,600 shares of common stock at an equivalent price per
common share of $3.11.
In February 1999, we repurchased 1,885,000 shares of our common stock and
3,770 shares of our Series A preferred stock from a stockholder for $8,000,000
in cash and notes and issued a warrant to purchase 500,000 shares of our common
stock at an exercise price of $3.00 per share. In connection with this
repurchase, we paid $3,000,000 in cash and delivered a $5,000,000 promissory
note. This note was converted into Series F mandatorily redeemable preferred
stock in December 1999.
On December 22, 1999, we issued 8,248.33 shares of Series F mandatorily
redeemable convertible preferred stock at a price of $3,960.40 per share to
private investor groups. The proceeds include $24,850,000 of cash investments,
including $3,000,000 from a related party stockholder, the conversion of a
$5,000,000 outstanding note payable, the conversion of a $317,000 five-year
convertible note payable and future television advertising rights. In connection
with this issuance we recorded a beneficial conversion charge of $17,504,000, an
extraordinary loss on the redemption of the two notes payable of $3,434,000 and
deferred advertising value of $4,261,000. These charges are calculated as the
difference between the
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per share value of the conversion feature and the estimated fair value of the
common stock at the commitment date multiplied by the applicable equivalent
shares of common stock. The Series F mandatorily redeemable preferred stock is
convertible into 4,124,165 shares of common stock at an equivalent price per
share of common stock of $7.92.
Upon completion of this offering, each of our shares of preferred stock
will convert into 500 shares of common stock. We believe that the net proceeds
from this offering, together with funding from private financings and our
current cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next 24
months. Additionally, we have sufficient cash to fund operations for the next 12
months without the offering proceeds.
Cash used in investing activities was $17,000 for the year ended December
31, 1997, $57,000 for the year ended December 31, 1998, and $1,800,000 for the
year ended December 31, 1999. Cash used in investing activities relates
primarily to cash purchases of fixed assets. Additionally, we entered into a
license agreement for a technology patent for which we paid $100,000 during
1999.
As of December 31, 1999, our estimated capital expenditures for the next 12
months consist of approximately $3,500,000 for the expansion of our operation
centers in Connecticut and Texas and approximately $1,500,000 for a consulting
project to upgrade our internal billing system and data warehousing system. We
also plan to increase our sales and marketing and general and administrative
expenses by over $20,000,000 in 2000. We also expect to expend significant
capital resources on operating expenses for day-to-day operations,
infrastructure, general corporate and business development personnel, sales and
marketing personnel and programs and other working capital needs to grow our
business domestically and internationally. The amounts and timing of these
expenditures may vary depending on a number of factors, including the amount of
cash generated by our operations, competitive and technological developments,
the nature of any acquisitions identified and the rate of growth of our
business.
We cannot assure you that the assumptions of revenue and expense on which
our forecasts are based will prove to be accurate. In addition, we are
continually reviewing acquisition opportunities, however, we have no present
understanding or agreement relating to any material acquisition. Our financial
results may vary as a result of a number of factors, many of which are beyond
our control and any of which could cause our business to suffer. In addition,
because the market for wireless data products and services is new and evolving,
it is difficult to predict future financial results. Our expenses are based in
part on our expectations regarding future revenues. As a result, if our revenues
do not meet our expectations, our financial results will likely suffer.
If additional funding is required, we may seek such funding through public
or private financings or other arrangements. Adequate funds may not be available
when needed or may not be available on terms favorable to us. If additional
funds are raised by issuing equity securities, dilution to existing stockholders
may result. If funding is insufficient at any time in the future, we may be
unable to develop or enhance our services, take advantage of business
opportunities, respond to competitive pressures or grow our business as we hope.
This could have a material adverse effect on our business, financial condition
and results of operations.
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YEAR 2000 COMPLIANCE ISSUES
Many currently installed computer systems and software products are coded
to accept or recognize only two digits rather than four digits to define the
year in the date code field. These systems and software products will need to
accept four digit year entries to distinguish 21st century dates from 20th
century dates. Systems and products that are not corrected to do this could
cause a disruption of operations including a temporary inability to deliver
messages, process transactions, send invoices or engage in other normal business
activities.
We maintain a significant number of computer software systems and operating
systems across our company that are potentially subject to year 2000 problems.
We have taken extensive steps to prepare for the year 2000 transition. We
believe that we have run all of our applications on hardware and operating
systems that we have determined are year 2000 compliant. We believe that all of
our computer hardware has been inventoried and checked against the
manufacturers' year 2000 compliance declarations. We believe that all
non-compliant hardware has been upgraded, if possible, or replaced. We believe
that all third-party software, including operating systems and applications,
have been inventoried and checked against the manufacturers' compliance
statements. We believe that we have upgraded and corrected software as
recommended and provided by the manufacturers.
We are also continuing to seek assurances from third parties on whom we
rely and whose potential year 2000 problems could affect our business. We have
been advised by our data providers, communications providers, device
manufacturers, wireless network operators, and Internet media networks and
corporate enterprises that their systems that might impact our own systems are
year 2000 compliant. We have developed a contingency plan to deal with failures
that may occur during the year 2000 transition which involves alternate ways of
providing mission-critical functions if they fail. The most likely worst case
scenario would be the failure of the landline or wireless networks that carry
data to us or from us to our distributors and users. If this happens, we would
not be able to deliver our products and services to our distributors and users
and we may lose revenue. Although we have taken the steps described above to
make our systems year 2000 compliant, we may experience material problems and
expenses associated with year 2000 compliance that could adversely affect our
business, results of operations and financial condition. If the assurances that
we have received from third parties are false or inaccurate, we may experience
disruption resulting in additional expense and loss of revenue.
We are also subject to outside forces that might generally affect industry
and commerce, such as year 2000 compliance failures by utility or transportation
companies. If our distributors and customers experience disruptions related to
our services and systems, they may initiate litigation against us even if the
disruptions were caused by their own systems or software provided by others.
We have purchased most of our equipment within the last four years, which
has kept the costs of year 2000 compliance efforts to a minimum. All non-
compliant software and equipment has been upgraded or replaced and our total
costs relating to year 2000 compliance have been less than $100,000. Based on
our review of compliance to date, we do not expect any future costs related to
year 2000 compliance to be material.
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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 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 December 31, 1999 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 provides guidance
for determining whether computer software is internal-use software, and guidance
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The impact of adopting SOP 98-1, which
was adopted for our fiscal year ending December 31, 1999, was minimal.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137 which delays the effective date of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133, as amended, is to be effective for us beginning in 2001. SFAS No. 133
establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. Because we do not currently hold any derivative
financial instruments and do not engage in hedging activities, the adoption of
SFAS No. 133 is not expected to have any impact on our consolidated financial
position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition(SAB 101) which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the Securities and Exchange Commission. SAB 101 outlines
the basic criteria that must be met to recognize revenue and provides guidance
for disclosures related to revenue recognition policies. We believe that SAB 101
has no material effect on our financial position, results of operations or cash
flows.
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OUR BUSINESS
COMPANY OVERVIEW
We provide timely personalized information to users of wireless
communications devices, such as mobile phones, pagers and personal digital
assistants, in North America. Personalized information means that our systems
enable a user to provide us with their content preferences and to identify those
services they want to receive and when they want to receive them. We currently
provide individually customized data services such as the delivery of stock
quotes and other financial information, news, weather, sports, entertainment,
traffic and travel information, and, depending on a user's type of wireless
device and network, sending and receiving e-mail, personal calendar and wireless
electronic commerce applications.
We believe that the convergence of the growth in the use of digital
wireless communication devices and the rapidly increasing demand for and
availability of real-time content over the Internet provides us with significant
business opportunities. At December 31, 1999 we had over 450,000 users of our
products and services, consisting of approximately 100,000 paying subscribers
and 350,000 complimentary users. The Internet has generally increased the demand
for access to relevant real-time information and services. We believe that
individuals will want that same information and service when away from their
computers. Our products can fulfill those needs on a wireless basis. Therefore,
as the number of individuals using the Internet increases, we expect the
potential market for our services will also increase.
We offer our products and services primarily through co-branded
distribution relationships with wireless network operators that offer our
products and services to their users on both a complimentary and subscription
basis. Co-branded distribution relationships are arrangements where the brand
names of the distributor and i3 Mobile are displayed together prominently on the
marketing materials and the distributor's Web sites. We are currently providing
personalized wireless information services, such as "AT&T Personal News" and
Omnipoint's "InfoServices," under agreements with more than 15 wireless network
operators, collectively representing approximately 48 million wireless phone
subscribers at September 30, 1999, or more than 55% of the total North American
market of wireless phone users. These wireless network operators include Bell
Mobility Cellular, Inc. (Canada), Omnipoint Communications Services, and SBC
Communications, including its subsidiaries Southwestern Bell Mobile Systems,
Inc., Pacific Bell and Cellular One properties in Boston, Baltimore and
Washington D.C., all of which, as a group, accounted for 70% of our revenues for
the year ended December 31, 1999. In addition, we have distributor agreements
with AirTouch Cellular and AT&T Wireless Services, Inc. who have the two largest
wireless telephone subscriber bases in North America. In 1999 these agreements
represented less than 1% of our revenues.
We provide wireless network operators a package of products and services to
enable them to deliver personalized information to their customers through their
networks. This package of products and services consists of technology,
including the systems and communications capabilities, as well as customer
support and other services. We also offer a similar package of products and
services to Internet media networks and corporate enterprises seeking to expand
their Internet- or intranet-based services through wireless communications
networks.
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Currently, we generate most of our revenue from subscriptions for our
products and services, and we expect to generate additional revenue in the
future from advertising sales and wireless electronic commerce transactions. We
believe that distribution capabilities and name recognition of our distributors
will allow us to rapidly develop our business and brand name recognition with
lower capital requirements than would be possible on a direct-to-user basis.
Since we capitalize on the market acceptance of our distributors, we do not need
to establish our own distribution channels or to invest heavily in market
awareness programs. Our distributors have integrated our products with their
other service offerings, enabling a faster and broader distribution of our
products and services than we can realize on a direct-to-user basis.
INDUSTRY BACKGROUND
MARKET OPPORTUNITY: EMERGENCE OF A NEW MEDIUM
We believe that wireless mobile data is emerging as a powerful new medium,
uniquely capable of creating value through the ability to deliver highly
personalized, local, timely and interactive content and services to wireless
devices. According to DataQuest, wireless data subscribers will grow at a
compound annual growth rate of 82% from 3 million subscribers in 1999 to 36
million subscribers in 2003, creating a market with more than $3 billion in
annual revenue. The emergence of the mobile data medium is being driven by the
convergence of four major trends:
- GROWTH IN WIRELESS COMMUNICATIONS
The wireless telephone services market worldwide has grown
significantly in recent years and this growth is expected to continue.
According to International Data Corporation, the number of wireless phone
subscribers in the United States is expected to grow at a compound annual
growth rate of 13.4% from 64.4 million at the end of 1998 to 120.7 million
at the end of 2003. On a global basis, International Data Corporation
expects the number of wireless phone subscribers to increase at a compound
annual growth rate of 28.9%, from 303.4 million at the end of 1998 to 1.08
billion at the end of 2003.
As wireless network coverage has expanded, the availability and
functionality of wireless service has increased significantly. At the same
time, falling prices of wireless services and increased functionality of
handsets have made wireless services widely available for new wireless
users in general. New handsets and other handheld computing devices
designed specifically to manage data applications and access the Internet
have also improved the ease of use of wireless data services.
- GROWTH IN INTERNET SERVICES
The Internet marketplace is also experiencing rapid growth as a medium
for sharing information and conducting business transactions. International
Data Corporation estimates that the number of worldwide Web users reached
approximately 142 million at the end of 1998 and is forecasted to grow at a
compound annual growth rate of 29% to approximately 398 million by the end
of 2002. By 2001, International Data Corporation expects the total value of
transactions conducted over the Web to exceed $398 billion.
With the expanding acceptance of the Internet as a vital personal
resource, there is increased competition among Web sites for users. This
has prompted Internet companies to seek innovative means to increase the
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number of subscribers and subscriber retention. In addition, corporate
intranets have become a vital business communications tool and source of
information for mobile workers. We believe that since individuals and
businesses have become accustomed to and reliant upon accessing various
categories of information easily and immediately through the Internet and
corporate intranets, they are now demanding this information when not
connected to a computer.
- EVOLUTION OF MEDIA
Media is the creation of information and entertainment content
distributed to those who have a need to use it. We believe economic value
has been and will continue to be created by companies that acquire, create
and aggregate information and by companies that distribute it to end-users.
As the number of channels for content distribution has increased, creators
and distributors of content need to distinguish their services from those
of their competitors. As a result, media content has become more targeted
to specific audiences and delivers more specialized information. Now the
Internet offers content to appeal to even more targeted audiences.
We believe that one of the principal drivers of the growth of the
Internet as a commercial medium is its ability to create value through the
delivery of highly specialized, interactive, local and personally relevant
content to users. We also believe that advertisers, businesses and
individuals benefit from the ability to communicate and transact with each
other in more direct and efficient ways on the Internet. With existing
Internet technology, advertising can be directed to specific individuals
based on their demographic profiles. We believe significant additional
value for advertisers, businesses and individuals can be created through
the extension of targeted advertising by utilizing wireless
telecommunications technology.
- TECHNOLOGY, APPLICATIONS AND STANDARDS DEVELOPMENT
New software developments in the area of wireless content delivery
have made it possible for users to demand, retrieve and interact with
personalized content and an expanding range of applications over wireless
devices. The development of standards such as the Wireless Application
Protocol and specific applications and content designed for the wireless
environment have enabled the critical link between information available on
the Internet and wireless networks. The Wireless Application Protocol,
which is commonly referred to as WAP, is a universal technology standard
for wireless devices which enables users to easily access Internet-based
information and services from the screens of their wireless devices, such
as e-mail, news, sports, financial information services, entertainment,
travel and electronic commerce transactions. New generations of wireless
transmission technologies promise to increase the capacity and speed of
wireless networks and expand the functionality and the range of text, audio
and video applications available in the wireless data medium to levels
equal to or exceeding those available from wireline networks.
THE I3 MOBILE OFFERING
As dependence on access to information, e-mail services, corporate
intranets and other Internet-based services increases, we believe that mobile
individuals will
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continue to seek many of the same benefits provided by the Internet on hand-held
wireless devices. We believe our products and services combine the most useful
features of Internet and wireless telephone technologies to enable the
distribution of personalized information through this new mobile data medium. We
believe that we provide comprehensive product and service offerings for each of
the following groups.
MOBILE INDIVIDUALS
As individuals become more reliant on mobile communications, we believe
their demand for timely access to local, regional, national and global
information of personal value or interest will increase. They will also seek to
receive this information in a convenient manner and on their choice of wireless
device through any wireless network.
Our technology and products and services allow the mobile individual to
demand and receive relevant, personalized information through a wireless device.
Our users create personal profiles when they register for our services on co-
branded Web sites or by telephone. A personal profile containing relevant
information provided to us by the user, such as the user's wireless phone
number, region and content preferences, is created as part of the user
registration process and is stored in our database. We believe that creating
personal profiles for individual users, our ability to monitor data streams and
identifying and delivering information based on those personal profiles provide
substantial value to mobile individuals.
WIRELESS NETWORK OPERATORS
Wireless network operators are seeking to offer data services in addition
to voice telephone in order to increase revenue per unit generated by additional
billable services, differentiate their service offerings from their competitors,
increase customer loyalty and increase minutes of use. To offer these new data
services, carriers need wireless data service expertise, simple implementation
with minimal capital investment, and access to aggregated content and
applications that are tailored to wireless devices and networks. In order to
deliver personalized information and Internet-based services to their wireless
subscribers, wireless network operators must provide personalized data products
as well as customer service and billing.
We offer wireless network operators content aggregation, applications
development and integration, content filtering and parsing, systems for personal
profiling, billing services, customer care services, and delivery of messages in
volume. This allows wireless network operators to outsource these services,
thereby minimizing their time and capital expenditures required to provide these
services. We have agreements with over 50 providers of news, financial, weather,
sports and other sources of information and can bundle these products and offer
them in packages customized for wireless network operators.
Effective wireless data systems must function seamlessly over diverse
networks, devices and operating systems. We support and develop applications for
a wide variety of wireless protocols that allow wireless devices to display
Internet-based information, including applications for Wireless Application
Protocol. Further, because our technology allows messaging to devices using new
technologies, we provide wireless network operators with a migration path to
Internet browsing capabilities as equipment, content availability and networks
evolve to support this new functionality.
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INTERNET MEDIA NETWORKS AND CORPORATE ENTERPRISES
Internet media networks and corporate enterprises need to deliver the
content they provide through new distribution channels in order to create
enhanced value for existing Web services to generate additional revenue. In
order to create this new revenue and enhanced value, Internet media networks and
corporate enterprises need access to wireless distribution channels and the
ability to publish their content on multiple wireless data platforms. We provide
digital content providers with access to our distribution relationships with
wireless network operators. Our technology can deliver a message initiated by
any of our Internet media networks or corporate enterprise distributors to any
digital handset capable of receiving Short Message Service, commonly referred to
as SMS. Short Message Service is a globally accepted wireless service that
enables the transmission of alpha-numeric messages between mobile users and
wireless networks, such as e-mail, paging and voice mail systems. We also
provide digital content providers with the means to repackage their content for
delivery through a wide variety of wireless data protocols such as Short Message
Service applications, Wireless Application Protocol, browser applications and
various voice applications.
ADVERTISERS AND ELECTRONIC COMMERCE COMPANIES
Advertisers and electronic commerce companies are seeking additional
channels to market their products and/or services. We believe that advertisers
will benefit from the wireless data medium's ability to expand their
distribution reach and to target specific advertisements and product messages to
specific users. We also believe that electronic commerce companies will benefit
as the increased convenience and ease of use of wireless devices results in
higher transaction volume.
We provide advertisers and electronic commerce companies with the ability
to target messages to large numbers of individuals based on their specific user
profiles. Prior to the Internet, this could not be accomplished on such a large
scale without considerable cost and expense. According to the 1999 Yankee Group
Mobile User Survey, more than half of the respondents indicated that they would
accept advertisements and promotions in order to receive complimentary wireless
content. We have developed a patent-pending engine system, Advanced Data Mining
Advertising Tagging and Transaction system, that matches personal profile and
demographic data with advertising targeting information. In addition, we are
developing electronic commerce applications and have licensed patented
technology that will allow mobile users to conduct electronic commerce
transactions on a secure, interactive basis. In the future, we expect our
advertising and electronic commerce applications to be enhanced with location
specific applications, which are offerings that deliver content or services
specifically targeted to the user's location.
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The following diagram illustrates how our technology creates a bridge
between content providers and wireless network operators to deliver personalized
information to the mobile individual:
[i3 Mobile, Inc. FLOW CHART]
Description of Artwork:
The headline at the top reads: "i3 Mobile, Inc."
Below the headline, there are the following three headings (from left to
right): "Integration," "Personalization," and "Distribution."
Below the heading, "Integration," is a box containing the following text:
"Filtering & Parsing Engines: Content & Advertising" Below the box is a
graphic in the shape of an arrow pointing to the box. This arrow graphic
contains the following text:
"Raw Data Feeds."
Below this arrow graphic is a connected box containing the following text
separated by lines:
"Content Providers", "Media", "Enterprise Data", "Advertising", and
"Electronic Commerce."
Below the heading, "Personalization," is a box containing the following
text:
"Personal Profile Database"
Below the box is a graphic in the shape of an arrow pointing to the box and
to another box below the arrow. This next box contains the following text:
"Personal Profiling."
Below this box is an arrow graphic containing the following text: "Needs,
Interests." This arrow graphic also points to a "stick figure" image labeled
"Mobile Individual."
Below the heading, "Distribution," is a box containing the following text:
"Universal Messaging Gateway"
Below the box are three graphics in the shape of arrows pointing to the box
and to another box below the arrow. The three arrow graphics contain the
following text (going left to right): "SMS", "WAP" and "Voice." The next
box below these arrow graphics contains the following text separated by lines:
"Wireless Networks", "Personal Communications Service", "Digital
Cellular", "Paging" and "Wireless Internet Service Providers".
To the left of this box are three arrow graphics pointing to three graphics
of wireless devices: wireless phone, pager and personal digital assistant. Next
to these wireless device graphics is an arrow which points to the previously
described "stick figure" image labeled "Mobile Individual."
At the bottom of the page are three boxes containing the following text:
- Universal wireless publishing and distribution for Content Providers
- Marriage of content and wireless provides personalized services for the
Mobile Individual
- Single source for aggregated content and services for Wireless Network
Operators
Below these three boxes is the following text:
"Benefits to Constituents."
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STRATEGY
Our objective is to be the leading provider of personalized wireless data
products and services that provide information, entertainment and electronic
commerce. The key elements of our strategy are:
POSITION I3 MOBILE AS THE SINGLE-SOURCE WIRELESS PORTAL FOR OUR DISTRIBUTORS
We intend to become our distributors' principal data services provider and
the integrator of content services to the distributors' customer base. Our
distribution relationships allow us to access our distributors' customers,
leverage the name recognition of our distributors in local markets and deliver
value to advertisers, Internet media networks and corporate enterprises through
our large base of established users. We intend to provide our users and
distributors with the ability to migrate to new technologies as they develop,
including Wireless Application Protocol and Internet browsing capabilities.
CONTINUE TO BUILD INNOVATIVE PRODUCTS
We will continue to build innovative products by aggregating and delivering
relevant content to the mobile user in a manner that is cost effective and
beneficial to our distributors. In order to satisfy the needs of the mobile
individual, we will continue to develop our product offerings in a variety of
personal and commercial information categories that are appealing, relevant and
personalized to mobile individuals and that address the local and regional
interests of individual users. We intend to continue to develop innovative,
interactive and electronic commerce applications that enhance the functionality
of the wireless data medium for our users.
GROW OUR USER BASE AND BUILD I3 MOBILE BRAND AWARENESS
We will continue to leverage our distribution relationships and diversify
our marketing initiatives to increase our user base and build awareness of our
services and our brand. As users become accustomed to and realize the benefit of
receiving information on their wireless devices, we believe they will subscribe
for additional services. We actively seek to migrate our complimentary users to
subscription services through direct and co-operative marketing efforts with our
distributors. We also intend to increase our brand awareness independently and
by capitalizing on our co-branding "Powered by i3 Mobile" marketing strategy
which leverages the extensive marketing and advertising resources and efforts of
our wireless network operator and Internet media network and corporate
enterprise distributors.
EXPAND AND DIVERSIFY OUR DISTRIBUTION RELATIONSHIPS
We will continue to seek to expand and diversify our distribution
relationships in order to increase our user base and develop diversified
distribution channels. We believe that we can leverage our relationships with
our existing distributors to migrate our products and services to other
distribution channels. We believe that our capabilities and relationships
provide us with industry credibility when we market our products and services to
other distribution channels. In this regard, we believe that both Internet media
and corporate enterprises will utilize our proprietary technologies, know-how
and services to enable wireless delivery of their content. We currently have
agreements with four enterprises and engage in
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ongoing discussions with additional enterprises, including banking and financial
services, portal and stock-trading Web sites, air travel and package delivery
services, that have expressed an interest in offering our services. We believe
that we can enable these businesses to communicate and interact with their
customers via wireless devices. We will also continue to seek to increase the
number of our distribution relationships in North America and begin to establish
distribution relationships in Europe, Latin America and the Pacific Rim in the
second half of 2000.
DEVELOP ADVERTISING AND TRANSACTIONAL REVENUE
We believe that advertising and wireless electronic commerce transactions
represent a significant revenue generating opportunity. We currently have the
capacity to deliver in excess of 12 million targeted advertising impressions per
month through the use of our patent-pending wireless advertising engine. As the
wireless mobile data medium matures with technological advances and increased
user awareness, we believe that users will desire to transact business on a
wireless basis. We intend to continue to develop and license technology to offer
users access to a wide variety of electronic commerce opportunities. We have an
exclusive license with Portel Services Network whereby we have exclusive rights
to its process patent enabling selected three-party wireless electronic commerce
transactions. We have a non-exclusive license from Diversinet Corp. that enables
us to use Diversinet's technology to serve as an authentication site for
wireless electronic commerce transactions. The technologies underlying these
licenses include security and authentication capabilities.
ADVANCE OUR TECHNOLOGY AND CONTENT DELIVERY SYSTEMS
We will continue to invest in our underlying proprietary filtering
capabilities and content delivery abilities to ensure that we are capable of
meeting the growing demand for our products and services. Our strategy is to
continue to maintain our platform's compliance with all major data standards for
delivery of our products and services on wireless networks and devices. We
believe that our technology enables us to rapidly adapt our platforms to new
technology, devices and protocols. We have dedicated resources in anticipation
of and to capitalize on the emergence of these new technologies, including
Wireless Application Protocol based Internet browsing. In this regard, we
utilize our own research and development efforts as well as the research and
development performed by many of our business relationships, including handset
manufacturers, wireless network operators and content and electronic commerce
companies.
PRODUCTS AND SERVICES
We create products and services targeted to the mobile individual. We are
focused on providing personalized content, advertising and electronic commerce
services to the wireless users' devices such as mobile phones, pagers and
personal digital assistants. Our products and services are offered on both a
one-way and interactive basis. Interactive products and services are available
on both digital telephones and two-way pagers that operate on wireless networks
that are enabled for two-way messaging or browsing. For example, a user can
request information by sending a text-message containing a request to complete
an electronic commerce transaction. The request is processed by our systems and
a
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text message response is sent back to the user upon confirmation of the
transaction. Through our distribution relationships we offer individual wireless
subscribers the ability to determine the type, amount and frequency of
information they desire. We have developed a portfolio of products and services
that allow our distributors to add value to their businesses and customer
relationships by providing personalized content and information to mobile
individuals through wireless devices.
CURRENT PRODUCTS AND SERVICES
Our interactive wireless portals are designed to provide mobile individuals
with personalized information regardless of the type of wireless device, network
infrastructure or protocol chosen by or for them. Information can be accessed in
either our notification/alert or interactive/on-demand content delivery formats.
We believe that a key element of our wireless portals is the creation of
personal profiles that detail each user's unique interests. Our users create
personal profiles through Web sites, phone-based browsers or by calling us or a
distributor by telephone. Content requested by the user is transmitted from our
operations center to a wireless network operator's switching facility and on
from there to the customer's wireless device. We believe that our technology's
capability to monitor data streams and identify and deliver information which is
based on to those personal profiles provides substantial value to users.
Our distributors offer our products and services in a mix of complimentary
and subscription service packages as follows:
Complimentary Service. We offer our users the opportunity to receive a
limited product selection free of charge. We provide complimentary services for
an unlimited period of time to the customers of our wireless network operators.
Our wireless network operators, however, may limit the time period of this
complimentary service. This service enables users to receive daily messages from
a basic tier of content providers. For example, all AT&T Digital PCS subscribers
are entitled to select one content provider from among news, sports, finance,
entertainment and weather. Users must first register for our service by either
visiting a distributor's Web site which we co-brand and host or by telephone.
Our experience indicates that complimentary service enables us to demonstrate
the value of our services, including personalized content, to mobile individuals
and provides a base from which to generate subscriptions. We also have the
capacity to add advertising taglines to complimentary services messages, thereby
generating additional revenues for ourselves and our distributors. In some
cases, we are also compensated by wireless network operators for complimentary
services at a rate of $0.10 per month for each complimentary user. The aggregate
amount of revenue we received in 1999 from wireless network operators for
providing complimentary services to their customers was approximately $418,000.
Subscription Services. We generally offer two paid subscription levels,
basic service and advanced service. By subscribing to either service level for a
monthly fee, subscribers are able to receive personalized messages throughout
the day. For example, a subscriber who has chosen to receive New York Yankees
scores might receive updated scores from a current game at the end of the fifth
inning and as the game ends. We estimate that the typical basic service
subscriber receives between 10 and 30 messages per selected content provider per
month, or an average of 30 to 90 total subscription messages per month in
addition to
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complimentary messages. We estimate that the typical advanced service subscriber
receives between 10 and 30 messages per selected content provider per month, or
an average of 80 to 240 total subscription messages per subscriber per month in
addition to complimentary messages. Currently, the price of our basic service
ranges from $2.99 to $4.99 per month, and the price of our advanced service
ranges from $5.99 to $12.99 per month. The cost of providing our basic service
is a function of our content and communication costs. We acquire content from
over 50 sources, and we have negotiated different pricing terms with each of
these sources, including user-based, flat fixed fees and a hybrid of flat fee
and user-based. The pricing terms vary by provider and range from a fixed
monthly cost to a specific charge per message. Accordingly, the cost per month
per user can vary significantly based on the user's content selection and the
method that is used to communicate that content.
CONTENT DELIVERY FORMATS
Our technology allows us to tailor message formats to maximize the message
length permitted by a user's particular wireless device. Messages typically
range between 40 characters and 240 characters but we can format the messages to
be as brief as 20 characters or as long as permitted by the user's wireless
device and wireless network carrier. Our technology permits subscribers to
select from two distinct message formats:
Notification Services. Triggered Alert/Notification Messages are sent to a
subscriber when our network detects a specific event has occurred which is time-
sensitive and relevant to that subscriber's information profile. For example, a
subscriber might request that we send an alert if there is a severe weather
watch issued for Topeka, Kansas, if IBM's stock price moves 2%, or if traffic
information becomes available for a specific street or highway at a particular
time of day.
Timed Notification Messages allow each subscriber to individually determine
the designated time for message delivery. Subscribers can tailor their message
delivery format to maximize the utility of each message. For example, a
subscriber may request to receive the weather forecast for Fairfax, Virginia
every day before getting dressed in the morning, local news for Sacramento,
California mid-morning or the winning lottery numbers immediately after the
drawing.
Interactive Services. Our subscribers can interact with their wireless
device to quickly access content on demand depending on the type of wireless
network and device. Under the interactive services model, content is sent at the
request of subscribers and we send a response to the wireless network operator
within seconds to be distributed to the user. Wireless users can interact by
two-way Short Message Service and menu-driven browser capabilities, including
Wireless Application Protocol, on their wireless devices. For example, a
subscriber may request a real-time stock quote for a company that is in the
news, or a weather forecast for a city while traveling there, or a report on the
score for a sporting event in progress.
CONTENT CATEGORIES
We deliver global and national as well as regional and local content which
is available in selected locations based on the content's relevance to the
regional markets. For example, the results of a curling tournament are available
to interested users in Western Canada and subscribers in New York may obtain
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scores for the New York Mets. In addition, local traffic conditions and weather
can be provided for both of those markets.
Similar to established Internet portals, we offer users access to diverse,
popular information that is categorized by major topical headings. Most of our
content is offered in English. Some of our products and services are also
offered in French and Spanish. We currently offer content to over 40,000
Canadian subscribers in both French and English. We are currently evaluating
Spanish content services aimed at the United States market. Our systems have the
capability to process content in additional languages as demand requires.
Our content is categorized into a number of product groups, including news,
weather, sports, business and finance, travel, entertainment and others. The
availability of particular content categories depends on the wireless network to
which our users subscribe. The following are the product groups and services
that we offer:
NEWS PRODUCTS
As-issued Breaking News
Headline News
Canadian Headline News
Local News
International News
Political News
Technology News
Health/Medical News
Real Estate News
WEATHER PRODUCTS
Daily Weather Forecasts
Severe Weather Alerts
3-day Forecasts
Travel Weather (multi-city)
Regional Weather Headlines
Marine Forecasts
TRAVEL PRODUCTS
Traffic Conditions
Flight Arrival and Departure
Information
SPORTS PRODUCTS
Real-time Scores
Score Roundups (timed/on-demand)
Pro Sports Stats and Standings
Auto/Truck Racing Results
Sports News Headlines
Pro Sports Team News
Breaking Sports News
Golf Leaderboards
Skiing/Snowboarding Reports
Horse Racing Results
Sports Trivia
Tennis Results
BUSINESS AND FINANCE PRODUCTS
Real-time Stock Price Movement Alerts
Real-time Stock Quotes
Mutual Fund Quotes
Market Indices
Breaking Financial News
Business News Headlines
Industry News Headlines
Company News Alerts by ticker
TRANSACTIONAL APPLICATIONS
Reminder Service
Interactive Advertising
On-demand Stock Quotes
MESSAGING APPLICATIONS
E-mail Gateway
Web-Messaging Gateway
ENTERTAINMENT PRODUCTS
Entertainment News Headlines
Horoscopes
Joke of the Day
Lottery Results
Soap Opera Updates
Movie Reviews From Roger Ebert
Concert Updates
"News Of The Weird" from C. Shepard
Roxy Roxborough's Sports Odds
Celebrity Birthdays
This Day in History
Thought for Today
Quote of the Day
Daily Trivia Question
Bible Quotes
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CONTENT RELATIONSHIPS
We have agreements with media and information companies pursuant to which
they provide high-quality content to our users. We offer content providers the
opportunity to leverage their existing information in a new medium at little or
no incremental cost to them and with significant co-branding opportunities.
While each of our content agreements contain varying terms, our standard form of
content agreement has an initial term of three years and automatically renews
for continuous one year terms unless one of the parties provides notice that it
does not intend to renew the agreement. The amount we pay to the content
provider is either a flat monthly fee, a fee based on the number of subscribers,
a fee based on percentage of revenue received by us derived from revenue
generated from the content they provide, the number of content messages
requested or a combination of the four. The content providers with which we have
existing relationships are:
American Stock Exchange
AccuWeather
Associated Press:
- AP Wire
- LATAM (Latin American)
Canadian Exchange Group
Canadian Press
CNBC.com LLC
COMTEX Scientific Corporation
- Agence France Presse
- Business Wire
- Knight Ridder
- PRNewswire
- Thomson Publishing
- Ziff-Davis Wire
Dow Jones
Environment Canada
FlyteComm
GTE/NOAA (weather)
infoUSA
InteliHealth
Interactive Sports Wire
L.A. Times
Lottery Canada
Lotto Net
Metro Network
NASDAQ
New York Stock Exchange
News America Digital Publishing
- Fox News
- Fox Sports
- Fox Market Wire
Reuters Health Information Services
Inc.
SkyWords
SportsTicker
Sports Wire
Street Software Technology, Inc.
Tampa Tribune
Tourdates
TravInfo
Trustar Limited
Universal New Media:
- Eugenia Last
- Roger Ebert
University Wire
The Weather Channel
EMERGING PRODUCTS AND SERVICES
We are continually expanding our products and services based on perceived
market opportunities. We believe all of these products and services represent
additional potential sources of revenue. We are currently offering advertising
taglines, basic electronic commerce transactions and e-mail on a limited basis
and intend to begin offering additional services in the future, including
personal information management applications, location-based services, voice
recognition and text-to-speech applications and in-vehicle applications.
Advertising. In many cases, we have the capacity to attach advertising
taglines to the end of content messages being delivered to individuals. Our
patent-
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pending Advanced Data Mining Advertising Tagging and Transaction system, matches
personal profile and demographic data with targeted advertising information. We
currently have the capacity to deliver in excess of 12 million targeted
advertising impressions per month. For example, when a user in Denver, Colorado
receives a message from The Weather Channel with the weather forecast for Vail,
Colorado, we have the capability to tag the weather message with a short
advertisement for a local ski area ticket discount or a sale at a local ski
shop. We also plan to offer non-targeted, broadly distributed advertisements
marketed towards wireless device users in general.
Initially, we believe we have established our advertising rates to compare
favorably with average Internet portal cost-per-thousand impressions rates.
Although the revenues we have received from providing advertising services to
date have been minimal, we believe this revenue will increase as advertisers
accept this new advertising medium. We believe that we will be able to charge
them a premium rate based on our ability to reach a large number of mobile
individuals with highly targeted and location specific messages.
Electronic Commerce. Our current electronic commerce platform offers
personal calendar alert functions and permits users to place an order for a
product or service from their wireless device. This capability not only provides
us with an opportunity to share in the revenue from an electronic commerce sale,
but it also motivates the user to use the wireless device to contact the vendor.
In addition, we believe this results in increased usage over the wireless device
and, accordingly, additional revenues for the wireless network operator. We have
secured a mix of exclusive and non-exclusive licenses and anticipate securing
additional licenses to enable us to deliver secure wireless electronic commerce
transactional services.
Although our electronic commerce platform is in the early stage of
development, we have existing technology which is capable of enabling wireless
electronic commerce transactions. We are engaged in creating advanced wireless
electronic commerce applications which include mobile banking, stock trading,
online auction, travel service bidding and online shopping applications.
Although the revenues we have received from electronic commerce to date have
been minimal, we believe revenue from enabling electronic commerce companies for
wireless transactions will include fee-based development activities,
per-transaction pricing and receiving a portion of revenue generated from goods
or services sold.
Through our relationships with 1-800-FLOWERS and Vermont Teddy Bear, a user
may set up a reminder for a friend's birthday through the Internet. At a pre-
set date and time prior to the event, a message is transmitted to his or her
wireless device which alerts him or her of the upcoming birthday. This alert
message contains the details of the friend's birthday, along with a tagline
providing a gift suggestion and a special toll-free number to call to initiate a
transaction. Under this arrangement, we will receive a portion of the revenues
generated from this electronic commerce transaction.
We believe that the electronic commerce market presents significant revenue
potential for us and we are currently in discussions with a number of additional
companies that conduct electronic commerce on the Internet.
E-mail and Personal Information Management Applications. We believe that
e-mail and personal calendar information are among the most important content
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services for mobile individuals. Our e-mail development efforts are focused on
adding new features to our e-mail gateway platform, such as the ability to have
messages automatically forwarded from one location to the user's wireless device
e-mail address and automatic replies. We are now developing the technology to
allow a user to direct his or her e-mail normally received at a workstation
location, such as an office, to his or her wireless device. We are also
developing the technology to allow the user to remotely interact with his or her
desktop e-mail/ scheduling applications to enable the remote receipt of and
response to e-mail messages.
Location-Based Services. We are working to provide services that are based
on the user's geographical location as he or she travels. We have conducted a
successful trial of location-coded notification services with a wireless network
operator, and intend to utilize new location technologies to enhance our ability
to provide more localized information for mobile individuals. For example, a New
York subscriber could receive Arizona weather reports while he or she is
traveling in Phoenix. Other services that may be useful to a user's specific
location include traffic, restaurant/business/ATM location information, as well
as targeted advertising and electronic commerce programs.
Voice Recognition and Text-to-Speech Applications. We are developing a
system that allows a user to interact with our products and services using voice
recognition and text-to-speech technology. These applications allow users to
access our services through the voice channel on their wireless phones, rather
than the data channel. We believe that voice-based services can provide an
effective means for on-demand content delivery and triggered notification. To
support our efforts in this area, we are working with several industry leaders
on voice product prototypes, including serving as a development partner for
Nuance's Voyager voice browser platform.
In-Vehicle Applications. We are participating with major automotive
manufacturers in the development of and trials of various platforms and services
for in-vehicle applications. We are developing systems that will allow a user to
obtain critical information while travelling in a car, including directions and
traffic information. We intend to combine this functionality with our voice
recognition product to allow a user to speak to an in-vehicle device to request
information.
DISTRIBUTION RELATIONSHIPS
WIRELESS NETWORK OPERATORS
We have entered into relationships with a number of leading
telecommunications carriers and wireless network operators in order to
facilitate widespread distribution of our services and to grow our user base.
Marketing fee arrangements provide incentives to our wireless network operator
distributors to promote our products and services. Although the terms of each
wireless network operator distribution agreement differ, the standard agreement
we use is non-exclusive, has a term of one to three years, automatically renews
for continuous one year terms and may be terminated by either party on notice,
with or without cause.
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The following are the wireless telephone network operators with which we
have distribution agreements:
<TABLE>
<S> <C>
AT&T Wireless Services PrimeCo PCS
- AT&T Digital PCS SBC Communications Inc.
- AT&T PocketNet - Southwestern Bell Mobile
AirTouch Cellular Systems, Inc.
Bell Mobility Cellular, Inc. (Canada) - Pacific Bell
Cellular One of Amarillo - Cellular One (Boston,
Cellular One of Oregon Baltimore, Washington, D.C.)
Cellular One of San Francisco TeleCorp
CFW Wireless Triton PCS
Clearnet PCS United States Cellular
MTT Mobility (Canada) U.S. West Wireless
Omnipoint Communications Services
</TABLE>
In addition to our distribution agreement with AT&T Wireless Services,
Inc., we have entered into a second agreement with AT&T Wireless Services, Inc.
under which it may develop programs to tag our messages with advertisements and
send welcome and reminder messages for our complimentary service to new and
existing AT&T Wireless customers. As part of this agreement, we have agreed to
issue to AT&T Wireless Services, Inc. warrants to purchase up to 200,000 shares
of our common stock at a per share exercise price of $15.00. The warrants will
vest upon the development and implementation of the program to tag messages with
advertisements and upon the achievement of designated new registered user
levels.
We also have a number of distribution agreements with paging network
operators. In 1999, we received 98% of our subscriber revenues from wireless
network operators.
ENTERPRISES
We believe that we provide a powerful enabling technology that allows
Internet media networks and corporate enterprises to extend the reach of their
services through the use of wireless devices. We can derive revenue from this
service for Internet media networks and corporate enterprises in a number of
ways, including fees for development services, licensing fees and
transaction-based pricing and per user subscription fees. We currently have
agreements with four enterprises, including Internet media network agreements
with RotoNews and The Weather Channel/Wireless Weather. We provide these
enterprises with customer support, billing services, Web site design and
hosting, software development, personal profiling and content delivery. The
RotoNews Agreement has a one year term, and The Weather Channel/Wireless Weather
Agreement has a two year term. Under these agreements we provide all of the
technology and support to allow these enterprises to provide their content to
their subscribers via wireless devices. We derive revenue through subscription
fees collected from their subscribers and pay the enterprises an agreed upon
portion of those fees for content and access to their subscribers ranging from
30% to 55%. We are in discussions with additional businesses such as banking and
financial services companies, portal and stock-trading Web sites, airlines and
package delivery services companies that have indicated their interest in having
us enable their enterprises to communicate with their customers when they are
not at their desktops.
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Internet Media Networks. We believe that these enterprises have begun to
consider wireless as a viable vehicle to deliver Web site content to their
users. Because our platform is compatible with all major data standards and
wireless transmission protocols we are capable of creating, hosting and
maintaining a product offering that allows Internet media networks to deliver
wireless portal services. For example, Weather.com uses our technology to
provide subscribers with branded weather content, formerly only available on the
Internet, via their wireless devices.
Corporate Enterprises. Our technology can also enable corporations to
extend their information and services to customers and employees using wireless
devices. This can include e-mail, calendar and inventory applications,
notifications and corporate intranet access. Enterprise data can be supplemented
with our news and information content based on the needs of service users.
Although we have not entered into any definitive agreements to date, we are in
discussions with numerous companies to provide these types of services. We
believe this market will provide us with additional opportunities to facilitate
and expand the use of electronic commerce. We believe enterprises that might use
our services to provide wireless content services to their employees and/or
customers include banking and financial services, portal and stock trading Web
sites, airlines and package delivery services. For example, an enterprise could
notify a user on their wireless device that a package was delivered to the
recipient, or, in the case of an airline company, users could use their wireless
devices to request information regarding flight delays. We can derive revenues
by charging fees to complete a transaction even in those cases where we may not
receive a portion of the revenues of the actual sale.
OUR DISTRIBUTOR PRODUCT OFFERINGS
We provide wireless data services to wireless network operators, Internet
media networks and corporate enterprise distributors by offering a package of
technology and services enabling the delivery of personalized information. We
offer these distributors several critical components with which to build
co-branded wireless portals. We offer all of the following services to our
wireless network operator relationships and offer the messaging gateway,
personalization and software development components to our Internet media
network and corporate enterprise relationships:
- Content Aggregation. We acquire content from over 50 content providers
who deliver general, broad-based information as well as locale and user
profile specific content.
- Content Filtering and Parsing. Our proprietary technology is designed to
extract only that content which is relevant to our users from the data we
receive. We send specific messages on a timely basis to specific users
based on their personal profiles or interactive requests.
- Personal Profiling. We maintain individual information, network, and
device profiles for each of our more than 450,000 users. These personal
profiles contain data reflecting each user's individual content
preferences. Our content filtering and parsing engines work in
conjunction with our profiling system to provide personalized information
to our users.
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- Messaging Gateway. Our products work with every major network protocol
for transmission of messages between our operating center and the systems
of our wireless network operator distributors. We currently maintain
connectivity to over 600 messaging switches around North America,
including but not limited to those of our wireless network operator
distributors.
- Operations, Billing, Customer Care and Reporting. We ensure timely and
accurate delivery of our services through our operations center, which is
staffed continuously. We provide user billing and live-operator customer
care services on behalf of our distributors and provide them with
detailed reporting on user numbers and behavior.
- Software Development. We typically create customized co-branded Web-
based systems in conjunction with each of our distributors which allow
users to create individual profiles and subscribe for services over the
Internet. We also develop interactive voice response systems with many of
our distributors, which are automated telephone systems that allows users
to register and manage their personal profiles by telephone. In addition,
we can create communications software to accommodate a distributor's
systems infrastructure and high message volume.
OTHER RELATIONSHIPS
We have entered into agreements with two of our investors, NBC Interactive
Media, Inc. and Sony Corporation of America. Each agreement has a term of two
years and provides affiliates of NBC Interactive Media, Inc. and Sony
Corporation of America with incentives to enter into wireless distribution
relationships with us. These incentives include preferred placement of content
and the issuance of warrants. We have agreed to issue warrants to purchase up to
20,000 shares of our common stock at a per share exercise price of $10.00 for
each distribution agreement entered into with affiliates of either NBC
Interactive Media, Inc. or Sony Corporation of America. The maximum number of
shares of common stock that may be issued under each of these arrangements is
110,000. We believe that affiliates of NBC Interactive Media, Inc. and Sony
Corporation of America will enter into distribution relationships with us to
enable them to capitalize on the growing market for the delivery of their
content on a wireless basis and to integrate our product offerings into their
products and services. To date, we have not entered into any distribution
agreements with any affiliates of Sony under our relationship with Sony
Corporation of America. The first distribution agreement under the NBC
Interactive Media, Inc. relationship was entered into as of March 7, 2000 with
CNBC.com LLC, and a warrant to purchase 10,000 shares of our common stock at
$10.00 per share was issued to CNBC.com LLC. This agreement has a term of two
years and provides for CNBC.com to make available to us three financial-related
headline messages per trading day for distribution through our wireless network
operators as a complimentary service. Neither party is required to pay fees to
the other in connection with the services contemplated by the agreement. In
addition, we will provide marketing support and make available to CNBC.com 5% of
our unused inventory of wireless advertising taglines. As part of the agreement,
we have also agreed to purchase $200,000 of banner advertising from CNBC.com.
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We have also entered into an agreement with BroadcastEntertainment.com Inc.
During the five year term of the agreement, BroadcastEntertainment.com Inc. will
be our exclusive provider of motion picture, concert, animation, radio, video
and music content for delivery to our users. The agreement also precludes
BroadcastEntertainment.com from providing the same or similar content to our
competitors. The agreement also provides opportunities for us to develop
wireless event ticketing electronic commerce services with
BroadcastEntertainment.com Inc. We will provide BroadcastEntertainment.com Inc.
and up to five of its affiliates with enabling technology and development
services to deliver its content directly to the wireless devices of its
customers. BroadcastEntertainment.com Inc. has agreed to pay us $2 million for
these services and provide us with advertising credits on its affiliated
Internet websites and radio stations. We are in the process of determining the
value of these advertising credits.
We have also entered into a letter of intent with Sportsline.com, Inc.
During the three year term of the proposed agreement, we will serve as the
exclusive integrator of Sportsline.com, Inc.'s wireless information services
from the CBS Sportsline Web site and will pay $1.2 million to Sportsline.com,
Inc. for fees and marketing support. We will receive a development fee to design
the wireless portals for the Sportsline.com service and will share equally in
the net revenue from the sale of advertising and electronic commerce within the
wireless portals for the Sportsline.com service. As part of the proposed
agreement, we will issue to Sportsline.com, Inc. warrants to purchase up to
20,000 shares of our common stock at a per share exercise price of $15.00. These
warrants will vest one-half upon issuance and one-half eighteen months after
issuance.
We have also entered into a letter of intent with GO.com. During the two
year term of the proposed agreement, we will be the exclusive provider of short
messaging service integration services, including content delivery, wireless
advertising and electronic commerce transactions, to GO.com's affiliated Web
sites that consist of ESPN.com, GO.com and ABCNEWS.com and will pay $825,000 to
GO.com for fees and marketing support. We will receive a development fee to
design specifications for GO.com's and its affiliates' Web sites, a monthly fee
based on the total number of wireless users of GO.com and its affiliates and an
equal share of any net advertising, electronic commerce and subscription
revenues derived from users of the Web sites. As part of the proposed agreement,
we will issue to GO.com warrants to purchase up to 40,000 shares of our common
stock at a per share exercise price of $15.00. These warrants will vest
one-third upon the first wireless service launch, one-third on the first
anniversary of the launch date and one-third on the second anniversary of the
launch date.
We have also entered into an agreement to work with Intel Corporation to
help us develop our products with Intel Corporation's wireless technology
platforms. As part of this agreement, we have agreed to issue to Intel
Corporation warrants to purchase up to 100,000 shares of common stock at a per
share exercise price of $15.00. The warrants will vest when Intel Corporation
delivers specific technical access, support and feedback over the term of the
business agreement.
SALES AND MARKETING
Our sales and marketing activities are focused on entering into additional
agreements with wireless network operators, Internet media networks and
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corporate enterprises who will market our products and services using our
"Powered by i3 Mobile" co-branding campaign. Our marketing efforts have also
been targeted towards accelerating the adoption of our services by mobile
individuals. By relying on the sales and marketing strength of our wireless
network operators, we are able to focus our capital on broadening our product
offering and incorporating technological advances. We currently employ 25 sales
and marketing professionals and intend to expand this group significantly during
2000.
We have implemented a number of initiatives supporting our distributors'
retail sales efforts and accelerating adoption of our services by mobile
individuals. These initiatives include:
- Cooperative Advertising Program. Since 1998, we have offered a
cooperative advertising program for distributors who offer our services
under the "Powered by i3 Mobile" brand. Through this program, we provide
reimbursement for up to 3% of actual amounts invoiced for pre-approved
advertising and promotional materials used to support the sale of our
services to mobile individuals. We spent $47,000 in 1999 and $0 in 1998
under this program.
- Market Development Funds. Since 1999, we have made available market
development funds at the discretion of management for use by our
distributors to promote specific products and services and to increase
sales in targeted markets. We work with our distributors to identify
appropriate media and geography for the efforts we fund. During 1999 we
made available $31,000 in market development funds.
- On-Device Promotions. We have begun promoting our services to mobile
individuals directly on their wireless devices. We currently send service
availability notification messages including instructions on selected
networks on how to activate our services to our distributors' subscribers
who have not yet signed up for our services. For some of our
complimentary service users we have begun attaching periodic promotional
messages to content messages aimed at selling subscription services to
these customers. To date, we have not paid any fees to our distributors
for these promotional messages.
- "Powered by i3 Mobile" Advertising. As an additional means of increasing
customer awareness and demand for our services we intend to continue to
implement advertising and promotional campaigns addressed directly to
mobile individuals. For example, we plan to advertise in markets where we
have a high density of potential customers such as California or South
Florida, each of which has three wireless network operators offering our
services.
TECHNOLOGY AND SYSTEMS
We believe that one of our principal strengths is our proprietary
internally developed technology. Our systems have been designed to provide a
network and device independent platform for creation and delivery of all of our
products. We acquire, filter and parse data streams for content, advertising and
commerce applications, provide user personal profile systems, and our wireless
delivery gateway.
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Our various components run on a number of operating systems to satisfy the
requirements of our content providers and distributors, but all are integrated
in a common network architecture. Each component has been designed for expansion
so that our current systems can accommodate more content without compromising
performance, advertising and commerce relationships and greater messaging
volume.
CONTENT ACQUISITION, FILTERING AND PARSING SYSTEMS
Our engines for content aggregation and filtering have been designed to
accept virtually any type of data formatting and volume of data. We offer our
content providers the option to provide us their data in almost any content
format. We retrieve data from content providers under license through third
parties and our own proprietary filtering technologies. We can also accept data
delivery through established two-way connectivity with our content providers. In
the case of our stock quote alert products, for example, we receive data through
satellite on over 300,000 securities on a constant basis from our financial
content providers, with a dedicated network connection for backup purposes.
Our filtering and parsing engines determine relevance of information by
screening for key words in the data we receive and create various types of
messages for our end users' devices. We have created proprietary technology to
efficiently monitor the large volume of data entering our operating system and
to identify particular information that is relevant to our individual end users.
Our parsing engines then use proprietary algorithms to transform relevant data
into messages of various lengths and formats. For example, our engines create
100, 140, 150 and 240 character messages targeted for different types of message
displays on various devices. In addition, our engines create full-word 3-day
weather forecasts, and 50 character same day weather forecast messages with word
abbreviations, such as "t-stms" instead of "thunderstorms", from the same data.
Our systems have been refined over time to handle high data volume and rapid
message creation, and we tag messages with expiration designations and priority
of delivery. These expiration designations indicate to our wireless network
operator distributors' system how long a message should try to be delivered, and
which messages, such as on-demand stock quotes, should be delivered first.
We have developed a patent-pending Advanced Data Mining Advertising Tagging
and Transaction system, our advertising and electronic commerce platform. This
system matches advertising tags and commerce opportunity tags with specific
messages based on user information profiles and the content of the messages. For
example, our system can monitor weather data for temperature and humidity and
can insert into a weather forecast message an advertising tag for a soft drink
when the temperature exceeds 85 degrees. In addition, the system can monitor a
user's commerce preferences to insert electronic commerce opportunity tags into
our reminder system. For example, if a user chooses to be reminded of a child's
birthday, our system will insert an embedded phone number for a children's gift
manufacturer into the reminder message. This system is designed to work with
high volumes of messages and multiple vendors and to provide data on user
preferences to our electronic commerce distributors.
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PERSONAL PROFILING SYSTEM
We allow our users to create personal profiles through the Internet,
interactive voice response systems and, depending on its capabilities, a user's
wireless device. We update user profiles in each of these systems to
automatically reflect user-initiated changes.
Our Web and interactive voice response systems currently utilize load-
balanced hardware integrated into our Web server environment for redundancy and
to manage rapid growth. Our next generation Internet-based system will employ a
distributed application model for even greater scalability and performance.
Each user's personal profile is queried by our content parsing engines to
determine appropriate message delivery. For example, we monitor our sports
information data for a user's selected team and when scores appear for that
team, create a message for that user's device characteristics and deliver that
message through appropriate protocols to that user's wireless network operator.
Our personalization engines have been designed for expansion without
compromising performance.
WIRELESS DELIVERY GATEWAY AND NETWORK OPERATIONS
Our wireless delivery gateway provides the means to send customized content
to most types of mobile handheld devices. Our gateway provides message transport
utilizing several paging protocols and various protocols for Short Message
Services. The gateway also supports the protocols and languages compatible with
microbrowsers and the Wireless Application Protocol servers. Our gateway
provides delivery through all major wireless networks.
We have written applications in a number of languages to work with new
microbrowser gateways and protocols and emerging voice browser platforms. These
new applications provide the basis for the next generation of our wireless
information portals and are focused on enhancing the Internet functionality of
wireless devices. For example, our technology enables a Wireless Application
Protocol-enabled handset to become a platform for two-way interactive services
such as directory searches and remote personal information manager connectivity.
Handling a high volume of message input and output is crucial to our end
users and wireless network operator distributors. Our operating center currently
handles approximately 800,000 messages per day and is capable of providing
message transport of five times that volume. We are also in the process of
building a new data center in Connecticut which is expected to provide capacity
for 20,000,000 messages per day. We currently anticipate that our new data
center will be operational during the second quarter of 2000 at an aggregate
cost of approximately $1.2 million.
Our data center is designed to utilize mirrored server technology, load-
balancing components, backup power supplies, backup generator systems and
redundant network interfaces to eliminate service interruptions because of
single points of failure. In addition, in order to provide service to our
subscribers if a disaster should occur in our Connecticut facility, we are
upgrading our redundant data center in Hurst, Texas, with plans for this
upgraded facility to be operational during the second quarter of 2000. Each
system component in the Connecticut and Texas facilities has been designed to
scale for significantly larger service volume.
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RESEARCH AND DEVELOPMENT
Our research and development strategy is to anticipate market needs and to
implement the technological advancements necessary to meet these needs. This
strategy is consistent with our history. In the early stages of our development,
we created the proprietary platforms that allowed us to provide deliverable
wireless products when the wireless data market began to develop. We believe we
developed one of the first profile-based stock quote alert products in North
America, one of the first applications for capturing user profiles for wireless
delivery and one of the first notification applications for Phone.com's
microbrowser and many other innovations. We have senior level management who are
specifically assigned to direct our research and development efforts. In
addition, a team of individuals from a number of different departments is
selected to develop and implement each research and development project. We
actively solicit feedback from wireless network operators, content providers,
and Internet media networks and corporate enterprises to determine changes in
market needs and user demands. Our research and development strategy consists of
the following:
INDUSTRY STANDARDS
As an active participant in the development of the wireless data industry,
we share our expertise with various industry groups and with technology
alliances. As a result, we share in the benefits from research performed by many
of our industry contemporaries, including wireless network operators, content
providers, technology vendors, and electronic commerce providers. For example,
as a member of the Wireless Application Protocol Forum, we have agreed to
license our intellectual property to other members on fair and reasonable terms
to the extent that the license is required to develop non-infringing products
under the specifications promulgated by the Wireless Application Protocol Forum.
Each other member has entered into a reciprocal agreement.
PROTOTYPE DEVELOPMENT
Our research and development group develops prototypes of new products and
systems. Prototypes are created in response to specific wireless network
operator trials, new technology relationships and our ongoing product
development efforts. When a prototype is targeted for production, our research
and development group transfers information and strategy to our systems and
technology group for implementation into commercial products.
OTHER RESEARCH AND DEVELOPMENT INITIATIVES
In support of our strategy of network and device independence, we continue
to develop applications that will allow us to offer our products and services to
any user, regardless of his or her selected wireless device. We are also
concentrating our efforts on new wireless telephones, pagers and personal
digital assistants, and on creation of products that work in conjunction with
Wireless Application Protocol, the Palm OS and associated network browsing
platforms, Windows CE, EPOC and other applications. We believe this strategy
will allow us to remain competitive when and if a major protocol achieves market
dominance.
RESEARCH RELATIONSHIPS
In support of our research and development efforts, we have formed
relationships with wireless software and infrastructure companies and with the
Wireless Application Protocol Forum and Wireless Data Forum trade organizations.
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We have established these relationships to gain early awareness of emerging
wireless device and Internet technologies by sharing our research and
development efforts with these companies. For example, we seek to ensure that
our products work with the hardware and protocols of leading wireless data
infrastructure providers. These include Short Message Service Center
manufacturers Logica Aldiscon, ADC NewNet and Comverse, and Wireless Application
Protocol gateway and microbrowser manufacturers Nokia, Phone.com, Motorola and
CMG. In the case of the Short Message Service Center manufacturers, we test the
compliance of our respective products and are listed as certified developers for
their platforms. In the case of the Wireless Application Protocol gateway
manufacturers, we work with the companies to ensure that our products are
compliant with their programming languages, servers and, in some cases, wireless
handsets. These companies also include our services among their demonstration
Web sites for handset microbrowsers. For example, we were one of a limited
number of Nokia's initial North American Wireless Application Protocol
application development partners. As part of that relationship, we jointly
showcase our offerings at major industry trade fairs.
In addition, we have cooperative development relationships with other
wireless technology and services vendors. We have a cooperative development
relationship with SignalSoft to build products that work with SignalSoft's
location-based technology, and we have a non-exclusive licensing arrangement
with transaction security provider Diversinet to use Diversinet's secure
transactions software for our electronic commerce product offerings. We also
have a cooperative relationship agreement with voice recognition and browser
technology provider Nuance Communications to test products we developed that run
on Nuance's Voyager voice-browsing platform. In most of these relationships, we
test compliance of our respective products, but do not market products together.
We have also established original equipment manufacturer distribution
relationships with Neopoint and Motorola. For example, Neopoint's MyAladdin
product and Motorola's iKno product include content services we provide, and we
have developed several products for Motorola's wireless information services
prototype platforms. Each of these relationships has been developed in order to
further our understanding of our partners' technology and product offerings. We
anticipate that these development relationships will translate into distribution
agreements for our products.
COMPETITION
The market for our services is becoming increasingly competitive. The
potential adoption of an industry standard may make it easier for new market
entrants to offer some or all of the services we offer and may make it easier
for existing competitors to introduce some or all of the services they do not
now provide, or improve the quality of their services. We expect that we will
compete primarily on the basis of the functionality, price, breadth and quality
of our products and services.
Our current competitors include:
- wireless data providers and portals, such as InfoSpace.com, Saraide.com,
MSN Mobile, Datalink, Airflash, Inc., Phone.com, Yahoo!, Inc., AirMedia,
@mobile.com and CNN Mobile; and
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- wireless financial services providers, such as Aether Systems, Inc.,
SmartServ Online, Inc., Strategy.com and 724 Solutions, Inc.
Our potential competitors include:
- entities that have announced their intentions to become wireless data
providers, such as America Online, Inc. and TIBCO Software Inc.; and
- wireless network operators, such as AT&T Wireless, Bell Atlantic Mobile,
Metricom, Inc., Nextel Communications, Inc., Omnipoint Communications
Services and Sprint PCS, any of which may decide to develop in-house
resources to provide similar services themselves.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we do.
Additionally, many of these companies have greater name recognition and more
established relationships with our target customers. Furthermore, these
competitors may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. The
wireless network operators with which we contract to provide airtime are subject
to regulation by the Federal Communications Commission. Therefore, indirectly,
changes in Federal Communications Commission regulations could affect the
availability of wireless coverage these carriers are willing or able to sell to
us.
We could also be adversely affected by developments in regulations that
govern or may in the future govern the Internet, the allocation of radio
frequencies or the placement of cellular towers. Due to the increasing
popularity and use of the Internet, there is an increasing number of laws and
regulations pertaining to the Internet. In addition, a number of legislative and
regulatory proposals are under consideration by various agencies and commissions
in the United States and elsewhere. Laws or regulations may be adopted, and in
some countries have already been adopted, with respect to the Internet relating
to liability for information retrieved from or transmitted over the Internet,
online content regulation, user privacy, taxation and quality of products and
services. Moreover, the applicability to the Internet of existing laws governing
issues such as intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment and personal privacy is
uncertain and developing. Uncertainty and new regulations could increase our
costs and prevent us from delivering some or all of our services.
DATA PROTECTION
Legislative proposals have been made in the United States that would afford
broader protection to owners of databases of information such as stock quotes
and sports scores. If enacted, this legislation could result in an increase in
the price of services that provide data to wireless communications devices and
could create potential liability for unauthorized use of this data.
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INTERNET TAXATION
A number of legislative proposals have been made at the federal, state and
local level that would impose additional taxes on the sale of goods and services
over the Internet and certain states have taken measures to tax Internet-related
activities. Although Congress recently placed a three-year moratorium on state
and local taxes on Internet access or on discriminatory taxes on electronic
commerce, existing state or local laws were expressly excepted from this
moratorium. Further, once this moratorium is lifted, some type of federal and/or
state taxes may be imposed upon electronic commerce. This legislation, or other
attempts at regulating commerce over the Internet, may substantially impede the
growth of commerce on the Internet and, as a result, adversely affect our future
opportunity to derive financial benefit from those activities.
INTELLECTUAL PROPERTY RIGHTS
We have filed applications to register the marks "i3 Mobile," "Powered by
i3 Mobile," and "Powered by iii" in the United States. In addition, we have
registered the marks "Eyes on the Web," "Village Square," "News Alert Service,"
"Sports Alert Service" and "Intelligent Information Incorporated" on the
Principal Register of the United States Patent and Trademark Office. We also
have pending applications to register the marks "Eyes on the Web," "Village
Square" and "Powered by iii" in Canada. This prospectus also includes trade
names, service marks and trademarks of other companies. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
We rely on a combination of copyright, trademark, service mark, trade
secret laws and contractual restrictions to establish and protect certain
proprietary rights in our services. We have applied for a patent covering
Advanced Data Mining Advertising Tagging and Transaction system, which is a
system that matches personal profile and demographic data against advertising
targeting information to attach advertising taglines to the end of content
messages being delivered to users. We have also entered into a license agreement
with Portel Services Network, Inc. for its method patent, which allows us to
involve a third party processing center or clearinghouse that authenticates user
orders in each electronic commerce transaction. Under the terms of this
agreement, we paid Portel Services Network $175,000 to date. In addition, we
have agreed to pay a royalty equal to five percent of gross revenue related to
electronic commerce through March 29, 2005 and May 8, 2007 for sales in the
United States and Canada, respectively.
The steps we have taken to protect our intellectual property may not prove
sufficient to prevent misappropriation of our technology or to deter independent
third-party development of similar technologies. The laws of certain foreign
countries may not protect our services or intellectual property rights to the
same extent as do the laws of the United States. We also rely on certain
technologies that we license from third parties including data feeds and related
software. These third-party technology licenses may not continue to be available
to us on commercially attractive terms. The loss of the ability to use such
technology could require us to obtain the rights to use substitute technology,
which could be more expensive or offer lower quality or performance, and
therefore have a material adverse effect on our business, financial condition or
results of operations.
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Third parties could claim infringement by us with respect to current or
future services. As the number of entrants into our market increases, the
possibility of an infringement claim against us grows. We may be inadvertently
infringing a patent of which we are unaware. In addition, because patent
applications can take many years to issue, there may be a patent application now
pending of which we are unaware, which will cause us to be infringing when it
issues in the future. Any infringement claim, whether meritorious or not, could
be time-consuming, result in costly litigation, cause service installation
delays or require us to enter into royalty or licensing agreements. Royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any claim could have a material adverse effect upon our business,
financial condition or results of operations.
As a member of the Wireless Application Protocol Forum, we have agreed to
license our intellectual property to other members on fair and reasonable terms
to the extent that the license is required to develop non-infringing products
under the specifications promulgated by the Wireless Application Protocol Forum.
Each other member has entered into a reciprocal agreement.
EMPLOYEES
As of March 31, 2000, we had 95 full-time employees and 1 part-time
employee. Management considers its relations with our employees to be good. None
of our employees are represented by a union.
PROPERTIES
Our principal executive office is located at 181 Harbor Drive, Stamford,
Connecticut. We currently operate four facilities under leases as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE ANNUAL RENT LEASE
LOCATION SQUARE FOOTAGE IN 1999 EXPIRATION DATE
- -------- -------------- ----------- ---------------
<S> <C> <C> <C>
181 Harbor Drive.................... 20,000 $63,000(1) March 2008
Stamford, CT
One Dock Street..................... 5,047 $81,000 March 2002
Stamford, CT
1237 Southridge Court............... 1,000 $25,000 February 2002
Hurst, TX
305 N.E. Loop....................... 10,035 $ --(2) January 2010
Hurst, TX
</TABLE>
- -------------------------
(1) The annual rent for 2000 is expected to be approximately $511,325.
(2) The annual rent for 2000 is expected to be approximately $110,385.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings. However, we may from
time to time become a party to various legal proceedings arising in the ordinary
course of our business.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The names and ages of our executive officers, directors and key employees
as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION
- -------------------------------- --- --------
<S> <C> <C>
Stephen G. Maloney.............. 43 President, Chief Executive Officer
and Director
Robert M. Unnold................ 52 Chairman of the Board
Michael P. Neuscheler........... 39 Vice President and Chief Financial
Officer
Michael Forbes.................. 38 Vice President, Marketing
Richard J. Rutkowski............ 48 Vice President, Technology and
Systems
Alan Katzman.................... 40 Vice President and General Counsel
Kevin W. Ryan................... 53 Vice President, Human Resources and
Administration
Jeffrey N. Klein................ 50 Vice President, Research and
Development
Donald G. Rossi................. 43 Vice President, Sales
Kerry J. Dale................... 43 Director
James A. Johnson................ 61 Director
J. William Grimes............... 58 Director
Donald F. Christino............. 42 Director
W. Peter Daniels................ 45 Director
<CAPTION>
KEY EMPLOYEES AGE POSITION
- ------------- --- --------
<S> <C> <C>
Robert Coletti.................. 45 Controller
Timothy S. Manny................ 29 Director, Product Development
Richard C. Haylon............... 37 Director, Operations
</TABLE>
There is no family relationship between any director and executive officer
of i3 Mobile except that Robert Coletti is married to Stephen G. Maloney's
sister.
STEPHEN G. MALONEY has served as our Chief Executive Officer since
September 1999. He has been our President and a director since he co-founded i3
Mobile with Mr. Unnold in 1991. From February 1987 to April 1994, Mr. Maloney
was Senior Vice President for Operations of Our Lady of Mercy Medical Center, a
teaching hospital located in the Bronx, New York. Prior to that, from February
1984 until January 1987, he served as Vice President, Ancillary Services at
Misericordia Medical Center.
ROBERT M. UNNOLD has been the Chairman of the Board since September 1999
and a director since 1991. Mr. Unnold co-founded i3 Mobile with Stephen G.
Maloney in 1991 and served as our Chief Executive Officer from such time until
September 1999. From 1989 until 1991 he served as a General Manager for Bell
South/Mobilecomm for the New York market. Mr. Unnold also founded Mincron SBC
Corporation, a software company, of which he was President from 1979 to 1989 and
a director from 1979 until its sale in 1999.
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MICHAEL P. NEUSCHELER has served as our Vice President and Chief Financial
Officer since January 10, 2000. From June 1999 to December 1999, Mr. Neuscheler
was Chief Financial Officer of International Telecommunications Data Systems,
Inc., a provider of billing solutions to the wireless telecommunications
industry. From January 1998 to June 1999, he was Vice President and Chief
Financial Officer of Collegiate Health Care, Inc., a provider of management
services to student health centers at colleges and universities. From May 1994
to December 1997, he was Executive Vice President and Chief Financial Officer of
Professional Sports Care Management, Inc., a provider of outpatient orthopedic
rehabilitation services. From 1982 to 1994, Mr. Neuscheler served in various
capacities with Ernst & Young LLP. Mr. Neuscheler is a Certified Public
Accountant.
MICHAEL FORBES has served as our Vice President of Marketing since February
1999. From August 1996 until February 1999, Mr. Forbes was our Director of
Marketing. Prior to joining us, from August 1989 to July 1996, Mr. Forbes worked
for Columbia House Company, a direct retailer of various entertainment products
in a number of capacities, including Creative Director for Columbia House's
Video Club and Director of Sales Promotion for Columbia House's Music Club.
RICHARD J. RUTKOWSKI has served as our Vice President of Technology and
Systems since March 1999. From June 1996 to December 1998, Mr. Rutkowski was the
Director, Software Systems Development at Gerber Coburn, Inc., a company that
provides production equipment software systems for the ophthalmic industry. From
January 1986 to May 1996, he served in a number of capacities at Pitney Bowes,
Inc., a provider of fax and copier systems, business outsourcing and digital
document management, including Director of Engineering-Product Development,
Engineering Manager-Scale Based Products and Engineering Manager-Systems.
ALAN KATZMAN has served as our Vice President and General Counsel since
March 1999. From April 1996 to February 1999, Mr. Katzman served as corporate
counsel and business development executive to Corechange, Inc., a technology
company with a focus on building information portals for Fortune 500 companies.
From January 1993 to January 1996, he served in similar capacities at Candle
Corporation, an independent software vendor.
KEVIN W. RYAN has been our Vice President of Human Resources and
Administration since February 1999. From July 1996 until February 1999 he was
our Manager of Health Information Services. Prior to joining us, from April 1994
to July 1996, he was President of Kevin Ryan Ltd., a management consulting firm.
From September 1990 to April 1994, Mr. Ryan served as President and Chief
Executive Officer at Franciscan Children's Hospital, located in Brighton,
Massachusetts.
JEFFREY N. KLEIN has been our Vice President of Research and Development
since January 1999. From June 1992 to December 1998, he served as our Vice
President of Technical Development. From September 1989 to May 1992, Mr. Klein
was President of Jeff Klein Aviation, a company that developed the Pilot Weather
Service, the predecessor of i3 Mobile's Weather Alert Service.
DONALD G. ROSSI has been our Vice President of Sales since September 1999.
Prior to joining us, from August 1998 until September 1999, Mr. Rossi was a
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Director of Sales and then Vice President of Sales for RTS Wireless, a leading
provider of gateways and infrastructure to the wireless industry. From March
1998 to August 1998, Mr. Rossi was a Director of Sales for Unwired Planet, now
known as Phone.com. From March 1994 to March 1998, Mr. Rossi was Vice President,
Sales and Marketing for AirMedia, Inc., a wireless data solutions company.
KERRY J. DALE was elected a director of i3 Mobile in August 1996. Since
1989, Mr. Dale has been a General Partner of Keystone Venture Capital, a venture
capital investment company. Mr. Dale is a board member of a number of non-
public Keystone Venture Capital portfolio companies. Mr. Dale also serves on the
advisory board of Jefferson Bank.
JAMES A. JOHNSON was elected a director of i3 Mobile in August 1998. Since
1987, Mr. Johnson has been a managing general partner of Apex Investment
Partners, a Chicago-based venture capital firm, which he co-founded in 1987.
Prior to 1987, he was one of the three founding partners of Knightsbridge
Partners, a private investment firm. Previously, Mr. Johnson was associated with
Beatrice Foods, serving in a number of positions, including Chief Financial
Officer of the parent corporation and Senior Vice President of the US Foods
operating subsidiary. Mr. Johnson currently serves on the board of director
White Cap Industries, Inc., a retailer to professional contractors, and a number
of private companies.
J. WILLIAM GRIMES was elected a director of i3 Mobile in February 1999.
Since 1996, Mr. Grimes has been a Member of BG Media Investors LLC, a company he
founded. BG Media Investors LLC is a private equity capital firm specializing in
investments in media and telecommunications companies. From 1994 until 1996, Mr.
Grimes was the Chief Executive Officer of Zenith Media, a media services agency.
From 1991 until 1993, he served as Chief Executive Officer of Multimedia, Inc.,
a diversified media company which merged into Gannett Co., Inc. in 1995. From
1988 through 1991, Mr. Grimes was President and Chief Executive Officer of
Univision Holdings, Inc., the largest Spanish language media company in the
United States. From 1982 through 1988, Mr. Grimes was President and Chief
Executive Officer of ESPN, Inc. Mr. Grimes serves on the board of directors of
InterVU, Inc. and is an Executive Director of the New School University's "Media
Management Program."
DONALD F. CHRISTINO was elected a director of i3 Mobile in July 1991. Since
1987, Mr. Christino has been the President of Green Mountain Enterprises Inc., a
computer consulting company he founded.
W. PETER DANIELS was elected a director of i3 Mobile in July 1991. In
November 1999, Mr. Daniels became the President and Chief Executive Officer of
Southampton Hospital in Southampton, New York. From January 1995 until November
1999, Mr. Daniels was the Chief Operating Officer of Winthrop University
Hospital in Mineola, New York.
ROBERT COLETTI has been our Controller since February 1995. From November
1993 to February 1995, he was a financial consultant to i3 Mobile. Prior to
that, from July 1987 to October 1993, Mr. Coletti held a number of different
positions, including Finance Manager, with Weyerhaeuser Co./Shemin Nurseries, a
nursery wholesaler to landscape contractors. From 1981 to 1986, he was the plant
controller for The Allen Group/G&O Manufacturing, a company that manufactured
and distributed heat transfer units.
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TIMOTHY S. MANNY has served as our Director of Product Development since
December 1, 1999. Prior to that, from March 1999 until December 1999, he was our
Manager of Business Development. Prior to joining us, from April 1996 to October
1998, Mr. Manny was Director of Operations for the Knowledge Group of
CareData.com, a company that markets Internet research software and search
engines. From April 1995 to April 1996, Mr. Manny was the Manager of Business
Development at Big Top Productions, a multimedia software publisher.
RICHARD C. HAYLON has served as our Director of Operations since March
1999. Prior to joining us, Mr. Haylon served as manager of Application
Development and Support at G.E. Capital from 1993 until March 1999.
BOARD COMMITTEES
COMPENSATION COMMITTEE
Our compensation committee currently consists of Messrs. Christino, Dale,
Grimes and Maloney. The compensation committee recommends, reviews and oversees
the salaries, benefits and stock options for our employees, directors and other
individuals compensated by us. The compensation committee also administers our
incentive compensation and benefit plans.
AUDIT COMMITTEE
Our audit committee currently consists of Messrs. Dale, Daniels and
Johnson. The audit committee reviews, acts on and reports to the board of
directors with respect to various auditing and accounting matters, including the
recommendation of our independent public accountants, the results and scope of
the audits and other services provided by our independent public accountants,
the performance of and the fees to be paid to our independent public
accountants, our accounting procedures and the adequacy of our internal
controls.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Christino, Dale, Grimes and Unnold, our Chief Executive Officer
until September 1999 and currently our Chairman of the Board, served as members
of our compensation committee during the 1999 fiscal year. None of our executive
officers has served as a member of the compensation committee, or other
committee serving an equivalent function, of any other entity, whose executive
officers served as a director of or a member of our compensation committee.
BOARD COMPOSITION
Our board of directors consists of seven individuals. Each director is
elected for a one-year term at our annual meeting of stockholders and serves
until the next annual meeting or until his successor is duly elected and
qualified. The executive officers serve at the discretion of the board of
directors.
DIRECTOR COMPENSATION
We have no established compensation arrangements with our directors, but
directors may be reimbursed for their reasonable expenses incurred in connection
with the attendance at board and committee meetings. In the future, we may adopt
new compensation arrangements for our directors. Directors are eligible to
receive options to purchase common stock under our option plans.
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EXECUTIVE COMPENSATION
The following table shows all compensation earned for services rendered to
us by our chief executive officer and our three other most highly paid executive
officers whose annual salary and bonus exceeded $100,000 in the fiscal years
ended December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- ----------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS
- --------------------------- ---- -------- ------------ ----------------------
<S> <C> <C> <C> <C>
Stephen G. Maloney............... 1999 $150,000 $12,000 --
President and Chief Executive 1998 126,810 7,500 12,500(3)
Officer(1) 1997 122,533 -- 12,500(4)
Robert M. Unnold................. 1999 $150,000 $12,000 --
Chairman of the Board(2) 1998 126,810 7,500 12,500(3)
1997 124,080 -- 12,500(4)
Jeffrey N. Klein................. 1999 $125,000 $ -- 25,500(5)
Vice President, 1998 114,000 7,000 18,100(6)
Research and Development 1997 96,000 7,680 17,000(7)
Kevin W. Ryan.................... 1999 $111,833 -- 20,500(8)
Vice President, Human 1998 96,000 -- 9,000(6)
Resources and Administration 1997 96,000 -- 9,000(7)
</TABLE>
- -------------------------
(1) Mr. Maloney was appointed Chief Executive Officer in September 1999.
(2) Mr. Unnold was our Chief Executive Officer until September 1999.
(3) Represents options to purchase shares of our common stock at $2.61 per
share.
(4) Represents options to purchase shares of our common stock at $1.94 per
share.
(5) Represents options to purchase 13,500 shares of our common stock at $4.00
per share and 12,000 shares of our common stock at $2.37 per share.
(6) Represents options to purchase shares of our common stock at $2.37 per
share.
(7) Represents options to purchase shares of our common stock at $1.76 per
share.
(8) Represents options to purchase 7,000 shares of our common stock at $2.37 per
share and 13,500 shares of our common stock at $4.00 per share.
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OPTION GRANTS IN 1999
The following table shows information regarding options granted to the
named executive officers during the year ended December 31, 1999. We have not
granted any stock appreciation rights. None of the named executive officers
exercised any stock options during 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(6)
OPTION IN FISCAL PRICE PER EXPIRATION ---------------------
NAME GRANTED(1) YEAR(2) SHARE(3)(4) DATE(5) 5% 10%
- ---- ---------- ------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stephen G. Maloney............. -- -- -- -- $ -- $ --
Robert M. Unnold............... -- -- -- -- -- --
Jeffrey N. Klein............... 25,500 4.7% $3.23 2009 515,259 798,672
Kevin W. Ryan.................. 20,500 3.8% $3.44 2009 409,481 637,814
</TABLE>
- -------------------------
(1) All options were granted under our 1995 Stock Incentive Plan. All options
were incentive stock options which vest in annual installments over either
four or five years, subject to immediate vesting in the event of a change in
control of our company.
(2) Based upon options to purchase an aggregate of 540,500 shares of our common
stock granted to employees in 1999.
(3) Certain of these options resulted in deferred compensation that will be
recognized over the vesting period.
(4) This figure represents the weighted average exercise price per share.
(5) The options have ten year terms, subject to earlier termination upon death,
disability or termination of employment.
(6) We recommend caution in interpreting the financial significance of the
figures representing the potential realizable value of the stock options.
They are calculated by multiplying the number of options granted by the
difference between a future hypothetical stock price and the option exercise
price and are shown pursuant to rules of the SEC. They assume that the fair
value of the common stock appreciates 5% or 10% each year based on the
initial public offering price of $16.00 per share, compounded annually, for
ten years (the term of each option). They are not intended to forecast
possible future appreciation, if any, of our stock price or to establish a
present value of options. Also, if appreciation does occur at the 5% or 10%
per year rate, the amounts shown would not be realized by the recipients
until the year 2009. Depending on inflation rates, these amounts may be
worth significantly less in 2009, in real terms, than their value today.
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YEAR-END OPTION VALUES
The following table provides information about options held as of December
31, 1999 by the named executive officers. No options were exercised by any
officer or director during 1999. The value of unexercised in-the-money options
at year-end is based on the initial public offering price of $16.00 per share,
less the exercise price per share, multiplied by the number of shares underlying
the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen G. Maloney.......... 12,500 12,500 $174,950 $173,425
Robert M. Unnold............ 12,500 12,500 174,950 173,425
Jeffrey N. Klein............ 58,015 46,085 863,501 633,792
Kevin W. Ryan............... 13,775 24,725 185,546 322,694
</TABLE>
1995 STOCK INCENTIVE PLAN AND 2000 STOCK INCENTIVE PLAN
We adopted the 1995 Stock Incentive Plan on November 7, 1995 and the 2000
Stock Incentive Plan on February 9, 2000. The plans provide for grants of
options to our designated employees, officers, directors and consultants.
GENERAL. The 1995 Stock Incentive Plan, as amended, authorizes options to
purchase up to 1,014,000 shares of our common stock. The 2000 Stock Incentive
Plan authorizes options to purchase up to 1,250,000 shares of our common stock.
If options granted under these plans expire or are terminated for any reason
without being exercised, the shares of common stock underlying such grant will
again be available for grant under the plans.
ADMINISTRATION OF THE PLANS. The Board of Directors administers and
interprets the plans. The Board has the sole authority to:
- determine the employees and officers and consultants to whom grants will
be made under the plans;
- determine the type, size and terms of the grants to be made to each
optionee;
- determine the time when the grants will be made, the vesting period and
the duration of any applicable exercise or restriction period, including
the criteria for vesting; and
- deal with any other matters arising under the plans.
TYPES OF GRANTS. Grants under the plans may consist of:
- options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code;
- nonqualified stock options that are not intended to so qualify;
- stock appreciation rights; and
- stock bonus awards.
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The 2000 Stock Incentive Plan also permits the grant of phantom stock
awards, which are awards denominated in stock-equivalent units. These units are
credited to a bookkeeping reserve account for accounting purposes and do not
give the grantee any rights of a stockholder. The Board may settle phantom stock
awards in cash and/or shares of our common stock.
ELIGIBILITY FOR PARTICIPATION. Grants may be made to any of our employees,
officers, directors and consultants. As of March 31, 2000, there were options to
purchase 1,005,300 shares of our common stock granted under the 1995 Stock
Incentive Plan at a weighted average exercise price of $3.18 per share and
252,600 shares of our common stock granted under the 2000 Stock Incentive Plan
at a weighted average exercise price of $9.39 per share.
The option exercise price will be determined by the Board and may be equal
to or greater than the fair market value of a share of the Company's common
stock on the date of grant.
- the exercise price of an incentive stock option may be no less than the
fair market value of a share of our common stock on the date of grant;
and
- the exercise price of an incentive stock option granted to an employee
who owns more than 10% of our common stock will be no less than 110% of
the fair market value of a share of our common stock on the date of
grant.
The participant may pay the exercise price:
- by certified or bank cashier's check;
- by the surrender and delivery to us of shares of our common stock having
a fair market value equal to the purchase price of the stock issuable
upon exercise of the options are being exercised; or
- by delivery of a promissory note secured by a pledge of stock.
The Board will determine the term of each option, except that the term of
an incentive stock option may not exceed ten years, and incentive stock options
granted to an employee who owns more than 10% of the common stock may not exceed
five years from the date of grant.
Under the 2000 Stock Incentive Plan, options to purchase no more than
300,000 shares of our common stock may be granted during any one fiscal year to
any one person.
STOCK APPRECIATION RIGHTS. The Board may grant a right to receive a number
of shares or, in the discretion of the Board, an amount in cash or a combination
of shares and cash, based on the increase in the fair market value of the shares
underlying the right during a stated period specified by the Board. The Board
may approve the grant of these stock appreciation rights related or unrelated to
stock options. Upon exercise of a stock appreciation right that is related to a
stock option grant, the holder of the related option will surrender the option
for the number of shares as to which the stock appreciation right is exercised
and will receive payment of an amount computed as provided in the stock
appreciation right award.
STOCK BONUS AWARDS. The Board may also award cash and/or shares of common
stock to participants. These stock awards may be conditioned on the achievement
of performance goals and/or continued employment with us through a specified
period.
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AMENDMENT AND TERMINATION OF THE PLANS. The Board may amend or terminate
the plans at any time, except that it may not make any amendment to the 1995
Stock Incentive Plan without stockholder approval that:
- increases the maximum number of shares as to which options may be granted
under the plans (except in the case of a merger, reorganization or
similar event);
- expands the class of employees or consultants entitled to receive
options, rights or awards under the plans;
- decreases the minimum purchase price at which options or rights may be
granted;
- extends the maximum term of options or rights granted under the plans;
- extends the term of the plans; or
- materially increases the benefits accruing to participants under the
plans who are subject to liability under Section 16(b) of the Exchange
Act.
The board may terminate the plans at any time; provided, however, that the
term of the plans may not be longer than ten years from its commencement date.
TAX CONSEQUENCES. The following description of the tax consequences of
awards under the plans is based on present federal tax laws and does not purport
to be a complete description of the tax consequences of the plans. There are
generally no federal tax consequences as to the optionee or to us upon the grant
of an option. On the exercise of an incentive stock option, the optionee will
not recognize any ordinary income, and we will not be entitled to a deduction
for tax purposes, although such exercise may give rise to liability for the
optionee under the alternative minimum tax provisions of the Internal Revenue
Code. However, if the optionee disposes of shares acquired upon the exercise of
an incentive stock option within two years of the date of grant or one year of
the date of exercise, the optionee will recognize ordinary income, and we will
be entitled to a deduction for tax purposes in the amount of the excess of the
fair market value of the shares of common stock on the date of exercise over the
option exercise price (or the gain on sale, if less); the remainder of any gain,
and any loss, to the optionee will be treated as capital gain or loss to the
optionee. On the exercise of a nonqualified stock option, the amount by which
the fair market value of common stock on the date of the exercise exceeds the
option exercise price will generally be taxable to the optionee as ordinary
income and will generally be deductible for tax purposes by us. The disposition
of shares acquired upon exercise of a non-qualified option, or an incentive
stock option, if after the one year and two year periods described above, will
generally result in capital gain or loss to the optionee but will have no tax
consequences to us.
SECTION 162(m). Under Section 162(m) of the Internal Revenue Code, we may
be precluded from claiming a federal income tax deduction for total remuneration
in excess of $1,000,000 paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total remuneration
would include amounts received upon the exercise of stock options. An exception
exists, however, for "performance-based compensation," including amounts
received upon the exercise of stock options pursuant to a plan approved by the
stockholders that meets certain requirements. The plans have been
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approved by the stockholders, and it is intended that grants of options
thereunder meet the requirements of "performance-based compensation" or are
eligible for transitional relief for a limited period following the offering.
FOUNDERS INCENTIVE PLAN
Our Founders Incentive Plan was adopted in May 1999 and is administered by
our compensation committee. The purpose of the plan is to reward our President
and Chief Executive Officer and our Chairman of the Board if we meet certain
specific performance goals. In setting those goals, the compensation committee
will specify the applicable performance criteria and targets it will use for the
performance period. Each executive eligible under the plan may receive a cash
incentive of up to 80% of his annual salary upon the achievement of these goals
and objectives. The performance criteria and targets will measure the following
performance measures:
- the achievement of a specified number of total subscribers and a
specified number of paying customers;
- the achievement of revenue targets;
- the signing of contracts with carriers;
- the obtaining of specified levels of financing; and
- the achievement of infrastructure initiatives.
EMPLOYMENT AGREEMENTS
We entered into employment agreements dated as of January 1, 1999 and
amended as of September 1, 1999, with each of Stephen G. Maloney, our Chief
Executive Officer and Robert M. Unnold, our Chairman of the Board. Both
agreements will expire on December 31, 2002 but automatically renew for
additional one year periods unless we give notice of termination at least 90
days before the expiration of the term. Pursuant to their respective agreements,
Mr. Maloney is employed as our President and Chief Executive Officer at an
annual salary of not less than $150,000, and Mr. Unnold is employed as Chairman
of the Board at an annual salary of not less than $150,000. If they meet certain
performance goals, Messrs. Maloney and Unnold are entitled to receive incentive
compensation of up to 35% of their respective base salaries. We maintain
separate key-man insurance policies of $2,000,000 for each of Messrs. Maloney
and Unnold. We have the right to terminate each agreement at any time and for
any reason. If we do so without cause, or if either individual terminates his
agreement for "good reason," however, we must continue to pay salary and
benefits until the later of 18 months from the date of termination or the
balance of the term. We are also obligated to pay a similar severance benefit
upon the disability of each individual.
We entered into an employment agreement dated as of January 10, 2000 with
Michael P. Neuscheler, our Vice President and Chief Financial Officer. The
agreement will expire on January 9, 2003 but automatically renews for additional
one year periods unless we give notice of termination at least 90 days before
the expiration of the term. Pursuant to his agreement, Mr. Neuscheler is
employed as our Vice President and Chief Financial Officer at an annual salary
of $150,000. If he meets certain performance goals, Mr. Neuscheler is entitled
to receive incentive compensation of up to 50% of his base salary. We maintain a
key-man insurance policy of $500,000 for Mr. Neuscheler. We have the right to
terminate
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Mr. Neuscheler's employment agreement at any time and for any reason. If we do
so without cause, or if Mr. Neuscheler terminates his agreement for "good
reason," however, we must continue to pay salary and benefits until the later of
18 months from the date of termination or the balance of the term. We are also
obligated to pay a similar severance benefit upon the disability of Mr.
Neuscheler.
We entered into an Employment and Royalty Agreement with Jeffrey N. Klein
on October 27, 1998 for a term beginning January 1, 1999 and ending on December
31, 2001. Pursuant to this agreement, Mr. Klein is employed as Vice President of
Research and Development at an annual salary of $125,000 with annual increases
of no less than 5%. Mr. Klein is also entitled to a monthly royalty payment of
2% of all of our gross revenues, including the revenues of any wholly-owned
subsidiary, until he or his estate has received an aggregate of $500,000, of
which he has received $35,000 as of December 31, 1999. Either we or Mr. Klein
may terminate the agreement at any time upon 60 days notice. If we do so without
cause or if the agreement is terminated as a result of Mr. Klein's death or
disability, we must continue to pay salary and benefits until the earlier to
occur of 18 months and the remainder of the term. The royalty payment maximum
must be paid regardless of Mr. Klein's termination, death or disability.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES OF OUR SECURITIES
Pursuant to a stock purchase agreement dated February 12, 1999, we sold a
total of 7,714.56 shares of our Series E mandatorily redeemable convertible
preferred stock to BG Media Investors L.P. for $3.11 per share of common stock,
or an aggregate purchase price of $12,000,000 in February 1999. In November
1999, we sold an additional 1,928.64 of Series E mandatorily redeemable
convertible shares to BG Media Investors L.P. for $3.11 per share of common
stock, or an aggregate purchase price of $3,000,000. The value of these shares,
based on the initial public offering price of $16.00 per share, is $77,145,600.
Mr. Grimes, one of our directors, is a member of BG Media Investors LLC, the
General Partner of BG Media Investors L.P. Each share of the Series E
mandatorily redeemable convertible preferred stock will convert into 500 shares
of our common stock immediately upon the completion of this offering.
In June 1998, we issued warrants to purchase 350,000 shares of our common
stock at an exercise price of $3.50 per share to Keystone Venture IV, L.P. in
consideration for services rendered in connection with our 1998 financings. In
addition, pursuant to a stock purchase agreement dated December 22, 1999, we
sold 757.5 shares of Series F mandatorily redeemable convertible preferred stock
to Keystone Venture V, L.P. for $7.92 per share of common stock, or an aggregate
purchase price of $3,000,000. The value of these shares, based on the initial
public offering price of $16.00 per share, is $6,060,000. Mr. Dale, one of our
directors, is Vice President of Keystone IV MCGP, Inc., the General Partner of
Keystone Venture IV Management Company, L.P., which is the General Partner of
Keystone Venture IV, L.P. and Managing Director of Keystone V Management
Company, Inc., the General Partner of Keystone V Partners, L.P., which is the
General Partner of Keystone Venture V, L.P. Each share of the Series F
mandatorily redeemable preferred stock will convert into 500 shares of our
common stock immediately upon the completion of this offering.
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Pursuant to a stock purchase agreement dated as of August 11, 1998, we
issued a total of 843 shares of our Series D mandatorily redeemable convertible
preferred stock to Apex Investment Fund III, L.P. and Apex Strategic Partners,
LLC for $2.37 per share of common stock, or an aggregate purchase price of
$1,001,000 in cash and notes payable. The value of these shares, based on the
initial public offering price of $16.00 per share, is $6,744,000. In
consideration for the notes payable, we issued warrants to purchase an aggregate
of 195,984 shares of our common stock at an exercise price of $3.00 per share to
the purchasers. In addition, in connection with our Loan Incentive Warrant Plan
which was established in September 1998, we issued warrants to purchase an
aggregate of 20,235 shares of our common stock to the purchasers at an exercise
price of $3.50 per share on March 8, 1999 in consideration of their loans of
$200,000 to us on November 18, 1998. This Loan Incentive Warrant Plan was
established to issue warrants to purchase shares of our common stock to our
lenders in consideration of loans made by them to us. Mr. Johnson, one of our
directors, is President of Stellar Investment Co., the Managing Member of Apex
Management III, LLC, which is the General Partner of Apex Investment Fund III,
L.P. He is also the Managing Member of Apex Strategic Partners, LLC. Each share
of the Series D mandatorily redeemable convertible preferred stock will convert
into 500 shares of our common stock immediately upon the completion of this
offering.
In connection with the preferred stock financings and issuance of common
stock to our founders, we granted registration rights to our preferred
stockholders and Messrs. Unnold, Maloney, Christino and Daniels, among others.
Upon exercise of these registration rights, these stockholders can require us to
file registration statements covering the sale of shares of common stock held by
them and may include the sale of their shares in registration statements
covering our sale of shares to the public.
LOANS FROM US
On May 12, 1999, we loaned Mr. Maloney, our President and Chief Executive
Officer, $100,000 evidenced by a promissory note bearing interest at a rate of
10% per annum. The entire balance of the note plus interest was repaid by Mr.
Maloney on May 26, 1999.
On September 29, 1999, we loaned Mr. Unnold, our Chairman of the Board,
$100,000 evidenced by a promissory note bearing interest at a rate of 10% per
annum. The entire principal balance of the note plus interest was repaid by Mr.
Unnold on October 4, 1999.
LOANS TO US
Mr. Coletti, our Controller, loaned us $40,000 on July 30, 1997 and $25,000
on October 10, 1997 pursuant to promissory notes bearing interest at a rate of
18% per annum. In August 1998, as a condition for us to receive financing in
connection with the Series D mandatorily redeemable preferred stock offering,
the interest rates were adjusted from 18% to 10%. These interest adjustments
were applied retroactively to January 1, 1998. The entire principal balance of
the notes plus interest was repaid to Mr. Coletti on February 16, 1999. In
connection with our Loan Incentive Warrant Plan, we issued to Mr. Coletti and
his designee warrants to purchase 31,805 shares of our common stock at an
exercise price of $3.50 per share on March 8, 1999.
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Mr. Unnold, our Chairman of the Board, loaned us $22,000 on July 30, 1997,
$10,000 on April 3, 1998 and $17,000 on April 20, 1998 pursuant to promissory
notes which accrue interest at a rate of 18% per annum. In August 1998, as a
condition for us to receive financing in connection with the Series D
mandatorily redeemable preferred stock offering, the interest rates were
adjusted from 18% to 10%. These interest adjustments were applied retroactively
to January 1, 1998. The entire principal balance of the notes plus interest was
repaid to Mr. Unnold on February 16, 1999. In connection with our Loan Incentive
Warrant Plan, we issued to Mr. Unnold's designees warrants to purchase 18,708
shares of common stock at an exercise price of $3.50 per share on March 8, 1999.
Mr. Christino, one of our directors, loaned us $30,000 on July 30, 1997,
pursuant to a promissory note bearing interest at a rate of 18% per annum. In
August 1998, as a condition for us to receive financing in connection with the
Series D mandatorily redeemable preferred stock offering, the interest rates
were adjusted from 18% to 10%. These interest adjustments were applied
retroactively to January 1, 1998. The entire principal balance of the note plus
interest was repaid to Mr. Christino on February 16, 1999. In connection with
our Loan Incentive Warrant Plan, we issued to Mr. Christino warrants to purchase
15,429 shares of common stock at an exercise price of $3.50 per share on March
8, 1999.
In June 1998, we issued two notes payable totaling $400,000 to Apex
Investment Fund III, L.P. and Apex Strategic Partners, LLC. The notes bore
interest at a rate of 7% per annum and were due and payable on demand. In
connection with this issuance, two warrants were issued for the purchase of
195,984 shares of our common stock for $3.00 per share. These notes payable were
converted in August 1998 into Series D mandatorily redeemable convertible
preferred stock in connection with the issuance of the Series D mandatorily
redeemable preferred stock.
On November 18, 1998, we executed two promissory notes with Apex Investment
Fund III, L.P. and Apex Strategic Partners, LLC providing financing totaling
$200,000. The promissory notes bore interest at a rate of 10% per annum and were
due and payable on December 31, 1998. We repaid the note in February 1999. In
consideration for these notes, we issued two warrants to purchase 20,235 shares
of common stock at an exercise price of $3.50 per share to the holders on March
8, 1999.
OTHER TRANSACTIONS
Pursuant to a stock purchase agreement dated February 27, 1992, as amended,
we purchased all of the outstanding capital stock of Quotes Plus . . . , Inc., a
Colorado corporation, from Michael J. Pryslak and Dennis M. Roland. The payment
terms, as amended, provide that Messrs. Pryslak and Roland will collectively
receive a payment equal to 2.5% of our gross revenues on a monthly basis, but in
no event less than $3,000 per month. If, prior to January 1, 2003, the aggregate
of all monthly payments made to Messrs. Pryslak and Roland equals $6,000,000,
then we will have no further payment obligations to Messrs. Pryslak and Roland.
Otherwise, we must continue to make the monthly payment to Messrs. Pryslak and
Roland. If we pay $7,000,000 to Messrs. Pryslak and Roland before January 1,
2004, then our payment obligations to Messrs. Pryslak and
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Roland will cease. If, however, we fail to pay to Messrs. Pryslak and Roland
$7,000,000 prior to January 1, 2004, then we must continue to make the monthly
payment until we pay a total of $8,000,000 to Messrs. Pryslak and Roland. In
November 1998, we loaned Messrs. Pryslak and Roland $53,000 in the aggregate on
an unsecured basis to purchase 42 shares of our Series C convertible preferred
stock. The payments generated under the agreement will initially be used to
reduce the principal on this outstanding loan. As of September 30, 1999, the
loan had been reduced by $16,000.
We believe that the transactions discussed above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
We have adopted a policy that requires all future transactions between us and
our officers, directors and affiliates to be on terms no less favorable than
could be obtained from unrelated third parties. These transactions were approved
by a majority of the disinterested members of our board of directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
our common stock, as of March 31, 2000, by:
- each person known to us to own beneficially more than 5% of our
outstanding common stock;
- each of our directors;
- each of our executive officers named in the summary compensation table;
and
- all of our directors and executive officers as a group.
Share ownership is based on 17,087,265 shares of common stock outstanding
immediately prior to this offering and assumes conversion of all outstanding
shares of preferred stock into shares of common stock. Share ownership in each
case includes shares issuable upon exercise of outstanding options and warrants
that are exercisable within 60 days of March 31, 2000, as described in the
footnotes below. Unless otherwise indicated, the address for each stockholder is
c/o i3 Mobile, Inc., 181 Harbor Drive, Stamford, Connecticut 06902.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
NUMBER --------------------------------
NAME AND ADDRESS OF SHARES BEFORE OFFERING AFTER OFFERING
- ---------------- ---------- --------------- --------------
<S> <C> <C> <C>
Robert M. Unnold...................... 2,176,208(1) 12.7% 9.8%
Stephen M. Maloney.................... 1,484,166(2) 8.7 6.7
Donald F. Christino................... 1,080,429(3) 6.3 4.9
W. Peter Daniels...................... 220,000 1.3 1.0
Jeffrey N. Klein...................... 58,015(4) * *
Kevin W. Ryan......................... 13,775(4) * *
Kerry J. Dale......................... 2,089,073(5) 11.8 9.2
c/o Keystone Venture IV, L.P.
1601 Market Street
Suite 2500
Philadelphia, PA 19103
James A. Johnson...................... 637,719(6) 3.7 2.9
c/o Apex Management III, LLC
233 Wacker Drive, Suite 900
Chicago, IL 60606
J. William Grimes..................... 4,821,600(7) 28.2 21.7
c/o BG Media Investors L.P.
399 Park Avenue, 19th Floor
New York, NY 10022
Keystone Venture IV, L.P. ............ 1,710,323(8) 9.7 7.5
1601 Market Street
Suite 2500
Philadelphia, PA 19103
BG Media Investors L.P. .............. 4,821,600 28.2 21.7
399 Park Avenue, 19th Floor
New York, NY 10022
MCI WorldCom, Inc..................... 1,131,250(9) 6.4 5.0
500 Clinton Center Drive Clinton, MS
39056
All directors and officers as a group
(14 persons)........................ 12,618,500 69.9 54.5
</TABLE>
- -------------------------
* less than 1% (one percent).
80
<PAGE> 83
(1) Includes 2,000,000 shares of common stock issued to RMU Management LLC, an
entity controlled by Mr. Unnold, 18,708 shares of common stock issuable upon
the exercise of warrants at an exercise price of $3.50 per share held by Mr.
Unnold as custodian for the benefit of his two minor children and options to
purchase 12,500 shares of common stock.
(2) Includes options to purchase 12,500 shares of common stock.
(3) Includes 15,429 shares of common stock issuable upon the exercise of
warrants at an exercise price of $3.50 per share.
(4) Consists of shares of common stock issuable upon the exercise of stock
options.
(5) Consists of 1,125,858 shares of common stock and 584,465 shares of common
stock issuable upon the exercise of warrants at a weighted average exercise
price of $3.30 per share held by Keystone Venture IV, L.P. and 378,750
shares of common stock held by Keystone Venture V, L.P. Mr. Dale is a
director of i3 Mobile and Vice President of Keystone IV MCGP, Inc., the
General Partner of Keystone Venture IV Management Company, L.P., which is
the General Partner of Keystone Venture IV, L.P. Mr. Dale is also Managing
Director of Keystone V Management Company, Inc., the General Partner of
Keystone V Partners, L.P., which is the General Partner of Keystone Venture
V, L.P. Mr. Dale disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest therein.
(6) Consists of 421,500 shares of common stock and 216,219 shares of common
stock issuable upon the exercise of warrants at a weighted average exercise
price of $3.05 per share held by Apex Investment Fund III, L.P. and Apex
Strategic Partners, LLC. Mr. Johnson is a director of i3 Mobile and
President of Stellar Investment Co., the Managing Member of Apex Management
III, LLC, which is the General Partner of Apex Investment Fund III, L.P. and
the Managing Member of Apex Strategic Partners, LLC. Mr. Johnson disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein.
(7) Consists of 4,821,600 shares of common stock held by BG Media Investors L.P.
Mr. Grimes is a director of i3 Mobile and Managing Member of BG Media
Investors LLC, the General Partner of BG Media Investors L.P. Mr. Grimes
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein.
(8) Includes 234,465 shares of common stock issuable upon the exercise of
warrants at an exercise price of $3.00 per share and 350,000 shares of
common stock issuable upon the exercise of warrants at an exercise price of
$3.50 per share.
(9) Consists of 631,250 shares of common stock and 500,000 shares of common
stock issuable upon the exercise of warrants at an exercise price of $3.00
per share.
81
<PAGE> 84
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 50,000,000 shares of common stock,
of which 17,087,265 shares were issued and outstanding immediately prior to this
offering, and 50,000 shares of preferred stock, of which no shares will be
issued and outstanding upon completion of this offering.
COMMON STOCK
Each share of common stock may be uncertificated or represented by a
certificate signed by an authorized officer of i3 Mobile. Holders of our common
stock are entitled to one vote for each share held of record on all matters on
which stockholders may vote, including the election of directors, and do not
have cumulative voting rights. Holders of our common stock are entitled to
receive, if declared, such dividends and other distributions in cash, stock or
property from our assets or funds legally available for such purposes subject to
any dividend preferences that may be attributable to preferred stock that may be
authorized. Registered stockholders may transfer their shares by surrendering to
us or to our transfer agent their share certificates duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer. If the shares are uncertificated, we must receive proper transfer
instruments from the registered owner of uncertificated shares before we cancel
those shares and issue new shares to the transferee. Annual meetings of
stockholders are held on the first Tuesday in July or at such other date and
time as designated by the board of directors. At the annual meeting, the
stockholders elect the directors by a plurality vote. There are no preemptive,
conversion, redemption or sinking fund provisions applicable to our common
stock. All outstanding shares of common stock are fully paid and non-assessable.
In the event of our liquidation, dissolution or winding up, holders of common
stock are entitled to share ratably in the assets available for distribution.
PREFERRED STOCK
Our board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 50,000 shares of preferred stock. Following
completion of this offering, no shares of preferred stock will be outstanding.
Our board of directors may, without stockholder approval, issue preferred stock
with dividend rates, redemption prices, preferences on liquidation or
dissolution, conversion rights, voting rights and any other preferences, which
rights and preferences could adversely affect the voting power of the holders of
common stock. Issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions or other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or could
discourage or delay a third party from acquiring, a majority of our outstanding
common stock. We currently have no plans for new issuances of preferred stock.
The ability of the board of directors to establish the rights of, and to
issue, substantial amounts of preferred stock without the need for shareholder
approval, may have the effect of discouraging, delaying or preventing a change
in control. Such preferred stock, among other things, may be used to create
voting impediments with respect to any changes in control or to dilute the stock
ownership of holders of common stock seeking to obtain control.
82
<PAGE> 85
REGISTRATION RIGHTS OF STOCKHOLDERS
Following the offering, holders of an aggregate of 15,121,431 shares of our
outstanding common stock will be entitled to rights with respect to registration
of these shares of common stock under the Securities Act.
We have an agreement with these stockholders that gives them registration
rights. Subject to limitations provided in the agreement, including those in
lock-up agreements that these stockholders have signed relating to this
offering, these stockholders have the right, six months after this offering,
upon request of the holders and under certain circumstances and conditions, to
require us to register their shares of common stock under the Securities Act. We
have granted one demand registration right to each of the following:
- Robert M. Unnold, Stephen G. Maloney, Donald F. Christino and W. Peter
Daniels, as a group;
- BG Media Investors L.P.;
- Apex Investment Fund II L.P. and Apex Strategic Partners, LLC, as a
group; and
- Keystone Venture IV, L.P.
We have also granted up to two demand registration rights to the purchasers of
Series F mandatorily redeemable preferred stock as a group for their shares of
common stock issuable upon conversion of their Series F mandatorily redeemable
preferred stock. In addition to these demand registration rights, and subject to
conditions and limitations provided in the applicable agreement, these
stockholders may require us to file an unlimited number of registration
statements on Form S-2 or Form S-3 under the Securities Act when either form is
available for our use, generally one year after this offering.
If we propose to register our securities under the Securities Act after
this offering, these stockholders and the holder of warrants to purchase up to
123,725 shares of our common stock will be entitled to notice of the
registration and to include their shares in the registration provided that the
underwriters of the proposed offering will have the right to limit the number of
shares included in the registration. We must pay for all expenses in connection
with these registrations, other than any underwriters' discounts and
commissions.
OPTIONS
As of the date of this prospectus, options to purchase up to 1,014,000
shares of common stock may be granted under the 1995 Stock Incentive Plan and up
to 1,250,000 shares of common stock may be granted under the 2000 Stock
Incentive Plan. There are 1,005,300 options outstanding under the 1995 Stock
Incentive Plan at a weighted average exercise price of $3.18 per share, of which
344,707 will be exercisable upon the completion of this offering and 252,600
options outstanding under the 2000 Stock Incentive Plan at a weighted average
exercise price of $9.39 per share, none of which will be exercisable upon the
completion of this offering. Other than these options, we have not granted any
other options. Upon completion of this offering, we intend to file a
registration statement on Form S-8 to register all shares of common stock that
we may issue under our stock option plans.
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<PAGE> 86
WARRANTS
As of the date of this prospectus, the following warrants were outstanding
for the purchase of 1,939,084 shares of common stock at a weighted average
exercise price of $3.53:
<TABLE>
<CAPTION>
NAME NO. OF SHARES
- ---- -------------
<S> <C>
Keystone Venture IV, L.P. .................................. 584,465
G-II Family Partnership..................................... 37,455
Glenville Capital Partners, L.P. ........................... 401,278
Apex Investment Fund III, L.P. ............................. 205,703
Apex Strategic Partners L.L.C. ............................. 10,516
Intelligent Investment Partners, L.P. ...................... 500,000
Robert and Elizabeth Coletti................................ 29,805
Donald Christino............................................ 15,429
Mary Elizabeth Coletti...................................... 2,000
Robert Unnold f/b/o Christine Unnold........................ 9,354
Robert Unnold f/b/o Nicholas Unnold......................... 9,354
Allen & Company Incorporated................................ 123,725
CNBC.com LLC................................................ 10,000
</TABLE>
Warrants to purchase up to an additional 110,000 shares of our common stock may
also be granted to each of NBC Interactive Media, Inc. or its affiliates and
Sony Corporation of America or its affiliates in connection with any definitive
distribution agreements which may be entered into in the future between NBC
Interactive Media, Inc. or its affiliates and us and Sony Corporation of America
or its affiliates and us. These investors will receive warrants to purchase
20,000 shares of our common stock for each content distribution agreement we
enter into with them or any of their affiliates. If we enter into a content
distribution agreement by March 31, 2000, the number of warrants will increase
to 30,000. These warrants will expire three years after they are issued. We may
also grant warrants to purchase up to an additional 200,000 shares of our common
stock to AT&T Wireless Services, Inc. in connection with the completion of
specific product developments or implementations and the achievement of
designated registered user levels, warrants to purchase up to an additional
100,000 shares of our common stock to Intel Corporation in connection with the
delivery of specific technical access, support and feedback, warrants to
purchase up to an additional 40,000 shares of our common stock to GO.com in
connection with the launch of wireless products under our proposed agreement
with GO.com and warrants to purchase up to an additional 20,000 shares of our
common stock to Sportsline.com, Inc. in connection with the execution of our
proposed agreement with Sportsline.com, Inc.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
Section 203 of the Delaware General Corporation Law generally prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
84
<PAGE> 87
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's outstanding voting stock. This statute could prohibit or delay
a change in control of i3 Mobile and could discourage potential acquisition
proposals.
INDEMNIFICATION
Our certificate of incorporation provides that no director of i3 Mobile
shall have any personal liability to i3 Mobile or its stockholders for breach of
fiduciary duty as a director, except for liability:
- for breach of the director's duty of loyalty to i3 Mobile or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for payment of dividends or stock purchases or redemptions by the
corporation in violation of Section 174 of the Delaware General
Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
As a result of this provision, i3 Mobile and our stockholders may be unable
to obtain monetary damages from a director for certain breaches of his or her
fiduciary duty. This provision does not, however, eliminate the directors'
fiduciary responsibilities and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Our bylaws provides for the indemnification of our directors and officers
to the fullest extent authorized by the Delaware General Corporation Law. Such
indemnification may include, if we so decide, the right of the indemnified party
to be paid expenses in advance of any proceeding for which indemnification may
be had, provided that the payment of these expenses incurred by a director or
officer in advance of the final disposition of a proceeding may be made only
upon delivery to us of an undertaking by or on behalf of the director or officer
to repay all amounts paid in advance if it is ultimately determined that the
director or officer is not entitled to be indemnified. In addition, our
certificate of incorporation provides that our employees and other agents, may
be indemnified in accordance with the Delaware General Corporation law to the
extent determined by our board of directors in its sole discretion.
LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT
Our certificate of incorporation also provides that any action required or
permitted to be taken at a stockholders' meeting may be taken without a meeting,
without prior notice and without a vote, if the action is taken by persons who
would be entitled to vote at a meeting and who hold shares having voting power
equal to not less than the minimum number of votes of each class or series that
would be necessary to authorize or take the action at a meeting at which all
shares of each class or series entitled to vote were present and voted.
85
<PAGE> 88
AMENDMENTS TO OUR CERTIFICATE OF INCORPORATION
Under the Delaware General Corporation Law, the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend our
certificate of incorporation.
TRANSFER AGENT
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
LISTING
Our shares of common stock have been approved for listing on the Nasdaq
National Market under the symbol "IIIM."
86
<PAGE> 89
SHARES ELIGIBLE FOR FUTURE SALE
Following this offering, we will have 22,187,265 shares of common stock
outstanding. If the underwriters exercise their over-allotment option in full,
we will have 22,952,265 shares of common stock outstanding. All the shares we
sell in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by our
affiliates, as that term is defined in Rule 144, may generally only be sold in
compliance with the limitations of Rule 144 described below.
The remaining 17,087,265 shares of common stock outstanding following this
offering will be "restricted securities" as the term is defined under Rule 144.
We issued and sold these restricted securities in private transactions in
reliance on exemptions from registration under the Securities Act. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption under Rule 144 or Rule 701 under the Securities
Act, as summarized below.
Taking into account the lock-up agreements, and assuming Deutsche Bank
Securities Inc. does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the following
times:
- on the date of this prospectus, the 5,100,000 shares sold in the offering
and an additional 561,548 shares held by current shareholders will be
immediately available for sale in the public market;
- 180 days after the date of this prospectus, approximately 11,437,232
shares will be eligible for sale, 10,069,756 of which will be subject to
volume, manner of sale and other limitations under Rule 144; and
- the remaining 5,088,485 shares will be eligible for sale under Rule 144
from time to time upon the expiration of various one-year holding periods
after the expiration of the lock-up period applicable to those shares.
We have agreed with the underwriters that we will not issue any additional
shares of common stock or securities convertible into, exercisable for or
exchangeable for shares of common stock for a period of 180 days after the date
of this prospectus, except that we may grant options to purchase shares of
common stock under our 1995 Stock Incentive Plan and 2000 Stock Incentive Plan
or in connection with the acquisition of companies, and issue shares of common
stock upon the exercise of outstanding options and warrants and in connection
with the acquisition of companies.
Our officers and directors and some of our other stockholders, who will
hold an aggregate of 16,525,717 shares of common stock upon completion of this
offering, have agreed that they will not, without the prior written consent of
Deutsche Bank Securities Inc., offer, sell, pledge or otherwise dispose of any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for, or any rights to acquire or purchase, any of our common stock,
or publicly announce an intention to effect any of these transactions, for a
period of 180 days after the date of this prospectus without the prior written
consent of Deutsche Bank Securities Inc., except that nothing will prevent any
of them from exercising outstanding options and warrants.
87
<PAGE> 90
Following the expiration of the lock-up period, shares issuable upon
exercise of options we granted prior to the date of this prospectus will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of these shares beginning 90 days after
the date of this prospectus by persons other than affiliates.
In general, under Rule 144, a stockholder who owns restricted shares that
have been outstanding for at least one year is entitled to sell, within any
three-month period, a number of these restricted shares that does not exceed the
greater of:
- one percent of the then outstanding shares of common stock, or
approximately 221,873 shares immediately after this offering; or
- the average weekly trading volume in the common stock on the Nasdaq Stock
Market during the four calendar weeks preceding the sale.
In other words, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, to
sell shares of common stock which are not restricted securities.
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours and who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The one-
and two-year holding periods described above do not begin to run until the full
purchase price is paid by the person acquiring the restricted shares from us or
an affiliate of ours.
As of the date of this prospectus, we have granted options to purchase
1,005,300 shares of common stock to specified persons pursuant to our 1995 Stock
Incentive Plan and 252,600 shares of common stock to specified persons pursuant
to our 2000 Stock Incentive Plan. We intend to file, after the effective date of
this offering, a registration statement on Form S-8 to register 2,264,000 shares
of common stock reserved for issuance under our stock option plans. The
registration statement on Form S-8 will become effective automatically upon
filing.
Shares issued under our 1995 Stock Incentive Plan and 2000 Stock Incentive
Plan, after the filing of a registration statement on Form S-8 may be sold in
the open market, subject, in the case of some holders, to the Rule 144
limitations applicable to affiliates, the lock-up agreements and vesting
restrictions imposed by us. In addition, following this offering, the holders of
15,121,431 shares of outstanding common stock will, under some circumstances,
have rights to require us to register their shares for future sale.
88
<PAGE> 91
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Chase Securities Inc. and Credit Suisse First Boston Corporation, have
severally agreed to purchase from us the following respective number of shares
of common stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ............................. 1,364,000
Chase Securities Inc....................................... 1,363,000
Credit Suisse First Boston Corporation..................... 1,363,000
Banc of America Securities LLC............................. 70,000
Bear, Stearns & Co. Inc. .................................. 70,000
CIBC World Markets Corp. .................................. 70,000
Donaldson, Lufkin & Jenrette Securities Corporation........ 70,000
FleetBoston Robertson Stephens Inc. ....................... 70,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated......... 70,000
Morgan Stanley & Co. Incorporated.......................... 70,000
Wit Soundview.............................................. 70,000
Dain Rauscher Wessels...................................... 50,000
Gabelli & Company, Inc. ................................... 50,000
Gerard Klauer Mattison & Co., Inc. ........................ 50,000
C.L. King & Associates, Inc. .............................. 50,000
Brad Peery Inc. ........................................... 50,000
U.S. Bancorp Piper Jaffray Inc. ........................... 50,000
Shields & Company.......................................... 50,000
First Security Van Kasper.................................. 50,000
Wedbush Morgan Securities Inc. ............................ 50,000
---------
Total................................................. 5,100,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all of
the shares of common stock offered hereby, other than those covered by the over-
allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $0.67 per share. The underwriters may allow, and these dealers may re-allow,
a concession of not more than $0.10 per share to other dealers. After the
initial public offering, the
89
<PAGE> 92
offering price and other selling terms may be changed by the representatives of
the underwriters.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 765,000 additional
shares of common stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the common stock offered in
this offering. To the extent that the underwriters exercise this option, each of
the underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to the total number of shares of common stock offered in this offering. We will
be obligated, pursuant to this option, to sell these additional shares of common
stock to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer the
additional shares on the same terms as those on which the 5,100,000 shares are
being offered.
The underwriting fee is equal to the initial public offering price per
share of common stock less the amount paid by the underwriters to us per share
of common stock. The underwriting fee is currently expected to be 7% of the
initial public offering price. We have agreed to pay the underwriters the fees
listed in the first line of the table below, assuming either no exercise or full
exercise by the underwriters of the underwriters' over-allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
--------------------------------
WITHOUT WITH FULL
EXERCISE OF EXERCISE OF
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
----- -------------- --------------
<S> <C> <C> <C>
Fees paid by i3 Mobile................ $1.12 $5,712,000 $6,568,800
Additional underwriting compensation
under NASD rules.................... $0.20 $1,020,100 $1,020,100
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $2,180,000 million. The National Association of Securities
Dealers, Inc. has determined that the difference between the amount that BT
Investment Partners, Inc., an affiliate of Deutsche Bank Securities Inc.,
originally paid for its shares of Series F mandatorily convertible preferred
stock and the value of the Series F mandatorily convertible preferred stock
based upon the initial public offering price, or $1,020,100, is additional
underwriting compensation received in connection with this offering.
We have agreed to indemnify the underwriters against certain specified
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors, certain stockholders and certain
holders of options and warrants to purchase our stock, has agreed not to offer,
sell, sell short, contract to sell, transfer, hypothecate, pledge or otherwise
dispose of, or enter into any transaction that is designed to, or could be
expected to, result in the
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<PAGE> 93
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock for a period of 180 days after the effective
date of the registration statement of which this prospectus is a part, directly
or indirectly, without the prior written consent of Deutsche Bank Securities
Inc. This consent may be given at any time without public notice. We have
entered into a similar agreement with the representatives of the underwriters.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 330,000 shares for our directors, officers,
employees, and their family members and other individual associates, vendors,
customers and other business associates, including Michael Hirschberg and Martin
Hillery, a partner and an associate, respectively, of Piper Marbury Rudnick &
Wolfe LLP, our counsel. The number of shares of our common stock available for
sale to the general public will be reduced to the extent these reserved shares
are purchased. Any reserved shares that are not purchased by these persons will
be offered by the underwriters to the general public on the same basis as the
other shares in this offering. Other than our directors, officers and key
employees, participants in the sale of reserved shares will not be subject to
any lock-up arrangements with the underwriters.
At our request, the underwriters have reserved, at the initial public
offering price less underwriting discounts and commissions for Intel
Corporation, and at the initial public offering price for 24/7 Media, Inc., that
number of shares of our common stock that may be purchased for $5.0 million for
sale to Intel and for $1.5 million for sale to 24/7 Media. Each of Intel and
24/7 Media has expressed an interest in purchasing these shares, which will be
subject to a lock-up agreement with the underwriters under which each of Intel
and 24/7 Media will agree not to sell any of its shares for 180 days after the
date of this prospectus. The number of shares available to the general public in
this offering will be reduced to the extent Intel and 24/7 Media purchase such
shares. There can be no assurance that
91
<PAGE> 94
either of Intel or 24/7 Media will purchase any shares in the offering. The
underwriters will offer to the general public any shares that either of Intel or
24/7 Media does not purchase in this offering on the same terms as the other
shares offered under this prospectus.
In December 1999, we issued and sold 252.5 shares of our Series F
mandatorily redeemable preferred stock to BT Investment Partners, Inc., an
affiliate of Deutsche Bank Securities Inc., at $3,960.40 per share, or $7.92 per
common share, for an aggregate purchase price of $1,000,000. Upon completion of
this offering, the Series F mandatorily redeemable preferred stock held by BT
Investment Partners, Inc. will convert into 126,250 shares of our common stock
on the same terms as other investors in this Series F financing. In connection
with this preferred stock financing, we granted registration rights to the
holders of the Series F mandatorily redeemable preferred stock, including BT
Investment Partners, Inc. Pursuant to the rules and regulations of the National
Association of Securities Dealers, Inc., BT Investment Partners, Inc. has agreed
that its shares of Series F mandatorily convertible preferred stock and the
common stock issued upon the conversion thereof may not be sold, transferred,
assigned, pledged or hypothecated by any person for a period of one year after
the effective date of this offering, except to officers or partners of the
underwriters and members of the selling group and their officers or partners.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for our common stock was determined by
negotiation among us and the representatives of the underwriters. Among the
primary factors considered in determining the public offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
- estimates of our business potential.
92
<PAGE> 95
EXPERTS
The consolidated financial statements as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Piper Marbury Rudnick & Wolfe LLP, New York, New York. Certain legal matters
in connection with the offering will be passed upon for the underwriters by
Morrison & Foerster LLP, New York, New York.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits, schedules and any amendments with
respect to the common stock we are offering hereby. This prospectus is a part of
the registration statement and includes all of the information which we believe
is material to you in considering whether to make an investment in our common
stock. We refer you to the registration statement for additional information
about us, our common stock and this offering, including the full texts of the
exhibits, some of which have been summarized in this prospectus. The
registration statement is available for inspection and copying at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information about the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
site that makes available the registration statement. The address of the SEC's
Internet site is http://www.sec.gov.
REPORTS TO STOCKHOLDERS
We intend to distribute to our stockholders annual reports containing
audited financial statements and will make available copies of quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
93
<PAGE> 96
I3 MOBILE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statement of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statement of Stockholders' Deficit for the
years ended December 31, 1997, 1998 and 1999.............. F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
i3 Mobile, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of i3
Mobile, Inc. at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 14, 2000
F-2
<PAGE> 98
I3 MOBILE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- PRO FORMA
1998 1999 (NOTE 2)
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 166 $ 28,241 $ 28,241
Accounts receivable, net of allowances (Note 2)........... 441 397 397
Deferred advertising (Note 13)............................ - 4,261 4,261
Prepaid expenses and other current assets................. 11 168 168
------- -------- --------
Total current assets............................... 618 33,067 33,067
Fixed assets, net (Note 4)................................ 50 1,942 1,942
Intangible assets, net (Note 2)........................... - 158 158
Other non-current assets.................................. - 634 634
Deposits.................................................. 14 440 440
------- -------- --------
Total assets....................................... $ 682 $ 36,241 $ 36,241
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 169 $ 724 $ 724
Accrued liabilities (Note 5).............................. 244 2,775 2,775
Deferred revenue (Note 2)................................. 131 100 100
Deferred revenue -- related parties (Note 9).............. 49 - -
Current portion of long-term debt (Note 6)................ 118 - -
Notes payable -- trade (Note 6)........................... 250 - -
Notes payable -- related parties (Note 9)................. 344 - -
------- -------- --------
Total current liabilities.......................... 1,305 3,599 3,599
Long-term debt (Note 6)..................................... 455 - -
------- -------- --------
Commitments and contingencies (Note 8)
Total liabilities.................................. 1,760 3,599 3,599
------- -------- --------
Mandatorily redeemable convertible preferred stock (Note
10)....................................................... 2,500 55,338 -
------- -------- --------
Stockholders' deficit:
Convertible preferred stock (Note 10)..................... - - -
Common stock; $.01 par value, 50,000,000 shares
authorized, 7,554,000, 7,655,500 and 18,972,265 shares
issued.................................................. 76 77 190
Additional paid-in capital................................ 4,530 27,253 82,478
Notes receivable from stockholders (Note 9)............... (53) (31) (31)
Deferred compensation..................................... - (764) (764)
Accumulated deficit....................................... (8,131) (45,001) (45,001)
Treasury stock at cost, 1,885,000 shares.................. - (4,230) (4,230)
------- -------- --------
Stockholders' deficit..................................... (3,578) (22,696) 32,642
------- -------- --------
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
deficit.......................................... $ 682 $ 36,241 $ 36,241
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 99
I3 MOBILE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net revenue -- trade....................................... $ 676 $ 1,245 $ 1,711
Net revenue -- related parties............................. 149 160 23
------- ------- --------
Net revenue................................................ 825 1,405 1,734
Cost of revenue (excluding $14 of stock compensation)...... 700 1,081 1,302
------- ------- --------
Gross profit............................................... 125 324 432
------- ------- --------
Operating expenses:
Sales and marketing (excluding $94 of stock
compensation)......................................... 234 584 1,938
General and administrative (excluding $145 of stock
compensation)......................................... 2,258 2,306 4,771
Stock compensation....................................... - - 253
------- ------- --------
Operating expenses......................................... 2,492 2,890 6,962
------- ------- --------
Operating loss............................................. (2,367) (2,566) (6,530)
Interest income............................................ (15) (6) (213)
Interest expense........................................... 88 323 491
Interest expense -- related parties........................ 8 12 48
------- ------- --------
Loss before extraordinary item............................. (2,448) (2,895) (6,856)
Extraordinary item -- loss on extinguishment of debt....... - - (3,434)
------- ------- --------
Net loss................................................... (2,448) (2,895) (10,290)
------- ------- --------
Redemption of preferred stock.............................. - - (3,665)
Beneficial conversion feature of preferred stock........... - - (20,504)
------- ------- --------
Dividends on mandatorily redeemable preferred stock........ (76) (274) (2,411)
------- ------- --------
Loss applicable to common stock............................ $(2,524) $(3,169) $(36,870)
======= ======= ========
Net loss per share -- basic and diluted:
Loss before extraordinary item........................... $ (0.33) $ (0.42) $ (5.83)
Extraordinary item....................................... - - (0.60)
------- ------- --------
Net loss................................................. $ (0.33) $ (0.42) $ (6.43)
======= ======= ========
Shares used in computing net loss per share.............. 7,554 7,554 5,736
======= ======= ========
Pro forma net loss per share -- basic and diluted
(unaudited):
Pro forma loss before extraordinary item................. $ (0.57)
Extraordinary item....................................... (0.29)
--------
Net pro forma loss....................................... $ (0.86)
========
Shares used in computing pro forma net loss per share.... 11,948
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 100
I3 MOBILE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES C NOTES
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
--------------- ---------------- ------------------ PAID-IN FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
------ ------ ------ ------ --------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31,
1997.................. 3,770 - - - 7,554,000 76 1,447 - -
Issuance of Series C
preferred stock....... - - 864 - - - 879 - -
Issuance of warrants to
preferred
stockholders.......... - - - - - - 52 - -
Issuance of warrants to
debt holders.......... - - - - - - 20 - -
Accretion of preferred
dividends............. - - - - - - - - -
Net loss................ - - - - - - - - -
------ -- ----- ------- --------- --- -------- ---- -------
Balance at December 31,
1997.................. 3,770 - 864 - 7,554,000 76 2,398 - -
Issuance of Series C
preferred stock....... - - 1,330 - - - 1,579 - -
Issuance of warrants to
debt holders.......... - - - - - - 158 - -
Extension of warrants... - - - - - - 213 - -
Accretion of preferred
dividends............. - - - - - - - - -
Issuance of warrants for
financing fees........ - - - - - - 182 - -
Notes receivable from
shareholders.......... - - - - - - - (53) -
Net loss................ - - - - - - - - -
------ -- ----- ------- --------- --- -------- ---- -------
Balance at December 31,
1998.................. 3,770 - 2,194 - 7,554,000 76 4,530 (53) -
Repurchase of shares.... (3,770) - - - - - (105) - -
Issuance of common
stock................. - - - - 101,500 1 174 - -
Repayment of notes
receivable from
shareholders.......... - - - - - - - 22 -
Issuance of warrants.... - - - - - - 1,133 - -
Accretion of preferred
stock dividends....... - - - - - - - - -
Deferred
compensation - stock
options............... - - - - - - 1,017 - (1,017)
Beneficial conversion
feature - Series E.... - - - - - - 3,000 - -
Beneficial conversion
feature-Series F...... - - - - - - 17,504 - -
Amortization of deferred
compensation.......... - - - - - - - - 253
Net loss................ - - - - - - - - -
------ -- ----- ------- --------- --- -------- ---- -------
Balance at December 31,
1999.................. - $- 2,194 $ - 7,655,500 $77 $ 27,253 $(31) $ (764)
====== == ===== ======= ========= === ======== ==== =======
<CAPTION>
ACCUMULATED TREASURY
DEFICIT STOCK TOTAL
----------- -------- -----
<S> <C> <C> <C>
Balance at January 31,
1997.................. (2,438) - (915)
Issuance of Series C
preferred stock....... - - 879
Issuance of warrants to
preferred
stockholders.......... - - 52
Issuance of warrants to
debt holders.......... - - 20
Accretion of preferred
dividends............. (76) - (76)
Net loss................ (2,448) - (2,448)
-------- ------- --------
Balance at December 31,
1997.................. (4,962) - (2,488)
Issuance of Series C
preferred stock....... - - 1,579
Issuance of warrants to
debt holders.......... - - 158
Extension of warrants... - - 213
Accretion of preferred
dividends............. (274) - (274)
Issuance of warrants for
financing fees........ - - 182
Notes receivable from
shareholders.......... - - (53)
Net loss................ (2,895) - (2,895)
-------- ------- --------
Balance at December 31,
1998.................. (8,131) - (3,578)
Repurchase of shares.... (3,665) (4,230) (8,000)
Issuance of common
stock................. - - 175
Repayment of notes
receivable from
shareholders.......... - - 22
Issuance of warrants.... - - 1,133
Accretion of preferred
stock dividends....... (2,411) - (2,411)
Deferred
compensation - stock
options............... - - -
Beneficial conversion
feature - Series E.... (3,000) - -
Beneficial conversion
feature-Series F...... (17,504) - -
Amortization of deferred
compensation.......... - - 253
Net loss................ (10,290) - (10,290)
-------- ------- --------
Balance at December 31,
1999.................. $(45,001) $(4,230) $(22,696)
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 101
I3 MOBILE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,448) $(2,895) $(10,290)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 45 19 139
Amortization of debt discount........................... 23 35 19
Non-cash charges from the issuance of common stock
warrants............................................... 6 392 100
Stock compensation expense.............................. - - 253
Loss on extinguishment of debt.......................... - - 3,434
Interest on extinguished debt........................... - - 311
Other................................................... 84 67 133
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable............ (106) (390) (88)
(Increase) decrease in other current assets and other
assets............................................... 3 2 (1,217)
Increase (decrease) in accounts payable............... 76 31 166
(Decrease) increase in accrued liabilities............ 31 149 2,531
Increase (decrease) in deferred revenue............... (95) (54) (80)
------- ------- --------
Net cash used in operating activities....................... (2,381) (2,644) (4,589)
------- ------- --------
Cash flows from investing activities:
Purchase of intangible asset.............................. - - (100)
Purchase of fixed assets.................................. (17) (57) (1,700)
------- ------- --------
Net cash used in investing activities....................... (17) (57) (1,800)
------- ------- --------
Cash flows from financing activities:
Proceeds from sales of preferred stock, net............... 1,129 2,154 38,136
Proceeds from issuance of notes payable - trade........... 200 650 -
Proceeds of issuance of notes payable - related parties... 117 227 -
Issuance of common stock.................................. - - 175
Repurchase of common and preferred stock.................. - - (3,000)
Repayments of notes payable............................... - (326) (869)
Issuance of notes receivable - related parties............ - (53) (200)
Repayments of notes receivable - related parties.......... - - 222
------- ------- --------
Net cash provided by financing activities................... 1,446 2,652 34,464
------- ------- --------
Increase (decrease) in cash and cash equivalents............ (952) (49) 28,075
Cash and cash equivalents at beginning of period............ 1,167 215 166
------- ------- --------
Cash and cash equivalents at end of period.................. $ 215 $ 166 $ 28,241
======= ======= ========
Supplemental disclosures of cash flow and non cash
activities:
Interest paid in cash..................................... $ 63 $ 88 $ 136
Conversion of debt to mandatorily redeemable
preferred stock......................................... $ - $ 400 $ 5,317
Deferred advertising received for preferred stock......... $ - $ - $ 4,261
Accretion of mandatorily redeemable preferred stock
dividends............................................... $ 76 $ 274 $ 2,411
Common stock warrants issued in Series F preferred stock
offering................................................ $ - $ - $ 1,033
Liability for fixed asset purchases....................... $ - $ - $ 314
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 102
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1 -- FORMATION AND OPERATIONS OF THE COMPANY:
i3 Mobile, Inc., "i3" or 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. Their 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.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies followed in the preparation of these
financial statements are as follows:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and a majority-owned subsidiary acquired in 1996. This subsidiary was disposed
of in 1997 (see Note 3). All significant intercompany accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The markets
for the Company's services are characterized by intense competition, rapid
technological development, regulatory changes, and frequent new service
introductions, all of which could impact the future value of the Company's
assets.
UNAUDITED PRO FORMA BALANCE SHEET:
Upon the closing of the Company's anticipated initial public offering, each
outstanding share of preferred stock will automatically convert into 500 shares
of common stock, with the aggregate number of shares of common stock to be
issued to each stockholder to be rounded up to the nearest whole share. These
transactions have been reflected in the unaudited pro forma balance sheet as if
they occurred on December 31, 1999.
CASH AND CASH EQUIVALENTS:
Cash equivalents consist of highly liquid investments purchased with an
initial maturity of three months or less.
F-7
<PAGE> 103
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
FIXED ASSETS:
Fixed assets are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets, which are between 1 and 3
years. Maintenance and repairs are charged to expense as incurred.
RESEARCH AND DEVELOPMENT:
Research and development costs are charged to expense as incurred. All
costs incurred to establish the technological feasibility of the Company's
products and services have been expensed as general and administrative expenses.
Costs incurred subsequent to the establishment of technological feasibility and
prior to the general release of the product have not been capitalized as such
amounts are not significant.
LONG-LIVED ASSETS:
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
requires that long-lived assets and certain intangible assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In such an event, the carrying value of
intangible assets is reviewed by management to determine if the value(s) may be
impaired. If this review indicates that the carrying amount(s) will not be
recoverable, as determined based on the estimated expected future cash flows
attributable to such asset(s) over the remaining amortization period, management
will reduce the carrying amount to recognize the impairment and recognize an
impairment loss. The measurement of the impairment losses to be recognized is to
be based on the difference between the fair values and the carrying amounts of
the assets. Fair value is defined as the amount for which the asset could be
bought or sold in a current transaction between willing parties. Where quoted
market prices in active markets are not available, management would estimate
fair value based on the best information available in the circumstances - the
price of similar assets, discounted cash flow analysis or other valuation
techniques.
At each balance sheet date, the Company evaluates the realizability of its
long-lived assets, including goodwill, based on estimates of future
non-discounted cash flows. In the event that the estimated expected future cash
flows from a long-lived asset, including goodwill, are less than the carrying
value, an impairment loss is calculated. This impairment loss is calculated as
the difference between the fair value of the asset, as defined above, and the
carrying value of the asset. In instances where goodwill is identified with
assets that are subject to an impairment loss, the carrying value of the
identified goodwill shall be eliminated before making any reduction of the
carrying amounts of impaired long-lived assets.
In November 1997, the Company suspended the funding of and,
correspondingly, the operations of its majority-owned subsidiary, Strategic
Communications Corporation, "SCC". The only long-lived asset of SCC was goodwill
of $64. Since
F-8
<PAGE> 104
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
the carrying amount of the goodwill of SCC at that date exceeded the estimate of
the expected future cash flows associated with such goodwill, an impairment loss
of $64, calculated as the difference between the fair value and carrying value
of the goodwill, was recognized.
In 1999, the Company acquired a license to a technology patent. Under the
terms of the agreement, the Company paid the patent holder $100 in cash on
signing the agreement and will pay an additional $75 in January 2000. In
addition, the Company has agreed to pay a royalty equal to 5% of gross revenue
related to electronic commerce through March 29, 2005 and May 8, 2007 for sales
in the United States and Canada, respectively. The license is being amortized
using the straight-line method over the remaining life of the patent, 4.5 years.
At December 31, 1999, the accumulated amortization for the intangible asset was
$17.
REVENUE RECOGNITION:
The majority of the Company's revenues relate to their subscription based
services provided to individual users, wireless network operators and others.
The Company derives subscriber revenue from the delivery of personalized
information to wireless phones and other wireless devices. Subscriber revenue
consists of fixed monthly usage charges, transactional fees based on the
information delivered, or a combination of the two arrangements. The Company
recognizes subscriber revenue when products and services are provided to
subscribers or resellers. The products sold by the Company are information
service products provided to the Company's customers. These information products
are not considered tangible products for financial reporting purposes. The
Company does not offer refund privileges to its customers. Deferred revenue is
comprised of payments received from the Company's resellers in advance of
wireless information services being provided.
As a part of its subscription based revenue, the Company also provides
software design and customization services to its resellers and charges fees on
a time and material basis for these services. These revenues are recognized as
services are rendered. Revenues are net of volume discounts to customers.
Advertising revenues, which are nominal to date, are recognized in the month
that the advertisement messages are sent.
The Company offers complimentary services to build awareness of its
products and services and to generate revenue. The wireless network operators
are responsible for determining the price, if any, to be charged to their
customers for this service. The fees charged by the Company to the wireless
network operators for this service varies by wireless network operator. Under
agreements with reduced pricing terms, the Company recognizes revenue at the
time these services are provided. In the instance where the Company agreed to
provide services directly to the customers of a wireless network operator at no
cost to the customer, no revenue is recognized.
F-9
<PAGE> 105
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
COST OF REVENUES:
Cost of revenues consists primarily of costs associated with purchasing
content, royalty payments, direct labor costs of our operations center and
distribution fees. Content providers are paid either a flat monthly fee, a fee
based on the number of users requesting the content, a fee based on a percentage
of the Company's revenues generated from the content they provide, a fee based
on the number of on-demand messages requested or a combination of these
arrangements. Distribution fees are paid to wireless network operators to use
their network to deliver advertising and electronic commerce enabling messages
and for delivery of content to direct subscribers. Management believes that the
cost of revenues and gross margins on related party revenues are not
significantly different from the cost of revenues and gross margins earned on
third party revenues.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
The Company controls this risk through credit approvals, credit limits and
monitoring procedures. The Company does not require collateral or other forms of
security. The Company can, however, limit the amount of information services
provided to its customers in the event of nonperformance.
Total net revenue for the year ended December 31, 1997 from Bank of
America, SkyTel Communications, Inc., Omnipoint Communications, Inc. and
PageMart Wireless, Inc. was $160, $149, $112 and $86, respectively. Each of
these customers comprised over 10% of total net revenues in 1997.
Total net revenue for the year ended December 31, 1998 from Omnipoint
Communications, Inc. and SkyTel Communications, Inc. was $566 and $160,
respectively. Each of these customers comprised over 10% of total net revenues
in 1998.
Total net revenue for the year ended December 31, 1999 from Omnipoint
Communications, Inc., Bell Mobility Cellular, Inc. and SBC Communications, Inc.
was $723, $246 and $229 respectively. Each of these customers comprised over 10%
of total net revenues for the period.
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company maintained an allowance for doubtful accounts of $110 and $143
at December 31, 1998 and 1999, respectively.
INCOME TAXES:
The Company uses the liability method of accounting for income taxes, as
set forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities and net
operating loss carryforwards, all calculated using presently enacted tax rates.
F-10
<PAGE> 106
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEGMENT INFORMATION:
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS No. 131). SFAS No. 131 supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise, replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. The
Company operates in one segment: wireless information provider services. SFAS
No. 131 also requires disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS No. 131 had no impact on the Company's
financial statements for the periods presented.
STOCK COMPENSATION:
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25), and related interpretations in
accounting for its stock option plan and stock awards with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123). Under APB 25, compensation expense is
computed to the extent that the fair value of the underlying stock on the date
of grant exceeds the exercise price of the employee stock option or stock award.
Compensation so computed is deferred and then recognized over the vesting period
of the stock option or award.
No stock compensation expense was recorded for the years ended December 31,
1997 and 1998. Stock compensation expense was $253 for the year ended December
31, 1999.
The Company applies SFAS 123, Emerging Issues Task Force Abstract No.
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services (EITF 96-18)
and related interpretations in accounting for issuances of stock awards to non-
employees. Under SFAS 123 these equity transactions are accounted for based on
the fair value of the consideration received or the fair value of the equity
instruments issued, which ever is more reliably measurable. The value of the
equity instruments is calculated under a fair value based method using a Black-
Scholes pricing model. EITF 96-18 defines the measurement date for determining
fair value as the earlier of the date at which a commitment for performance by
the counterparty to earn the equity instruments is reached or the date at which
the counterparty's performance is complete.
EARNINGS (LOSS) PER SHARE:
The Company computes net loss per share pursuant to Statement of Financial
Accounting Standards No. 128, Earnings Per Share, and SEC Staff Accounting
Bulletin No. 98. Basic net loss per share is computed by dividing loss
applicable to common stockholders by the weighted average number of shares of
the
F-11
<PAGE> 107
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
Company's common stock outstanding during the period. Diluted net loss per share
is determined in the same manner as basic net loss per share except that the
number of weighted average shares is increased assuming exercise of dilutive
stock options and warrants using the treasury stock method and dilutive
conversion of the Company's preferred stock.
For the years ended December 31, 1997, 1998 and 1999, options to purchase
229,100, 387,250, and 914,000 shares of common stock, respectively, preferred
stock convertible into 3,169,500, 4,256,000, and 11,316,765 shares of common
stock, respectively, and warrants to purchase 510,875, 1,206,859, and 1,929,084
shares of common stock, respectively, were excluded from the calculation of
diluted earnings per share since their inclusion would be antidilutive for all
periods presented.
Pro forma basic and diluted earnings per share have been calculated
assuming the conversion of all outstanding shares of preferred stock that are
mandatorily convertible upon the Company's anticipated initial public offering
into 11,316,765 shares of common stock, as if the shares had converted
immediately upon their issuance. Dividends on mandatorily redeemable preferred
stock, deemed dividends for beneficial conversion features on mandatorily
redeemable preferred stock and loss on redemption of preferred stock have been
excluded from the calculation of pro forma basic and diluted earnings per share
as the related shares are assumed to have converted to common upon issuance.
COMPREHENSIVE INCOME:
The Company has adopted, in 1999, the accounting treatment prescribed by
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. The adoption of this statement had no impact on the Company's financial
statements for the periods presented.
RECLASSIFICATIONS:
Certain reclassifications have been made for consistent presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In 1999, the Company adopted the American Institute of Certified Public
Accountants' Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SoP 98-1). SoP 98-1 provides
guidance for determining whether computer software is internal-use software, and
guidance on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the public.
It also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. The adoption of SoP 98-1 did
not have a material impact on the Company's financial statements.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137 which delays the effective date of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
F-12
<PAGE> 108
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
No. 133, as amended, is to be effective for the Company beginning in 2001. SFAS
No. 133 establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. Because the Company does not currently hold any
derivative financial instruments and does not engage in hedging activities, the
adoption of SFAS No. 133 is not expected to have any impact on the consolidated
financial position, results of operations or cash flows of the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition (SAB 101) which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the Securities and Exchange Commission. SAB 101 outlines
the basic criteria that must be met to recognize revenue and provides guidance
for disclosures related to revenue recognition policies. Management believes
that SAB 101 has no material effect on its financial position, results of
operations or cash flows.
NOTE 3 -- DISPOSAL OF BUSINESS:
In November 1997, the Company suspended its funding of and,
correspondingly, the operations of Strategic Communications Corporation ("SCC")
. In connection with the decision to terminate the operations of SCC, the
remaining goodwill of $64 at December 31, 1997 was written off. In January 1998,
the Company sold its interest in SCC for nominal consideration and recorded a
gain of $3.
NOTE 4 -- FIXED ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
----- ------
<S> <C> <C>
Furniture and fixtures............................... $63 $ 63
Equipment and computers.............................. 8 218
Construction in progress............................. - 1,804
--- ------
71 2,085
Less - Accumulated depreciation...................... 21 143
--- ------
$50 $1,942
=== ======
</TABLE>
Depreciation expense related to fixed assets for the years ended December
31, 1997, 1998 and 1999 was $19, $19 and $122, respectively.
Construction in progress at December 31, 1999 relates to the expenditures
for leasehold improvements, furniture, equipment and computers for the Company's
new operations center and headquarters in Stamford, Connecticut. As of December
31, 1999 these assets were not yet placed in service and, as such, were not
being depreciated. Capitalized costs will be amortized over the estimated useful
life of the asset beginning when the asset is ready for its intended use.
F-13
<PAGE> 109
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 5 -- ACCRUED LIABILITIES:
The following table provides the major components of accrued liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
---- ------
<S> <C> <C>
Accrued stock issuance and professional fees.......... $108 $2,045
Accrued salaries and wages............................ 38 250
Other accrued liabilities............................. 98 480
---- ------
$244 $2,775
==== ======
</TABLE>
NOTE 6 -- DEBT:
Debt and notes payable - trade consisted of the following at December 31,
1998 and 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
----- -----
<S> <C> <C>
CURRENT PORTION OF LONG-TERM DEBT:
Five-year convertible note........................ $ 137 $ -
Unamortized discount........................... (19) -
----- -----
$ 118 $ -
===== =====
NOTES PAYABLE - TRADE:
Demand note - February 1998....................... 150 -
Demand note - April 1998.......................... 100 -
----- -----
$ 250 $ -
===== =====
LONG-TERM DEBT:
Five-year convertible note.......................... $ 493 $ -
Unamortized discount.............................. (38) -
----- -----
$ 455 $ -
===== =====
</TABLE>
In December 1996, the Company executed a five-year convertible note with
the Connecticut Development Authority ("CDA"), which provided financing totaling
$750. In connection with this agreement, a warrant was issued to purchase
101,500 shares of common stock for $1.72 per share (Note 11). The relative fair
value of these warrants of $95 was recorded as a debt discount and was amortized
over the term of the loan.
The fair value of the warrant was determined using the Black-Scholes
pricing model utilizing a volatility rate of 40%, a 6.9-year expected life, no
expected dividends and a risk free rate of return of 6.2%. The gross proceeds of
the debt financing were then allocated between the debt and the warrants based
on the
F-14
<PAGE> 110
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
estimated fair values of both instruments. The note earned interest at a rate
equal to the federal reserve rate for five year treasury securities plus 2.5%.
The note had an effective interest rate of 11%.
In December 1999, the Company entered into an agreement with the CDA to
exchange its five-year convertible note payable for 79.96 shares of Series F
preferred stock at a conversion price of $3,960.40 per share (convertible into
common stock at a conversion rate of 500 to 1), and to exercise its warrant to
purchase 101,500 shares of common stock at a price of $1.72 per share. This debt
extinguishment resulted in an extraordinary loss on redemption of $260.
In December 1997, the Company executed a promissory note with a private
investor, providing financing totaling $200. The promissory note bears interest
at the rate of 10% per annum and was due and payable in February 1998. This note
was repaid in full in August 1998. In connection with the issuance, the private
investor received a warrant to purchase 100,000 shares of common stock for $3.00
per share (Note 11). The relative fair value of this warrant of $20 has been
recorded as a debt discount and is being amortized over the term of the note.
The fair value of the warrant was determined using the Black-Scholes pricing
model utilizing a volatility rate of 40%, a 1-year expected life, no expected
dividends and a risk free rate of return of 5.7%. The gross proceeds of the debt
financing were then allocated between the debt and the warrants based on the
estimated fair values of both instruments. The effective interest rate on the
note is 20%.
In February and April 1998, the Company executed promissory notes with a
private investor, providing financing totaling $150 and $100, respectively. The
promissory notes bear interest at a rate of 10% and were due and payable in
March 1998 and April 1998, respectively. In December 1998 the Company issued a
warrant to purchase 150,000 shares of common stock at $3.50 per share to the
noteholders (Note 11). As a result of the issuance, the Company has recorded the
fair value of the warrant of $75 as a charge directly to interest expense. The
fair value of the warrant was determined using the Black-Scholes pricing model
utilizing a volatility rate of 40%, a 3.1-year expected life, no expected
dividends and risk free rate of return of 4.5%. In February 1999 the notes were
repaid in full. Repayment of these notes was guaranteed by the holder of the
Company's Series B mandatorily redeemable preferred stock, a related party. The
effective interest rate on these notes is 10%.
In June 1998, the Company issued two notes payable totaling $400 to a
private investor group. The notes bore interest at a rate of 7% per annum and
were due and payable on demand in cash or Series D preferred stock. In
connection with this issuance, two warrants were issued in August 1998 for the
purchase of 195,984 shares of the Company's common stock for $3.00 per share
(Note 11). The value of these warrants of $83 has been charged directly to
interest expense. The fair value of the warrant was determined using the Black-
Scholes pricing model utilizing a volatility rate of 40%, a 5-year expected
life, no expected dividends and risk free rate of return of 4.8%. These notes
payable were converted in August 1998 into Series D mandatorily redeemable
convertible
F-15
<PAGE> 111
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
preferred stock ("Series D Preferred Stock") in connection with the issuance of
the Series D Preferred Stock.
In February 1999, the Company issued a $5,000 promissory note, a warrant to
purchase 500,000 shares of common stock and $3,000 of cash to redeem 3,770
shares of its Series A convertible preferred stock and 1,885,000 shares of its
common stock owned by Intelligent Investment Partners, Inc. Intelligent
Investment Partners, Inc. is a wholly owned subsidiary of SkyTel Communications,
Inc., SkyTel, a significant customer. The promissory note, which matures on
February 12, 2004, pays interest at a rate of 10% per annum beginning after the
first year. Interest is payable semiannually thereafter until maturity. The
long-term note payable becomes immediately due and payable upon the Company's
anticipated initial public offering or a sale of the Company. The effective
interest rate on this note is 9.8%. The warrants allow the holder to purchase
500,000 shares of the Company's common stock at a price of $3.00 per share (Note
11). The fair value of the warrant was determined using the Black-Scholes
pricing model utilizing a volatility rate of 40%, a 5-year expected life, no
expected dividends and risk free rate of return of 5.0%.
On December 29, 1999, the Company entered into an agreement with MCI
WorldCom, Inc., parent company to SkyTel to convert SkyTel's five-year $5,000
note payable into 1,262.5 shares of Series F mandatorily redeemable preferred
stock at a conversion price of $3,960.40 per share (convertible into common
stock at a conversion rate of 500 to 1). This debt extinguishment resulted in an
extraordinary loss on redemption of $3,174.
NOTE 7 -- INCOME TAXES:
No provision for federal or state income taxes has been made for the years
ended December 31, 1997, 1998 and 1999 given the Company's loss position in each
year. At December 31, 1999, the Company had net operating loss carryforwards of
$16,454 which expire through the year 2018. Net deferred tax assets at December
31, 1998 and 1999 have been fully reserved due to the uncertainty of
realization.
F-16
<PAGE> 112
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
The Company's gross deferred tax assets at December 31, 1998 and 1999 were
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
------- -------
<S> <C> <C>
GROSS DEFERRED TAX ASSET:
Net operating loss carryforwards................. $ 3,074 $ 7,275
Warrant issuances................................ 172 216
Interest accretion............................... 26 187
Other............................................ 5 104
------- -------
3,277 7,782
Valuation allowance.............................. (3,277) (7,782)
------- -------
Net deferred taxes............................... $ - $ -
======= =======
</TABLE>
Under provisions of the Tax Reform Act of 1986, if certain substantial
changes in the Company's ownership should occur, there would be an annual
limitation on the amount of net operating loss carryforwards which could be
utilized. Due to this potential annual limitation, the net operating loss
carryforwards may expire prior to when otherwise utilizable.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES:
LEASE AGREEMENTS:
The Company leases space in several buildings which is used for offices and
development facilities as well as various equipment, all subject to operating
leases. As of December 31, 1999, the minimum annual rental payments under the
terms of such noncancelable leases which expire at various dates through 2008
are as follows:
<TABLE>
<S> <C>
2000.................................................. $ 715
2001.................................................. 730
2002.................................................. 708
2003.................................................. 685
2004.................................................. 685
Thereafter............................................ 1,922
------
Total minimum lease payments.......................... $5,445
======
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 amounted
to $109, $165, and $211, respectively.
During 1999, in connection with one of the Company's office leases, the
Company was required to provide a $400 security deposit.
F-17
<PAGE> 113
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
LITIGATION:
The Company, in the ordinary course of business, is subject to various
legal proceedings. While it is impossible to determine the ultimate outcome of
these matters, it is management's opinion that the resolution of these matters
will not have a material adverse effect on the financial position or results of
operations of the Company.
COMMITMENTS:
At December 31, 1999, the Company had entered into contracts committing the
Company to approximately $2,100 worth of expenditures for construction,
furniture and equipment related to their new operations center and headquarters
in Stamford, Connecticut.
EMPLOYMENT AGREEMENTS
The Company maintains employment agreements with its key officers. These
agreements expire on December 31, 2002 but automatically renew unless notice of
termination is given at least 90 days prior to expiration. These agreements
provide minimum salary levels $150 per annum and compensation guidelines for
each employee. Additionally, the Company maintains separate key-man insurance
policies of $2,000 for two of its executives.
OTHER AGREEMENTS:
The Company has agreements with wireless network operators who act as
resellers of the Company's products and services to their customers. These
contracts generally have one to three-year terms and are nonexclusive.
The Company maintains agreements with various content providers. The
content agreements frequently have one-year terms, are nonexclusive and can be
canceled by either party without notice.
The Company is a member of an industry association of wireless service,
wireless equipment and software companies that develops worldwide standards for
wireless information and telephony services on digital mobile phones and other
wireless devices. As a result of their affiliation with the organization, the
Company has agreed to license its intellectual property to other members on fair
and reasonable terms to the extent that the license is required to develop
noninfringing products under the specifications promulgated by the organization.
Each other member has entered into reciprocal agreements.
The Company maintains royalty agreements with certain individuals. These
agreements are discussed in further detail in Note 9.
F-18
<PAGE> 114
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 9 -- RELATED PARTY TRANSACTIONS:
REVENUE/DEFERRED REVENUE:
The Company had revenue and deferred revenue for services provided to
SkyTel Communications, Inc. Intelligent Investment Partners, Inc., a wholly
owned subsidiary of Skytel, was a holder of common and Series A preferred shares
of the Company. In February 1999, Intelligent Investment Partners, Inc.'s equity
holdings in the Company were redeemed (see Note 6), and its seat on the Board of
Directors was relinquished. Subsequent to February 1999, they are no longer
considered a related party of the Company.
NOTES PAYABLE TO RELATED PARTIES:
The Company had outstanding borrowings totaling $144 as of December 31,
1998, payable to the Chairman of the Board of Directors of the Company, an
employee/officer of the Company, and a director of the Company. These notes bore
interest at a rate of 18% per annum and repayment could be required at any time.
In August 1998, as a condition for the Company to receive financing in
connection with the Series D mandatorily redeemable preferred stock offering,
the interest rates on these related party notes were adjusted from 18% to 10%.
These interest rate adjustments were applied retroactively to January 1, 1998
and remained in effect through the repayment of the notes. The note holders
forgave $7 of related party interest expense in 1998 related to this retroactive
adjustment. These notes payable were repaid in full in February 1999.
On November 18, 1998, the Company executed two promissory notes with a
stockholder of the Company providing financing totaling $200. The promissory
notes bore interest at a rate of 10% per annum and were due and payable on
December 31, 1998. In March 1999, the Company issued a warrant to purchase
20,235 shares of common stock at $3.50 per share to the noteholder under the
Company's Loan Incentive Warrant Plan (Note 11). The Company repaid the note in
February 1999.
NOTE RECEIVABLE FROM RELATED PARTIES:
On May 12, 1999, the Company loaned the President and Chief Executive
Officer $100 at an interest rate of 10% per annum. The entire balance, plus
interest, was repaid on May 26, 1999.
On September 30, 1999, the company loaned the Chairman of the Board of
Directors $100 at an interest rate of 10% per annum. The entire balance, plus
interest was repaid on October 4, 1999.
ROYALTY AGREEMENTS:
The Company maintains a royalty agreement with two current stockholders of
the Company. The agreements provide for the payment of royalties of 2 1/2% of
gross revenues on a monthly basis, but in no event less than $3 per month, with
a
F-19
<PAGE> 115
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
maximum aggregate payment of $6,000 adjustable up to a maximum of $8,000 as
defined in the agreement. Total royalties expensed under the terms of the
agreement were, $39, $32, and $46 for the years ended December 31, 1997, 1998
and 1999, respectively. In November 1998, the Company loaned the two
shareholders $53 on an unsecured basis to purchase Series C convertible
preferred stock. The royalties generated under the agreement subsequent to
November 1998 will be used to reduce the loan outstanding to the Company. The
balance outstanding on these loans were $53 and $31 at December 31, 1998 and
1999, respectively.
The Company maintains a royalty agreement with a current employee. The
original agreement provided for the payment of royalties based on the number of
subscribers with a maximum royalty payment of $750. In 1999, in connection with
an employment agreement, the royalty agreement was amended to be based on a
percentage of gross revenues, as defined in the agreement. The maximum royalty
was also reduced by $250 for the cumulative salary paid to the employee. The
employee is entitled to a monthly royalty payment of 2% of gross revenues. Total
royalties expensed under the terms of the royalty agreement were $15, $29 and
$35 for the years ended December 31, 1997, 1998 and 1999, respectively.
NOTE 10 -- PREFERRED STOCK:
Preferred stock consisted of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------ -------
<S> <C> <C>
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK:
Series B....................................... $1,436 $ 1,460
Series D....................................... 1,064 1,292
Series E....................................... - 17,104
Series F....................................... - 35,482
------ -------
Total mandatorily redeemable
convertible preferred stock......... $2,500 $55,338
====== =======
CONVERTIBLE PREFERRED STOCK AT PAR VALUE:
Series A....................................... $ - $ -
Series C....................................... - -
------ -------
$ - $ -
====== =======
</TABLE>
SERIES A CONVERTIBLE PREFERRED STOCK:
In February 1995, the Company issued 3,770 shares of Series A convertible
preferred stock to IIP for $150 per share. Series A convertible preferred stock
was convertible into common shares at a conversion rate of 500-to-1. As the
equivalent conversion price per common share was equal to or greater than the
estimated fair value of the Company's common shares at the time of issuance no
beneficial
F-20
<PAGE> 116
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
conversion charge was applicable to this issuance. Upon the issuance, 40% of the
Company's common stock was owned by Intelligent Investment Partners, Inc., a
holding company, which is wholly owned by SkyTel Communications, Inc., a
significant customer.
In February 1999, the Company redeemed all 3,770 shares of its Series A
convertible preferred stock and 1,885,000 shares of its common stock owned by
Intelligent Investment Partners, Inc. The redemption price of the Series A
preferred stock and the common stock of $8,000 is payable as follows: $3,000 in
cash upon closing of the transaction and $5,000 in a promissory note which
matures on February 12, 2004 (Note 6). In addition a warrant to purchase 500,000
shares of the Company's common stock at a price of $3.00 per share was issued to
Intelligent Investment Partners, Inc. This warrant expires February 11, 2004
(Note 11). This warrant has a fair value of $460 which has been applied to the
value of the common and preferred stock repurchased. The fair value of the
warrant was determined using the Black-Scholes pricing model utilizing a
volatility rate of 40%, a 5-year expected life, no expected dividends and a risk
free rate of return of 5.0%. The redemption of the preferred stock resulted in
$4,230 recorded as treasury stock, a $3,665 charge to accumulated deficit that
is included in "loss applicable to common stock" and a $105 charge to additional
paid-in capital. The additional paid-in capital charge represents the net impact
of eliminating the Company's basis in the Series A convertible preferred stock
of $565, and the recording of the $460 value of the common stock warrants
issued. The aggregate redemption value of $8,460 was allocated between the
common and convertible preferred stock redeemed based on the ratio of equivalent
common shares of each instrument.
SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In August 1996, the Company issued 1,421 shares of Series B mandatorily
redeemable preferred stock to a private investor group for $879.66 per share.
Series B mandatorily redeemable convertible preferred stock is convertible into
common shares at a conversion rate of 500-to-1. As the equivalent conversion
price per common share was equal to or greater than the estimated fair value of
the Company's common shares at the time of issuance no beneficial conversion
charge was applicable to this issuance. In connection with the issuance of the
Series B mandatorily redeemable preferred stock, warrants were issued to the
investor group to purchase 153,000 shares of common stock for $1.76 per share
(Note 11). These warrants were not exercised and expired on August 31, 1997.
Also, in connection with the issuance of the Series B mandatorily
redeemable preferred stock, the investor group was granted options to purchase
an additional 284 shares of Series B mandatorily redeemable preferred stock at a
price of $879.66. These options were exercisable at the option of the holder at
any time prior to August 31, 1997. Further if the Company fulfilled certain
criteria as outlined in the stock agreement and, if the investor group did not
exercise its option, the Company had the option to issue and sell to the
investor group, and the investor
F-21
<PAGE> 117
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
group was required to buy, 284 shares of Series B mandatorily redeemable
preferred stock at a price of $879.66. The Company fulfilled the criteria as
outlined in the Series B agreement and, accordingly, the investor group
purchased 284 shares of Series B mandatorily redeemable preferred stock on
February 27, 1997.
The relative fair value of the warrants and options granted in conjunction
with the Series B preferred stock of $90 was recorded as a discount to the
Series B preferred stock value and is being amortized as preferred stock
dividends over the period until the earliest possible redemption date. The fair
value of the warrant was determined using the Black-Scholes pricing model
utilizing a volatility rate of 40%, a 1-year expected life, no expected
dividends and a risk free rate of return of 6.7%.
SERIES C CONVERTIBLE PREFERRED STOCK:
From July 1997 through December 1997, the Company sold 476 and 388 shares
of Series C convertible preferred stock to private investors at prices of
$879.66 per share and $1,187.00 per share, respectively. During 1998, the
Company changed the number of authorized shares of its Series C convertible
preferred stock to 2,194 and sold an additional 1,330 shares of its Series C
convertible preferred stock to private investors for $1,187.00 per share. Series
C convertible preferred stock is convertible into common shares at a conversion
rate of 500-to-1. As the equivalent conversion price per common share was equal
to or greater than the estimated fair value of the Company's common shares at
the time of issuance no beneficial conversion charge was applicable to this
issuance. Related parties purchased 430 of the 1,330 shares issued in 1998. In
connection with these issuances, a warrant was issued for the purchase of 74,910
shares of common stock for $3.00 per share (Note 11). The fair value of the
warrants were determined using the Black-Scholes pricing model utilizing a
volatility rate of 40%, a 1-year expected life, no expected dividends and a risk
free rate of return of 5.7%.
On December 22, 1999, the Company's certificate of incorporation was
amended to provide for the mandatory conversion of the Series C preferred stock
into common stock upon a qualified initial public offering. This amendment was
approved by the Board of Directors and the stockholders, including a majority of
the Series C stockholders.
SERIES D MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In August 1998, the Company converted two outstanding notes payable into
Series D preferred stock and sold additional shares of Series D preferred stock
to a private investor group. The notes were issued to the private investor group
in June 1998. The carrying value of the notes of $407 was converted into Series
D preferred stock at $1,187.00 per share (Note 6). A total of 843 shares of
Series D preferred stock were sold at a price of $1,187.00 per share for total
consideration of $1,001 of cash and converted notes payable. Series D
mandatorily redeemable convertible preferred stock is convertible into common
shares at a conversion rate
F-22
<PAGE> 118
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
of 500-to-1. As the equivalent conversion price per common share is equal to or
greater than the estimated fair value of the Company's common shares at the time
of issuance no beneficial conversion charge is applicable to the issuance.
SERIES E MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In February 1999, the Company sold to a private investor group, 7,714.56
shares of Series E mandatorily redeemable convertible preferred stock at a price
of $1,555.50 per share for $12,000. Series E mandatorily redeemable convertible
preferred stock is convertible into common shares at a conversion rate of
500-to-1. As the equivalent conversion price per common share related to the
February 1999 issuance is equal to or greater than the estimated fair value of
the Company's common shares at the time of issuance no beneficial conversion
charge is applicable to the February issuance.
On November 23, 1999, the same private investor group, in accordance with
its contract with the Company, purchased an additional 1,928.64 shares of Series
E mandatorily redeemable convertible preferred stock at a price of $1,555.50 per
share for $3,000. A $3,000 deemed dividend has been recognized as a charge to
additional paid-in capital and an increase to net loss available to common
shareholders for the beneficial conversion feature, calculated as the difference
between the per share conversion price and the estimated fair value of the
common stock into which the preferred stock is convertible, measured at the
commitment date. This beneficial conversion feature is limited to the amount of
the proceeds received, or $3,000.
SERIES F MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
On December 22, 1999, the Company issued 8,248.33 shares of Series F
mandatorily redeemable convertible preferred stock at a price of $3,960.40 per
share to private investor groups. The proceeds include $24,850 of cash
investments, including $3,000 from a related party stockholder of the Company,
the conversion of a $5,000 outstanding note payable, the conversion of a $317
five-year convertible note payable and future television advertising rights. In
connection with this issuance the Company recorded a beneficial conversion
charge of $17,504, an extraordinary loss on the redemption of the two notes
payable of $3,434 and deferred advertising value of $4,261. These charges are
calculated as the difference between the per share value of the conversion
feature and the estimated fair value of the common stock at commitment date
multiplied by the applicable equivalent common shares.
CONVERSION FEATURES, RIGHTS AND PREFERENCES:
All preferred stock is convertible at any time into shares of common stock
at the option of the holder according to a 500-to-1 conversion rate. Each series
of preferred stock includes anitdilution and conversion price adjustment
provisions that may increase the conversion ratio for these shares in the event
of a sale by the Company of additional shares of common stock at a price below
the conversion price for such shares. Automatic conversion of all outstanding
F-23
<PAGE> 119
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
preferred stock occurs upon the closing of an initial public offering or sale or
merger of the Company provided certain defined minimum proceeds and per share
requirements are met. The conversion of preferred stock into a total of
11,316,765 shares of common stock is reflected in the unaudited pro forma
consolidated balance sheet at December 31, 1999.
Series C preferred stock is not entitled to any voting rights. Series B
preferred stock is entitled to vote on certain matters and Series D, E, and F
preferred stock are entitled to voting rights afforded to common stockholders in
proportion to the number of common shares into which their preferred shares are
convertible.
The Series B mandatorily redeemable preferred stock and Series C preferred
stock are entitled to receive dividends when and if declared by the board of
directors. The Series D, E, and F mandatorily redeemable preferred stock accrue
dividends cumulatively at a rate of 10% per share per annum. This cumulative
dividend is included in the charge to accumulated deficit and the increase in
carrying values of the preferred shares related to the 20% internal rate of
return guarantee. Such dividends may only be paid at the discretion of the board
of directors and are payable upon the conversion of the related shares into
common stock upon the closing of an initial public offering. All accumulated
dividends shall be forfeited in the event of a public offering where the value
of i3 is equal to or greater than $152,000.
In the event of an involuntary liquidation, the holders of the Series F
preferred shares are entitled to receive the stated value per share of the stock
together with any accrued and unpaid dividends before any payments to the other
stockholders of the Company. Subsequently, the Series B, Series D and Series E
preferred stockholders are entitled to receive, on a pro rata basis, prior and
in preference to Series C preferred stock, the stated value per share for each
outstanding share plus accrued but unpaid dividends. After the initial payment
to the holders of the Series F preferred shares and payment to the other
preferred stockholders of the Company in accordance with the Company's
certificate of incorporation, the holders of the Series F preferred shares are
entitled to receive an additional amount until they shall have received an
aggregate of two times the stated value per share of the stock.
Series B preferred stock is mandatorily redeemable based on certain
predefined events subsequent to December 31, 2003, but no later than June 30,
2004, at a price per share equal to $879.66 per share, without any dividends.
The Series D, E, and F preferred stock is mandatorily redeemable based on
certain predefined events subsequent to December 31, 2003, but no later than
June 30, 2004, at a price which equates to the investor receiving a 20% internal
rate of return on their initial investment of $1,187.00, $1,555.50 and $3,960.40
per share, respectively. This 20% internal rate of return is being recorded by a
charge to accumulated deficit and an increase to the carrying values of the
Series D, E, and F preferred shares. The state in which the Company is
incorporated does not preclude companies from accruing dividends when a
stockholders' deficit exists.
F-24
<PAGE> 120
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
The total preferred shares authorized was 10,000 at December 31, 1998 and
50,000 at December 31, 1999. The Company's preferred stock issued and
outstanding consisted of the following shares at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
----- -------------
<S> <C> <C>
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK:
Series B, $.01 par value
Shares issued and outstanding........... 1,705 1,705
Series D, $.01 par value
Shares issued and outstanding........... 843 843
Series E, $.01 par value
Shares issued and outstanding........... - 9,643.20
Series F, $.01 par value
Shares issued and outstanding........... - 8,248.33
CONVERTIBLE PREFERRED STOCK:
Series A, $.01 par value
Shares issued and outstanding........... 3,770 -
Series C, $.01 par value
Shares issued and outstanding........... 2,194 2,194
</TABLE>
NOTE 11 -- COMMON STOCK:
COMMON STOCK WARRANTS:
The Company had outstanding stock purchase warrants as follows. In this
table, "Debt financings" refers to warrants issued to noteholders, while
"Services related to 1998 capital raising" refers to warrants issued in
consideration for assistance provided to the Company in obtaining debt and
preferred stock financing.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
--------- -------------
<S> <C> <C>
Debt financings.......................... 547,484 645,984
Series B preferred stock................. 234,465 234,465
Series C preferred stock................. 74,910 74,910
Services related to 1998 capital
raising................................ 350,000 350,000
Series A preferred stock redemption...... - 500,000
Series F preferred stock................. - 123,725
--------- ---------
1,206,859 1,929,084
========= =========
Weighted Average exercise price per
share.................................. $3.10 $3.50
</TABLE>
In connection with the Company's 1996 debt financing (Note 6), a warrant
was issued for the purchase of 101,500 shares of common stock for $1.72 per
share. This warrant is exercisable at the option of the holder and expires on
December 31, 2003. The relative fair value of this warrant of $95 has been
F-25
<PAGE> 121
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
recorded as additional paid-in capital and as a discount to the debt. The fair
value of the warrant was determined using the Black-Scholes pricing model
utilizing a volatility rate of 40%, a 6.9-year expected life, no expected
dividends and a risk free rate of return of 6.2%. The gross proceeds of the debt
financing were allocated between the debt and the warrants based on the
estimated fair values of both instruments.
In December 1997, a warrant was issued to the Series B preferred
stockholders, a related party, for the purchase of 234,465 shares of common
stock of the Company for $3.00 per share. This warrant was issued in
consideration for the Series B stockholder giving up its 12% cumulative
dividend. This cumulative dividend was to be paid as of the sale or initial
public offering of the Company. The elimination of the dividend was a condition
for the Company to receive the Series C convertible preferred stock financing.
The warrant is exercisable at the option of the holder and originally expired on
December 31, 1998. In April 1998 the expiration date of this warrant was
extended to December 31, 2001 in consideration for the continued financial
support of the Series B stockholder. The warrants' original fair value of $52
was charged as a preferred dividend immediately upon issuance in 1997 and the
fair value of the extension of the expiration date of $123 was immediately
charged as a preferred dividend in 1998.
In connection with the issuance of the Series C convertible preferred stock
in 1997 (Note 10), two warrants were issued for the purchase of an aggregate of
74,910 shares of common stock for $3.00 per share. The warrants are exercisable
at the option of the holder, had an original expiration date of December 31,
1998. In April 1998 the expiration dates of these warrants were extended to
December 31, 2001 in consideration for the continued financial support of the
holders. The fair value of the warrants issued with Series C convertible
preferred stock was determined to be $17 using the Black-Scholes pricing model
utilizing a volatility rate of 40%, a 1-year expected life, no expected
dividends and a risk free rate of return of 5.7% percent. The cash proceeds were
allocated to the warrants, recorded as additional paid-in capital, and to the
Series C convertible preferred stock. The difference between the fair value of
the warrants under their original terms and the fair value under the extended
terms of $39 was immediately charged as a preferred dividend in 1998.
In December 1997, in connection with the issuance of a $200 promissory note
(Note 6), a warrant was issued to the private investor for the purchase of
100,000 shares of common stock of the Company for $3.00 per share. The warrant
is exercisable at the option of the holder and had an original expiration date
of December 31, 1998. The relative fair value of the warrant of $20 was
amortized to interest expense over the term of the note. In April 1998 the
expiration date for this warrant was extended to December 31, 2001 in
consideration for the continued financial support of the lender. The fair value
related to the extension of the expiration date of $52 was immediately charged
as interest expense in 1998.
In connection with the issuance of the Company's June 1998 notes to private
investors, two warrants were issued in August 1998 to purchase an aggregate of
F-26
<PAGE> 122
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
195,984 shares of the Company's common stock at a price of $3.00 per share.
These notes to private investors were converted into Series D preferred stock in
August 1998. These warrants expire on July 31, 2003. The fair value of the
warrant of $83 was immediately recorded as interest expense in 1998.
In consideration for assistance provided in raising capital during 1998, a
warrant was issued in June 1998 to the holder of the Series B preferred stock, a
related party, for the purchase of 350,000 shares of common stock for $3.50 per
share in June 1998. This warrant is exercisable at the option of the holder and
expires on December 31, 2001. As a result of the issuance, the fair value of the
warrant of $182 has been charged to general and administrative expense in 1998.
The charge was recorded to general and administrative expenses as the warrants
were issued in consideration for the general assistance provided to the Company
in obtaining debt and preferred stock financings and was not applicable to a
specific financing.
In December 1998 a warrant to purchase 150,000 shares of the Company's
common stock at a price of $3.50 per share was issued to a holder of the
Company's notes payable for financing provided to the Company (Note 6). This
warrant expires on December 31, 2001. As a result of this issuance, the Company
has recorded the fair value of the warrant of $75 as a charge to interest
expense in 1998.
In February 1999, the Company issued a warrant to Intelligent Investment
Partners, Inc., as part of the redemption price for its Series A preferred and
common stock (Note 10). This warrant allows Intelligent Investment Partners,
Inc. to purchase 500,000 shares of the Company's common stock at a price of
$3.00 per share, subject to adjustment. This warrant expires on February 11,
2004. The value of this warrant of $460 was included in the valuation of the
treasury stock and the loss on redemption of Series A preferred stock.
In September 1998 the Company authorized a Loan Incentive Warrant Plan that
provided for the issuance of warrants to purchase common stock of the Company to
the holders of notes payable. In March 1999, the Company issued warrants under
this plan to purchase 200,000 shares of the Company's common stock at a price of
$3.50 per share. The number of warrants was determined by a formula based on the
amount of the loan. This plan has now expired. These warrants were issued to
short-term notes payable holders and expire on December 31, 2001. The related
loans were repaid in February 1999. As a result of the issuance, the Company has
recorded the fair value of the warrants of $100 as a charge to interest expense.
In conjunction with the Series F mandatorily redeemable preferred stock
offering, the Company issued a warrant to purchase 123,725 shares of common
stock at an exercise price of $7.92 per share and incurred a liability of $1,633
to an investment banking firm pursuant to a binding agreement. This fee is in
consideration for acting as placement agent in connection with the Series F
mandatorily redeemable preferred stock offering. The warrant, which has an
exercise price of $7.92 per share and a five year life, has been valued at
$1,033
F-27
<PAGE> 123
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
using a Black-Scholes pricing model. Assumptions utilized included a volatility
rate of 40%, a 5-year expected life, no expected dividends and a risk free rate
of return of 5.8%. The value of the payment and warrants has been accounted for
as issuance costs against the gross proceeds of the Series F offering.
On December 29, 1999, the Company entered into a two-year agreement with
NBC Interactive Media, Inc. This agreement provides the Company with the right
to distribute content from NBC Interactive Media, Inc. or its affiliates upon
execution of distribution agreements. The Company will issue warrants to NBC
Interactive Media, Inc. to purchase 20,000 common shares at an exercise price of
$10.00 per share for each content distribution agreement it or any of its
affiliates enters into with the Company, or 30,000 shares for the first
agreement reached prior to March 31, 2000. The aggregate number of shares of
common stock issuable under this contingent warrant agreement is 110,000 shares.
These warrants expire three years after their issuance. The accounting treatment
for those contingent warrants to be issued to NBC Interactive Media, Inc. is
prescribed by EITF 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services. Under EITF 96-18 the measurement date for determining the fair value
of these warrants would not occur until such time as a distribution agreement is
entered into between i3 Mobile and NBC Interactive Media, Inc. or its
affiliates. The fair value of the warrants will be determined through a
Black-Scholes pricing model utilizing the fair value of the Company's common
stock as of the measurement date. As no such agreements have been entered into
at December 31, 1999 these contingent warrants have no impact on the 1999
financial statements.
COMMON STOCK RESERVED:
The Company has reserved shares of common stock as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1999
---- ----
<S> <C> <C>
Conversion of preferred stock.......... 4,256,000 11,316,765
Stock options.......................... 387,205 914,000
Stock warrants......................... 1,206,859 1,929,084
--------- ----------
5,850,064 14,159,849
========= ==========
</TABLE>
On June 11, 1997, the Company effected a 500-to-1 common stock split. All
references to common stock amounts, shares and per share data included in the
financial statements have been adjusted to give retroactive effect to the stock
split.
NOTE 12 -- STOCK INCENTIVE PLAN:
The Company's 1995 Stock Incentive Plan provides for the issuance of up to
1,014,000 shares of common stock outstanding through the granting of stock
options to employees, officers, consultants and directors. The board of
directors has complete authority to determine awards and establish the exercise
price based on the Board's estimate of fair value provided that the exercise
price of the stock
F-28
<PAGE> 124
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
option was no less than the fair value of a share of common stock on the date of
grant, and the exercise price of a stock option granted to an employee who owns
more than 10% of the common stock will be no less than 110% of the fair value of
a share of common stock on the date of grant. Such option grants prior to
September 15, 1999 vest over a period of five years. As of September 15, 1999,
new options granted will vest over a period of four years.
The following table describes the Company's stock option activity:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
WEIGHTED AVERAGE FAIR VALUE
NUMBER OF EXERCISE PRICE OF OPTIONS GRANTED
OPTIONS PER SHARE PER SHARE
--------- ---------------- ------------------
<S> <C> <C> <C>
Outstanding at January 1,
1997....................... 119,500 $0.30
Granted....................... 130,000 $1.76 $1.76
Canceled...................... (22,500) $1.08
-------
Outstanding at December 31,
1997....................... 227,000 $1.05
Granted....................... 162,600 $2.37 $2.37
Canceled...................... (4,450) $2.37
-------
Outstanding at December 31,
1998....................... 385,150 $1.59
Granted....................... 540,500 $2.74 $5.38
Canceled...................... (11,650) $2.37
-------
Outstanding at December 31,
1999....................... 914,000 $2.71
=======
</TABLE>
The following summarizes the outstanding and exercisable options under the
Plan as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- -------------- ----------- ---------- -------- ----------- --------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$0.30 109,000 1.0 $0.30 87,200 $ .30
$1.76 - $2.37 415,500 3.1 $2.20 161,482 $2.10
$3.11 - $4.00 389,500 3.1 $3.94 96,025 $3.95
------- -------
914,000 344,707
======= =======
</TABLE>
For all options granted in 1997 and 1998, the exercise price equaled the
fair value of the common stock on the date of grant. In 1999, options granted
with an
F-29
<PAGE> 125
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
exercise price equal to fair value of the common stock had a weighted-average
exercise price of $2.42. Options granted with an exercise price below the fair
value had a weighted average exercise price and weighted-average fair value of
$3.96 and $6.66 per share, respectively.
If compensation expenses had been 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"), pro forma results of operations would
be as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Loss applicable to common stock:
As reported............................ $(2,524) $(3,169) $(36,870)
Pro forma under FAS 123................ (2,566) (3,231) (37,062)
Basic and diluted net loss per share:
As reported............................ ($ 0.33) ($ 0.42) ($ 6.43)
Pro forma under FAS 123................ ($ 0.34) ($ 0.43) ($ 6.46)
</TABLE>
The estimated fair value at date of grant for options granted for the year
ended December 31, 1999 ranged from $2.37 to $7.00. The fair value of each
option is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -----
<S> <C> <C> <C>
Risk free interest rate.................... 6.3% 5.4% 5.8%
Expected dividend yield.................... 0 0 0
Expected life of option (years)............ 5 5 4.33
Expected volatility........................ 0.0001% 0.0001% 28.83%
</TABLE>
As additional options are expected to be granted in future years and the
options vest over several years, the above pro forma results are not necessarily
indicative of future pro forma results.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. Deferred compensation of $764 was recorded for the year ended December
31, 1999. This represents compensation expense that will be recognized over the
remaining vesting period. Compensation expense of $253 was recorded for the year
ended December 31, 1999. No compensation expense has been recognized for
stock-based compensation plans for the years ended December 31, 1998 and 1997.
NOTE 13 - DEFERRED ADVERTISING:
As part of the Series F mandatorily redeemable convertible preferred stock
offering, the Company entered into an agreement with National Broadcasting
F-30
<PAGE> 126
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
Company, Inc., "NBC". In the agreement NBC provides television advertising
rights to the Company in exchange for 631.25 shares of Series F mandatorily
redeemable preferred stock issued to NBC Interactive Media, Inc. in December
1999. This advertising can be broadcast on NBC, NBC's owned and operated
television stations or CNBC. The term of the agreement is two years, effective
January 1, 2000. The Company has accounted for these services as deferred
advertising at the fair value of the Series F mandatorily redeemable preferred
shares exchanged for the advertising rights of $4,261. These advertising rights
will be amortized to expense as the advertising is used by the Company.
NOTE 14 - SUBSEQUENT EVENTS:
On January 4, 2000 the Company amended its certificate of incorporation to
change its name from Intelligent Information Incorporated to i3 Mobile, Inc.
WARRANTS
On January 25, 2000, the Company entered into a two-year agreement with
Sony Corporation of America, "Sony". This agreement provides the Company with
the right to distribute content from Sony or its affiliates upon execution of
distribution agreements. The Company will issue warrants to Sony to purchase
20,000 common shares at an exercise price of $10.00 per share for each content
distribution agreement Sony or any of its affiliates enters into with the
Company, or 30,000 shares for the first distribution agreement reached prior to
March 31, 2000. The aggregate number of shares of common stock issuable under
this contingent warrant agreement is 110,000 shares. These warrants expire three
years after their issuance.
The accounting treatment for these contingent warrants to be issued to Sony
is prescribed by EITF 96-18. Under EITF 96-18 the measurement date for
determining the fair value of these warrants would not occur until such time as
an agreement is entered into between i3 Mobile and Sony or its affiliates. The
fair value of the warrants will be determined through a Black-Scholes pricing
model utilizing the fair value of the Company's common stock as of the
measurement date.
NOTE 15 -- SUBSEQUENT EVENTS (UNAUDITED):
OPTIONS
Subsequent to December 31, 1999 the Company issued 343,900 stock options to
employees pursuant to employment agreements at a weighted average exercise price
of $8.96 per share. These options vest ratably over a four-year period and
expire after ten years. Based on the estimated the fair value of the common
stock at the grant date, the Company estimates that it will record deferred
compensation for these options of $1,640 in the first quarter of 2000. This
represents compensation that will be recognized over the remaining vesting
period. This deferred compensation charge will be amortized to the statement of
operations
F-31
<PAGE> 127
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
over the four-year vesting period at a rate of $410 per annum for years 2000,
2001, 2002 and 2003.
On February 9, 2000, the Board of Directors adopted the 2000 Stock
Incentive Plan. This plan provides for the issuance of up to 1,250,000 shares of
common stock through the granting of stock options to employees, officers,
consultants and directors. The option exercise price will be determined by the
Board and may be equal to or greater than the fair market value of a share of
the Company's common stock on the date of grant. The plan limits the number of
options issued to any one employee in one fiscal year to 300,000. The Company
has issued 252,600 stock options to date under the 2000 Stock Incentive Plan.
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 i3 for certain entertainment related content. In
consideration, BroadcastEntertainment.com will provide the Company with
advertising credits on its affiliated internet websites and radio stations.
Management is in the process of determining the value of these advertising
credits. The value of the advertising credits will be based on the guidance of
Emerging Issues Task Force Abstract No. 99-17, Accounting for Advertising Barter
Transactions. The agreement also 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 companies. BroadcastEntertainment.com has agreed to pay
$2,000 in cash for these services.
On March 7, 2000, in conjunction with its agreement with NBC Interactive
Media, Inc. (Note 11), the Company entered into a two-year distribution
agreement with CNBC.com under which the Company is granted a non-exclusive
license to distribute specific types of CNBC.com's content to designated users
and resellers of the Company. In consideration the Company has granted CNBC.com
a warrant to purchase 10,000 shares of the Company's common stock at an exercise
price of $10.00 per share. The warrant has a three-year term and is exercisable
immediately. As part of the agreement, the Company has also agreed to purchase
banner advertising from CNBC.com utilizing its deferred advertising rights
described in Note 13. The value of this warrant has been estimated at $64 using
a Black-Scholes option pricing model assuming a volatility of 40%, an expected
term of 3 years, no expected dividends and a risk free rate of return of 5.8%.
This value of the warrant will be amortized over the term of the agreement as
stock compensation. The original terms of the NBC Interactive Media, Inc.
agreement called for the initial warrant issuance to be for 30,000 shares of
common stock, if issued prior to March 31, 2000, and subsequent warrant
issuances to be for the purchase of 20,000 shares of common stock. These terms
were adjusted to allow for the initial warrant to be for 10,000 shares of common
stock. All subsequent issuances will be subject to the original terms of the
agreement.
F-32
<PAGE> 128
I3 MOBILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
In March 2000, the Company entered into an agreement with AT&T Wireless
Services, Inc. The agreement calls for the Company to issue stock purchase
warrants based upon certain performance criteria being met. Under the agreement,
the Company can issue warrants to purchase up to 200,000 shares of common stock
at an exercise price of $15.00 per share. These warrants vest upon the
development and implementation of a program to tag messages with advertisements
and upon the achievement of designated new registered user levels. These
warrants expire three years after their issuance date. The accounting treatment
for these contingent warrants is prescribed by EITF 96-18. Under EITF 96-18 the
measurement date for determining the fair value of the warrants would not occur
until such time as the performance criteria are met. The fair value of the
warrants will be determined through a Black-Scholes option pricing model
utilizing the fair value of the Company's common stock at the measurement date.
In April 2000 the Company entered into an agreement with Intel Corporation.
The agreement calls for the Company to issue stock purchase warrants to Intel
Corporation based upon certain performance criteria being met. Under the
agreement the Company can issue warrants to purchase up to 100,000 shares of
common stock at an exercise price of $15.00 per share. These warrants vest as
the performance criteria are met and expire two years after their issuance date.
The accounting treatment for these contingent warrants is prescribed by EITF
96-18. Under EITF 96-18 the measurement date for determining the fair value of
the warrants would not occur until such time as the performance criteria are
met. The fair value of the warrants will be determined through a Black-Scholes
option pricing model utilizing the fair value of the Company's common stock at
the measurement date.
F-33
<PAGE> 129
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 7
Forward Looking Statements............. 22
Use of Proceeds........................ 23
Dividend Policy........................ 23
Capitalization......................... 24
Dilution............................... 26
Selected Consolidated Financial Data... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 29
Our Business........................... 40
Management............................. 66
Certain Relationships and Related
Transactions......................... 76
Principal Stockholders................. 80
Description Of Capital Stock........... 82
Shares Eligible for Future Sale........ 87
Underwriting........................... 89
Experts................................ 93
Legal Matters.......................... 93
Where You Can Find Additional
Information.......................... 93
Reports to Stockholders................ 93
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
UNTIL MAY 1, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT
BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALERS' OBLIGATIONS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[I3 MOBILE, INC. LOGO]
i3 MOBILE, INC.
5,100,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
CHASE H&Q
CREDIT SUISSE FIRST BOSTON
PROSPECTUS
APRIL 6, 2000
