<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ___________
Commission File No. 000-25469
iVILLAGE INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 13-3845162
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
212 Fifth Avenue, New York, NY 10010
(Address of Principal Executive Offices) (Zip Code)
(212) 206-3100
(Registrant's telephone number, including area code)
170 Fifth Avenue, New York, NY 10010
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
---------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
29,533,536 shares of common stock as of November 8, 1999.
1
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iVillage Inc.
Form 10-Q
For the Quarter ended September 30, 1999
Index
Part I.
Financial Information
Page(s)
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1998
and September 30, 1999 (Unaudited)........................................... 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 1999 and
1998 (Unaudited)............................................................. 4
Condensed Consolidated Statements of Cash Flows for the
three months and nine months ended September 30, 1999 and
1998 (Unaudited)............................................................. 5
Notes to Condensed Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................11
Part II.
Other Information
Item 1. Legal Proceedings....................................................26
Item 2. Changes in Securities and Use of Proceeds............................26
Item 6. Exhibits and Reports on Form 8-K.....................................27
Signatures...................................................................29
Exhibit Index................................................................30
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
iVillage Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 30,825 $ 56,077
Restricted cash -- 6,000
Accounts receivable, net 2,078 4,989
Inventory -- 1,090
Other current assets 715 3,376
--------- ---------
Total current assets 33,618 71,532
Fixed assets, net 7,380 9,961
Goodwill and intangible assets, net 4,535 181,901
Other assets 188 7,727
--------- ---------
Total assets $ 45,721 $ 271,121
========= =========
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 11,561 $ 21,488
Capital leases payable 137 21
Deferred revenue 1,838 12,549
Other current liabilities 163 29
--------- ---------
Total liabilities 13,699 34,087
--------- ---------
Commitments and contingencies
Stockholders' equity:
Series A, convertible preferred stock - par value $.0005,
1,000,000 shares authorized, issued and outstanding 1 --
Series B and B-1, convertible preferred stock - par value $.0005,
5,929,846 shares authorized, 4,777,746 issued and outstanding 2 --
Series C, convertible preferred stock - par value $.0005,
13,528,765 shares authorized, 13,193,445 issued and outstanding 7 --
Series D, convertible preferred stock - par value $.0005,
13,000,000 shares authorized, issued and outstanding 6 --
Series E, convertible preferred stock - par value $.0005,
12,280,702 shares authorized, 11,730,948 issued and outstanding 6 --
Common stock, par value $.01, 35,000,000 and 65,000,000
shares authorized, 2,113,385 and 26,648,311 issued and outstanding
at December 31, 1998 and September 30, 1999, respectively 21 266
Additional paid-in capital 112,849 420,071
Accumulated deficit (76,275) (162,955)
Stockholders' notes receivable (565) (13,300)
Unearned compensation (4,030) (7,048)
--------- ---------
Total stockholders' equity 32,022 237,034
--------- ---------
Total liabilities and stockholders' equity $ 45,721 $ 271,121
========= =========
</TABLE>
The accompanying footnotes are an integral part of these condensed consolidated
financial statements.
3
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iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Advertising, sponsorship and other $ 8,209 $ 3,363 $ 18,893 $ 7,681
Commerce 2,516 925 6,404 1,445
-------- -------- -------- --------
Total revenues 10,725 4,288 25,297 9,126
Cost of revenues 5,808 3,368 14,920 8,805
-------- -------- -------- --------
Gross margin 4,917 920 10,377 321
-------- -------- -------- --------
Operating expenses:
Product development and technology 1,488 617 4,526 1,603
Sales and marketing 14,808 7,877 30,442 19,931
Sales and marketing - NBC expenses 4,605 -- 12,177 --
General and administrative 4,238 3,606 12,110 7,812
Depreciation and amortization 9,250 1,386 16,769 4,044
-------- -------- -------- --------
Total operating expenses 34,389 13,486 76,024 33,390
-------- -------- -------- --------
Loss from operations (29,472) (12,566) (65,647) (33,069)
Interest income, net 937 155 2,449 419
Other income (expense), net 129 -- 129 (165)
Minority interest income -- 228 -- 366
-------- -------- -------- --------
Net loss (28,406) (12,183) (63,069) (32,449)
-------- -------- -------- --------
Preferred stock deemed dividend -- -- (23,612) --
Net loss attributable to common stockholders $(28,406) $(12,183) (86,681) $(32,449)
======== ======== ======== ========
Basic and diluted net loss per share
attributable to common stockholders $ (1.12) $ (1.92) $ (4.74) $ (5.21)
======== ======== ======== ========
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share 25,430 6,337 18,287 6,232
======== ======== ======== ========
Pro forma basic and diluted net loss per share $ (3.85)
========
Shares of common stock used in computing pro
forma basic and diluted net loss per share 22,510
========
</TABLE>
The accompanying footnotes are an integral part of these condensed consolidated
financial statements.
4
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iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operation activities:
Net loss $(28,406) $(12,183) $(63,069) $(32,449)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expense recognized in connnection
with issuance of warrants and
stock options 1,103 32 4,082 218
Depreciation and amortization 9,250 1,386 16,769 4,044
Bad debt expense - 200 500 455
Loss on sale - - - 165
Minorty interest - (228) - (366)
Changes in assets and liabilities:
Accounts receivable (458) 77 (1,723) (1,098)
Inventory (1,090) - (1,090) -
Restricted cash and other assets (7,642) 1 (8,097) (338)
Accounts payable and accrued
expenses 7,138 3,314 5,970 3,460
Deferred revenue 9,172 (107) 9,450 1,476
Other liabilities (163) 71 (127) (6)
-------- -------- -------- --------
Net cash used in operating activities (11,096) (7,437) (37,335) (24,439)
-------- -------- -------- --------
Cash flows from investing activities:
Purchase of fixed assets (1,807) (925) (3,498) (3,753)
Acquisitions of Web sites (9,971) - (20,802) (520)
Investment in PlanetRx (7,500) - (7,500) -
Sale of Web sites - - - 600
-------- -------- -------- --------
Net cash used in investing activities (19,278) (925) (31,800) (3,673)
-------- -------- -------- --------
Cash flows from financing activities:
Exercise of stock options 249 - 754 -
Stockholder note receivable 1,381 (250) 2,763 (500)
Proceeds from issuance of common stock, net (406) 42 90,986 1,709
Proceeds from issuance of preferred stock,net - - - 31,488
Principal payments on capitalized leases (52) (28) (115) (152)
-------- -------- -------- --------
Net cash (used in) provided by
financing activities 1,172 (236) 94,388 32,545
-------- -------- -------- --------
Net increase (decrease) in cash for the period (29,202) (8,598) 25,253 4,433
Cash and cash equivalents, beginning of
period 85,279 17,366 30,824 4,335
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 56,077 $ 8,768 $ 56,077 $ 8,768
======== ======== ======== ========
</TABLE>
The accompanying footnotes are an integral part of these condensed consolidated
financial statements.
5
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iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
BASIS OF PRESENTATION
iVillage Inc. was incorporated in the State of Delaware on June 8, 1995
and commenced operations on July 1, 1995. iVillage Inc. and its subsidiaries
("iVillage" or the "Company") are engaged in the development of programming
material for distribution through online service providers and the Internet and
are involved in the sale of products through the Company's Web sites.
In March 1999, the Company completed an initial public offering ("IPO") of
4,197,500 shares of the Company's common stock resulting in net proceeds of
approximately $91.4 million. Upon closing of the IPO, all classes of outstanding
convertible preferred stock converted into common stock on a three for one
ratio.
These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company's Form S-1 registration statement, as amended, filed with the Securities
and Exchange Commission ("SEC") in connection with the Company's IPO.
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by Web consumers, vendors and/or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its online services, as well as other risks and uncertainties. In the
event the Company does not successfully implement its business plan, certain
assets may not be recoverable.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim consolidated financial statements of the Company for
the three and nine months ended September 30, 1999 and 1998, respectively,
included herein have been prepared in accordance with the instructions for Form
10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of
Regulation S-X under the Securities Act of 1933, as amended. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company at September 30, 1999, and the results of its operations and its
cash flows for the three and nine months ended September 30, 1999 and 1998,
respectively. The results for the three and nine months ended September 30, 1999
are not necessarily indicative of the expected results for the full fiscal year
or any future period. Certain prior period balances have been reclassified to
conform to the current period presentation.
6
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iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
REVERSE STOCK SPLIT
On March 11, 1999, the Board of Directors effected a one-for-three reverse
common stock split. The Board also approved the adjustment of the common stock
par value to $.01 per share. The share information in the accompanying condensed
consolidated financial statements has been retroactively restated to reflect the
effect of this reverse stock split for all periods presented.
NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 replaced primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common and
common stock equivalents outstanding during the period. Common stock equivalent
shares have been excluded from the computation as their effect is anti-dilutive.
The pro forma net loss per share is computed by dividing the net loss by
the sum of the weighted average number of shares of common stock outstanding and
the shares resulting from the assumed conversion, as of January 1, 1999, of all
outstanding shares of convertible preferred stock and the issuance of shares to
holders of Series B Convertible Preferred Stock resulting from anti-dilution
protection.
NOTE 2 - RELATED-PARTY TRANSACTIONS
NBC
On March 9, 1999, iVillage and National Broadcasting Company amended the
November 11, 1998 advertising and promotional agreement and entered into a stock
purchase agreement whereby iVillage issued 4,889,030 shares of Series E
Convertible Preferred Stock ("Series E") and warrants to purchase 970,874 shares
of Series E at $5.15 per share and 813,003 shares of Series E at $6.15 per share
during 2000 and 2001, respectively, in exchange for a promissory note of
approximately $15.5 million. The note, which bears interest at the rate of 5%
per annum, is payable in twelve installments of approximately $1.4 million,
payable quarterly, beginning April 1, 1999. In connection with the IPO and the
reverse stock split, the shares of Series E and Series E warrants were converted
into 1,629,676 shares of common stock and warrants to purchase 323,625 shares of
common stock at $15.45 per share and 271,003 shares of common stock at $18.45
per share, respectively.
In addition, iVillage agreed to purchase, for cash, $13.5 million of
advertising and promotional spots during 1999 and $8.5 million per annum during
2000 and 2001, respectively. iVillage also agreed to pay $1.1 million during
1999 for prominent placement on the NBC.com Web site.
Under the revised agreement and in accordance with EITF D-60, "Accounting
for the Issuance of Convertible Preferred Stock and Debt Securities with a
Non-detachable Conversion Feature," the $23.6 million difference between the
purchase price of the Series E and the fair market value on the date of issuance
was accounted for as a deemed dividend and amortized using the effective
interest method from the date of issuance through the date the Company completed
its IPO (the date of conversion into common stock). In addition, the fair value
of the warrants of approximately $8.4 million, was recorded in stockholders'
equity as deferred advertising costs and is being amortized over the three-year
advertising agreement. The fair value of the warrants was determined using the
Black-Scholes option pricing model in accordance with SFAS No. 123.
7
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iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 3 - ACQUISITIONS
iBABY
As a result of the IPO, the Company purchased all of the outstanding
shares of iBaby held by the minority stockholders pursuant to the Rights
Agreement dated as of April 8, 1998 among the Company, OurBaby LLC, JBM
Ventures, Inc. and iBaby, Inc., as subsequently amended on February 10, 1999.
The aggregate purchase price of $10.8 million consisted of (i) $8 million in
cash, of which $1.5 million was paid on February 12, 1999 and $6.5 million was
paid on March 25, 1999 and (ii) 125,448 shares of the Company's common stock.
The difference between the purchase price and the fair value of the acquired
minority interest in iBaby was recorded as goodwill and will be amortized over
the period of expected benefit, which is estimated at three years.
The cost of acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows:
Working capital ........................ $ (452,752)
Fixed Assets ........................... 399,181
Goodwill ............................... 11,064,324
-----------
$11,010,753
===========
ASTROLOGY.NET
On February 18, 1999, iVillage acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a Astrology.Net, an Internet content provider, in
exchange for 802,125 shares of iVillage common stock and approximately $1.2
million in cash. The acquisition was accounted for as a purchase with a purchase
price of approximately $21 million based on the $24.00 initial public offering
price of iVillage's common stock and an estimate for the value of Astrology.Net
options assumed by iVillage. The difference between the purchase price and the
fair value of the acquired net assets of Astrology.Net was recorded as goodwill
and is being amortized over the period of expected benefit, which is estimated
at three years.
Of the 802,125 shares of common stock, (i) 326,331 shares were issued at
the closing, (ii) 75,000 shares were issued into escrow for 18 months to cover
possible indemnification claims, and (iii) the remaining 400,794 shares were
issued subject to earnout restrictions over five years.
The first 75,000 shares to be released under the earnout will be placed
into the indemnification escrow. The earnout shares will be released as
Astrology.Net meets certain revenue targets during the three years following
closing. Any earnout shares not released during the first three years will be
released five years from closing. In addition, all outstanding options to
purchase Astrology.Net common stock were converted into options to purchase
31,208 shares of iVillage common stock. The Agreement provides for employment,
non-compete and stock option agreements for the founding stockholders of
Astrology.Net.
iVillage also issued to the founding stockholders of Astrology.Net options
to purchase 150,000 shares of iVillage common stock at an exercise price equal
to $24.00 per share. These options are contingent on continued employment with
Astrology.Net and vest over a period of seven years, with accelerated vesting
dependent on Astrology.Net meeting certain revenue targets.
8
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iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
ONLINE PSYCH AND CODE STONE
On June 30, 1999, iVillage acquired OnLine Psychological Services, Inc.
and Code Stone Technologies, Inc. As a result of the acquisition, OnLine Psych
and Code Stone became wholly-owned subsidiaries of iVillage. OnLine Psych
operates a Web site focusing on mental health issues while Code Stone provides
much of the interactive technology used on Online Psych's Web site.
The aggregate purchase price paid to acquire OnLine Psych and Code Stone
was approximately $30 million, consisting of $1.5 million cash and approximately
577,000 shares of iVillage common stock. The acquisitions are intended to
qualify as tax-free reorganizations and will be accounted for under the purchase
method of accounting. The difference between the purchase price and the fair
value of the acquired net assets of OnLine Psych and Code Stone was recorded as
goodwill and is being amortized over the period of expected benefit, which is
estimated to be three years.
LAMAZE PUBLISHING
On August 20, 1999, iVillage acquired all of the outstanding stock of
Lamaze Publishing Company, Inc. ("Lamaze Publishing"), a multimedia provider of
education information to expectant and new mothers. The aggregate purchase price
consisted of approximately 1,750,000 shares of its common stock and
approximately $5 million of assumed debt. The difference between the purchase
price of approximately $102.3 million, as calculated according to generally
accepted accounting principles, and the fair value of the acquired net assets of
Lamaze Publishing has been recorded as goodwill and is being amortized over the
period of expected benefit, which is estimated to be ten years.
FAMILY POINT INC.
On August 31, 1999, iVillage acquired all of the outstanding stock of
Family Point Inc. ("Family Point"), the operator of a leading online meeting
place for families, friends and groups. The aggregate purchase price paid to
acquire Family Point was approximately $28.9 million and consisted of $4.5
million cash and approximately 612,000 shares of its common stock valued under
the purchase method of accounting. The difference between the purchase price and
the fair value of the acquired net assets of Family Point has been recorded as
goodwill and is being amortized over the period of expected benefit, which is
estimated to be three years.
The accompanying unaudited pro forma summary presents the consolidated
results of operations for iVillage, including the acquisitions of Astrology.Net,
OnLine Psych and Code Stone, Lamaze Publishing and Family Point as if they
had occurred on January 1, 1998. The pro forma information does not necessarily
reflect the actual results that would have been achieved, nor is it necessarily
indicative of future consolidated results of the Company.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands, except per share data)
<S> <C> <C>
Revenues $ 34,145 $ 17,741
Net loss $(84,141) $(60,036)
Net loss per share, excluding deemed dividend $ (3.31) $ (5.16)
</TABLE>
9
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iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 4 - SEGMENT INFORMATION
The Company's business is comprised of the development of programming
material by iVillage for distribution through online service providers and the
Internet and the sale of products by iBaby, iMaternity and Astrology.Net through
their Web sites. The Company's management reviews corporate assets and overhead
expenses within its media segment.
The summarized segment information, as of and for the three months ended
September 30, 1999, is as follows:
($ in thousands)
Media E-Commerce Total
----- ---------- -----
Revenues $ 8,209 $ 2,516 $ 10,725
Cost of revenues 3,448 2,360 5,808
Product development and 992 496 1,488
technology
Sales and marketing 17,705 1,708 19,413
General and administrative 3,396 842 4,238
Depreciation and amortization 5,746 3,504 9,250
---------- -------------- ---------
Loss from operations (23,078) (6,394) (29,472)
Total assets $ 264,641 $ 6,480 $ 271,121
========== ============== =========
The summarized segment information, as of and for the nine months ended
September 30, 1999, is as follows:
($ in thousands)
Media E-Commerce Total
----- ---------- -----
Revenues $ 18,893 $ 6,404 $ 25,297
Cost of revenues 9,529 5,391 14,920
Product development and 3,266 1,260 4,526
technology
Sales and marketing 39,409 3,210 42,619
General and administrative 10,247 1,863 12,110
Depreciation and amortization 8,845 7,924 16,769
---------- -------------- ---------
Loss from operations (52,403) (13,244) (65,647)
Total assets $ 264,641 $ 6,480 $ 271,121
========== ============== =========
NOTE 5 - SUBSEQUENT EVENTS
In September 1999, iVillage entered into an option agreement with
Investorama.com Inc. to sell the assets associated with Armchair Millionaire, a
site located on its Money channel. Investorama generally has 30 days after the
agreement is signed to exercise the option, subject to satisfaction of certain
conditions. If Investorama exercises the option, iVillage will, among other
things, be entitled to a percentage of the advertising revenues from Armchair
Millionaire for two years, not to exceed $550,000, and will receive $1.0 million
in advertising revenues over a 12-month period, subject to guaranteed
impressions.
In October 1999, iVillage paid $5.0 million, consisting of $750,000 cash
and approximately 110,000 shares of iVillage common stock, to the former
stockholders of Family Point as a purchase price adjustment pursuant to the
acquisition agreement based on Family Point's satisfaction of certain
performance thresholds.
On November 3, 1999, iVillage consummated a secondary offering of 2.7
million shares of common stock, which provided approximately $71.4 million in
net proceeds.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
iVillage Inc. has included in this filing certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning iVillage's business, operations and financial condition. The
words or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project", and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and iVillage cautions you that
any forward-looking information provided by or on behalf of iVillage is not a
guarantee of future performance. iVillage's actual results could differ
materially from those anticipated by such forward-looking statements due to a
number of factors, some of which are beyond iVillage's control, including (i)
the volatile and competitive nature of the Internet industry, (ii) changes in
domestic and foreign economic and market conditions, (iii) the effect of
federal, state and foreign regulation on iVillage's business, (iv) failure of
iVillage, its vendors or other third parties to achieve Year 2000 compliance,
(v) the impact of recent and future acquisitions on iVillage's business and
financial condition, (vi) the impact on iVillage of its branding strategy, (vii)
intellectual property and other claims, (viii) the ability of iVillage to
successfully implement and execute its e-commerce strategy and (ix) iVillage's
ability to maintain its relationships with its customers, as well as the risks
described below and those discussed in iVillage's other public filings. All
such forward-looking statements are current only as of the date on which such
statements were made. iVillage does not undertake any obligation to publicly
update any forward-looking statement to reflect events or circumstances after
the date on which any such statement is made or to reflect the occurrence of
unanticipated events.
Overview
The iVillage network, iVillage.com, provides an easy-to-use, comprehensive
online network of sites tailored to the interests and needs of women using the
Internet. iVillage.com consists of 15 content specific channels organized by
subject matter and several shopping areas. The channels cover leading topics of
interest to women online such as family, health, work, money, food, computers,
relationships, shopping, travel, pets and astrology. iVillage facilitates
channel usage by providing common features and functionality within each
channel, including experts, chats, message boards and services.
To date, iVillage's revenues have been derived primarily from the sale of
sponsorship and advertising contracts. Sponsorship and advertising revenues
constituted 77% and 75% of total revenues for the three and nine months ended
September 30, 1999, respectively. This compares to 79% and 84% for the
comparable periods during the prior year.
Sponsorship revenues are derived principally from contracts ranging from
one to three years. Sponsorships are designed to support broad marketing
objectives, including brand promotion, awareness, product introductions, online
research and the integration of advertising with editorial content. Sponsorship
agreements typically include the delivery of impressions on iVillage's Web sites
and the design and development of customized sites that enhance the promotional
objectives of the sponsor. An impression is the viewing of promotional material
on a Web page, which may include banner advertisements, links, buttons or other
text or images. The portion of sponsorship revenues related to the delivery of
impressions is recognized ratably in the period in which the advertisement is
displayed, provided that none of iVillage's significant obligations remain, at
the lesser of the ratio of impressions delivered over total guaranteed
impressions or the straight-line basis over the term of the contract.
Accordingly, to the extent that minimum guaranteed impressions are not met,
iVillage defers recognition of the corresponding revenues until the guaranteed
impressions are met. The portion of sponsorship revenues related to the up-front
customized design work, as specified in the contract, is recognized in the
period in which the design work is performed, typically within the first three
months of the contract term.
As part of iVillage's sponsorship agreements, certain sponsors who also
sell products provide iVillage with a commission on sales of their products
generated through iVillage's Web sites. To date, these amounts have been
immaterial.
Advertising revenues are derived principally from short-term advertising
contracts in which iVillage typically
11
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guarantees a minimum number of impressions to be delivered to users over a
specified period of time for a fixed fee. Advertising rates, measured on a cost
per thousand impressions basis, or CPMs, are dependent on whether the
impressions are for general rotation throughout iVillage's Web sites or for
targeted audiences and properties within specific areas of iVillage.com.
Sponsorship and advertising revenues also include barter revenues, which
represent exchanges by iVillage of advertising space on iVillage's Web sites for
reciprocal advertising space or traffic on other Web sites. Revenues from these
barter transactions are recorded as advertising revenues at the estimated fair
value of the advertisements delivered, unless the fair value of the goods and
services received is more objectively determinable, and are recognized when the
advertisements are run on iVillage.com and its affiliated properties. Barter
expenses are recognized at the value of advertisements received when iVillage's
advertisements are run on the reciprocal Web sites or properties, which is
typically in the same period as when the advertisements are run on iVillage.com.
Barter expenses are included as part of sales and marketing expenses. iVillage
does not receive cash for the advertisements delivered, nor does iVillage pay
for the advertisements received. Typically, these barter transactions have no
impact on iVillage's cash flows and results of operations. Barter transactions
enable iVillage to continue to build strong brand recognition as part of its
overall business strategy without expending cash resources. Revenues from barter
transactions represented approximately 10% and 21% of total revenues for the
nine months ended September 30, 1999 and 1998, respectively. iVillage
anticipates that barter revenues will continue to increase in the future
although they will decrease as a percentage of total revenues.
With the acquisition of Lamaze Publishing Company, Inc., a multimedia
provider of education information to expectant and new mothers, iVillage will
generate additional revenues through advertising placements in its publications,
videos, Newborn Channel satellite broadcasts and e-commerce opportunities. In
addition, revenues are expected to be generated through a sampling and coupon
program which offers advertisers the ability to distribute samples, coupons and
promotional literature to new and expectant mothers.
Commerce revenues are derived principally from sales through iBaby, an
online retailer of baby gifts and products, iMaternity, an online retailer of
maternity clothing, and Astrology.Net, an online provider of electronic
horoscope reports. Commerce revenues received from iBaby consist of the sale of
baby-related products, including strollers, high chairs, bedding, toys and
accessories. iBaby takes all orders for iBaby products, collects the payment and
ships the items to the customer. The inventory and services agreement between
iBaby and Kid's Warehouse, iVillage's former joint venture partner in iBaby, has
terminated and iBaby has become responsible for all merchandising, inventory
management and order fulfillment functions. In order to fulfill these functions,
iVillage recently signed a two year lease for approximately 40,000 square feet
of warehouse space for iBaby at a facility located in San Diego, California. The
failure of iVillage to assume effectively and in a timely manner the
merchandising, inventory management and order fulfillment functions has and
could result in the disruption of the operations of iBaby, including shipment
delays.
Commerce revenues received from iMaternity consist of the sale of
maternity clothing and products through its Web site. All orders for iMaternity
products are taken through its channel on the iBaby Web site, and iBaby collects
the payment for product sales. The fulfillment of all product orders for
iMaternity are handled by Dan Howard, Inc. Revenues from Astrology.Net consist
of the sale of astrological charts and other related products to visitors to the
Astrology.Net Web site. iVillage recognizes revenues from iBaby, iMaternity and
Astrology.Net product sales, net of any discounts, when products are shipped to
customers and the collection of the receivable is reasonably assured.
Recently, iVillage has received fees from the licensing of portions of its
content in connection with the PlanetRx.com relationship, described below.
Recent Events
Armchair Millionaire. iVillage recently entered into an option agreement
with Investorama.com Inc. to sell the assets associated with Armchair
Millionaire, a site located on its Money channel. Investorama generally has 30
days after the agreement is signed to exercise the option, subject to
satisfaction of certain conditions. If Investorama exercises the option,
iVillage will, among other things, be
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entitled to a percentage of the advertising revenues from Armchair Millionaire
for two years, not to exceed $550,000, and will receive $1.0 million in
advertising revenues over a 12-month period, subject to guaranteed impressions.
PlanetRx.com. On September 3,1999, iVillage and PlanetRx.com, Inc., a full
service online pharmacy, entered into a three-year sponsorship agreement under
which PlanetRx.com will pay iVillage $15.0 million to be, for the term of the
agreement, the exclusive online retail drugstore promoted on the iVillage
network. iVillage and PlanetRx.com have also entered into a two and a half year
content license agreement under which PlanetRx.com has paid iVillage $7.5
million for the use of selected information and tools on the iVillage network.
In addition, iVillage made a $7.5 million equity investment in PlanetRx.com.
Family Point. In accordance with a merger agreement dated as of August 31,
1999, iVillage acquired Family Point Inc., the operator of a leading online
meeting place for families, friends and groups. The aggregate purchase price
paid to acquire Family Point was approximately $28.9 million and consisted of
$4.5 million cash and approximately 612,000 shares of iVillage's common stock
valued under the purchase method of accounting. The difference between the
purchase price and the fair value of the acquired net assets of Family Point was
recorded as goodwill and amortized over the period of expected benefit which is
estimated at three years.
Lamaze Publishing. On August 20, 1999, iVillage acquired all of the
outstanding stock of Lamaze Publishing, a multimedia provider of education
information to expectant and new mothers. The total purchase price consisted of
approximately 1,750,000 shares of its common stock and approximately $5 million
of assumed debt. The difference between the purchase price of $102.3 million as
calculated according to generally accepted accounting principles and the fair
value of the acquired net assets of Lamaze Publishing was recorded as goodwill
and amortized over the period of expected benefit which is estimated at ten
years.
Results of Operations
Revenues
Revenues were $10.7 million and $25.3 million for the three and nine
months ended September 30, 1999, respectively, which represent increases of 150%
and 177%, respectively, when compared with the corresponding periods in 1998.
The increase in revenues was primarily due to iVillage's ability to generate
significantly higher sponsorship and advertising revenues during the 1999
periods, the recent acquisition of Lamaze Publishing Company, Inc., as well as
the development of its commerce strategy through its investments in iBaby and
Astrology.Net. Sponsorship, advertising and other revenues were $8.2 million and
$18.9 million for the three and nine months ended September 30, 1999,
respectively, compared to $3.4 million and $7.7 million for the corresponding
periods in 1998. The increase in sponsorship, advertising and other revenues was
primarily due to an increase in the number of impressions sold and an increase
in the number of sponsors advertising on iVillage's Web sites during the 1999
periods. Sponsorship, advertising and other revenues accounted for approximately
77% and 75% of total revenues for the three and nine months ended September 30,
1999, respectively. Commerce revenues accounted for $2.5 million, or 23% of
total revenues, for the three months ended September 30, 1999, and $6.4 million,
or 25% of total revenues, for the nine months ended September 30, 1999, compared
to $0.9 million and $1.4 million, or 22% and 16% of total revenues for the
comparable three and nine month periods in 1998, respectively.
Although no one advertiser accounted for greater than 10% of total
revenues for the three or nine months ended September 30, 1999, iVillage's five
largest advertisers accounted for 21% and 20% of total revenues, respectively.
The five largest customers accounted for 22% and 16% of total revenues for the
three and nine months ended September 30, 1998, respectively.
Included in sponsorship and advertising revenues are barter transactions
which accounted for approximately 7% and 10% of total revenues for the three and
nine months ended September 30, 1999, respectively, compared to 16% and 21% for
the comparable periods in 1998, respectively.
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Cost of Revenues
The principal elements of cost of advertising, sponsorship and other
revenues for iVillage's Internet operations are content costs, payroll and
related expenses for the editorial staff, Web site design and production staff
and the cost of communications and related expenses necessary to support
iVillage's Web sites. Cost of commerce revenues consists primarily of the cost
of products sold to customers and outbound and inbound shipping and handling
costs. Cost of advertising, sponsorship and other revenues were $3.4 million and
$9.5 million, or 42% and 50% of advertising, sponsorship and other revenues, for
the three and nine months ended September 30, 1999, respectively. Cost of
advertising, sponsorship and other revenues were $2.6 million and $7.6 million,
or 77% and 100% of advertising, sponsorship and other revenues, for the
comparable periods in the prior year. Cost of advertising, sponsorship and other
revenues, as a percentage of these revenues, decreased during the three and nine
months ended September 30, 1999 due to the significant growth in advertising and
sponsorship revenues over prior periods. Cost of commerce revenues were $2.4
million and $5.4 million, or 94% and 84% of commerce revenues, for the three and
nine months ended September 30, 1999, respectively, compared to $0.8 million and
$1.2 million, or 83% and 83% of commerce revenues, for the corresponding periods
in 1998. The increase in cost of commerce revenues is primarily attributable to
a free shipping program initiated by iVillage during the third quarter.
Operating Expenses
Product Development and Technology
Product development and technology expenses consist primarily of salaries,
payroll taxes and benefits and related expenditures for support, technology,
software development and operations personnel. Product development and
technology expenses for the three and nine months ended September 30, 1999 were
approximately $1.5 million, or 14% of total revenues, and $4.5 million, or 18%
of total revenues, respectively. Product development and technology expenses
were $0.6 million, or 14% of total revenues, and $1.6 million, or 18% of total
revenues for the corresponding periods in 1998. The increase was primarily
attributable to additional personnel costs related to creating and testing new
channel concepts and tools to be used throughout iVillage's network of Web
sites.
Sales and Marketing
Sales and marketing expenses consist primarily of costs related to
distribution agreements, salaries, payroll taxes and benefits for sales and
marketing personnel, commissions, advertising and other marketing-related
expenses and distribution facility expenses related to the iBaby operations.
Distribution facility expenses consist primarily of payroll and related expenses
for personnel engaged in marketing, customer service and distribution activities
as well as equipment and supplies. Sales and marketing expenses for the three
and nine months ended September 30, 1999 were approximately $19.4 million, or
181% of total revenues, and $42.6 million, or 168% of total revenues,
respectively. Sales and marketing expenses were $7.9 million, or 184% of total
revenues, and $19.9 million, or 218% of total revenues, for the comparable
periods in 1998. The dollar increase in sales and marketing expenses was
primarily attributable to the commencement of iVillage's $28.5 million marketing
campaign and iVillage's advertising campaign on the Internet and television in
accordance with its agreement with National Broadcasting Company ("NBC"). Sales
and marketing expenses as a percentage of revenues decreased between the 1998
and 1999 periods as result of the growth in revenues. Included in sales and
marketing are barter transactions which amounted to approximately 7% and 10% of
total revenues during the three and nine months ended September 30, 1999,
respectively, compared to 16% and 21% of total revenues during the comparable
periods in 1998.
General and Administrative
General and administrative expenses consist primarily of salaries, payroll
taxes and benefits and related costs for general corporate overhead, including
executive management, finance, facilities, and legal and other professional
fees. General and administrative expenses for the three and nine months ended
September 30, 1999 were $4.2 million, or 40% of total revenues, and $12.1
million, or 48% of total revenues, respectively. For the comparable periods in
1998, general and administrative expenses were $3.6 million, or 84% of total
revenue, and $7.8 million, or 86% of total revenues, respectively. The increase
in general and administrative expenses between the 1998 and 1999 periods was
primarily due
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to an increase in salaries and benefits, recruiting costs and facilities
expenses resulting from an increase in the number of personnel hired to support
the growth of iVillage's business. General and administrative expenses decreased
as a percentage of total revenues as a result of the growth in revenues in the
three and nine months ended September 30, 1999 compared to the comparable
periods in 1998.
Depreciation and Amortization
Depreciation and amortization expenses for the three and nine months ended
September 30, 1999 were $9.3 million, or 86% of total revenues, and $16.8
million, or 66% of total revenues, respectively. For the comparable periods in
1998, depreciation and amortization expenses were $1.4 million, or 32% of total
revenues, and $4.0 million, or 44% of total revenues, respectively. The dollar
increase between the 1998 and 1999 periods was primarily attributable to
increased amortization expense resulting from iVillage's acquisitions of iBaby,
Astrology.Net, Lamaze Publishing Company, Inc., and Family Point Inc., as well
as depreciation on a greater base of fixed assets owned by iVillage during the
1999 periods.
Interest Income, Net
Interest income, net includes interest income from iVillage's cash
balances and interest expenses related to iVillage's financing obligations.
Interest income, net for the three and nine months ended September 30, 1999 was
$0.9 million, or 9% of total revenues, and $2.4 million, or 10% of total
revenues, respectively. For the comparable periods in 1998, interest income, net
was $0.2 million, or 4% of total revenues, and $0.4 million, or 5% of total
revenues, respectively. The increase between the 1998 and 1999 periods was
primarily due to higher average net cash and cash equivalents balances resulting
primarily from the cash received from iVillage's initial public offering of
common stock in March 1999.
Net Loss
iVillage recorded net losses of $28.4 million and $63.1 million, or $1.12
and $4.74 per share, for the three and nine months ended September 30, 1999,
respectively. iVillage's net loss per share for the nine months ended September
30, 1999 includes a deemed dividend of $23.6 million incurred as a result of the
difference between the purchase price of the Series E Convertible Preferred
Stock sold to NBC during the first quarter of 1999, and the fair market value on
the date of issuance. For the comparable periods in 1998, iVillage recorded a
net loss of $12.2 million and $32.4 million, respectively.
Liquidity and Capital Resources
Until its initial public offering in March 1999, which raised net proceeds
of $91.0 million, iVillage financed its operations primarily through the private
placement of its convertible preferred stock. As of September 30, 1999, iVillage
had approximately $56.1 million in cash and cash equivalents. On November 3,
1999, iVillage consummated a secondary offering of 2,700,0000 shares of common
stock and received net proceeds of $71.4 million. Management believes its
existing cash balances are sufficient to enable iVillage to meet its obligations
for at least the next twelve months.
Net cash used in operating activities increased to $11.1 million and $37.3
million in the three and nine months ended September 30, 1999, respectively,
from $7.4 million and $24.4 million for the three and nine months ended
September 30, 1998, respectively. The increase in net cash used in operating
activities resulted primarily from increased net losses and other current
assets, offset by an increase in deferred revenue and accounts payable and
accrued expenses. The increased net loss was primarily due to the continued
investment in establishing iVillage's brand on the Internet through further
investment in content and technology, and the commencement of iVillage's $28.5
million marketing campaign.
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Cash used in investing activities was $19.3 million and $31.8 million in
the three and nine months ended September 30, 1999, respectively. This compares
to net cash used in investing activities of $0.9 million and $3.7 million for
the three and nine months ended September 30, 1998, respectively. The increase
in net cash used in investing activities resulted primarily from the
acquisitions of iBaby and Astrology.Net in the first quarter of 1999, the
acquisitions of OnLine Psychological Services, Inc and Code Stone Technologies,
Inc. during the second quarter of 1999, and the acquisitions of Lamaze
Publishing and Family Point in August 1999. Additionally, iVillage made a $7.5
million equity investment in PlanetRx.com during the third quarter of 1999.
Net cash provided by financing activities amounted to $1.2 million and
$94.4 million for the three and nine months ended September 30, 1999,
respectively. This compares to net cash used by financing activities of $0.2
million and net cash provided by financing activities of $32.5 million for the
three and nine months ended September 30, 1998, respectively. The increase for
the three months ended September 30, 1999 as compared to the comparable period
in the prior year was primarily due to the receipt of a $1.4 million payment on
the note receivable from NBC. The increase for the nine months ended September
30, 1999 as compared to the comparable period in 1998 was primarily due to the
receipt of $91.4 million of net proceeds from iVillage's IPO in March 1999.
On August 2, 1999, iVillage announced a $28.5 million marketing campaign
which commenced in the third quarter of 1999 and will run through the first
quarter of 2000. In addition, on September 3, 1999, iVillage paid $7.5 million
to PlanetRx.com for 37,103 shares of series D preferred stock of PlanetRx.com.
However, iVillage separately received $7.5 million from PlanetRx.com in a
content license agreement and has entered into a $15.0 million sponsorship
agreement with PlanetRx.com. iVillage recently signed a two year lease for
approximately 40,000 square feet of warehouse space for iBaby at a facility
located in San Diego, California.
iVillage's capital requirements depend on numerous factors, including (i)
market acceptance of iVillage's services, (ii) the amount of resources iVillage
devotes to investments in the iVillage.com network, including acquisitions of
other entities, (iii) the resources iVillage devotes to marketing, (iv) the
resources iVillage devotes to selling its services and brand promotions, and (v)
other factors.
iVillage has experienced a substantial increase in its expenditures since
its inception. The increase in expenditures is consistent with the growth in
iVillage's operations and staffing. iVillage anticipates that it will continue
to evaluate possible investments in businesses, products and technologies, and
continue to expand its sales and marketing programs and conduct more aggressive
brand promotions, any of which could reduce its liquidity.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of Readiness
iVillage is engaged in an ongoing assessment of the Year 2000 readiness of
its operating, financial and administrative systems, including the hardware and
software that support iVillage's systems. iVillage's assessment plan consists
of: quality assurance testing of its internally developed proprietary software;
contacting third-party vendors and licensors of material hardware, software and
services that are both directly and indirectly related to the delivery of
iVillage's services to its users; contacting vendors of third-party systems;
assessing repair and replacement requirements; implementing repair or
replacement; and if deemed necessary or appropriate creating contingency plans
in the event of Year 2000 failures. iVillage has engaged Keane, Inc., a
consulting firm with Year 2000 experience, to assist iVillage with its Year 2000
compliance program.
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iVillage's Year 2000 task force has conducted an inventory of and
developed testing procedures for all software and other systems that it believes
might be affected by Year 2000 issues. Since third parties developed and
currently support many of the systems that iVillage uses, a significant part of
this effort will be to ensure that these third-party systems are Year 2000
compliant. iVillage has confirmed this compliance through a combination of the
representation by these third parties of their products' Year 2000 compliance,
as well as specific testing of these systems.
Costs
Through September 30, 1999, iVillage has spent approximately $250,000 on
Year 2000 compliance issues and expects to incur an additional $50,000 in
connection with identifying, evaluating and addressing Year 2000 compliance
issues. Most of iVillage's expenses have related to, and are expected to
continue to relate to, the operating costs associated with time spent by
employees and consultants in the evaluation process and Year 2000 compliance
matters generally. Such expenses, if higher than anticipated, could have a
material adverse effect on iVillage's business, results of operations and
financial condition.
Risks
iVillage is not currently aware of any Year 2000 compliance problems
relating to its systems that would have a material adverse effect on iVillage's
business, results of operations and financial condition, without taking into
account iVillage's efforts to avoid or fix such problems. There can be no
assurance that iVillage will not discover Year 2000 compliance problems in its
systems that will require substantial revision. In addition, there can be no
assurance that third-party software, hardware or services incorporated into
iVillage's material systems will not need to be revised or replaced, all of
which could be time-consuming and expensive. The failure of iVillage to fix or
replace its internally developed proprietary software or third-party software,
hardware or services on a timely basis could result in lost revenues, increased
operating costs, the loss of customers and other business interruptions, any of
which could have a material adverse effect on iVillage's business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in its internally developed proprietary software
could result in claims of mismanagement, misrepresentation, or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
iVillage is heavily dependent on a significant number of third-party
vendors to provide both network services and equipment. A significant Year
2000-related disruption of the network, services or equipment that third-party
vendors provide to iVillage could cause iVillage's members and visitors to
consider seeking alternate providers or cause an unmanageable burden on its
technical support, which in turn could materially and adversely affect
iVillage's business, financial condition and results of operations.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of iVillage's control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of iVillage, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent iVillage from delivering its
services to its customers, decrease the use of the Internet or prevent users
from accessing its Web sites which could have a material adverse effect on
iVillage's business, results of operations and financial condition.
Contingency Plan
As discussed above, iVillage is engaged in an ongoing Year 2000 assessment
and has not yet developed any contingency plans. The results of iVillage's Year
2000 simulation testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans.
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Risk Factors That May Affect Results of Operations and Financial Condition
iVillage has a limited operating history and may face difficulties encountered
in new and rapidly evolving markets.
iVillage has a limited operating history and faces many of the risks and
difficulties frequently encountered in new and rapidly evolving markets,
including the Internet advertising market. These risks include iVillage's
ability to: (i) attract a larger audience to its online network; (ii) increase
awareness of its brand; (iii) strengthen user-loyalty; (iv) offer compelling
content; (v) maintain its current, and develop new, strategic relationships;
(vi) attract a large number of advertisers from a variety of industries; (vii)
respond effectively to competitive pressures; (viii) continue to develop and
upgrade its technology; and (ix) attract, retain and motivate qualified
personnel.
iVillage lacks significant revenues and has recent and anticipated continuing
losses.
iVillage has not achieved profitability and expects to continue to incur
operating losses for the foreseeable future. iVillage incurred net losses of
$11.3 million for the period from July 1995 (inception) through December 31,
1996, $21.3 million for the year ended December 31, 1997, $43.7 million for the
year ended December 31, 1998 and $86.7 million for the nine months ended
September 30, 1999. As of September 30, 1999 and December 31, 1998, iVillage's
accumulated deficit was $163.0 million and $76.3 million, respectively. iVillage
expects to continue to incur significant operating and capital expenditures and,
as a result, iVillage will need to generate significant revenues to achieve and
maintain profitability.
Although iVillage's revenues have grown in recent quarters, iVillage
cannot guarantee that it will achieve sufficient revenues for profitability.
Even if iVillage does achieve profitability, it cannot guarantee that it can
sustain or increase profitability on a quarterly or annual basis in the future.
If revenues grow slower than iVillage anticipates, or if operating expenses
exceed its expectations or cannot be adjusted accordingly, iVillage's business,
results of operations and financial condition will be materially and adversely
affected. Because iVillage's strategy includes acquisitions of other businesses,
acquisition expenses and any cash used to make these acquisitions will reduce
iVillage's available cash.
iVillage is dependent on barter transactions which do not generate cash revenue.
Revenues from barter transactions represented approximately 20% and 10% of
total revenues for the year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively. Barter revenues may continue to represent a
significant portion of iVillage's total revenues in future periods. Barter
transactions do not generate any cash revenues and are entered into by iVillage
to promote its brand and generate traffic to its Web sites, without any
expenditure of its cash resources.
iVillage may not be able to integrate the operations from its recent and future
acquisitions.
As part of its business strategy, iVillage has completed and expects to
enter into additional business combinations and acquisitions. Acquisition
transactions are accompanied by a number of risks, including, among other
things: (i) the difficulty of assimilating the operations and personnel of the
acquired companies; (ii) the potential disruption of iVillage's ongoing
business; (iii) the inability of management to maximize the financial and
strategic position of iVillage through the successful incorporation of acquired
technology, content and rights into iVillage's products and media properties;
(iv) expenses associated with the transactions; (v) additional expenses
associated with amortization of acquired intangible assets; (vi) the difficulty
of maintaining uniform standards, controls, procedures and policies; (vii) the
impairment of relationships with employees and customers as a result of any
integration of new management personnel; and (viii) the potential unknown
liabilities associated with acquired businesses. iVillage's failure to
adequately address these issues could have a material adverse effect on its
business, results of operations and financial condition.
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iVillage's acquisition of Lamaze Publishing poses a number of risks that could
materially adversely affect its business strategy.
The acquisition of Lamaze Publishing is iVillage's first acquisition of a
non-Internet company. There are a number of risks in operating Lamaze
Publishing, including (i) competitiveness of the media and publishing industry;
(ii) iVillage's inexperience in operating a multi-media publishing company;
(iii) its ability to sell advertising and sponsorships on its Web sites and in
Lamaze Publishing's magazines, videos and the Newborn Channel; (iv) iVillage's
ability to commercialize and protect the Lamaze mark; and (v) iVillage's ability
to build and market Lamaze.com.
iVillage has merchandising, inventory management and fulfillment
responsibilities for iBaby.
iVillage recently started handling merchandising, inventory management and
order fulfillment for iBaby. iVillage's failure to perform these functions
efficiently and in a timely manner has and could result in the disruption of the
operations of iBaby, including shipment delays. In addition, changing trends in
consumer tastes in baby-related products subject iVillage to inventory risks. It
is important to iVillage's success that it accurately identify and predict these
trends and not overstock unpopular products. The demand for specific products
can change between the time the products are ordered and the date of receipt.
If products do not achieve sufficient consumer acceptance, iVillage may be
required to take inventory markdowns, which could reduce its sales and gross
margins. iVillage believes that this risk will increase as it opens new
departments or enters new product categories due to its lack of experience in
purchasing products for these categories. In addition, to the extent that demand
for iBaby products increases over time, iVillage may be forced to increase
inventory levels.
iVillage's quarterly revenues and operating results are not indicative of future
performance and are difficult to forecast.
As a result of iVillage's limited operating history, iVillage does not
have historical financial data for a significant number of periods upon which to
forecast quarterly revenues and results of operations. iVillage does not believe
that period-to-period comparisons of its operating results are necessarily
meaningful nor should they be relied upon as reliable indicators of future
performance. In one or more future quarters iVillage's results of operations may
fall below the expectations of securities analysts and investors. In such event,
the trading price of iVillage's common stock would likely be materially
adversely affected.
iVillage's revenues for the foreseeable future will remain dependent on
user traffic levels and advertising activity on its Web sites. Such future
revenues are difficult to forecast. In addition, iVillage plans to increase its
sales and marketing operations and to expand and develop content. iVillage also
plans to upgrade and enhance its technology and infrastructure development in
order to support its growth. iVillage may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall.
If iVillage has a shortfall in revenues in relation to its expenses, or if
its expenses precede increased revenues, then its business, results of
operations and financial condition would be materially and adversely affected.
This would likely affect the market price of iVillage's common stock in a manner
which may be unrelated to its long-term operating performance.
Seasonal and cyclical patterns may affect iVillage's business.
iVillage believes that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. If iVillage's market makes the transition from an
emerging to a more developed market, seasonal and cyclical patterns may develop
in the future. As a result, if iVillage's industry follows the same seasonal
patterns as those in traditional media, it may experience lower advertising
revenues in the first and third calendar quarters of each year. Seasonal and
cyclical patterns in Internet advertising may also affect iVillage's revenues.
In addition, traffic levels on iVillage's Web sites typically fluctuate during
the summer and year-end vacation and holiday
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periods and iVillage anticipates that sales from iBaby, and any other future
consumer goods iVillage may sell, will typically increase during the fourth
quarter as a result of the holiday season and may decline during other periods.
The market for Internet advertising is still uncertain.
iVillage expects to continue to derive a substantial portion of its
revenues from sponsorships and advertising for the foreseeable future, and
demand and market acceptance for Internet advertising solutions continues to
develop.
There are currently no widely accepted standards for the measurement of
the effectiveness of Internet advertising and the industry may need to develop
standard measurements to support and promote Internet advertising as a
significant advertising medium. If such standards do not develop, existing
advertisers may not continue their levels of Internet advertising. Furthermore,
advertisers that have traditionally relied upon other advertising media may be
reluctant to advertise on the Internet. iVillage's business would be adversely
affected if the market for Internet advertising fails to develop or develops
more slowly than expected.
Different pricing models are used to sell advertising on the Internet and
it is difficult to predict which, if any, of such models will emerge as the
industry standard. This makes it difficult to project iVillage's future
advertising rates and revenues. iVillage's advertising revenues could be
adversely affected if iVillage is unable to adapt to new forms of Internet
advertising. Moreover, software programs that limit or prevent advertising from
being delivered to an Internet user's computer are available. Widespread
adoption of this software could adversely affect the commercial viability of
Internet advertising.
iVillage may be unable to adequately measure the demographics of its user base
and delivery of advertisements on its Web sites.
It is important to iVillage's advertisers that it accurately measure the
demographics of its user base and the delivery of advertisements on its Web
sites. iVillage depends on third parties to provide certain of these measurement
services. If they are unable to provide these services in the future, iVillage
would need to perform them or obtain them from another provider. This could
cause iVillage to incur additional costs or cause interruptions in its business
until such services are replaced. Companies may choose not to advertise on
iVillage's Web sites or may pay less for advertising if they perceive that
iVillage's demographics measurements are not reliable.
iVillage is currently experiencing a period of significant growth which is
placing a significant strain on its resources.
If iVillage is unable to manage its growth effectively, its business could
be adversely affected. iVillage has experienced and is continuing to experience
significant growth, both internally and through acquisitions. This growth has
placed, and iVillage's anticipated future growth in its operations will continue
to place, a significant strain on its resources. As part of this growth,
iVillage will have to implement new operational and financial systems,
procedures and controls.
iVillage may not attract a sufficient amount of traffic and advertising without
its channels being carried on America Online, Inc. ("AOL").
AOL has accounted for a significant portion of iVillage's traffic based on
the delivery to iVillage of a guaranteed number of impressions. A significant
amount of iVillage's visitors and members reach its Web sites through AOL.
iVillage's agreement with AOL does not prohibit AOL from carrying online sites
or developing and providing content that competes with iVillage's sites, and AOL
currently carries additional competing Web sites. iVillage's agreement with AOL
expires on December 31, 2000 and, even though either party may extend it for an
additional year, AOL does not have any obligation to renew the agreement. If the
carrying of iVillage's channels on AOL is discontinued, its business, results of
operations and financial condition would be materially adversely affected.
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iVillage has a small number of customers and the loss of a number of these
customers could adversely affect its financial condition and results of
operations.
iVillage depends on a limited number of customers for a significant
portion of its revenues. Consequently, the loss of even a small number of these
customers at any one time may adversely affect its business, financial condition
and results of operations. Although no advertiser accounted for more than 10% of
total revenues for the year ended December 31, 1998 or the nine months ended
September 30, 1999, the Company's five largest advertisers accounted for 17% and
20% of total revenues, respectively. At December 31, 1998, one advertiser
accounted for 11% of net accounts receivable.
iVillage anticipates that its results of operations in any given period
will continue to depend to a significant extent upon revenues from a small
number of customers. In addition, iVillage anticipates that such customers will
continue to vary over time, so that the achievement of iVillage's long-term
goals will require it to obtain additional significant customers on an ongoing
basis. iVillage's failure to enter into a sufficient number of large contracts
during a particular period could have a material adverse effect on its business,
financial condition and results of operations.
iVillage may not find sufficient acquisition candidates to implement its
business strategy.
As part of its business strategy, iVillage has completed and expects to
enter into additional business combinations and acquisitions. iVillage competes
for acquisition candidates with other entities, some of which have greater
financial resources than iVillage. Increased competition for acquisition
candidates may make fewer acquisition opportunities available to iVillage and
may cause acquisitions to be made on less attractive terms, such as higher
purchase prices. Acquisition costs may increase to levels that are beyond
iVillage's financial capability or that would adversely affect its results of
operations and financial condition. iVillage's ability to make acquisitions will
depend in part on the relative attractiveness of shares of its common stock as
consideration for potential acquisition candidates. This attractiveness may
depend largely on the relative market price, its ability to register common
stock and capital appreciation prospects of its common stock compared to that of
other bidders. If the market price of iVillage's common stock were to decline
materially over a prolonged period of time, iVillage's acquisition program could
be materially adversely affected.
iVillage may be sued for information retrieved from the Web.
iVillage has been and may be subject to claims for defamation, negligence,
copyright or trademark infringement, personal injury or other legal theories
relating to the information iVillage publishes on its Web sites. These types of
claims have been brought, sometimes successfully, against online services as
well as other print publications in the past. iVillage could also be subjected
to claims based upon the content that is accessible from its Web sites through
links to other Web sites or through content and materials that may be posted by
members in chat rooms or bulletin boards. iVillage also offers e-mail services,
which may subject it to potential risks, such as liabilities or claims resulting
from unsolicited e-mail, lost or misdirected messages, illegal or fraudulent use
of e-mail or interruptions or delays in e-mail service. iVillage's insurance,
which covers commercial general liability, may not adequately protect it against
these types of claims.
iVillage may incur potential product liability for products sold over the
Internet.
Consumers may sue iVillage if any of the products that it sells online are
defective, fail to perform properly or injure the user. To date, iVillage has
had very limited experience in the sale of products online and the development
of relationships with manufacturers or suppliers of such products. iVillage
plans to develop a range of products targeted specifically at women through its
iBaby and iMaternity sites, Astrology.Net, Lamaze Publishing and other
e-commerce sites that it may acquire in the future. iVillage also may foster
relationships with manufacturers or companies to offer such products directly on
iVillage.com. Such a strategy involves numerous risks and uncertainties.
Although iVillage's agreements with manufacturers typically contain provisions
intended to limit its exposure to liability claims, these limitations may not
prevent all potential claims. Liability claims could require it to spend
significant time and money in litigation or to pay significant damages. As a
result, any such claims, whether or not successful, could seriously damage
iVillage's reputation and business.
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There is intense competition among Internet-based businesses and publishing
companies focused on women.
The number of Web sites competing for the attention and spending of
members, users and advertisers has increased and iVillage expects it to continue
to increase. iVillage's Web sites compete for members, users and advertisers
with the following types of companies: (i) online services or Web sites targeted
at women, such as Women.com Networks; (ii) cable networks targeting women such
as Oxygen Media, Inc.; (iii) Web search and retrieval and other online service
companies, commonly referred to as portals, such as Disney's Go Network, Lycos,
Inc. and Yahoo! Inc.; (iv) e-commerce companies such as eToys, Inc. and its
wholly-owned subsidiary, BabyCenter, Inc.; and (v) publishers and distributors
of traditional media, such as television, radio and print. Increased competition
could result in price reductions, reduced margins or loss of market share, any
of which could adversely affect iVillage's business, results of operations and
financial condition.
Lamaze Publishing's magazines are in direct competition with publishers of
pre- and post-natal publications such as Gruner and Jahr, Primedia and Time
Warner. These publishers have substantially greater marketing, research and
financial resources than Lamaze Publishing. Increased competition may result in
less advertising in Lamaze Publishing's magazines and a decline in Lamaze
Publishing's advertising rates, which could adversely affect its business,
results of operations and financial condition.
iVillage's uncertain sales cycles could adversely affect its business.
The time between the date of initial contact with a potential advertiser
or sponsor and the execution of a contract with such advertiser or sponsor is
often lengthy, typically ranging from six weeks for smaller agreements to nine
months for larger agreements, and is subject to delays over which iVillage has
little or no control, including: (i) advertisers' and sponsors' budgetary
constraints; (ii) advertisers' and sponsors' internal acceptance reviews; (iii)
the success and continued internal support of advertisers' and sponsors' own
development efforts; and (iv) the possibility of cancellation or delay of
projects by advertisers or sponsors.
During the sales cycle, iVillage may expend substantial funds and
management resources and yet not obtain sponsorship or advertising revenues.
Accordingly, iVillage's results of operations for a particular period may be
adversely affected if sales to advertisers or sponsors forecasted in a
particular period are delayed or do not otherwise occur.
AOL investments may result in conflicts of interest for AOL that are adverse to
iVillage.
AOL has invested in Oxygen Media, Inc., an Internet and television company
that is developing cable and interactive content for women and children. In
addition, Oxygen Media has acquired from AOL the assets of electra.com, an
online women's network, and Thrive Partners LLC, the operator of
thriveonline.com, a health site. The relationship between AOL and Oxygen Media
and AOL and other Internet companies may result in potential conflicts of
interest for AOL, which may not be resolved in iVillage's favor. In addition,
other principal investors in iVillage may have similar conflicts of interest by
virtue of their other investments.
iVillage's business is dependent on its Chief Executive Officer and
Editor-in-Chief.
iVillage's future success depends to a significant extent on the continued
services of its senior management and other key personnel, particularly Candice
Carpenter, Chief Executive Officer, and Nancy Evans, Editor-in-Chief. iVillage
has no employment agreements with either of these executives and does not
maintain "key person" life insurance for any of its personnel, other than Ms.
Carpenter. The loss of the services of Mdmes. Carpenter or Evans, or other key
employees, would likely have a significantly detrimental effect on its business.
Competition for personnel in the Internet industry is intense.
iVillage may be unable to retain its key employees or attract, assimilate
or retain other highly qualified employees in the future. iVillage has from time
to time in the past experienced, and expects to continue to experience in the
future,
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difficulty in hiring and retaining highly skilled employees with appropriate
qualifications as a result of its rapid growth and expansion. In addition, there
is significant competition for qualified employees in the Internet industry. As
a result, iVillage incurred increased salaries, benefits and recruiting expenses
during 1998 and 1999. If iVillage does not succeed in attracting new personnel
or retaining and motivating its current personnel, its business will be
adversely affected.
iVillage is dependent on continued growth in use of the Internet.
iVillage's market is new and rapidly evolving. Its business would be
adversely affected if Internet usage does not continue to grow, particularly
usage by women. A number of factors may inhibit Internet usage, including: (i)
inadequate network infrastructure; (ii) security concerns; (iii) inconsistent
quality of service; (iv) lack of availability of cost-effective, high-speed
service; and (v) consumers returning to traditional or alternative sources for
information, shopping and services.
If Internet usage continues to grow significantly, the Internet
infrastructure may not be able to support the demands placed on it by this
growth and its performance and reliability may decline. In addition, Web sites
have experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, Internet usage, as well as the
usage of iVillage's Web sites, could grow more slowly or decline.
iVillage may be unable to respond to the rapid technological change in its
industry.
iVillage's market is characterized by rapidly changing technologies,
frequent new product and service introductions and evolving industry standards.
The recent growth of the Internet and intense competition in iVillage's industry
exacerbate these market characteristics. To achieve its goals, iVillage needs to
effectively integrate the various software programs and tools required to
enhance and improve its product offerings and manage its business. iVillage's
future success will depend on its ability to adapt to rapidly changing
technologies by continually improving the performance features and reliability
of its services. iVillage may experience difficulties that could delay or
prevent the successful development, introduction or marketing of new products
and services. In addition, iVillage's new enhancements must meet the
requirements of its current and prospective users and must achieve significant
market acceptance. iVillage could also incur substantial costs if it needs to
modify its service or infrastructures to adapt to these changes.
Government regulation and legal uncertainties could add additional costs to
doing business on the Internet.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing,
content, copyrights, distribution, antitrust matters and the characteristics and
quality of products and services. For example, the Telecommunications Act sought
to prohibit transmitting various types of information and content over the
Internet. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on those companies. This could increase the cost of
transmitting data over the Internet. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as property ownership,
obscenity, libel and personal privacy are applicable to the Internet or the
application of laws and regulations from jurisdictions whose laws do not
currently apply to iVillage's business. Any new laws or regulations relating to
the Internet could adversely affect iVillage's business.
In addition, it has been reported that the Labor Department has recently
begun an investigation of the use of volunteers on Web sites. iVillage utilizes
volunteers as Web site community leaders and there can be no assurance that new
government regulations will not require it to cease using volunteers or,
alternatively, treat them as employees.
Due to the global nature of the Internet, it is possible that, although
iVillage's transmissions over the Internet originate primarily in New York, the
governments of other states and foreign countries might attempt to regulate its
business activities. In addition, because iVillage's service is available over
the Internet in multiple states and foreign countries, these jurisdictions may
require it to qualify to do business as a foreign corporation in each of these
states or
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foreign countries, which could subject it to taxes and other regulations.
iVillage's systems may fail or experience a slow down and its users depend on
others for access to its Web sites.
Substantially all of iVillage's communications hardware and some of its
other computer hardware operations are located at Exodus Communications, Inc.'s
facilities in Jersey City, New Jersey and Verio's, Inc.'s and AT&T CERFnet's
facilities in California. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems. Computer viruses, electronic break-ins or other similar disruptive
problems could also adversely affect iVillage's Web sites. Its business could be
adversely affected if its systems were affected by any of these occurrences.
iVillage's insurance policies may not adequately compensate it for any losses
that may occur due to any failures or interruptions in its systems. iVillage
does not presently have any secondary "off-site" systems or a formal disaster
recovery plan.
iVillage's Web sites must accommodate a high volume of traffic and deliver
frequently updated information. iVillage's Web sites have in the past
experienced slower response times or decreased traffic for a variety of reasons.
These occurrences have not had a material impact on its business. These types of
occurrences in the future could cause users to perceive iVillage's Web sites as
not functioning properly and therefore cause them to use another Web site or
other methods to obtain information.
In addition, iVillage's users depend on Internet service providers, online
service providers and other Web site operators for access to its Web sites. Many
of them have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures unrelated to its
systems.
iVillage may not be able to deliver various services if third parties fail to
provide reliable software, systems and related services to it.
iVillage is dependent on various third parties for software, systems and
related services. For example, iVillage relies on Doubleclick Inc.'s software
for the placement of advertisements and WhoWhere? Inc. for personal home pages
and e-mail. Several of the third parties that provide software and services to
iVillage have a limited operating history, have relatively immature technology
and are themselves dependent on reliable delivery of services from others. As a
result, iVillage's ability to deliver various services to its users may be
adversely affected by the failure of these third parties to provide reliable
software, systems and related services to iVillage.
iVillage may be liable if third parties misappropriate its users' personal
information.
If third parties were able to penetrate iVillage's network security or
otherwise misappropriate its users' personal information or credit card
information, iVillage could be subject to liability arising from claims related
to, among other things, (i) unauthorized purchases with credit card information,
impersonation or other similar fraud claims or (ii) other misuse of personal
information, such as for unauthorized marketing purposes. In addition, the
Federal Trade Commission and state agencies have been investigating various
Internet companies regarding their use of personal information. iVillage could
incur additional expenses if new regulations regarding the use of personal
information are introduced or if its privacy practices are investigated.
Internet security concerns could hinder e-commerce.
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any well-publicized compromise of security could deter people from
using the Internet or using it to conduct transactions that involve transmitting
confidential information. iVillage may incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by such
breaches.
Satellite transmissions over the Newborn Channel may be interrupted.
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Lamaze Publishing is the operator of the Newborn Channel, a satellite
television network broadcast in over 800 hospitals in the United States. There
is a risk that the satellite from which the transmission is sent may
malfunction, interrupting Lamaze Publishing's broadcasts. In the event this
occurs, there may be a period of time before Lamaze Publishing can transmit to
and from another satellite. Any interruption in Lamaze Publishing's ability to
transmit the Newborn Channel could have an adverse impact on its business. In
addition, extreme adverse weather could damage receivers and transmitters on the
ground, thereby hindering transmissions.
Consumer protection privacy regulations could impair iVillage's ability to
obtain information about its users.
iVillage's network captures information regarding its members in order to
tailor content to them and assist advertisers in targeting their advertising
campaigns to particular demographic groups. However, privacy concerns may cause
users to resist providing the personal data necessary to support this tailoring
capability. Even the perception of security and privacy concerns, whether or not
valid, may indirectly inhibit market acceptance of iVillage's network. In
addition, legislative or regulatory requirements may heighten these concerns if
businesses must notify Internet users that the data may be used by marketing
entities to direct product promotion and advertising to the user. Other
countries and political entities, such as the European Economic Community, have
adopted such legislation or regulatory requirements. If consumer privacy
concerns are not adequately addressed, iVillage's business, financial condition
and results of operations could be materially harmed.
iVillage's network currently uses cookies to track demographic information
and user preferences. A cookie is information keyed to a specific server, file
pathway or directory location that is stored on a user's hard drive, possibly
without the user's knowledge, but is generally removable by the user. Germany
has imposed laws limiting the use of cookies, and a number of Internet
commentators, advocates and governmental bodies in the United States and other
countries have urged the passage of laws limiting or abolishing the use of
cookies. If such laws are passed, iVillage's business, financial condition and
results of operations could be materially harmed.
Possible infringement of intellectual property rights could harm iVillage's
business.
iVillage cannot be certain that the steps it has taken to protect its
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate its proprietary rights. Any such infringement or
misappropriation could have a material adverse effect on iVillage's future
financial results. In addition, iVillage may from time to time become involved
in intellectual property disputes with third parties which may not result in a
favorable outcome for it.
iVillage could be subject to possible infringement actions based upon its use of
domain names, its content and content licensed from others.
iVillage has invested resources in acquiring domain names for existing and
potential future use. iVillage cannot guarantee that it will be entitled to use
such names under applicable trademark and similar laws or that other desired
domain names will be available. Furthermore, enforcing iVillage's intellectual
property rights could entail significant expense and could prove difficult or
impossible. In addition, third parties could assert claims of patent, trademark
or copyright infringement or misappropriation of creative ideas or formats
against it with respect to its use of domain names, content, web page formats,
web business methods or any third-party content carried by iVillage. iVillage
expects that participants in its markets increasingly will be subject to
infringement claims as the number of services and competitors in its industry
segment grows. Any such claims, with or without merit, could be time consuming
to defend, result in costly litigation, divert management attention, require
iVillage to enter into costly royalty or licensing arrangements or prevent it
from using important technologies, ideas or formats, any of which could
materially harm its business, financial condition or results of operations.
Several members of senior management have only recently joined iVillage.
Several members of iVillage's senior management joined iVillage in 1998
and 1999 and have not previously worked together. As a result, iVillage's senior
managers are becoming integrated as a management team and may not work together
effectively as a team to successfully manage iVillage's growth.
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iVillage is involved in litigation with a former employee which may be costly
and divert the efforts and attention of its management.
On January 8, 1999, a complaint was filed in the Chancery Court for
Williamson County, Tennessee by a former employee against iVillage and three of
its officers. The complaint was subsequently amended to withdraw all claims
against two of those officers. The complaint alleges breach of an alleged
employment agreement and fraudulent inducement to accept a job in New York and
to move from Tennessee to New Jersey. In addition to unspecified damages, the
complaint seeks an award of options to purchase 100,000 shares of common stock.
In addition, there is pending a motion by the plaintiff for leave to add as new
plaintiffs two former executives who allege that iVillage breached certain
obligations to them and seek an award of 560,000 stock options in the aggregate.
In addition, on August 11, 1999, the plaintiff filed a complaint with the Equal
Employment Opportunity Commission alleging gender discrimination. iVillage
believes that the suit and the proposed new claims are without merit and it is
vigorously defending against these claims. This litigation, whether or not
determined in iVillage's favor or settled by it, may be costly and may divert
the efforts and attention of its management from normal business operations.
Failure of computer systems and software products to be year 2000 compliant
could negatively impact iVillage's business.
Many currently installed computer systems and software products only
accept two digits to identify the year in any date. Thus, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations
causing disruptions to iVillage's operations. The failure of systems maintained
by third parties to be Year 2000 compliant could cause iVillage to incur
significant expense to remedy any problems, reduce its revenues from such third
parties or otherwise seriously damage iVillage's business. A significant Year
2000-related disruption of the network services or equipment that third-party
vendors provide to iVillage could also cause iVillage's members or visitors to
consider seeking alternate providers or cause an unmanageable burden on
iVillage's technical support.
iVillage's failure to correct a material Year 2000 problem could result in
an interruption in, or a failure of, some of its normal business activities or
operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On August 11, 1999, the plaintiff who had previously filed a complaint
against iVillage alleging breach of an alleged employment agreement and
fraudulent inducement (which was previously reported in Item 1 of Part II of the
Company's Form 10-Q Report for the quarterly period ended March 31, 1999) filed
a complaint with the Equal Employment Opportunity Commission alleging gender
discrimination in connection with his termination of employment. iVillage
believes that the lawsuit and the proposed new claims are without merit and
intends to vigorously defend against these claims.
Item 2. Changes in Securities and Use of Proceeds.
1. In July 1999, employees exercised options and received (i) an aggregate
2,121 shares of common stock at a price per share of $1.76, (ii) an aggregate
334 shares of common stock at a price per share of $5.10, (iii) an aggregate
2,000 shares of common stock at a price per share of $6.00, (iv) an aggregate
2,500 shares of common stock at a price per share of $8.96 and (v) an aggregate
167 shares of common stock at a price per share of $9.45.
2. In August 1999, employees exercised options and received (i) an
aggregate 142 shares of common stock at a price per share of $1.76, (ii) an
aggregate 834 shares of common stock at a price per share of $5.10, (iii) an
aggregate 834 shares of common stock at a price per share of $6.00 and (iv) an
aggregate 1,250 shares of common stock at a price per share of $7.50.
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3. In August 1999, in connection with the acquisition of Lamaze Publishing
Company, Inc., iVillage issued 1,748,693 shares of common stock.
4. In August 1999, in connection with the acquisition of the domain name
Astrology.com, iVillage issued 17,500 shares of common stock.
5. In August 1999, in connection with the acquisition of Family Point
Inc., iVillage issued 511,378 shares of common stock.
6. In September 1999, employees exercised options and received (i) an
aggregate of 143 shares of common stock at a price per share of $1.75, (ii) an
aggregate of 318 shares of common stock at a price per share of $1.96, (iii) an
aggregate of 492 shares of common stock at a price per share of $2.48, (iv) an
aggregate of 23,667 shares of common stock at a price per share of $5.10, (v) an
aggregate of 916 shares of common stock at a price per share of $6.00, and (vi)
an aggregate of 5,000 shares of common stock at a price per share of $10.20.
Exemption from registration for the transactions described above was
claimed pursuant to Section 4(2) of the Securities Act of 1933, as amended,
regarding transactions by the issuer not involving a public offering, in that
these transactions were made, without general solicitation or advertising, to
sophisticated investors with access to all relevant information necessary to
evaluate these investments and who represented to iVillage that the shares were
being acquired for investment.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference from exhibit number 3.3 to
Amendment No. 2 to Registration Statement File No. 333-68749
filed on February 24, 1999).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference from exhibit number 3.5 to Amendment No. 2 to
Registration Statement File No. 333-68749 filed on February 24,
1999).
10.1. Agreement dated October 18, 1989 (the "Video Agreement") between
Lamaze International, Inc. (formerly known as the American
Society for Psychoprophylaxis in Obstetrics, Inc.) and Lamaze
Publishing Company, Inc. (as successor-in-interest to Lifetime
Institute for Family Education, Inc. ("Lifetime") in turn as
successor-in-interest to Medical Communications Corporation
("MCC")) (incorporated by reference from exhibit number 10.29 to
Registration Statement File No. 333-85437).
10.2. Addendum to the Video Agreement dated December 9, 1992 between
Lamaze International, Inc. and Lamaze Publishing Company, Inc.
(as successor-in-interest to Lifetime, in turn as
successor-in-interest to MCC) (incorporated by reference from
exhibit number 10.30 to Registration Statement File No.
333-85437).
10.3. Second Addendum to the Video Agreement dated April 22, 1993
between Lamaze International, Inc. and Lamaze Publishing
Company, Inc. (as successor-in-interest to Lifetime, in turn as
successor-in-interest to MCC) (incorporated by reference from
exhibit number 10.31 to Registration Statement File No.
333-85437).
10.4. Intellectual Property Agreement dated April 6, 1990 between
Lamaze International, Inc. and Lamaze Publishing Company, Inc.
(as successor-in-interest to Lifetime) (incorporated by
reference from exhibit number 10.32 to Registration Statement
File No. 333-85437).
10.5. Loan/Activity Agreement dated August 2, 1990 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime) (incorporated by reference
from exhibit number 10.33 to Registration Statement File No.
333-85437).
10.6. LPM Agreement dated August 2, 1990 between Lamaze Publishing
Company, Inc. (as successor-in-interest to Lifetime) and Lamaze
International, Inc. (incorporated by reference from exhibit
number 10.34 to Registration Statement File No. 333-85437).
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10.7. Onsert Agreement dated December 7, 1992 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime) (incorporated by reference
from exhibit number 10.35 to Registration Statement File No.
333-85437).
10.8. Amendment to Onsert Agreement dated June 4, 1999 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime) (incorporated by reference
from exhibit number 10.36 to Registration Statement File No.
333-85437).
10.9. Statement of Terms concerning Child Development Newsletter dated
August 20, 1993 between Lamaze International, Inc. and Lamaze
Publishing Company, Inc. (incorporated by reference from exhibit
number 10.37 to Registration Statement File No. 333-85437).
10.10. Agreement of Modification and Clarification dated January 1,
1996 between Lamaze International, Inc. and Lamaze Publishing
Company, Inc. (incorporated by reference from exhibit number
10.38 to Registration Statement File No. 333-85437).
10.11. License Agreement entered into on September 3, 1999 by and
between PlanetRx.com, Inc. and the Registrant (incorporated by
reference from exhibit number 10.39 to Registration Statement
File No. 333-85437).
10.12. Sponsorship Agreement entered into on September 3, 1999 by and
between Planet Rx.com, Inc. and the Registrant (incorporated by
reference from exhibit number 10.40 to Registration Statement
File No. 333-85437).
11. Statement re: computation of earnings per share
27. Financial Data Schedule
(b) 1. A Form 8-K Report was filed on July 14, 1999, reporting under
Item 2.
2. A Form 8-K Report was filed on July 23, 1999, reporting under
Item 5.
3. A Form 8-K/A Report was filed on September 13, 1999, reporting
under Item 2 and Item 7 and including financial statements for
the two years ended December 31, 1998 for OnLine Psychological
Services, Inc., a subsidiary of the Company.
4. A Form 8-K Report was filed on September 14, 1999, reporting
under Item 5.
5. A Form 8-K Report was filed on September 15, 1999, reporting
under Item 2 and Item 7.
6. A Form 8-K/A Report was filed on September 27, 1999, reporting
under Item 2 and Item 7 and including financial statements for
the two years ended December 31, 1998 for OnLine Psychological
Services, Inc., a subsidiary of the Company.
28
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
iVILLAGE INC.
(Registrant)
Dated: November 12, 1999 By: /s/ Candice Carpenter
------------------------------
Candice Carpenter
Chief Executive Officer
Dated: November 12, 1999 By: /s/ Craig T. Monaghan
------------------------------
Craig T. Monaghan
Chief Financial Officer
Dated: November 12, 1999 By: /s/ Scott Levine
------------------------------
Scott Levine
VP Controller
and Chief Accounting Officer
29
<PAGE>
EXHIBIT INDEX
Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference from exhibit number 3.3 to Amendment
No. 2 to Registration Statement File No. 333-68749 filed on
February 24, 1999).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference from exhibit number 3.5 to Amendment No. 2 to Registration
Statement File No. 333-68749 filed on February 24, 1999).
10.1. Agreement dated October 18, 1989 (the "Video Agreement") between Lamaze
International, Inc. (formerly known as the American Society for
Psychoprophylaxis in Obstetrics, Inc.) and Lamaze Publishing Company,
Inc. (as successor-in-interest to Lifetime Institute for Family
Education, Inc. ("Lifetime") in turn as successor-in-interest to Medical
Communications Corporation ("MCC")) (incorporated by reference from
exhibit number 10.29 to Registration Statement File No. 333-85437).
10.2. Addendum to the Video Agreement dated December 9, 1992 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime, in turn as successor-in-interest to
MCC) (incorporated by reference from exhibit number 10.30 to
Registration Statement File No. 333-85437).
10.3. Second Addendum to the Video Agreement dated April 22, 1993 between
Lamaze International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime, in turn as successor-in-interest to
MCC) (incorporated by reference from exhibit number 10.31 to
Registration Statement File No. 333-85437).
10.4. Intellectual Property Agreement dated April 6, 1990 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime) (incorporated by reference from
exhibit number 10.32 to Registration Statement File No. 333-85437).
10.5. Loan/Activity Agreement dated August 2, 1990 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime) (incorporated by reference from
exhibit number 10.33 to Registration Statement File No. 333-85437).
10.6. LPM Agreement dated August 2, 1990 between Lamaze Publishing Company,
Inc. (as successor-in-interest to Lifetime) and Lamaze International,
Inc. (incorporated by reference from exhibit number 10.34 to
Registration Statement File No. 333-85437).
10.7. Onsert Agreement dated December 7, 1992 between Lamaze International,
Inc. and Lamaze Publishing Company, Inc. (as successor-in-interest to
Lifetime) (incorporated by reference from exhibit number 10.35 to
Registration Statement File No. 333-85437).
10.8. Amendment to Onsert Agreement dated June 4, 1999 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime) (incorporated by reference from
exhibit number 10.36 to Registration Statement File No. 333-85437).
10.9. Statement of Terms concerning Child Development Newsletter dated August
20, 1993 between Lamaze International, Inc. and Lamaze Publishing
Company, Inc. (incorporated by reference from exhibit number 10.37 to
Registration Statement File No. 333-85437).
10.10. Agreement of Modification and Clarification dated January 1, 1996
between Lamaze International, Inc. and Lamaze Publishing Company, Inc.
(incorporated by reference from exhibit number 10.38 to Registration
Statement File No. 333-85437).
10.11. License Agreement entered into on September 3, 1999 by and between
PlanetRx.com, Inc. and the Registrant (incorporated by reference from
exhibit number 10.39 to Registration Statement File No. 333-85437).
30
<PAGE>
10.12. Sponsorship Agreement entered into on September 3, 1999 by and between
Planet Rx.com, Inc. and the Registrant (incorporated by reference from
exhibit number 10.40 to Registration Statement File No. 333-85437).
11. Statement re: computation of earnings per share
27. Financial Data Schedule
31
<PAGE>
EX-11
Statment re: computation of earnings per share
LOSS PER SHARE
Computation of loss per share
(in thousands, except per share data)
Nine Months Ended September 30,
1999 1998
------------ -------------
Net loss $ 63,069 $ 32,449
============ =============
Net loss attributable to common stockholders $ 86,681 $ 32,449
============ =============
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share outstanding 18,287 6,232
============ =============
Basic and diluted net loss per share
attributable to common stockholders $ (4.74) $ (5.21)
============ =============
Shares of common stock used in computing
pro forma basic and diluted net loss per share 22,510
============
Pro forma basic and diluted net loss per share $ (3.85)
============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
and is qualified in its entirety to such financial statements (in thousands,
except per share data)
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 56,077
<SECURITIES> 0
<RECEIVABLES> 5,495
<ALLOWANCES> (506)
<INVENTORY> 1,090
<CURRENT-ASSETS> 71,532
<PP&E> 18,042
<DEPRECIATION> (8,081)
<TOTAL-ASSETS> 271,121
<CURRENT-LIABILITIES> 34,087
<BONDS> 0
0
0
<COMMON> 266
<OTHER-SE> 236,768
<TOTAL-LIABILITY-AND-EQUITY> 271,121
<SALES> 25,297
<TOTAL-REVENUES> 25,297
<CGS> 14,920
<TOTAL-COSTS> 76,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 937
<INCOME-PRETAX> (63,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (63,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,069)
<EPS-BASIC> (4.74)
<EPS-DILUTED> (4.74)
</TABLE>
