<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
iVILLAGE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7375 13-3845162
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
212 FIFTH AVENUE
NEW YORK, NEW YORK 10010
(212) 206-3100
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CANDICE CARPENTER
CO-CHAIRPERSON OF THE BOARD AND CHIEF EXECUTIVE OFFICER
iVILLAGE INC.
212 FIFTH AVENUE
NEW YORK, NEW YORK 10010
(212) 206-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Please send copies of all communications to:
<TABLE>
<S> <C>
RUBI FINKELSTEIN, ESQ. MARK G. BORDEN, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP VIRGINIA K. KAPNER, ESQ.
666 FIFTH AVENUE HALE AND DORR LLP
NEW YORK, NEW YORK 10103 60 STATE STREET
(212) 506-5000 BOSTON, MASSACHUSETTS 02109
(212) 506-5151 (FAX) (617) 526-6000
(617) 526-5000 (FAX)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or a continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /_____
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /_____
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /_____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value............... 3,450,000 $33.75 $116,437,500 $32,370
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
based on the average of the high and low prices of the Common Stock on the
Nasdaq National Market on September 28, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION. DATED OCTOBER 1, 1999.
3,000,000 SHARES
iVILLAGE INC.
Common Stock
------------------------------------
iVillage is offering 2,700,000 of the shares to be sold in the offering.
The selling stockholders identified in this prospectus are offering an
additional 300,000 shares. iVillage will not receive any of the proceeds from
the sale of shares being sold by the selling stockholders.
iVillage's common stock is quoted on the Nasdaq National Market under the
symbol "IVIL". On September 29, 1999, the last reported sale price of the common
stock was $34.25 per share.
Please see "Risk Factors" beginning on page 7 to read about certain factors
you should consider before buying shares of the common stock.
------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -------
<S> <C> <C> <C>
Initial price to public............................................ $ $
Underwriting discount.............................................. $ $
Proceeds, before expenses, to iVillage............................. $ $
Proceeds, before expenses, to the selling stockholders............. $ $
</TABLE>
To the extent that the underwriters sell more than 3,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
450,000 shares from the selling stockholders at the initial price to public less
the underwriting discount.
------------------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
----------------------
Prospectus dated , 1999.
<PAGE>
The inside front cover contains the following:
Picture of iVillage's home page consisting of a list of channels,
tools, daily featured articles, polls and experts and featuring a daily
check on topics such as weather, stocks, horoscopes, email, news. In
addition, the home page features a new program which includes a list of
stores and sponsor specials.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and iVillage's consolidated financial statements and the notes to
those statements appearing elsewhere in this prospectus.
iVILLAGE INC.
OUR BUSINESS
iVillage Inc., The Women's Network, is the leading online destination
targeted at women and one of the most demographically focused communities on the
Internet. As an online media company, we provide advertisers and merchants with
targeted access to women using the Internet. Jupiter Communications projects
that women will make up 49.0% of the online population by December 1999. We
believe that women are attractive to advertisers and merchants because it is
reported that women account for 70% of all retail sales in the United States.
iVillage was the 7th largest news, information and entertainment Web site
on the Internet in the United States in August 1999 according to Media Metrix.
In addition, the iVillage network had a reach of 8.0% and was the 27th most
visited Internet property according to Media Metrix in August 1999. Reach is
the percent of the total projected Web audience in the United States who
accessed a specific Web site. Our page views have grown to a monthly average of
102 million for the quarter ended June 30, 1999, and we estimate our unique
visitors have grown to 7.3 million for the month of August 1999. Page views are
the total number of complete pages retrieved and viewed by visitors to our
network. A unique visitor or person is an individual visitor to our network.
iVillage.com offers effective solutions and support for busy women who are
actively managing careers, families, relationships, and finances. Our network is
designed to provide support for problem solving that goes beyond information and
content. It encompasses a tightly integrated mix of information, life stage
experts, active peer interaction, workshops, and the opportunity to research and
buy products. Membership in iVillage.com is free and provides access to features
such as email, personal homepages, instant messaging, and our other community
tools.
Our network of sites consists of 14 content specific channels and three
shopping channels. The channels cover the topics of deepest interest to women,
such as family, health, work, money, food, computers, relationships, shopping,
travel, pets and astrology. We facilitate network use across channels by
providing common features, positioning and functionality within each channel and
across the network, resulting in a consistent and strongly branded environment.
As of August 31, 1999, our membership and our core audience was
approximately 81% female. As of August 31, 1999, we contacted our members
through approximately 10.7 million weekly newsletters and provided our members
with over 1,000 chats, 1,700 message boards and 1,600 volunteer community
leaders.
We believe this strong community has contributed to increased user loyalty
and time spent on iVillage.com. In August 1999, visitors spent an average 113%
more time per day on the iVillage network than on the next leading women's
network based on reach, according to Media Metrix.
We believe our CPMs are significantly above the industry average and the
average for other women's Web sites. CPMs are advertising rates measured on a
cost per thousand impressions basis. The combination of the following attributes
creates a powerful environment for advertising and commerce and contributes to
the appeal of iVillage.com to advertisers and merchants:
o a large, growing user base with a highly attractive demographic profile;
o a high degree of member involvement allowing our advertisers to reach
women when they are actively seeking communication and focused on a goal;
o an interactive sponsorship model that integrates advertising and commerce
into the content of Web pages; and
2
<PAGE>
o a single consistent brand.
Currently, we generate commerce revenues 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
revenue represented 26% of total revenue for the three months ended June 30,
1999.
In addition to being a leader in the women's category, our allHealth
channel is one of the leading health sites on the Internet. Women in the United
States make an estimated 80% of health care decisions and nearly 60% of health
care purchases, according to Jupiter Communications. To further strengthen
allHealth's reach and breadth, on June 30, 1999 we acquired Online Psychological
Services, Inc. This site provides comprehensive resources and interactive tools
focusing on mental health issues. We have also entered into a $15.0 million
sponsorship agreement with PlanetRx.com, Inc. to be our exclusive online
retailer for prescriptions, over-the-counter medications and vitamins. In
addition, PlanetRx.com has paid us $7.5 million to license selected content and
community tools. To broaden the relationship with PlanetRx.com, we have made a
$7.5 million equity investment in PlanetRx.com.
To solidify our leading position in the parenting category, on August 20,
1999, we acquired Lamaze Publishing Company, Inc., a multimedia provider of
education information to expectant and new mothers. We currently estimate that
Lamaze Publishing reaches more than 75% of all women giving birth in the United
States through its magazines, videos and the Newborn Channel, its satellite
television network broadcasting in over 800 hospitals in the United States.
Through iVillage, women can now get prenatal, birthing and parenting information
tools and products as well as the support of a community. We plan to utilize
this multimedia platform to:
o further strengthen the iVillage brand;
o drive visitors to our network;
o increase our advertising revenue; and
o expand our commerce business through iBaby, iMaternity and other
retailers.
OUR STRATEGY
Our objective is to strengthen our position as the leading online
destination targeted at women by:
o building strong brand recognition;
o aggressively growing membership and usage;
o enhancing and expanding our network;
o continuing to pursue strategic acquisitions and alliances;
o increasing sponsor and advertising revenues; and
o generating e-commerce revenues.
OUR OFFICES
Our executive offices are located at 212 Fifth Avenue, New York, New York
10010. Our telephone number at that location is (212) 206-3100 and our Internet
address is www.ivillage.com.
OUR TRADEMARKS
iVillage(Registered); the iVillage logo(Registered); Parent
Soup(Registered); Astrozine(Registered); iVillage.com; The Women's Network; The
double oval design; Click!; Community Challenges; Community Challenge; Solutions
For Your Life; Family Point; Armchair Millionaire; Never Say Diet; allHealth;
Parentsplace; and Parentsplace.com are marks of iVillage, Inc.
iBaby(Registered); Internetbaby and iMaternity are marks of iBaby, Inc.
KnowledgeWeb(Registered); Astrology.Net(Registered); Astrozine(Registered);
Kelli Fox and the Kelli Fox Likeness are trademarks of KnowledgeWeb, Inc. Online
Psych is a mark of Online Psychological Services, Inc. The Newborn Channel is a
mark of Lamaze Publishing. Lamaze(Registered) and Lamaze.com are marks of Lamaze
International, Inc., exclusively licensed to Lamaze Publishing for use in
connection with consumer publications and other communications, which include
print, audio, visual and other consumer oriented media, that are commercial in
nature. All other trademarks and service marks in this prospectus are the
property of their respective owners. The information on our Web sites is not a
part of this prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered by iVillage........... 2,700,000 shares
Shares offered by the selling
stockholders....................... 300,000 shares
Shares to be outstanding after the
offering (1)....................... 29,492,923
Nasdaq National Market symbol........ IVIL
Use of proceeds by iVillage.......... o brand promotion;
o sales and marketing; and
o working capital and general corporate purposes, including possible
acquisitions. Please see "Use of Proceeds".
</TABLE>
- ------------------
(1) Based on the number of shares actually outstanding as of September 28, 1999.
Unless otherwise specifically stated, information throughout this
prospectus excludes as of September 28, 1999:
o 4,328,953 shares issuable upon the exercise of outstanding options
and warrants;
o 594,627 shares issuable upon the exercise of outstanding warrants
issued to NBC; and
o 150,483 shares reserved for future issuance under our stock option
and stock purchase plans.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business.
iVillage acquired ParentsPlace.com, Inc. in December 1996, Health
ResponseAbility Systems, Inc. in May 1997, the majority interest and remaining
minority interest in iBaby in April 1998 and March 1999, respectively,
Astrology.Net in February 1999 and Online Psych in June 1999. The financial data
reflect the results of operations of these subsidiaries since their dates of
acquisition. The following table excludes the acquisition of Family Point, Inc.
as of August 31, 1999. For the year ended December 31, 1998, a portion of the
net loss for iBaby, Inc. attributable to minority stockholders is included as a
reduction to net loss.
<TABLE>
<CAPTION>
JULY 1, 1995
(INCEPTION) YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
TO ---------------------------------------- ------------------------------
DECEMBER 31,
1995 1996 1997 1998 1998 1998 1999 1999
------------ ------- -------- -------- -------- -------- -------- --------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.......................... $ -- $ 732 $ 6,019 $ 15,012 $ 27,293 $ 4,838 $ 14,572 $ 21,336
Cost of revenues.................. 508 3,468 5,530 12,403 18,250 5,437 9,112 12,685
-------- ------- -------- -------- -------- -------- -------- --------
Gross margin...................... (508) (2,736) 489 2,609 9,043 (599) 5,460 8,651
-------- ------- -------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Product development and
technology...................... 121 1,053 2,076 2,118 2,118 986 3,038 3,038
Sales and marketing............... 329 2,709 8,771 28,523 31,320 12,054 23,206 24,570
General and administrative........ 656 3,104 7,841 10,612 14,284 4,206 7,872 9,489
Depreciation and amortization..... 17 109 2,886 5,683 37,603 2,658 7,519 19,473
-------- ------- -------- -------- -------- -------- -------- --------
Total operating expenses...... 1,123 6,975 21,574 46,936 85,325 19,904 41,635 56,570
-------- ------- -------- -------- -------- -------- -------- --------
Loss from operations.............. (1,631) (9,711) (21,085) (44,327) (76,282) (20,503) (36,175) (47,919)
Interest (expense) income, net.... (7) 28 (216) 591 588 237 1,513 1,510
Loss on sale of Web site.......... -- -- -- (504) (504) -- -- --
Minority interest................. -- -- -- 586 -- -- -- --
-------- ------- -------- -------- -------- -------- -------- --------
Net loss.......................... (1,638) (9,683) (21,301) (43,654) (76,198) (20,266) (34,662) (46,409)
Preferred stock deemed dividend... -- -- -- -- -- -- (23,612) (23,612)
-------- ------- -------- -------- -------- -------- -------- --------
Net loss attributable to common
stockholders.................... $ (1,638) $(9,683) $(21,301) $(43,654) $(76,198) $(20,266) $(58,274) $(70,021)
-------- ------- -------- -------- -------- -------- -------- --------
-------- ------- -------- -------- -------- -------- -------- --------
Basic and diluted net loss per
share......................... $ (1.51) $ (8.90) $ (13.65) $ (21.11) $ (3.28) $ (3.98)
-------- ------- -------- -------- -------- --------
-------- ------- -------- -------- -------- --------
Weighted average shares of common
stock outstanding used in
computing basic and diluted net
loss per share.................. 1,083 1,087 1,561 2,068 6,179 14,656
-------- ------- -------- -------- -------- --------
-------- ------- -------- -------- -------- --------
Pro forma basic and diluted net
loss per share(2)............... $ (2.59) $ (3.51) $ (2.77) $ (2.89)
-------- -------- -------- --------
-------- -------- -------- --------
Shares of common stock used in
computing pro forma basic and
diluted net loss per share...... 16,854 21,737 21,027 24,221
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------------------
(1) Pro forma giving effect to the following transactions as if they occurred on
January 1, 1998:
o the acquisition of Lamaze Publishing;
o the acquisition of Astrology.Net;
o the purchase of the minority interest in iBaby; and
o the acquisition of Online Psych.
(2) Pro forma basic and diluted net loss per share is calculated assuming the
conversion of all outstanding preferred stock as of the beginning of each
respective period.
5
<PAGE>
The following table indicates a summary of our balance sheet at June 30,
1999;
o on an actual basis;
o on a pro forma basis giving effect to the acquisitions of Lamaze
Publishing and Family Point; and
o on a pro forma as adjusted basis to reflect the sale by iVillage of
2,700,000 shares of common stock at an assumed public offering price of
$34.25 per share, after deducting underwriting discounts and commissions
and estimated offering expenses. Please see "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 85,279 $ 80,644 167,333
Working capital.......................................................... 76,504 69,303 155,992
Total assets............................................................. 158,072 262,236 348,925
Stockholders' equity..................................................... 145,292 269,677 356,366
</TABLE>
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in the shares of common stock.
WE HAVE A LIMITED OPERATING HISTORY AND MAY FACE DIFFICULTIES ENCOUNTERED IN NEW
AND RAPIDLY EVOLVING MARKETS
We have a limited operating history and face many of the risks and
difficulties frequently encountered in new and rapidly evolving markets,
including the Internet advertising market. These risks include our ability to:
o attract a larger audience to our online network;
o increase awareness of our brand;
o strengthen user loyalty;
o offer compelling content;
o maintain our current, and develop new, strategic relationships;
o attract a large number of advertisers from a variety of industries;
o respond effectively to competitive pressures;
o continue to develop and upgrade our technology; and
o attract, retain and motivate qualified personnel.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for detailed information on our limited operating
history.
WE LACK SIGNIFICANT REVENUES AND HAVE RECENT AND ANTICIPATED CONTINUING LOSSES
We have not achieved profitability and expect to continue to incur
operating losses for the foreseeable future. We 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 $34.7 million for the six months ended June 30,
1999. As of June 30, 1999 and December 31, 1998, our accumulated deficit was
$134.5 million and $76.3 million, respectively. We expect to continue to incur
significant operating and capital expenditures and, as a result, we will need to
generate significant revenues to achieve and maintain profitability.
Although our revenues have grown in recent quarters, we cannot guarantee
that we will achieve sufficient revenues for profitability. Even if we do
achieve profitability, we cannot guarantee that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenues grow
slower than we anticipate, or if operating expenses exceed our expectations or
cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected. Because our
strategy includes acquisitions of other businesses, acquisition expenses and any
cash used to make these acquisitions will reduce our available cash. Please see
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
WE USE BARTER TRANSACTIONS WHICH DO NOT GENERATE CASH REVENUE
Revenues from barter transactions represented approximately 20% and 12% of
total revenues for the year ended December 31, 1998 and the six months ended
June 30, 1999, respectively. Barter revenues may continue to represent a
significant portion of our total revenues in future periods. Barter transactions
do not generate any cash revenues and are entered into by us to promote our
brand and generate traffic to our Web sites, without any expenditure of our cash
resources. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
WE MAY NOT BE ABLE TO INTEGRATE THE OPERATIONS FROM OUR RECENT AND FUTURE
ACQUISITIONS
As part of our business strategy, we have completed and expect to enter
into additional business combinations and acquisitions.
7
<PAGE>
Acquisition transactions are accompanied by a number of risks, including,
among other things:
o the difficulty of assimilating the operations and personnel of the
acquired companies;
o the potential disruption of our ongoing business;
o the inability of management to maximize our financial and strategic
position through the successful incorporation of acquired technology or
content and rights into our products and media properties;
o expenses associated with the transactions;
o additional expenses associated with amortization of acquired intangible
assets;
o the difficulty of maintaining uniform standards, controls, procedures and
policies;
o the impairment of relationships with employees and customers as a result
of any integration of new management personnel; and
o the potential unknown liabilities associated with acquired businesses.
Our failure to adequately address these issues could have a material
adverse effect on our business, results of operations and financial condition.
OUR ACQUISITION OF LAMAZE PUBLISHING POSES A NUMBER OF RISKS THAT COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS STRATEGY
The acquisition of Lamaze Publishing is our first acquisition of a
non-Internet company. There are a number of risks in operating Lamaze
Publishing, including:
o competitiveness of the media and publishing industry;
o our inexperience in operating a multi-media publishing company;
o our ability to sell advertising and sponsorships on our Web sites and in
Lamaze Publishing's magazines, videos and the Newborn Channel;
o our ability to commercialize and protect the Lamaze mark; and
o our ability to build and market Lamaze.com.
WE HAVE MERCHANDISING, INVENTORY MANAGEMENT AND FULFILLMENT RESPONSIBILITIES FOR
iBABY
We recently started handling merchandising, inventory management and order
fulfillment for iBaby. Our 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 us to inventory risks. It is important
to our success that we accurately identify and predict these trends and do 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, we may be
required to take inventory markdowns, which could reduce our sales and gross
margins. We believe that this risk will increase as we open new departments or
enter new product categories due to our lack of experience in purchasing
products for these categories. In addition, to the extent that demand for iBaby
products increases over time, we may be forced to increase inventory levels.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE NOT INDICATIVE OF FUTURE
PERFORMANCE AND ARE DIFFICULT TO FORECAST
As a result of our limited operating history, we do not have historical
financial data for a significant number of periods upon which to forecast
quarterly revenues and results of operations. We do not believe that period-to-
period comparisons of our operating results are necessarily meaningful nor
should they be relied upon as reliable indicators of future performance. In one
or more future quarters, our results of operations may fall below the
expectations of securities analysts and investors. If our results of operations
fall below expectations, the trading price of our common stock would likely be
materially adversely affected. Please see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Quarterly Results of
Operations".
8
<PAGE>
Our revenues for the foreseeable future will remain dependent on user
traffic levels and advertising activity on our Web sites. Future revenues are
difficult to forecast. In addition, we plan to increase our sales and marketing
operations and to expand and develop content. We also plan to upgrade and
enhance our technology and infrastructure development in order to support our
growth. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall.
If we have a shortfall in revenues in relation to our expenses, or if our
expenses precede increased revenues, then our business, results of operations
and financial condition would be materially and adversely affected. This would
likely affect the market price of our common stock in a manner which may be
unrelated to our long-term operating performance.
SEASONAL AND CYCLICAL PATTERNS MAY AFFECT OUR BUSINESS
We believe 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 our 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 our industry follows the same seasonal patterns as those in traditional
media, we may experience lower advertising revenues in the first and third
calendar quarter of each year. Seasonal and cyclical patterns in Internet
advertising may also affect our revenues. In addition, traffic levels on our Web
sites typically fluctuate during the summer and year-end vacation and holiday
periods and we anticipate that sales from iBaby, and any other future consumer
goods we may sell, will typically increase during the fourth quarter as a result
of the holiday season and may decline during other periods. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our quarterly operating results.
THE MARKET FOR INTERNET ADVERTISING IS STILL DEVELOPING
We expect to continue to derive a substantial portion of our 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 these 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. Our 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 the models will emerge as the
industry standard. This makes it difficult to project our future advertising
rates and revenues. Our advertising revenues could be adversely affected if we
are 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.
WE RELY ON THIRD PARTIES TO ADEQUATELY MEASURE THE DEMOGRAPHICS OF OUR USER BASE
AND DELIVERY OF ADVERTISEMENTS ON OUR WEB SITES
It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our Web
site. We depend on third parties to provide many of these measurement services.
If they are unable to provide these services in the future, we would need to
perform them ourselves or obtain them from another provider. This could cause us
to incur additional costs or cause interruptions in our business until we
replace these services. Companies may choose to not advertise on our Web sites
or may pay less for advertising if they perceive our demographic measurements
are not reliable.
9
<PAGE>
WE ARE CURRENTLY EXPERIENCING A PERIOD OF SIGNIFICANT GROWTH WHICH IS PLACING A
SIGNIFICANT STRAIN ON OUR RESOURCES
If we are unable to manage our growth effectively, our business could be
adversely affected. We have experienced and continue to experience significant
growth, both internally and through acquisitions. This growth has placed, and
our anticipated future growth in our operations will continue to place, a
significant strain on our resources. As part of this growth, we will have to
implement new operational and financial systems, procedures and controls.
WE MAY NOT ATTRACT A SUFFICIENT AMOUNT OF TRAFFIC AND ADVERTISING WITHOUT OUR
CHANNELS BEING CARRIED ON AOL
AOL has accounted for a significant portion of our online traffic based on
the delivery to us of a guaranteed number of impressions. A significant amount
of our visitors and members reach our Web sites through AOL. Our agreement with
AOL does not prohibit AOL from carrying online sites or developing and providing
content that compete with our sites, and AOL currently carries additional
competing Web sites. Our 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 our channels on AOL is
discontinued, our business, results of operations and financial condition would
be materially adversely affected.
WE HAVE A SMALL NUMBER OF CUSTOMERS AND THE LOSS OF A NUMBER OF THESE CUSTOMERS
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We depend on a limited number of customers for a significant portion of our
revenues. Consequently, the loss of even a small number of these customers at
any one time may adversely affect our 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 six months ended June 30,
1999, our five largest advertisers accounted for 17% and 22% of total revenues,
respectively. At December 31, 1998, one advertiser accounted for 11% of net
accounts receivable.
We anticipate that our 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, we anticipate that these customers will continue to vary
over time, so that the achievement of our long-term goals will require us to
obtain additional significant customers on an ongoing basis. Our failure to
enter into a sufficient number of large contracts during a particular period
could have a material adverse effect on our business, financial condition and
results of operations. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
WE MAY NOT FIND SUFFICIENT ACQUISITION CANDIDATES TO IMPLEMENT OUR BUSINESS
STRATEGY
As part of our business strategy, we have completed and expect to enter
into additional business combinations and acquisitions. We compete for
acquisition candidates with other entities, some of which have greater financial
resources than we have. Increased competition for acquisition candidates may
make fewer acquisition opportunities available to us 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 our financial capability or that
would adversely affect our results of operations and financial condition. Our
ability to make acquisitions will depend in part on the relative attractiveness
of shares of our common stock as consideration for potential acquisition
candidates. This attractiveness may depend largely on the relative market price,
our ability to register common stock and capital appreciation prospects of our
common stock compared to that of other bidders. If the market price of our
common stock were to decline materially over a prolonged period of time, our
acquisition program could be materially adversely affected.
WE MAY BE SUED FOR INFORMATION RETRIEVED FROM OUR WEB SITES
We have been and may be subject to claims for defamation, negligence,
copyright or trademark infringement, personal injury or other legal theories
relating to the information we publish on our Web site. These types of claims
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have been brought, sometimes successfully, against online services as well as
other print publications in the past. We could also be subjected to claims based
upon the content that is accessible from our 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. We also offer e-mail services, which may subject us 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. Our insurance, which covers
commercial general liability, may not adequately protect us against these types
of claims.
WE MAY INCUR POTENTIAL PRODUCT LIABILITY FOR THE PRODUCTS WE SELL
Consumers may sue us if any of the products that we sell are defective,
fail to perform properly or injure the user. To date, we have had very limited
experience in the sale of products and the development of relationships with
manufacturers or suppliers of such products. We plan to develop a range of
products targeted specifically at women through our iBaby and iMaternity sites,
Astrology.Net, Lamaze Publishing and other e-commerce sites that we may acquire
in the future. We also may foster relationships with manufacturers or companies
to offer these products directly on iVillage.com. Such a strategy involves
numerous risks and uncertainties. Although our agreements with manufacturers
typically contain provisions intended to limit our exposure to liability claims,
these limitations may not prevent all potential claims. In addition, through
Lamaze Publishing, we distribute publications and broadcast over the Newborn
Channel information and instructions regarding childbirth and infant care. We
may be exposed to liability claims in connection with the information we
provide. Liability claims could require us to spend significant time and money
in litigation and to pay significant damages. As a result, these claims, whether
or not successful, could seriously damage our reputation and our business.
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 we expect it to continue to
increase. Our Web sites compete for members, users and advertisers with the
following types of companies:
o online services or Web sites targeted at women, such as Women.com
Networks;
o cable networks targeting women, such as Oxygen Media, Inc.
o 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.;
o e-commerce companies such as eToys, Inc. and its wholly-owned subsidiary,
BabyCenter, Inc.; and
o 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 our business, results
of operations and financial condition.
Lamaze Publishing's magazines directly compete 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.
OUR UNCERTAIN SALES CYCLES COULD ADVERSELY AFFECT OUR BUSINESS
The time between the date of initial contact with a potential advertiser or
sponsor and the execution of a contract with the advertiser or sponsor, is often
lengthy, typically ranging from six weeks for smaller agreements to nine months
for larger agreements, and is subject to
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delays over which we have little or no control, including:
o advertisers' and sponsors' budgetary constraints;
o advertisers' and sponsors' internal acceptance reviews;
o the success and continued internal support of advertisers' and sponsors'
own development efforts; and
o the possibility of cancellation or delay of projects by advertisers or
sponsors.
During the sales cycle, we may expend substantial funds and management
resources and yet not obtain sponsorship or advertising revenues. Accordingly,
our 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 COULD BE
ADVERSE TO iVILLAGE
AOL has invested in Oxygen Media, 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 a conflict of interest for AOL, which may not be
resolved in our favor. In addition, other principal investors in iVillage may
have similar conflicts of interests by virtue of their other investments. Please
see "Certain Transactions".
OUR BUSINESS IS DEPENDENT ON OUR CHIEF EXECUTIVE OFFICER AND EDITOR-IN-CHIEF
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly, Candice
Carpenter, Chief Executive Officer, and Nancy Evans, Editor-in-Chief. We have no
employment agreements with either of these executives and we do not maintain
"key person" life insurance for any of our 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 our business.
COMPETITION FOR PERSONNEL IN THE INTERNET INDUSTRY IS INTENSE
We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future. We have from time to time
experienced, and we expect to continue to experience difficulty in hiring and
retaining highly skilled employees with appropriate qualifications as a result
of our rapid growth and expansion. In addition, there is significant competition
for qualified employees in the Internet industry. As a result, we incurred
increased salaries, benefits and recruiting expenses during 1998 and 1999. If we
do not succeed in attracting new personnel or retaining and motivating our
current personnel, our business will be adversely affected. Please see
"Business--Human Resources" and "Management" for detailed information on our key
personnel.
WE ARE DEPENDENT ON CONTINUED GROWTH IN USE OF THE INTERNET
Our market is new and rapidly evolving. Our 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:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service;
o lack of availability of cost-effective, high-speed service; and
o 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 services as a result of outages and other delays
occurring throughout the Internet network infrastructure. If these outages and
delays frequently occur in the future, Internet usage, as well as the usage of
our Web sites, could grow more slowly or decline.
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WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
Our 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 our industry exacerbate these
market characteristics. To achieve our goals, we need to effectively integrate
the various software programs and tools required to enhance and improve our
product offerings and manage our business. Our future success will depend on our
ability to adapt to rapidly changing technologies by continually improving the
performance features and reliability of our services. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services. In addition, our new
enhancements must meet the requirements of our current and prospective users and
must achieve significant market acceptance. We could also incur substantial
costs if we need to modify our services 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 and
taxation, 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 our business. Any new laws or regulations
relating to the Internet could adversely affect our business.
In addition, it has been reported that the Labor Department has recently
begun an investigation of the use of volunteers on Web sites. We utilize
volunteers as Web site community leaders and there can be no assurance that new
government regulations will not require us to cease using volunteers or,
alternatively, treat them as employees.
Due to the global nature of the Internet, it is possible that, although our
transmissions over the Internet originate primarily in New York, the governments
of other states and foreign countries might attempt to regulate our business
activities. In addition, because our service is available over the Internet in
multiple states and foreign countries, these jurisdictions may require us to
qualify to do business as a foreign corporation in each of these states or
foreign countries, which could subject us to taxes and other regulations.
OUR SYSTEMS MAY FAIL OR EXPERIENCE A SLOW DOWN AND OUR USERS DEPEND ON OTHERS
FOR ACCESS TO OUR WEB SITES
Substantially all of our communications hardware and some of our other
computer hardware operations are located at Exodus Communications, Inc.'s
facilities in Jersey City, New Jersey and Verio, 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 our Web sites. Our business could be
adversely affected if our systems were affected by any of these occurrences. Our
insurance policies may not adequately compensate us for any losses that may
occur due to any failures or interruptions in our systems. We do not presently
have any secondary "off-site" systems or a formal disaster recovery plan.
Our Web sites must accommodate a high volume of traffic and deliver
frequently updated information. Our Web sites have in the past experienced
slower response times or decreased traffic for a variety of reasons.
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These occurrences have not had a material impact on our business. These types of
occurrences in the future could cause users to perceive our Web sites as not
functioning properly and therefore cause them to use another Web site or other
methods to obtain information.
In addition, our users depend on Internet service providers, online service
providers and other Web site operators for access to our 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 our systems.
WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE
RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US
We are dependent on various third parties for software, systems and related
services. For example, we rely 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 which provide software and services to us have a limited
operating history, have relatively immature technology and are themselves
dependent on reliable delivery of services from others. As a result, our ability
to deliver various services to our users may be adversely affected by the
failure of these third parties to provide reliable software, systems and related
services to us.
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR USERS' PERSONAL INFORMATION
If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal information or credit card information, we
could be subject to liability arising from claims related to, among other
things, unauthorized purchases with credit card information, impersonation or
other similar fraud claims or 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. We could incur additional expenses if new
regulations regarding the use of personal information are introduced or if our
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. We 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
Through Lamaze Publishing, we operate 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 OUR ABILITY TO OBTAIN
INFORMATION ABOUT OUR USERS
Our network captures information regarding our 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 our 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
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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, our
business, financial condition and results of operations could be materially
harmed.
Our 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 these laws are passed, our business, financial condition and results
of operations could be materially harmed.
POSSIBLE INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS
We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate our proprietary rights. Any infringement or
misappropriation could have a material adverse effect on our future financial
results. In addition, we have from time to time become involved in intellectual
property disputes with third parties which may not result in a favorable outcome
for us.
WE COULD BE SUBJECT TO POSSIBLE INFRINGEMENT ACTIONS BASED UPON OUR USE OF
DOMAIN NAMES, OUR CONTENT AND CONTENT LICENSED FROM OTHERS
We have invested resources in acquiring domain names for existing and
potential future use. We cannot guarantee that we will be entitled to use such
names under applicable trademark and similar laws or that other desired domain
names will be available. Furthermore, enforcing our 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 us with
respect to our use of domain names, our content, Web page formats, Web business
methods or any third-party content carried by us. We expect that participants in
our markets increasingly will be subject to infringement claims as the number of
services and competitors in our industry segment grows. Any claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require us to enter into costly royalty or
licensing arrangements or prevent us from using important technologies, ideas or
formats, any of which could materially harm our business, financial condition or
results of operations.
SEVERAL MEMBERS OF SENIOR MANAGEMENT HAVE ONLY RECENTLY JOINED iVILLAGE
Several members of our senior management joined us in 1998 and 1999 and
have not previously worked together. As a result, our senior managers are
continuing to become integrated as a management team and may not work together
effectively as a team to successfully manage our growth.
WE ARE INVOLVED IN LITIGATION WITH A FORMER EMPLOYEE WHICH MAY BE COSTLY AND
DIVERT THE EFFORTS AND ATTENTION OF OUR MANAGEMENT
On January 8, 1999, a complaint was filed in the Chancery Court for
Williamson County, Tennessee by a former employee against us and three of our
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 an aggregate 560,000 stock options. In addition, on
August 11, 1999, the plaintiff filed a complaint with the Equal Employment
Opportunity Commission alleging gender discrimination. We believe that the
claims and the proposed new claims are without merit and we are vigorously
defending against these claims. This litigation,
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whether or not determined in our favor or settled by us, may be costly and may
divert the efforts and attention of our management from normal business
operations.
FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000 COMPLIANT
COULD NEGATIVELY IMPACT OUR 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 our operations. The failure of systems maintained by third
parties to be Year 2000 compliant could cause us to incur significant expense to
remedy any problems, reduce our revenues from such third parties or otherwise
seriously damage our business. A significant Year 2000-related disruption of the
network services or equipment that third-party vendors provide to us could also
cause our members or visitors to consider seeking alternate providers or cause
an unmanageable burden on our technical support.
Our failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, some of our normal business activities or
operations. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance".
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
Sales of a substantial number of shares of common stock in the public
market, or the perception that sales could occur, could adversely affect the
market price for our common stock. This offering will result in additional
shares of our common stock being available on the public market. In addition,
our current stockholders hold a large amount of shares which they are able to
sell in the public market. These sales also might make it difficult for us to
sell equity securities in the future at a time and at a price that we deem
appropriate.
OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE HIGHLY VOLATILE AND
COULD DROP UNEXPECTEDLY
Our stock price has been and is likely to continue to be highly volatile
and may fluctuate substantially. In addition, the stock market has from time to
time experienced significant price and volume fluctuations that have affected
the market prices for the securities of technology companies, particularly
Internet companies. As a result, investors in our common stock may experience a
decrease in the value of their common stock regardless of our operating
performance or prospects.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES.
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could have a material adverse effect upon our
business, financial condition and results of operations.
FORWARD-LOOKING STATEMENTS
We have included in this filing some "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 concerning
our 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. Forward-looking statements are subject to various known and unknown
risks and uncertainties and we caution you that any forward-looking information
provided by or on behalf of us is not a guarantee of future performance. Our
actual results could differ materially from those anticipated by such
forward-looking statements due to a number of factors, some of which are beyond
our control, including (i) the volatile and competitive nature of the Internet
industry, (ii) changes in domestic
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and foreign economic and market conditions, (iii) the effect of federal, state
and foreign regulation on our business, (iv) failure of iVillage, our vendors or
other third parties to achieve Year 2000 compliance, (v) the impact of recent
and future acquisitions on our business and financial condition,
(vi) intellectual property and other claims, (vii) the impact on iVillage of our
branding strategy, (viii) failure to successfully implement and execute our e-
commerce strategy, (ix) our ability to maintain our relationships with our
customers and other factors discussed under "Risk Factors" and elsewhere in this
prospectus. All forward-looking statements are current only as of the date on
which such statements were made. We do 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.
USE OF PROCEEDS
The net proceeds we will receive from the sale of the 2,700,000 shares of
common stock offered by us are estimated to be $86.7 million at an assumed price
to the public of $34.25 per share and after deducting the underwriting discount
and offering expenses. We expect to use the net proceeds from this offering to
promote our brand and expand sales and marketing. The balance of the net
proceeds will be used for working capital and general capital purposes
including possible acquisitions. We may use a portion of the net proceeds to
acquire or invest in complementary businesses, technologies, services or
products. We are not currently a party to any contracts or letters of intent
with respect to any acquisition. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities. We will not receive any proceeds from the sale of
the shares being sold by the selling stockholders. Please see "Principal and
Selling Stockholders".
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends in the foreseeable
future.
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PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the Nasdaq National Market since
March 19, 1999 and trades under the symbol "IVIL". Prior to that time, there was
no public market for our common stock. The following table sets forth, for the
periods indicated, the high and low closing prices per share of the common stock
as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
1999 HIGH LOW
- -------------------------------------------------------------------- ------- ------
<S> <C> <C>
First Quarter (from March 19, 1999)................................. $104.63 $70.75
Second Quarter...................................................... $113.75 $33.38
Third Quarter (through September 29, 1999).......................... $ 62.75 $28.06
</TABLE>
On September 29, 1999, the closing sales price of our common stock was
$34.25 per share. There were 213 holders of record as of September 28, 1999.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
o on an actual basis;
o on a pro forma basis to reflect the acquisitions of Lamaze Publishing and
Family Point; and
o on a pro forma as adjusted basis to reflect the estimated net proceeds
from the sale of 2,700,000 shares of common stock by us at an assumed
public offering price of $34.25 per share, after deducting underwriting
discounts and commissions and estimated offering expenses. Please see
"Use of Proceeds".
You should read this information together with our consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term liabilities.................................................... $ -- $ -- --
Stockholders' equity:
Preferred stock, par value $.01; 5,000,000 shares authorized, no shares
issued or outstanding, actual and pro forma......................... -- -- --
Common stock, par value $.01; 65,000,000 shares authorized, 24,324,218,
26,719,125 and 29,419,125 shares issued and outstanding, actual, pro
forma and pro forma as adjusted, respectively....................... 243 267 294
Additional paid-in capital............................................. 302,430 426,791 513,454
Accumulated deficit.................................................... (134,549) (134,549) (134,549)
Stockholders' notes receivable......................................... (14,681) (14,681) (14,681)
Unearned compensation and deferred advertising......................... (8,151) (8,151) (8,151)
-------- -------- ---------
Total stockholders' equity............................................... 145,292 269,677 356,366
-------- -------- ---------
Total capitalization..................................................... $145,292 $269,677 $ 356,366
-------- -------- ---------
-------- -------- ---------
</TABLE>
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DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$78.7 million, or approximately $2.95 per share of common stock. Pro forma "net
tangible book value" per share represents the amount of our total tangible
assets less total liabilities, divided by the pro forma number of shares of
common stock outstanding after giving effect to the acquisitions of Lamaze
Publishing and Family Point. After giving effect to the sale of the common stock
offered by us at an assumed public offering price of $34.25 per share, and after
deducting the estimated underwriting discount and offering expenses payable by
us, our pro forma net tangible book value, as adjusted, as of June 30, 1999
would have been approximately $165.4 million, or $5.63 per share of common
stock. This represents an immediate increase in net tangible book value of $2.68
per share to our existing stockholders and an immediate dilution in net tangible
book value of $28.62 per share to new investors of common stock in this
offering. If the public offering price is higher or lower, the dilution to the
new investors will be greater or less, respectively. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price................................................................ $34.25
Pro forma net tangible book value per share prior to this offering......................... $2.95
Increase per share attributable to this offering........................................... $2.68
-----
Adjusted pro forma net tangible book value per share after this offering..................... 5.63
------
Dilution per share to new investors.......................................................... $28.62
------
------
</TABLE>
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes to those
statements and other financial information included elsewhere in this
prospectus. The consolidated statement of operations data for the years ended
December 31, 1996, 1997 and 1998 and the consolidated balance sheet data as of
December 31, 1997 and 1998 are derived from the audited consolidated financial
statements of iVillage included in this prospectus. The consolidated statement
of operations data for the six months ended June 30, 1999 and 1998 and the
consolidated balance sheet data as of June 30, 1999 are derived from our
unaudited consolidated financial statements which are included in this
prospectus. The consolidated balance sheet data as of December 31, 1996 and 1995
and the consolidated statement of operations data for the six month period for
July 1, 1995 (inception) to December 31, 1995 are derived from our audited
financial statements not included in this prospectus. The results of interim
periods are not necessarily indicative of results for the full year. Moreover,
the historical annual results presented here are not necessarily indicative of
future results. iVillage acquired ParentsPlace.com, Inc. in December 1996,
Health ResponseAbility Systems, Inc. in May 1997, the majority interest and
remaining minority interest in iBaby in April 1998 and March 1999, respectively,
Astrology.Net in February 1999 and Online Psych in June 1999. The financial data
reflect the results of operations of these subsidiaries since their dates of
acquisition. The following table excludes the acquisition of Family Point, Inc.
as of August 31, 1999. For the year ended December 31, 1998, a portion of the
net loss for iBaby, Inc. attributable to minority stockholders is included as a
reduction to net loss.
<TABLE>
<CAPTION>
JULY 1, 1995 SIX MONTHS
(INCEPTION) YEAR ENDED DECEMBER 31, ENDED JUNE 30,
TO ---------------------------------------- -------------------
DECEMBER 31,
1995 1996 1997 1998 1998 1998 1999
------------ ------- -------- -------- -------- -------- --------
PRO
ACTUAL FORMA(1) ACTUAL
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ -- $ 732 $ 6,019 $ 15,012 $27,293 $ 4,838 $ 14,572
Cost of revenues.................................. 508 3,468 5,530 12,403 18,250 5,437 9,112
-------- ------- -------- -------- -------- -------- --------
Gross margin...................................... (508) (2,736) 489 2,609 9,043 (599) 5,460
-------- ------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Product development and technology................ 121 1,053 2,076 2,118 2,118 986 3,038
Sales and marketing............................... 329 2,709 8,771 28,523 31,320 12,054 23,206
General and administrative........................ 656 3,104 7,841 10,612 14,284 4,206 7,872
Depreciation and amortization..................... 17 109 2,886 5,683 37,603 2,658 7,519
-------- ------- -------- -------- -------- -------- --------
Total operating expenses...................... 1,123 6,975 21,574 46,936 85,325 19,904 41,635
-------- ------- -------- -------- -------- -------- --------
Loss from operations.............................. (1,631) (9,711) (21,085) (44,327) (76,282) (20,503) (36,175)
Interest (expense) income, net.................... (7) 28 (216) 591 588 237 1,513
Loss on sale of Web site(2)....................... -- -- -- (504) (504) -- --
Minority interest................................. -- -- -- 586 -- -- --
-------- ------- -------- -------- -------- -------- --------
Net loss.......................................... (1,638) (9,683) (21,301) (43,654) (76,198) (20,266) (34,662)
Preferred stock deemed dividend................... -- -- -- -- -- -- (23,612)
-------- ------- -------- -------- -------- -------- --------
Net loss attributable to common stockholders...... $ (1,638) $(9,683) $(21,301) $(43,654) $(76,198) $(20,266) $(58,274)
-------- ------- -------- -------- -------- -------- --------
-------- ------- -------- -------- -------- -------- --------
Basic and diluted net loss per share............ $ (1.51) $ (8.90) $ (13.65) $ (21.11) $ (3.28) $ (3.98)
-------- ------- -------- -------- -------- --------
-------- ------- -------- -------- -------- --------
Weighted average shares of common stock
outstanding used in computing basic and diluted
net loss per share.............................. 1,083 1,087 1,561 2,068 6,179 14,656
-------- ------- -------- -------- -------- --------
-------- ------- -------- -------- -------- --------
Pro forma basic and diluted net loss per
share(3)........................................ $ (2.59) $ (3.51) $ (2.77)
-------- -------- --------
-------- -------- --------
Shares of common stock used in computing pro forma
basic and diluted net loss per share(3)......... 16,854 21,737 21,027
-------- -------- --------
-------- -------- --------
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1999
----
PRO
FORMA(1)
--------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ 21,336
Cost of revenues.................................. 12,685
--------
Gross margin...................................... 8,651
--------
OPERATING EXPENSES:
Product development and technology................ 3,038
Sales and marketing............................... 24,570
General and administrative........................ 9,489
Depreciation and amortization..................... 19,473
--------
Total operating expenses...................... 56,570
--------
Loss from operations.............................. (47,919)
Interest (expense) income, net.................... 1,510
Loss on sale of Web site(2)....................... --
Minority interest................................. --
--------
Net loss.......................................... (46,409)
Preferred stock deemed dividend................... (23,612)
--------
Net loss attributable to common stockholders...... $(70,021)
--------
--------
Basic and diluted net loss per share............
Weighted average shares of common stock
outstanding used in computing basic and diluted
net loss per share..............................
Pro forma basic and diluted net loss per
share(3)........................................ $ (2.89)
--------
--------
Shares of common stock used in computing pro forma
basic and diluted net loss per share(3)......... 24,221
--------
--------
</TABLE>
- ------------------------------
(1) Pro forma giving effect to the following transactions as if they occurred on
January 1, 1998:
o the acquisition of Lamaze Publishing;
o the acquisition of Astrology.Net;
o the purchase of the minority interest in iBaby; and
o the acquisition of Online Psych.
(2) Please see note 5 to iVillage's consolidated financial statements.
(3) Please see note 2 to iVillage's consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- JUNE 30,
1995 1996 1997 1998 1999
----- ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 162 $2,102 $ 4,335 $30,825 $ 85,279
Working capital (deficit).................................................... (715) 1,006 1,114 19,919 76,504
Total assets................................................................. 275 4,997 16,236 46,791 158,072
Long-term liabilities........................................................ -- -- 139 -- --
Stockholders' equity (deficit)............................................... (629) 3,259 10,522 32,022 145,292
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and notes to those statements and the other
financial information appearing elsewhere in this prospectus. In addition to
historical information, the following discussion and other parts of this
prospectus contain forward-looking information that involves risks and
uncertainties.
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 14 content specific channels and three
shopping channels organized by subject matter. The channels cover leading topics
of interest to women online, such as family, health, work, money, food,
computers, relationships, shopping, travel, pets and astrology. We facilitate
channel usage by providing common features and functionality within each
channel, including experts, chats, message boards and services.
Up to June 30, 1999, our revenues have been derived primarily from the sale
of sponsorship and advertising contracts. Sponsorship and advertising revenues
constituted 83% and 73% of total revenues for the year ended December 31, 1998
and the six months ended June 30, 1999, respectively.
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 our 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 our 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, we defer 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 our sponsorship deals, certain sponsors who also sell products
provide us with a commission on sales of their products generated through our
Web site. To date, these amounts have been immaterial.
Advertising revenues are derived principally from short-term advertising
contracts in which we typically guarantee 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 our 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 us of advertising space on our 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 our
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. We do not
receive cash for the
22
<PAGE>
advertisements delivered, nor do we pay for the advertisements received.
Typically, these barter transactions have no impact on our cash flows and
results of operations. Barter transactions enable us to continue to build strong
brand recognition as part of our overall business strategy without expending
cash resources. Revenues from barter transactions represented approximately 20%
and 12% of total revenues for the year ended December 31, 1998 and the six
months ended June 30, 1999, respectively. We anticipate that barter revenues
will continue to increase in the future although they will decrease as a
percentage of total revenues. Please see "Business--Business Strategy".
With the acquisition of Lamaze Publishing, we 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,
iMaternity (a new commerce channel launched during the second quarter of 1999)
and Astrology.Net. 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,
we 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. Our
failure 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
is 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. We recognize 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, we received fees from the licensing of portions of our content in
connection with the PlanetRx.com relationship.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------
1996 1997 1998 1998 1999
------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues.......................................................... 100 % 100 % 100 % 100 % 100 %
------ ---- ---- ---- ----
Cost of revenues.................................................. 474 92 83 112 63
------ ---- ---- ---- ----
Gross margin.................................................... (374) 8 17 (12) 37
------ ---- ---- ---- ----
Operating expenses:
Product development and technology.............................. 144 34 14 20 21
Sales and marketing............................................. 370 146 190 249 159
General and administrative...................................... 424 130 71 87 54
Depreciation and amortization................................... 15 48 38 55 52
------ ---- ---- ---- ----
Total operating expenses..................................... 953 358 313 411 286
------ ---- ---- ---- ----
Loss from operations.............................................. (1,327) (350) (295) (424) (248)
------ ---- ---- ---- ----
------ ---- ---- ---- ----
Net loss.......................................................... (1,323)% (354)% (291)% (419)% (238)%
------ ---- ---- ---- ----
------ ---- ---- ---- ----
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
REVENUES
Revenues were $14.6 million for the six months ended June 30, 1999, which
represented an increase of 201%, when compared with the corresponding period in
1998. The increase in revenues was primarily due to our ability to generate
significantly higher sponsorship and advertising revenues during the 1999
period, as well as the development of our commerce strategy through our
investments in iBaby and Astrology.Net. Sponsorship, advertising and other
revenues were $10.7 million for the six months ended June 30, 1999, compared to
$4.3 million for the corresponding period 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 our
Web sites during the 1999 period. Sponsorship, advertising and other revenues
accounted for approximately 73% of total revenues for the six months ended June
30, 1999. Commerce revenues accounted for $3.9 million, or 27% of total
revenues, for the six months ended June 30, 1999, compared to $0.5 million, or
11% of total revenues, for the six-month period in 1998.
Although no one advertiser accounted for greater than 10% of total revenues
for the six months ended June 30, 1999, our five largest advertisers accounted
for 22% of total revenues.
Included in sponsorship and advertising revenues are barter transactions
which accounted for approximately 12% of total revenues for the six months ended
June 30, 1999, compared to 25% for the comparable period in 1998.
COST OF REVENUES
The principal elements of cost of advertising, sponsorship and other
revenues for our 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 our Web sites.
Cost of commerce revenues consist primarily of the cost of products sold to
customers and outbound and inbound shipping and handling costs. Cost of
advertising, sponsorship and other revenues was $6.1 million, or 57% of
advertising, sponsorship and other revenues, for the six months ended June 30,
1999. Cost of advertising, sponsorship and other revenues was $5.0 million, or
116% of advertising, sponsorship and other revenues, for the comparable period
in the prior year. Cost of advertising, sponsorship and other revenues,
24
<PAGE>
as a percentage of these revenues, decreased during the six months ended June
30, 1999 due to the significant growth in advertising and sponsorship revenues
over the prior period. Cost of commerce revenues was $3.0 million, or 78% of
commerce revenues, for the six months ended June 30, 1999, compared to
$0.4 million, or 85% of commerce revenues, for the corresponding period in 1998.
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 six months ended
June 30, 1999 was approximately $3.0 million, or 21% of total revenues. Product
development and technology expenses was $1.0 million, or 20% of total revenues,
for the corresponding period 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 our 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 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 six months ended June 30, 1999 were approximately $23.2 million, or 159% of
total revenues. Sales and marketing expenses were $12.1 million, or 249% of
total revenues, for the comparable period in 1998. The dollar increase in sales
and marketing expenses between the 1998 and 1999 periods was primarily
attributable to our advertising campaign on the Internet and television in
accordance with our agreement with NBC. Sales and marketing expenses as a
percentage of revenues decreased between the 1998 and 1999 periods as a result
of the growth in revenues.
Included in sales and marketing are barter transactions which amounted to
approximately 12% of total revenues during the six months ended June 30, 1999,
compared to 25% of total revenues during the comparable period 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
six months ended June 30, 1999 were $7.9 million, or 54% of total revenues. For
the comparable period in 1998, general and administrative expenses were $4.2
million, or 87% of total revenues. The increase in general and administrative
expenses between the 1998 and 1999 periods was primarily due 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 our
business. General and administrative expenses decreased as a percentage of total
revenues as a result of the growth in revenues in the six months ended June 30,
1999 compared to the comparable period in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses for
the six months ended June 30, 1999 were $7.5 million, or 52% of total revenues.
For the comparable period in 1998, depreciation and amortization expenses were
$2.7 million, or 55% of total revenues. The dollar increase between the 1998 and
1999 periods was primarily attributable to increased amortization expense
resulting from our acquisitions of iBaby and Astrology.Net, as well as
depreciation on a greater base of fixed assets owned by us during the 1999
period.
INTEREST INCOME, NET
Interest income, net includes interest income from our cash balances and
interest expenses related to our financing obligations. Interest income, net for
the six months ended June 30, 1999 was $1.5 million, or 10% of total revenues.
For the comparable period in 1998, interest income, net was $0.2 million, or 5%
of total revenues. The increase between the 1998 and 1999 periods was primarily
due to higher
25
<PAGE>
average net cash and cash equivalents balances resulting primarily from the cash
received from our initial public offering of common stock in March 1999.
NET LOSS
We recorded a net loss of $34.7 million, or $3.98 per share, for the six
months ended June 30, 1999. The net loss per share for the six months ended
June 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 period in 1998, the
Company recorded a net loss of $20.3 million.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
REVENUES
Revenues increased 149% to $15.0 million for the year ended December 31,
1998, from $6.0 million for the year ended December 31, 1997. The increase in
revenues was primarily due to our ability to generate significantly higher
sponsorship and advertising revenues, and the development of our commerce
strategy through the investment in iBaby. Sponsorship, advertising and usage
revenues increased $6.4 million primarily as a result of a higher number of
impressions sold and additional sponsors advertising on our Web sites. Commerce
revenues accounted for $2.6 million in 1998, with no revenues in 1997. During
1998, we expanded our sales force and the number of impressions available on our
Web sites increased as additional channels were launched and additional content
was produced. Sponsorship and advertising revenues accounted for approximately
80% and 93% of revenues for the years ended December 31, 1998 and 1997,
respectively. Commerce revenues accounted for approximately 17% of revenues for
the year ended December 31, 1998, with no such revenues for the comparable
period in 1997.
Although no one advertiser accounted for greater than 10% of total revenues
for the year ended December 31, 1998, our five largest advertisers accounted for
17% of total revenues for the year. At December 31, 1998, one advertiser
accounted for 11% of net accounts receivable due to a significant invoice billed
close to year-end. Although our five largest sponsorship and advertising
customers accounted for 26% of total revenues for the year ended December 31,
1997, no one advertiser accounted for greater than 10% of total revenues. At
December 31, 1997, one customer accounted for approximately 31% of the net
accounts receivable balance due to a significant invoice billed close to
year-end. A large portion of the invoice was recorded as deferred revenue and
recognized as revenue in 1998, when the services were provided. Included in
sponsorship and advertising revenues are barter transactions which accounted for
approximately 20% and 10% of total revenues for the years ended December 31,
1998 and 1997, respectively. Barter revenues increased as a percentage of
revenues because of the development of barter as a viable vehicle for online
advertising in the industry.
COST OF REVENUES
Cost of advertising, sponsorship and other revenues were $10.2 million and
$5.5 million, or 82% and 92% of advertising, sponsorship and other revenues, for
the years ended December 31, 1998 and 1997, respectively. Cost of advertising,
sponsorship and other revenues, as a percentage of these revenues, decreased
during the year ended December 31, 1998 when compared to the year ended
December 31, 1997 due to the significant growth in advertising and sponsorship
revenues over the prior period. Cost of commerce revenues were $2.2 million or
85% of commerce revenues, for the year ended December 31, 1998. There were no
cost of commerce revenues for the year ended December 31, 1997. Cost of commerce
revenues, as a percentage of these revenues, increased during the year ended
December 31, 1998 when compared to the year ended December 31, 1997 due to our
joint venture with iBaby in 1998.
OPERATING EXPENSES
PRODUCT DEVELOPMENT AND TECHNOLOGY. Product development and technology
expenses for the years ended
26
<PAGE>
December 31, 1998 and 1997, were approximately $2.1 million, or 14% of total
revenues, and $2.1 million, or 34% of total revenues, respectively. The decrease
in product development and technology cost, as a percentage of total revenues,
is due to the significant growth in total revenues for the year ended
December 31, 1998 as compared to the year ended December 31, 1997.
SALES AND MARKETING. Sales and marketing expenses increased to $28.5
million, or 190% of revenues, for the year ended December 31, 1998, from $8.8
million, or 146% of revenues, for the year ended December 31, 1997. The dollar
increase in sales and marketing expenses was primarily due to expanded
distribution agreements which increased by about $6.3 million, increases in
advertising expenses related to our branding campaign of $5.4 million on the
Internet, television and in print and higher advertising and sales personnel
expenses of about $3.0 million. We invested heavily in distribution arrangements
during the year ended December 31, 1998. These distribution agreements, with
major Web search and retrieval and other online service companies, generally
range from one to two years and include the placement of promotional features or
textual links to our sites. Sales and marketing expenses as a percentage of
revenues increased due to our branding campaign, increased distribution
agreements and additional personnel in our sales department. Included in sales
and marketing expenses are barter transactions, which accounted for
approximately 10% and 7% of sales and marketing expenses for the years ended
December 31, 1998 and 1997, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $10.6 million, or 71% of revenues, for the year ended December 31, 1998, from
$7.8 million, or 130% of revenues, for the year ended December 31, 1997. The
increase in general and administrative expenses was primarily due to an increase
in salaries and benefits, recruiting costs and facilities expenses resulting
from an increase in the number of personnel hired during the year to support the
growth of our business. General and administrative expenses decreased as a
percentage of total revenues because of the growth in revenues relative to the
growth in our general and administrative expenses. This is due to the
development of our infrastructure in 1997 which was necessary for future growth
of revenues. We expect that we will incur additional general and administrative
expenses as we continue to hire personnel and incurs expenses related to the
growth of the business and our operations as a public company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased to $5.7 million, or 38% of revenues, for the year ended December 31,
1998 from $2.9 million, or 48% of revenues, for the year ended December 31,
1997. The dollar increase was primarily attributable to increased depreciation
of $1.2 million resulting from purchases of fixed assets of approximately $6.3
million and increased amortization expense of $1.6 million due to the Health
ResponseAbility Systems acquisition in May 1997.
INTEREST (EXPENSE) INCOME, NET
Interest (expense) income, net includes interest income from our cash
balances and interest expense related to our financing obligations, including
non-cash expenses related to the issuance of warrants associated with a bridge
financing in 1997. Interest (expense) income, net improved to an income of $0.6
million for the year ended December 31, 1998, from an expense of $0.2 million
for the year ended December 31, 1997. This increase was primarily due to a
higher average net cash and cash equivalents balance from the issuance of
preferred and common stock during 1998.
MINORITY INTEREST
Minority interest represents the portion of the net loss of iBaby
attributable to minority stockholders. On March 25, 1999, we completed our
purchase of all of the outstanding shares of iBaby held by the minority
stockholders of iBaby.
INCOME TAXES
As of December 31, 1998, we had approximately $69.9 million of net
operating loss carryforwards for federal tax reporting purposes available to
offset future taxable income. Our federal net operating loss
27
<PAGE>
carryforwards expire beginning in 2010. Certain future changes in the share
ownership of iVillage, as defined in the Tax Reform Act of 1986, may restrict
the utilization of carryforwards. A valuation allowance has been recorded for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset due to the lack of our earnings history.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES
Revenues were $6.0 million and $0.7 million for the years ended
December 31, 1997 and 1996, respectively. The increase was driven by the growth
in sponsorship and advertising revenues, which was the result of more
advertisers and a higher number of impressions sold. Sponsorship and advertising
revenues accounted for 93% and 74% of revenues for the years ended December 31,
1997 and 1996, respectively. Included in advertising and sponsorship revenues
were barter transactions, which accounted for approximately 10% and 1% of
revenues for the years ended December 31, 1997 and 1996, respectively. At
December 31, 1997 and 1996, one customer accounted for 31% and four customers
each represented greater than 10% of the net accounts receivable balance,
respectively. At December 31, 1997, our five largest sponsorship and advertising
customers accounted for 26% of total revenues, but no one customer accounted for
greater than 10% of total revenues. For the years ended December 31, 1997 and
1996, we derived revenues from usage fees paid by AOL based on visitation to
iVillage.com on the AOL service. Usage fees were $0.4 million and $0.2 million
for the years ended December 31, 1997 and 1996, respectively. During the year
ended December 31, 1997, we entered into a new agreement with AOL that
eliminated usage fees.
COST OF REVENUES
Cost of advertising, sponsorship and other revenues were $5.5 million and
$3.5 million, or 92% and 474% of advertising, sponsorship and other revenues,
for the years ended December 31, 1997 and 1996, respectively. Cost of
advertising, sponsorship and other revenues as a percentage of these revenues,
decreased during the year ended December 31, 1997 when compared to the year
ended December 31, 1996 due to the significant growth in advertising and
sponsorship revenues over the prior period. There were no cost of commerce
revenues for years ended December 31, 1997 and 1996.
OPERATING EXPENSES
PRODUCT DEVELOPMENT AND TECHNOLOGY. Product development and technology
expenses for the years ended December 31, 1997 and 1996, were approximately $2.1
million, or 34% of total revenues, and $1.1 million, or 144% of total revenues,
respectively. The increase was primarily attributable to additional personnel
costs related to creating and testing new channel concepts and tools to be used
throughout our network of Web sites.
SALES AND MARKETING. Sales and marketing expenses were $8.8 million, or
146% of revenues, and $2.7 million, or 370% of revenues, for the years ended
December 31, 1997 and 1996, respectively. The increase in sales and marketing
expenses was primarily due to expanded online banner and distribution
arrangements and the addition of a direct sales force, which we began building
in the second half of 1996. Included in sales and marketing are barter
transactions, which accounted for approximately 7% of sales and marketing in the
year ended December 31, 1997. Sales and marketing expenses as a percentage of
revenues decreased because of the growth in revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$7.8 million, or 130% of revenues, and $3.1 million, or 424% of revenues, for
the years ended December 31, 1997 and 1996, respectively. The increase in
general and administrative expenses was primarily due to increases in the number
of general and administrative personnel and professional services and facility
expenses to support the growth of our operations. General and administrative
expenses as a percentage of revenues decreased because of the growth in
revenues.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased to $2.9 million, or 48% of revenues, for the year ended December 31,
1997 from $0.1 million, or 15% of revenues, for the year ended December 31,
1996. The dollar increase was primarily attributable to purchases of fixed
assets of approximately $4 million and acquisitions of Web sites for
approximately $2.9 million during the year ended December 31, 1997.
INTEREST (EXPENSE) INCOME, NET
Interest (expense) income, net was approximately $216,000 expense and
$28,000 income for the years ended December 31, 1997 and 1996, respectively. The
increase in interest (expense) income, net for the year ended December 31, 1997
was primarily due to warrants issued in connection with the receipt of bridge
financing resulting in an interest charge of approximately $334,000.
RECENT EVENTS
ARMCHAIR MILLIONAIRE. We recently entered into an option agreement with
Investorama.com Inc. to sell the assets associated with Armchair Millionaire, a
site located on our Money channel. Investorama has 30 days after the agreement
is signed to exercise the option. 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.
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 us $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 us $7.5 million for
the use of selected information and tools on the iVillage network. In addition,
we have made a $7.5 million equity investment in PlanetRx.com.
FAMILY POINT. In accordance with a merger agreement dated as of
August 31, 1999, we acquired Family Point, the operator of a leading online
meeting place for families, friends and groups. The aggregate purchase price
paid to acquire Family Point consisted of $3.75 million cash and approximately
511,000 shares of our common stock valued at approximately $26.0 million under
the purchase method of accounting. In addition, based on meeting certain
performance thresholds, Family Point is entitled to $750,000 in cash and
approximately 101,000 shares of common stock. The difference between the
purchase price and the fair value of the acquired net assets of Family Point
will be recorded as goodwill and amortized over the period of expected benefit
which is estimated at three years.
LAMAZE PUBLISHING. On August 20, 1999, we 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 our common stock and approximately $5 million to repay 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 will be recorded as goodwill and
amortized over the period of expected benefit which is estimated at ten years.
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ONLINE PSYCH. On June 30, 1999, we acquired Online Psychological Services,
Inc. and Code Stone Technologies, Inc. As a result of the acquisitions, Online
Psych and Code Stone became our wholly-owned subsidiaries. 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
consisted of $1.5 million cash and approximately 577,000 shares of our common
stock valued at approximately $28.5 million 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 has been recorded as goodwill
and is being amortized over the period of expected benefit which is estimated to
be three years.
QUARTERLY RESULTS OF OPERATIONS
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are outside our control. These
factors include:
o our ability to attract and retain users and members;
o our ability to attract and retain advertisers and sponsors and maintain
advertiser and sponsor satisfaction;
o our ability to attract and retain customers and maintain customer
satisfaction for our existing and future e-commerce businesses;
o new sites, services or products introduced by us or our competitors;
o the timing and uncertainty of sales cycles;
o the level of Web and online services usage;
o our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;
o traffic levels on our Web sites;
o our ability to successfully integrate operations and technologies from
acquisitions or other business combinations;
o technical difficulties or system downtime affecting the Internet
generally or the operation of our Web sites;
o the dilutive effect of acquisitions; and
o economic conditions specific to the Internet as well as general economic
conditions.
As a result, our operating results for any particular quarter may not be
indicative of future operating results.
The following table sets forth unaudited quarterly consolidated statement
of operations data for the third and fourth quarters of 1997, each of the four
quarters in 1998 and for the first and second quarters of 1999. In the opinion
of management, this information has been prepared substantially on the same
basis as the audited consolidated financial statements appearing elsewhere in
this prospectus, and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly the unaudited consolidated quarterly results. The quarterly data should
be read in conjunction with our audited consolidated financial statements and
unaudited financial statements for the six months ended June 30, 1999 and the
notes to those statements appearing elsewhere in this prospectus.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
------------- ------------ --------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 1,518 $ 2,357 $ 2,200 $ 2,638 $ 4,288 $ 5,886 $ 6,464 $ 8,108
Cost of revenues.............. 1,379 1,749 2,175 3,262 3,368 3,598 4,902 4,210
------- -------- ------- -------- --------- -------- --------- --------
Gross margin.................. 139 608 25 (624) 920 2,288 1,562 3,898
Product development and
technology.................. 526 700 482 504 617 515 1,685 1,353
Sales and marketing........... 1,935 3,372 4,870 7,184 7,877 8,592 10,888 12,318
General and administrative.... 1,967 2,662 2,004 2,202 3,606 2,800 4,025 3,847
Depreciation and
amortization . 1,034 655 1,261 1,397 1,386 1,639 2,854 4,665
------- -------- ------- -------- --------- -------- --------- --------
Total operating expenses...... 5,462 7,389 8,617 11,287 13,486 13,546 19,452 22,183
------- -------- ------- -------- --------- -------- --------- --------
Loss from operations.......... $(5,323) $ (6,781) $(8,592) $(11,911) $ (12,566) $(11,258) $ (17,890) $(18,285)
------- -------- ------- -------- --------- -------- --------- --------
------- -------- ------- -------- --------- -------- --------- --------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Until our initial public offering in March 1999, which raised net proceeds
of $91.4 million, we financed our operations primarily through the private
placement of our convertible preferred stock. As of June 30, 1999, we had
approximately $85.3 million in cash and cash equivalents.
Net cash used in operating activities increased to $26.2 million for the
six months ended June 30, 1999 from $17.0 million for the six months ended
June 30, 1998. The increase in net cash used in operating activities resulted
primarily from increased net losses and the payment of accrued liabilities. The
increased net loss was primarily due to the continued investment in establishing
the iVillage brand on the Internet through further investment in content and
technology. Net cash used in operating activities amounted to $32.3 million for
the year ended December 31, 1998, $15.3 million for the year ended December 31,
1997 and $8.7 million for 1996. The increase in net cash used resulted primarily
from increasing net losses, offset by the timing of payable settlements and
increased depreciation and amortization expense.
Net cash used in investing activities was $12.5 million in the six months
ended June 30, 1999. This compares to net cash used in investing activities of
$2.7 million for the six months ended June 30, 1998. 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 and the acquisitions of Online
Psychological Services, Inc and Code Stone Technologies, Inc. during the second
quarter of 1999. Net cash used in investing activities decreased to
$5.8 million for the year ended December 31, 1998 from $6.9 million for the year
ended December 31, 1997 and $0.7 million for 1996, resulting primarily from
increased purchases of property and equipment and the $2.6 million cash portion
of the acquisition of our health channel in 1997.
Net cash provided by financing activities amounted to $93.2 million for the
six months ended June 30, 1999, compared to $32.8 million for the six months
ended June 30, 1998. The increase was primarily due to the receipt of $91.4
million of net proceeds from the Company's initial public offering in March
1999. Net cash provided by financing activities increased to $64.5 million for
the year ended December 31, 1998 from $24.4 million for 1997 and $11.3 million
for 1996. The increase in 1998 was primarily due to $65.3 million of net cash
proceeds from the sale of shares of our series E convertible preferred stock,
series D convertible preferred stock and common stock as compared to the $24.8
million of net cash proceeds from the sale of shares of our series C convertible
preferred stock in 1997, inclusive of convertible notes. In 1996, we received
net cash proceeds of $11.3 million from the sale of shares of our series B and
B-1 convertible preferred stock, inclusive of convertible notes.
Subsequent to June 30, 1999, we have used approximately $8.5 million in
cash on the Lamaze Publishing and Family Point acquisitions, excluding
acquisition costs. On August 2, 1999, we 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, we paid $7.5 million
to PlanetRx.com for 37,103 shares of series D preferred stock of PlanetRx.com.
However, we separately received $7.5 million from PlanetRx.com in a content
license agreement and have entered into a $15.0 million sponsorship agreement
with them. We recently signed a two year lease for approximately 40,000 sq. ft.
of warehouse
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space for iBaby at a facility located in San Diego, California.
Our capital requirements depend on numerous factors, including:
o market acceptance of our services;
o the amount of resources we devote to investments in the iVillage.com
network, including acquisition of other entities;
o the resources we devote to marketing; and
o the resources we devote to selling our services and brand promotions.
We have experienced a substantial increase in our expenditures since our
inception. The increase in expenditures is consistent with the growth in our
operations and staffing. We anticipate we will continue to evaluate possible
investments in businesses, products and technologies, and continue to expand our
sales and marketing programs and conduct more aggressive brand promotions, any
of which could reduce our liquidity.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
development or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. This standard did not have a
significant effect on our capitalization policy.
In April 1998, AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As we have
expensed these costs historically, the adoption of this standard did not have a
significant impact on our results of operations, financial position or cash
flows.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for our fiscal quarters beginning fiscal
year 2001. The adoption of SFAS No. 133 is not expected to have an impact on our
results of operations, financial position or cash flows upon the adoption of
this standard.
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 Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We are engaged in an ongoing assessment of the Year 2000 readiness of our
operating, financial and administrative systems, including the hardware and
software that support our systems. Our assessment plan consists of:
o quality assurance testing of our internally developed proprietary
software;
o contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our services to our users;
o contacting vendors of third-party systems;
o assessing repair and replacement requirements;
o implementing repair or replacement;
o implementation; and
o if deemed necessary or appropriate, creating contingency plans in the
event of Year 2000 failures.
We have engaged Keane, Inc., a consulting firm with Year 2000 experience,
to
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assist us with our Year 2000 compliance program.
Our Year 2000 task force has conducted an inventory of and developed
testing procedures for all software and other systems that we believe might be
affected by Year 2000 issues. Since third parties developed and currently
support many of the systems that we use, a significant part of this effort has
been to ensure that these third-party systems are Year 2000 compliant. We have
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 August 31, 1999, we have spent approximately $250,000 on Year 2000
compliance issues but expect to incur an additional $50,000 in connection with
identifying, evaluating and addressing Year 2000 compliance issues. Most of our
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 our business,
results of operations and financial condition.
RISKS
We are not currently aware of any Year 2000 compliance problems relating to
our systems that would have a material adverse effect on our business, results
of operations and financial condition, without taking into account our efforts
to avoid or fix such problems. There can be no assurance that we will not
discover Year 2000 compliance problems in our systems that will require
substantial revision. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, all of which could be time-consuming and
expensive. Our failure to fix or replace our 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 our business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in our 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.
We are 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 us could cause our 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 our 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 our control will be Year 2000 compliant. The failure by these
entities to be Year 2000 compliant could result in a systemic failure beyond our
control, such as a prolonged Internet, telecommunications or electrical failure,
which could also prevent us from delivering our services to our customers,
decrease the use of the Internet or prevent users from accessing our Web sites
which could have a material adverse effect on our business, results of
operations and financial condition.
CONTINGENCY PLAN
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have not yet developed any contingency plans. The results of our 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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BUSINESS
iVillage Inc., The Women's Network, is the leading online destination
targeted at women and one of the most demographically focused communities on the
Internet. iVillage.com is an easy-to-use, comprehensive network of Web sites
tailored to the interests and needs of women aged 25 through 54. As an online
media company, we provide advertisers and merchants with targeted access to
women using the Internet.
iVillage was the 7th largest news, information and entertainment Web site
on the Internet in the United States in August 1999 according to Media Metrix.
In addition, the iVillage network had a reach of 8.0% and was the 27th most
visited Internet property according to Media Metrix in August 1999. Our page
views have grown to a monthly average of 102 million for the quarter ended June
30, 1999, and we estimate our unique visitors have grown to 7.3 million for the
month of August 1999.
Our network of sites consists of 14 content specific channels and three
shopping channels. The channels cover the topics of deepest interest to women,
such as family, health, work, money, food, computers, relationships, shopping,
travel, pets and astrology. We facilitate network use across channels by
providing common features, positioning and functionality within each channel and
across the network, resulting in a consistent and strongly branded environment.
As of August 31, 1999, our membership and our core audience was
approximately 81% female. We believe this strong community has contributed to
increased user loyalty and time spent on iVillage.com. In August 1999, visitors
spent an average 113% more time per day on the iVillage network than on the next
leading women's network based on reach, according to Media Metrix.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ONLINE COMMERCE
The Internet has emerged as a significant global communications medium,
enabling millions of people to share information and conduct business
electronically and providing advertisers and businesses with an attractive means
of marketing and selling their products and services. International Data
Corporation estimates the number of users accessing the Web will increase from
approximately 142 million at the end of 1998 to approximately 502 million by the
end of 2003. According to International Data Corporation, the amount of commerce
conducted over the Web will top $1 trillion by 2003. Forrester Research, a
research firm that analyzes the future of technological change and its impact,
estimates that the amount spent on online advertising in the United States is
expected to increase from approximately $2.8 billion in 1999 to approximately
$22.2 billion by 2004. The Internet enables features and functions that are
unavailable in traditional media, permitting online retailers to interact
effectively with customers and advertisers to target specific demographic groups
by capturing valuable data on customer tastes, preferences and shopping and
buying patterns.
WOMEN'S INCREASING USE OF THE INTERNET AND THEIR IMPORTANCE IN THE ECONOMY
Women represent an attractive demographic group for advertisers and
businesses. According to Jupiter Communications, a new media research firm that
specializes in online research and analysis, 48% of the Internet audience was
female as of January 1999. This trend is important to advertisers because women
are estimated to have disproportionate control or influence over consumer
spending in the United States. For example, according to a November 1997
Advertising Age article, women controlled or influenced 80% of all purchase
decisions, 80% of new vehicle purchases, 66% of home computers, 46% of men's
wear and 70% of appliance choices. We believe that women are increasing their
use of the Internet for commercial purposes. Although women are underrepresented
in the online spending category, accounting for only 30% of online sales in
1998, according to Jupiter Communications, this gap is expected to narrow over
the next several years and grow to approximately 48% by 2002.
Spending on advertising targeted to women is generally considered to
represent the largest single category of advertising in the
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United States. Also, we believe that women online spend fewer hours watching
television or reading print media than they did prior to using the Internet in
comparison to their male counterparts. Thus, as women move online, advertisers
will likely follow suit.
NEED FOR A NETWORK DIRECTED TO WOMEN
For advertisers to effectively reach women online, they need to address the
fact that women use the Internet differently than men. We believe that women
want an environment built to meet their needs for problem-solving,
time-efficiency, integration of information, peer advice and simple navigation.
According to an International Data Corporation article, women appear to spend
less time "surfing" the Internet than men. We believe women spend more of their
online time at a single destination. In addition, the varied social roles of
women, which include, among other things, primary child care provider, wage
earner, consumer and investor, create stress and underscore the need for
efficient problem-solving mechanisms. For example, a working mother might find
herself at midnight applying for a mortgage, trading stocks or researching a
disease on the Internet, a time when traditional service providers cannot be
reached. The Internet provides a powerful communications vehicle where a woman
can find answers and seek advice from women with relevant life experiences at
any time of the day and from work or home.
We believe that the major Web search and retrieval services are generally
designed for all major demographic audiences, and, therefore, have historically
not created an environment focused on the specific programming needs and buying
habits of women. Consequently, we believe that women online and advertisers and
merchants seeking to reach concentrations of women online are underserved. It
has been reported that as the Web audience has become more educated about the
Internet, they will go directly to specific sites that meet their needs. This
trend toward more focused sites is more appealing to advertisers because they
can target a specific demographic.
THE PARENTING MARKET
With the acquisition of Lamaze Publishing, we will bring the benefits of
our communities and interactivity to new families and the advertisers who want
to reach them.
The birth of a child signals not only a lifestyle transition for new
parents, but also a major change in spending patterns and brand preferences. The
Juvenile Products Manufacturers Association and U.S. Department of Commerce
estimate expenditures for juvenile furniture and nursery accessories, baby food,
baby care items and infant apparel at $19.5 billion per year.
Young families making purchase decisions in all these areas typically lack
both preconceived brand preferences and product knowledge, and at the same time,
are anxious to learn about childbirth, infant care and the many important health
issues that confront them. Lamaze Publishing publications and the Newborn
Channel strive to fulfill these critical educational roles for both advertisers
and new parents.
Childbirth educators, maternity nurses and hospitals can use Lamaze
Publishing products and the Newborn Channel as teaching tools, and parents often
view them as credible, trusted sources of information. Advertisers can benefit
by reaching parents prior to and immediately after the birth of a child when
many purchase decisions are being made and brand preferences are being formed
that will last for years.
THE HEALTH MARKET
In addition to being a leader in the women's and parenting categories, our
health channel, allHealth, is one of the leading health destinations online.
Healthcare represents the largest single component of the United States economy.
According to the Health Care Finance Administration, healthcare was projected to
represent 13.9% of the U.S. Gross Domestic Product for an estimated total
expenditure of $1.2 trillion in 1999. Consumers are increasingly using the
Internet to make better informed healthcare decisions, including researching
health conditions, available treatments, and drug and product information.
Industry sources report that one-third of all Web users in the United States use
the Internet
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to locate healthcare information, half of whom are searching for information on
a specific disease or health condition. It is estimated that the number of
adults in the United States searching online for health and medical information
will grow from approximately 17 million for the twelve months ended June 1998 to
over 33 million by 2000. It is further reported that approximately 50% of
consumers who access healthcare information on the Internet make offline
purchases.
THE iVILLAGE SOLUTION
iVillage.com is the leading online destination targeted at women and one of
the most demographically focused communities on the Internet. We focus on the
needs of women online and have created an environment that solves everyday
problems quickly in those areas of life most important to women, including
family, parenting, work, money and health. The user's experience on iVillage.com
centers on solving these problems in one destination through targeted community,
access to experts, useful interactive tools and commerce opportunities.
We believe our success to date can be attributed to the following factors:
FOCUS ON HIGHLY TARGETED DEMOGRAPHIC GROUP
iVillage.com is primarily tailored to the interests and needs of women
online between the ages of 25 and 54. We believe that these women want:
o powerful, quick and easily accessible problem-solving content;
o emotional support, a sense of identification and access to sympathetic
listeners; and
o a consistent navigation and programming experience.
We believe that our network creates the experience women are seeking and
distinguishes iVillage.com from AOL, other women's networks and other online
services. iVillage.com offers a series of integrated tools, community resources,
experts and information databases to help women solve their everyday problems
quickly and effectively. For example, a woman who learns that she has a disease
can quickly:
o access other members who have lived through this experience and can
provide both guidance and emotional relief;
o access Healthwise Knowledgebase, a medical database to research the
topic;
o ask a health expert questions regarding the topic; and
o select and purchase books on the topic.
iVillage.com provides a place where women can find support from like-minded
women and the comfort of knowing that other women have shared similar
experiences and have come through them successfully. iVillage.com also offers
daily polls, message boards and chat that provide women with an immediate sense
of belonging and connection.
iVillage.com offers a consistent navigation and programming experience
across all channels and functions. Each channel is organized in a consistent
manner around tools, experts, resources and community. As of August 31, 1999,
iVillage.com's home page on both the Internet and AOL provided users with links
each week to over 80 experts, 1,000 chats and 1,700 message boards.
ACTIVE MEMBERSHIP AND COMMUNITY PARTICIPATION
We encourage active participation in our community and offer a number of
programs to increase levels of participation. Believing that members form
iVillage.com's core audience and are our most valuable customers, we created a
membership services group in January 1998. We have built an organization of over
1,600 community leaders who volunteer a significant amount of time hosting
message boards and chats and contributing to iVillage.com's proprietary content
and innovative bottoms-up programming. As of August 31, 1999, we were contacting
our members through approximately 10.7 million weekly newsletters.
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POSITIVE ENVIRONMENT FOR ADVERTISING AND COMMERCE
We believe that iVillage.com appeals to advertisers and consumers because
it combines the following attributes:
o a large, growing user base with a highly attractive demographic profile;
o a high degree of member involvement within the network, through polls,
message boards, chats, community chats and personalized interactive
services, allowing our advertisers to reach women when they are actively
seeking communication and focused on a goal;
o an interactive sponsorship model that integrates advertising and commerce
into the content of Web pages; and
o a single consistent brand.
In addition, we currently estimate that Lamaze Publishing reaches more than
75% of all women giving birth in the United States through its magazines, videos
and the Newborn Channel, its satellite television network broadcasting in over
800 hospitals in the United States. We believe our CPMs are significantly above
the industry average and the average for other women's Web sites. iVillage.com
also offers a scalable business platform from which we can generate multiple
revenue streams, including:
o banner advertising;
o sponsorship;
o production;
o e-commerce;
o content licensing and syndication;
o satellite television through the Newborn Channel;
o print media;
o direct mail;
o video production; and
o sampling.
BUSINESS STRATEGY
Our objective is to be the premier online destination targeted at women. We
have pursued acquisitions which, among other things, give us new vehicles to
reach and capture our target audience, provide new solutions for advertisers and
add to our ability to grow our overall business. Key elements of our strategy
are as follows:
BUILD STRONG BRAND RECOGNITION
We believe that building brand recognition of iVillage.com is critical to
attracting and expanding our global Internet user base. Our market leadership
position has been driven by partnership and distribution agreements with other
leading Internet-based companies. We also use barter transactions as a
significant component of our online marketing efforts. We expect barter
transactions to continue to be an important part of our business strategy. We
believe aggressive brand-building will become increasingly important to sustain
our leadership position and have begun to allocate some of our branding
expenditures toward offline branding on television and radio, through direct
media spending and through strategic alliances with traditional media partners.
On August 2, 1999, we announced a $28.5 million marketing campaign intended
to establish iVillage.com as the brand leader and strengthen our competitive
position. The marketing campaign, consisting primarily of broadcast and print
advertisements, started in the third quarter of 1999 and will run through the
first quarter of 2000. We believe that we can build offline brand awareness and
attract traffic by leveraging the reach of traditional media partners. For
example, in November 1998, we entered into a contract with NBC pursuant to which
NBC will promote iVillage.com during prime time programs as well as through its
Web sites.
We also plan to build brand recognition and develop new commerce
opportunities through the marketing and packaging of our content. For example,
we licensed portions of our online content to Planet Rx.com. In addition, we
currently run a syndicated column with Copley News Services based upon our
content and have published three books under the Parent Soup brand and are
contemplating publishing additional books on a variety of topics in order to
reach offline audiences.
Lamaze Publishing also presents attractive opportunities for advertisers to
have access to the majority of U.S. parents and prospective parents through one
single source.
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AGGRESSIVELY GROW MEMBERSHIP
We intend to grow our membership base and increase member usage through
member promotions, interactive services, community building and relationships
with national women's organizations. We also plan to offer additional
members-only services, including multi-player games, and to transition portions
of its programming to member-only areas. Once the user has visited iVillage.com,
our mission is to convert that user to a member.
ENHANCE AND EXPAND THE NETWORK
We intend to expand the network by developing additional channels and
expand the content of our existing channels. In addition, we intend to develop
these additional channels with sponsors and media partners in order to maintain
low development costs while creating high utility for users. Our recent
acquisitions of Online Psych, Lamaze Publishing and Family Point allow us to
expand our network through a strong brand, expert content, and audio and video
content which increases our online content to women.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES
We plan to continue to bolster our traffic, market share and revenues
through strategic acquisitions that offer opportunities to increase market share
in our content categories, offer high traffic or are sites categorized by high
retention statistics. In 1999, we made a number of strategic acquisitions to
further this goal. These include:
o Online Psych, one of the largest online health communities focused on
mental health;
o Lamaze Publishing, a multimedia provider of education information to
expectant and new mothers; and
o Family Point, a leading online meeting place for families, friends and
groups with similar interests.
We also intend to form alliances with larger companies to leverage their
brands, while incorporating content that is consistent with the network. We may
also expand our revenue opportunities through alliances with other retailers,
online service and content providers, commerce providers and advertisers.
INCREASE SPONSOR AND ADVERTISING REVENUES
We view our relationships with our sponsors and advertisers as critical to
our success. We have been a pioneer in developing innovative sponsorship
advertising relationships with leading brand marketers which go beyond
traditional banner advertising to support broad marketing objectives, including
brand promotion, awareness, product introductions, online research and the
integration of advertising with editorial content. We plan to continue to seek
additional sponsorship arrangements, which have longer-term contracts and higher
dollar values than typical banner deals and independence from page views as the
sole measurement basis. In addition, we intend to continue to attract banner
advertising and have recently created a discrete sales force to concentrate on
this area of the business, which is sold primarily through agencies. Through our
acquisition of Lamaze Publishing, we also offer advertising opportunities in
addition to our network over multiple platforms such as satellite television,
video and print. We have recently increased the size of our sales force to
concentrate on increasing our advertising and sponsorship relationships with
leading brand marketers.
GENERATE E-COMMERCE REVENUES
We intend to identify new commerce, revenue and acquisition opportunities
that enhance iVillage.com by offering transaction services in categories that:
o have a high degree of relevance to iVillage.com members;
o are appropriate for the Internet; and
o fit with or complement a current iVillage.com content site.
We also generate e-commerce revenues through agreements with leading
merchants interested in targeting iVillage.com members. These merchants receive
exposure through banner advertising, special content and promotional offers in
exchange for which we collect a fixed fee and a share of revenue from sales to
iVillage.com users. In addition to enhancing user retention, these retailing
opportunities can be used to identify valuable purchasing trends that can be
used in future advertising and commerce.
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THE iVILLAGE NETWORK
Our network is organized around 14 content specific channels and three
shopping channels. iVillage.com is a single point of entry to the our network of
sites and is updated daily to promote content and community, including channel
highlights. The following table provides a brief description of each channel's
features as of September 29, 1999:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- ----------------------- -------------------------------------------------------
<S> <C>
allHealth One of the leading health sites on the Internet,
allHealth assists users in becoming better health care
decision makers through approximately 250 bulletin
boards and approximately 290 weekly chats on AOL and
the Web. The site also includes Online Psych which
hosts the largest online bulletin board system on
mental health issues and a database of mental health
treatment providers.
astrology A site providing users with horoscopes, celebrity
profiles, romance charts, monthly guidance and the
ability to purchase astrology reports.
book club A book and reading site for readers interested in a
wide range of books that allows users to discuss
featured books and offers Monthly Book Picks, Question
of the Week, Reading Groups and iVillage.com
Bestsellers.
career A career planning site that provides women with tools
and resources relating to professional development and
career-related issues.
click! where computers A site offering users information on computers,
make sense including experts, tools, message boards and chats.
fitness & beauty A fitness and beauty site which includes Body
Calculators, Nutrition Experts and Community Challenges
to improve one's fitness level.
food A food site providing information on meal planning,
nutrition and recipes which includes Food Experts and
Cooking Basics.
moneylife A financial planning site providing users with
information on savings and investment strategies
focusing on key life stages of women.
parent soup A parenting site providing users with a branded online
community where parents share parenting solutions, talk
with experts and find answers and support.
parentsplace A parenting community center site that caters to women
who are trying to conceive, are expecting or are new
parents and includes, on AOL and the Web, approximately
870 bulletin boards and approximately 80 weekly chats.
pets A site designed in partnership with Ralston Purina that
provides information on caring for your pet, selecting
a breed and features an automated adoption and
veterinarian-finder tool sponsored by the American
Humane Association and American Animal Hospital
Association.
relationships A site offering users information and conversation on
love, marriage, sex and family.
travel A travel site that offers tools for planning a
vacation, articles on travel-related issues, a link to
a travel reservation center and a currency converter.
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- ----------------------- -------------------------------------------------------
<S> <C>
work from home A site providing women who work from home with tools
and resources such as Home Office Basics, a Tax Guide
and a Software Library.
shopping central A one-stop online shopping destination offering users
easy access to retail Web sites such as Amazon.com,
PlanetRx.com, WalMart, Lands End, iBaby and iMaternity.
iBaby A shopping site offering users access to all of their
retail baby needs.
iMaternity A shopping site offering maternity clothing and
products.
</TABLE>
We believe that user support is critical in order to attract and retain
users. We provide user support primarily through e-mail-based correspondence.
Help and feedback buttons are prominently displayed throughout iVillage.com, and
our user support staff attempts to respond to all e-mail queries within 24
hours. In addition, community leaders provide e-mail support for broad-ranging
issues. We do not charge for these services.
SPONSORSHIP AND ADVERTISING REVENUES
We have derived a significant amount of our revenues to date from the sale
of sponsorships and advertisements. For the years ended December 31, 1997 and
1998 and the six months ended June 30, 1999, sponsorship and advertising
revenues represented 93%, 80% and 73%, respectively, of our revenues.
Our strategy is focused in part on generating a majority of our advertising
revenues from sponsors and merchants who seek a cost-effective means to reach
women online. We are aggressively building our leadership position as the
preeminent women's brand to the advertising community. Our sponsorship
arrangements typically differ from traditional banner advertising in that they
are designed to achieve broad marketing objectives such as brand promotion,
awareness, product introductions and online research. Sponsorships allow
iVillage.com to cater to the specific goals of advertisers in the areas of
impressions, product research, market research, new product launches, list
development, product information, repositioning, new account openings, lead
generation and transactions. Sponsors also have the opportunity to talk
one-on-one with members on the network's message boards, chats, polls and
special events, which allows sponsors the opportunity to gain insights into
their customers. Our sponsorship arrangements generally have longer terms than
typical banner advertising placements and provide for CPMs per advertiser and
independence from page-views as the measure of value. In addition, we develop
extensive content to support the marketing initiatives of advertisers. Our
sponsorship agreements can be exclusive and generally are for a period of one to
three years.
We also derive a smaller portion of our sponsorship and advertising
revenues from banner advertisements that are prominently displayed at the top of
pages throughout the iVillage.com network. From each banner advertisement,
viewers can hyperlink directly to the advertiser's own Web site, thus providing
the advertiser the opportunity to directly interact with an interested customer.
During the years ended December 31, 1997 and December 31, 1998, our five
largest advertisers accounted for approximately 26% and 17%, respectively, of
our revenues. During the six months ended June 30, 1999, our five largest
advertisers accounted for 22% of total revenue. No advertiser accounted for more
than 10% of our revenues during either year or six-month period. The following
is a select list of our advertisers:
<TABLE>
<S> <C>
Charles Schwab & Co. Glaxo Wellcome
First USA Kimberly-Clark
Ford Motor Ralston Purina
Fuji Photo Film USA Warner Lambert
</TABLE>
MEMBERSHIP
We believe a large and active membership base is critical to our success.
Some features of our Web sites are restricted to members. Membership is free and
available to iVillage.com visitors who disclose their names, e-mail addresses,
zip codes, ages and gender
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and choose a member name and password to be used throughout members-only areas.
Members form iVillage.com's core audience and are our most valuable users. We
have launched an aggressive member-acquisition campaign, which includes the
creation of free services and support for members.
E-mail, instant messaging, community challenges, message boards and chats
are examples of members-only benefits. In addition, within the allHealth
channel, the personal health report is restricted to members and within the
Parent Soup channel, the pregnancy calendar is restricted to members.
We recognize the importance of maintaining confidentiality of member
information and have a privacy policy to protect such information. Our current
privacy policy is set forth on iVillage.com in a member's terms of service,
which is linked to the site where a person initially registers for membership.
Our current policy is to never sell to any third party any member's personal
identifying information, such as his or her name or address, unless the member
has provided written consent. In some situations, we do allow a third-party
partner access to database information if it is necessary for the delivery of a
member service, such as e-mail. In these instances, the partner has agreed to be
bound by our current policy. We do share aggregated member information with
third parties, such as a member's zip code, gender or age. We also reserve the
right to offer members products and services. We may use information revealed by
members and information built from user behavior to target advertising, content
and e-mail. For instance, we may, on behalf of an advertiser, send e-mail offers
to all members from a particular region or target advertisements to all users
who frequent a specific area of the site.
E-COMMERCE
OVERVIEW
We have identified the opportunity to generate new commerce revenues by
selling products or services that have a high degree of relevance to our members
and fit within a content area or provide an opportunity for future content
development.
iBABY AND iMATERNITY
iBaby offers more than 5,000 products from over 400 manufacturers
representing an extensive assortment of products for children under three years
of age. The site's comprehensive selection, combined with easy site navigation
and time-saving features such as a baby registry, superior product search and a
gift-finder service, makes iBaby convenient for new and expectant parents.
iBaby targets parents through newsletters, message boards, content
integration and banner ads. iBaby has distribution agreements with online
services such as AOL and Yahoo!. iBaby has also initiated a substantial print
advertising campaign in various magazines to increase sales and build brand
awareness.
Online orders are taken 24 hours a day, seven days per week and products
are shipped generally within 48 hours of placement of most orders. We recently
started handling merchandising, inventory management and order fulfillment for
iBaby.
During the second quarter of 1999, iBaby launched an additional commerce
channel, iMaternity. iMaternity sells iMaternity brand clothing and products.
All product orders and fulfillment are currently handled by Dan Howard, Inc. All
orders for iMaternity are taken through its channel on the iBaby Web site, and
iBaby collects the payment for product sales. Lamaze-licensed products will also
be offered through iBaby and iMaternity.
ASTROLOGY.NET
Astrology.Net is a leading destination for women seeking daily horoscopes,
astrology content and personalized forecasts online. Through our network of
sites organized by topics of interest to women such as family, love, money and
career, Astrology.Net provides a timely, personalized experience for the user,
stimulates commerce sales of monthly and annual forecasts by subject and creates
an advertising environment that is appealing to advertisers due to targeting
possibilities within the site and through e-mail communication.
Astrology.Net brings iVillage a content and commerce site that is appealing
to our core demographic of women, represents one of the best customer
acquisition tools as
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demonstrated by strong performance in online media, and a vehicle to drive
repeat visits to iVillage through the use of daily horoscopes. Astrology.Net has
also created an interactive commerce system that provides instantaneous, digital
astrology reports. The system consists of software which operates the Web site
and is capable of generating customized astrology reports based on input from
users.
ALLIANCES
We pursue strategic relationships to increase our access to online
customers, build brand recognition and expand our online presence. Historically,
we have pursued strategic alliances to reach online customers. We have begun to
shift our focus to building offline brand recognition and to increasing our
access to offline customers. Our principal strategic alliances and relationships
include the following:
MEDIA ARRANGEMENT
In November 1998, we entered into an advertising and promotional agreement
with NBC pursuant to which NBC promotes iVillage.com on television, primarily
during prime-time programs, as well as through its Web sites. In March 1999, we
amended our November 1998 agreement with NBC to provide for the purchase by us,
for cash, of $13.5 million of advertising and promotional spots during 1999 and
$8.5 million per year during 2000 and 2001.
SPONSORSHIP ARRANGEMENTS
We have a number of sponsorship arrangements with leading and sponsors,
including:
o Charles Schwab & Co. - exclusive sponsorship of all brokerage and mutual
fund categories on all of our money, financial or investing related
sites.
o Ford Motor Media - promotion of the sale of Ford automotive products
across our Web sites.
o Fuji Photo Film USA - exclusive sponsorship for the photographic film,
disposable camera and digital camera categories throughout our network.
o General Electric - exclusive sponsorship for GE Appliances of the speed
cooking ovens category throughout our network.
o Glaxo Wellcome - exclusive sponsorship for certain disease categories
throughout our network.
o Ralston Purina - creation of a pet channel and provider of content,
experts, customer service and distribution for the pet channel.
o Warner Lambert - promoting and marketing a range of products.
DISTRIBUTION ARRANGEMENTS
We consider branding an important aspect of our distribution arrangements
and seek distribution relationships where our brand is promoted. We have also
entered into distribution and content relationships with a number of major
online service companies on the Internet, including:
o Snap.com - we have the exclusive right to program the content on the
front pages of the Health Center, with health-related content from
iVillage.com and Snap's Family Center with content from Parent Soup.
o AOL - some of our icons are placed within the AOL service and we receive
guaranteed impressions.
LAMAZE PUBLISHING
We plan to use Lamaze Publishing to solidify our leading position in the
parenting category. Lamaze Publishing produces advertising-supported educational
materials for expectant and new parents and is the exclusive licensee of the
LAMAZE mark for use in connection with consumer publications and other
communications, which include print, audio, visual and other consumer oriented
media, that are commercial in nature. Lamaze Publishing is also the exclusive
marketing agent for Lamaze International, Inc., the owner of the LAMAZE family
of marks.
Lamaze is a method of childbirth preparation based on the Lamaze philosophy
of birth. The Lamaze philosophy of birth states that birth is "normal, natural
and healthy," and
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"childbirth education empowers women to make informed choices in healthcare, to
assume responsibility for their health and trust their inner wisdom".
Lamaze International was founded by interested parents, childbirth
educators and healthcare providers in 1960 to promulgate these ideas. Lamaze
Publishing was established as a for-profit company in 1990 to provide childbirth
and infant care educational materials.
During a pregnancy and immediately after the birth of a child, new parents
spend substantial amounts of time with childbirth educators and maternity nurses
seeking information on healthcare issues, the birth process and infant care.
These busy healthcare professionals typically have neither the time nor the
resources to create the consumer publications or communications that would
assist this process and allow parents to absorb this material at home.
The Lamaze Publishing business strategy is to provide these consumer
publications or communications to childbirth educators and maternity nurses free
of charge, and offset the expense incurred by selling print advertising and
commercial messages to advertisers who target the young family market.
Lamaze Publishing publications, used and distributed to parents by
childbirth educators and maternity nurses nationwide, include:
o Lamaze Parents, a prenatal publication used in childbirth education.
Topics include prenatal nutrition, the role of the childbirth partner,
and the physical and emotional challenges of pregnancy. Childbirth
educators distribute Lamaze Parents to expectant parents on the first
night of class. This publication reaches an estimated 75% of all
non-Hispanic women giving birth in the U.S. Lamaze Parents had an average
annual circulation of approximately 2,400,000 for 1998.
o Lamaze Baby, a parenting guide for mothers from the time a child is born
through twelve months of life written entirely by healthcare
professionals. Lamaze Baby is delivered by maternity nurses to new
mothers at the hospital bedside shortly after childbirth. The magazine
covers topics that hospital nurses review with new mothers prior to
discharge serving as a helpful and time saving tool for nurses in
educating mothers about infant care. Lamaze Baby had an average annual
circulation of approximately 3,000,000 for 1998.
o Revista Lamaze para Padres, a Spanish-language prenatal magazine which
reaches more expectant Hispanic mothers than any other title. Childbirth
educators distribute Revista Lamaze para Padres to expectant parents on
the first night of class. This publication reaches an estimated 85% of
Hispanic woman giving birth. Revista Lamaze para Padres had an average
annual circulation of approximately 575,000 for 1998.
o "Lamaze You and Your Baby", a 90 minute video textbook providing
expectant parents with important instruction on infant care. Childbirth
educators distribute to expectant parents the video, which is later
returned. The video is distributed yearly to childbirth educators,
typically during the first four months of the year. As of April 1999,
approximately 7,600 childbirth educators had ordered approximately
160,000 videos from Lamaze Publishing.
o "Lo Mejor para Su Bebe", a 60 minute Spanish-language video textbook that
provides expectant parents with important instruction on infant care.
This video is modeled after "Lamaze You and Your Baby". The video is
distributed yearly to childbirth educators, typically during the first
four months of the year. As of April 1999, approximately 4,300 childbirth
educators ordered approximately 40,000 videos from Lamaze Publishing.
o Lamaze Special Delivery, a program offering advertisers the ability to
distribute coupons, samples and promotional literature to expectant and
new parents. Information to be distributed is polybagged with Lamaze
Parents, Lamaze Baby and Revista Lamaze para Padres.
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Lamaze Publishing also owns the Newborn Channel, a satellite television
network that instructs mothers in their hospital rooms following birth in over
800 hospitals nationwide and, as of June 30, 1999, reached approximately
2,000,000 new mothers.
SALES, MARKETING AND PUBLIC RELATIONS
SALES
As of August 31, 1999, we had a direct sales organization, consisting of 10
sales professionals with an average of 14 years of experience, and 31 sales
operations staff. Our sales organization consults regularly with advertisers and
agencies on design and placement of its Web-based advertising and the production
and management of bridge sites, provides customers with advertising management
analysis and focuses on providing a high level of customer satisfaction. Five
professionals concentrate primarily on advertising sales for the Newborn
Channel, video products, and print advertising sales. Two salespersons are
dedicated solely to the sale of Special Delivery promotional products. We
generally seek to hire individuals with significant experience in selling
advertising and pre-existing relationships with advertisers in a variety of
media.
MARKETING AND PUBLIC RELATIONS
We employ a variety of methods to promote the iVillage.com brand and to
attract traffic and new members, including advertising on other Internet sites,
targeted publications, radio stations, cable television, cross promotional
arrangements to secure advertising and other promotional considerations. To
extend the iVillage.com brand, we have also entered into several strategic
alliances with offline partners. Please see "--Alliances". In addition, we
leverage other audience building strategies, including working closely with
search engine submissions, news group postings and cross-promotion with affinity
sites to properly index materials. Our marketing department consisted of 41
marketing professionals as of August 31, 1999.
Our internal public relations staff oversees a comprehensive public
relations program which we believe is a key component of our marketing and brand
recognition strategy. Organized into two primary components that promote
iVillage and the iVillage.com brand, the program targets a trade/business and
consumer audience, respectively. We have developed a consumer outreach effort
which centers on providing non-technology reporters with "news-you-can-use"
information taken directly from iVillage.com, to demonstrate to readers/viewers
the content's utility and service, and usage of and traffic to our network. We
have also implemented national long-lead consumer initiatives, such as radio
media tours, regional broadcast media tours, consumer publicity of our Parent
Soup book series and other related activities, and multiple daily media
advisories sent to consumer outlets throughout the United States.
To maximize distribution of our publications and the Newborn Channel, and
gain the endorsement of the professional community for these products, we give
particular attention to marketing efforts targeted to childbirth educators,
maternity nurses and hospitals. A staff of four marketing professionals
contracts hospitals for distribution of the Newborn Channel and works with the
professional community to maintain distribution levels of our publications and
demonstrate how they can be used as teaching tools for expectant parents and new
mothers. Our representatives attend nine trade shows and professional
conferences per year and also maintain contact with the professional community
through consumer publication updates and personal sales calls.
In the advertising sales area particular attention is paid to market
research and providing advertisers information and expertise that will help them
market their products more effectively using products distributed in an
educational setting. In addition to information on readership, viewing levels
and advertising recall, studies are regularly conducted on purchasing patterns,
attitudes and brand preferences of expecting and new parents for dissemination
to advertisers.
Public relations activities include traditional press contacts to encourage
publicity on new articles and programming in our products and the results of
research among young parents. Events for advertisers and agencies are also
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conducted on a regular basis to increase our overall visibility and the Newborn
Channel.
OPERATING INFRASTRUCTURE
Our Internet operating infrastructure has been designed and implemented to
support the delivery of millions of page views a day. Web pages are generated
and delivered, in response to end-users requests, by any one of more than 30
servers. Key attributes of this infrastructure include the ability to support
growth, performance and service availability.
Our servers run on the Sun Solaris, Microsoft NT and Linux operating
systems and use Netscape Enterprise, Apache and Microsoft Corporation's IIS Web
server software.
We maintain all of our production servers at the New Jersey Data Center of
Exodus Communications, Inc., Verio, Inc. in San Francisco, California and the
San Diego Data Center of AT&T CERFnet. Our operations are dependent upon these
companies' ability to protect its systems against damage from fire, hurricanes,
power loss, telecommunications failure, break-ins and other events.
Exodus, Verio and AT&T CERFnet provide comprehensive facilities management
services, including human and technical monitoring of all production servers 24
hours per day, seven days per week. However, Verio's facility is not staffed at
all times. Each of these companies provides the means of connectivity for our
servers to end-users via the Internet through multiple connections. Each
facility is powered by multiple uninterruptible power supplies. Please see "Risk
Factors--We may be unable to respond to the rapid technological change in our
industry" and "--Internet security concerns could hinder e-commerce".
All of our production data, except Astrology.Net, are copied to backup
tapes each night and stored at a third party, off-site storage facility. We
expect to begin daily off-site backup of Astrology.Net data shortly. We are in
the process of developing a comprehensive disaster recovery plan to respond to
system failures. We keep all of our production servers behind firewalls for
security purposes and do not allow outside access, at the operating systems
level, except via special secure channels. Strict password management and
physical security measures are followed. Computer emergency response team alerts
are read, and, where appropriate, recommended action is taken to address
security risks and vulnerabilities. From time to time, we use the services of
third party computer security experts and penetration tests have been performed
to help improve security.
Our Web sites must accommodate a high volume of traffic and deliver
frequently updated information. Components or features of our Web sites have in
the past suffered outages or experienced slower response times because of
equipment or software downtime. This has not had a material effect on our
business.
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Broadcasting of the Newborn Channel to hospitals originates from a laser
disc system operated by Group W Network Services, from Group W's facility in
Stamford, Connecticut. The system provides an uplink signal to a satellite
operated by PanAmSat. The signal is received through a satellite dish at each
hospital and distributed to patients' rooms. Group W handles installation and
service of all hospital receiving equipment. We maintain business interruption
insurance in the event programming is interrupted over the designated satellite.
COMPETITION
The market for members, visitors and Internet advertising is new and
rapidly evolving, and competition for members, visitors and advertisers is
intense and is expected to increase significantly in the future. With no
substantial barriers to entry, we expect that competition will continue to
intensify.
We believe that the primary competitive factors in creating community on
the Internet are:
o functionality;
o brand recognition;
o member affinity and loyalty;
o demographic focus;
o variety of value-added services;
o ease-of-use;
o quality of service; and
o reliability and critical mass.
Other companies or sites which are primarily focused on targeting women
online include Women.com Networks, thriveonline.com and condenet.com, as well as
Web sites targeted to categories such as health. We also compete with e-commerce
companies such as eToys, Inc. and its wholly-owned subsidiary, BabyCenter, Inc.
We will likely also face competition in the future from:
o developers of Web directories;
o search engine providers;
o shareware archives;
o content sites;
o commercial online services;
o sites maintained by Internet service providers; and
o other entities that attempt to or establish communities on the Internet
by developing their own or purchasing one of our competitors.
In addition, we could face competition in the future from traditional media
companies, a number of which, including Disney, CBS and NBC, have recently made
significant acquisitions of or investments in Internet companies. Further, there
can be no assurance that our competitors and potential competitors will not
develop communities that are equal or superior to ours or that achieve greater
market acceptance than our community.
We also compete with traditional forms of media, such as newspapers,
magazines, radio and television, for advertisers and advertising revenues. We
believe that the principal competitive factors in attracting advertisers
o the amount of traffic on our Web sites;
o brand recognition;
o the demographics of our members and visitors;
o our ability to offer targeted audiences; and
o the overall cost-effectiveness of the advertising medium offered by us.
We believe that the number of Internet companies relying on Web-based
advertising revenues will increase greatly in the future. Accordingly, we will
likely face increased competition, which could in turn have a material adverse
effect on our business, results of operations and financial condition.
Many of our current and potential competitors, including developers of Web
directories and search engines and traditional media companies, have:
o longer operating histories;
o significantly greater financial, technical and marketing resources;
o greater name recognition; and
o larger existing customer bases.
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These competitors are able to undertake more extensive marketing campaigns
for their brands and services, adopt more aggressive advertising pricing
policies and make more attractive offers to potential employees, distribution
partners, commerce companies, advertisers and third-party content providers.
There can be no assurance that Internet content providers and Internet service
providers, including developers of Web directories, search engines, sites that
offer professional editorial content and commercial online services, will not be
perceived by advertisers as having more desirable Web sites for placement of
advertisements. In addition, many of our current advertising customers and
strategic partners also have established collaborative relationships with
certain of our competitors or potential competitors, and other high-traffic Web
sites. Accordingly, there can be no assurance that:
o we will be able to grow our membership, traffic levels and advertiser
customer-base at historical levels;
o we will be able to retain our current members, traffic levels or
advertiser customers;
o competitors will not experience greater growth in traffic as a result of
these relationships which could have the effect of making their Web sites
more attractive to advertisers; or
o our strategic partners will not sever or will elect not to renew their
agreements with us.
Several major publishing companies produce products that are directly
competitive with our magazines. Time Warner, Gruner and Jahr and Primedia all
publish various pre- and post-natal publications. Disney Publishing and
Children's Television Workshop also publish general parenting magazines. All of
these publishers have substantially greater marketing, research and financial
resources than us. We compete by emphasizing the highly targeted nature of our
audience, product quality and the fact that our publications are used as
teaching tools by professionals, and the credibility and trust parents place in
the Lamaze brand name.
While our Lamaze Publishing instructional videos and the Newborn Channel
currently have no direct competitors, advertisers in this marketplace are heavy
users of daytime network television and cable television networks targeted to
young parents. The broadcasting companies that provide such opportunities have
invested substantial amounts in programming, sales and marketing and are much
better-known to advertisers than Lamaze Publishing and the Newborn Channel. To
compete, Lamaze Publishing and the Newborn Channel must convince them that
advertising recall and effectiveness obtained in an educational or hospital
setting is superior to that of traditional broadcasting.
There can be no assurance that we will be able to compete successfully
against our current or future competitors or that competitive pressures faced by
us will not have a material adverse effect on our business, results of
operations and financial condition.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS
AND DOMAIN NAMES
We regard our copyrights, service marks, trademarks, trade names, trade
dress, trade secrets, proprietary technology and similar intellectual property
as critical to our success, and rely on trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with our
employees, customers, independent contractors, partners and others to protect
our proprietary rights. We pursue the registration of our trademarks and service
marks in the United States, and have applied for and obtained registration in
the United States for certain of our trademarks and service marks, including
"iVillage". Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are made available online.
We have licensed in the past, and expect that we may license in the future,
certain of our proprietary rights, such as trademarks or copyrighted material,
to third parties. While we attempt to ensure that the quality of our brand is
maintained by these licensees, there can be no assurance that the licensees will
not take actions that might materially adversely affect the value of our
proprietary rights or reputation, which could have a material adverse effect on
our business, financial condition and results of
47
<PAGE>
operations. There can be no assurance that the steps taken by us to protect our
proprietary rights will be adequate or that third parties will not infringe or
misappropriate our copyrights, trademarks, trade dress and similar proprietary
rights. In addition, there can be no assurance that other parties will not
assert claims of infringement of intellectual property or alter proprietary
rights against us.
We have been subject to claims and expect to be subject to legal
proceedings and claims from time to time in the ordinary course of our business,
including claims of alleged infringement of patents, trademarks and other
intellectual property rights of third parties by us and our licensees. These
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources. Further, if these claims are successful, we
may be required to change our trademarks, alter our content, alter our site
format and pay financial damages. There can be no assurance that these changes
of trademarks, alteration of content or format or payment of financial damages
will not adversely affect our business, results of operations and financial
condition.
We filed a service mark application for the mark "PARENTSPLACE.COM". On
July 22, 1998, Jewish Family and Children's Services filed a Notice of
Opposition in the Trademark Trial and Appeal Board of the U.S. Patent and
Trademark Office. On January 22, 1999, we filed an Answer to the Notice of
Opposition, denying that there was any likelihood of confusion between our mark,
"PARENTSPLACE.COM", and the mark used by Children's Services. Children's
Services has proposed a resolution of this dispute that would allow us to
continue using the mark "PARENTSPLACE.COM". There can be no assurance that a
resolution can be achieved or that Children's Services will not be successful in
the Opposition proceeding, thus preventing us from securing a federal
registration to the mark "PARENTSPLACE.COM". Further, there can be no assurance
that Children's Services will not assert a claim to trademark rights against us
in the future with respect to the use of "PARENTSPLACE.COM" or "PARENTSPLACE",
either as currently used or as developed in the future. We are not able at this
time to evaluate the likelihood of an unfavorable outcome in the event such
claims are asserted, or to estimate the amount or range of potential loss.
We may be required to obtain licenses from others to refine, develop,
market and deliver new services. There can be no assurance that we will be able
to obtain any license on commercially reasonable terms or at all or that rights
granted pursuant to any licenses will be valid and enforceable.
HUMAN RESOURCES
As of August 31, 1999, we employed 346 full-time employees, of whom 92 were
in sales and marketing, 70 were in editorial and community, 82 were in
administration and 102 were in technology, operations and support. As we
continue to grow and introduce more products, we expect to hire more personnel,
particularly in the areas of product development and sponsorship. None of our
current employees are represented by a labor union or is the subject of a
collective bargaining agreement. We believe that relations with our employees
are good.
FACILITIES
We are headquartered in New York, New York, where we lease an aggregate of
approximately 40,950 square feet of space. We lease space in two buildings
located across the street from each other. We lease one floor at 170 Fifth
Avenue, which is approximately 3,650 square feet. The lease expires on
October 31, 1999. We lease two floors at 149 Fifth Avenue, which are each
approximately 10,000 square feet. The lease expires on June 30, 2000. We have a
third lease at 212 Fifth Avenue for approximately 20,000 square feet of space.
The lease expires on June 30, 2000. We currently anticipate that we will require
additional space as more personnel are hired. We are actively searching for
larger space in New York City to serve as the permanent space for our long-term
future.
We also lease a sales office which is located at 645 North Michigan Avenue,
Chicago, Illinois. The lease is on a month-to-month basis.
iBaby is currently leasing approximately 5,115 square feet of space on a
month-to-
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month basis at 8400 Miramar Road, San Diego, California. iBaby also is under
contract to lease 39,629 rentable square feet at a facility being constructed at
6910 Carroll Road in San Diego, California for use as general office,
administrative, storage, warehousing and distribution. iBaby has an option to
lease an additional 34,307 feet and has a one-time right of first refusal with
respect to this same expansion space. The lease is for a term of 24 months with
the right to extend the lease term for an additional 5 years.
Lamaze Publishing subleases approximately 8,500 square feet of space at 9
Old Kings Highway, Darien, Connecticut. The sublease expires on June 30, 2000.
LEGAL PROCEEDINGS
On January 8, 1999, a complaint was filed in the Chancery Court for
Williamson County, Tennessee by a former employee against us and three of our
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.
On January 29, 1999, the case was removed from the Chancery Court to the
U.S. District Court for the Middle District of Tennessee. On March 12, 1999, the
U.S. District for the Middle District of Tennessee issued a ruling transferring
the case to the U.S. District Court for the Southern District of New York. A
motion by us to dismiss the case has been filed and is awaiting a decision.
There is also pending a motion by the plaintiff for leave to add as new
plaintiffs two former executives who allege that we breached certain obligations
to them and seek an award of an aggregate 560,000 stock options. In addition, on
August 11, 1999, the plaintiff filed a complaint with the Equal Employment
Opportunity Commission alleging gender discrimination in connection with his
termination of employment. We believe that the claims and the proposed new
claims are without merit and intend to vigorously defend against these claims.
This litigation, whether or not determined in our favor or settled by us,
may be costly and may divert the efforts and attention of our management from
normal business operations.
We are not currently subject to any other material legal proceedings other
than as set forth in "--Intellectual Property, Proprietary Rights and Domain
Names". We may from time to time become a party to various legal proceedings
arising in the ordinary course of our business.
49
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and executive officers of
iVillage, their ages
and the positions held by them with iVillage as of September 29, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ---------------------------------------------
<S> <C> <C>
Candice Carpenter(e)..... 47 Co-Chairperson of the Board and Chief
Executive Officer
Nancy Evans(e)........... 49 Co-Chairperson of the Board and Editor-in-
Chief
Craig T. Monaghan........ 42 Chief Financial Officer
Allison Abraham.......... 36 Chief Operating Officer
John W. Glascott......... 46 Senior Vice President, Sponsorship
Caterina A. Conti........ 37 General Counsel and Secretary
Donna M. Introcaso....... 41 Senior Vice President, Human Resources
Steven A. Elkes.......... 38 Senior Vice President, Business Affairs and
Assistant Secretary
Elizabeth J. Hudson...... 50 Senior Vice President, Corporate
Communications
John Curran.............. 35 Senior Vice President, Corporate Development
Scott Levine............. 34 Vice President, Controller and Chief
Accounting Officer
Alan Colner(c)........... 44 Director
Jay C. Hoag(a)(d)........ 40 Director
Habib Kairouz(b)(e)...... 33 Director
Lennert J.
Leader(a)(c)............. 44 Director
Michael Levy(b)(c)....... 52 Director
Douglas
McCormick(b)(d).......... 49 Director
Daniel Schulman(d)....... 41 Director
Martin Yudkovitz(a)(e)... 44 Director
</TABLE>
- ------------------
(a) Member of the audit committee
(b) Member of the compensation committee
(c) Class I director
(d) Class II director
(e) Class III director
CANDICE CARPENTER is a founder of iVillage and has been Chairperson of the
Board and Chief Executive Officer since inception of iVillage in June 1995 and
Co-Chairperson of the Board since December 1998. Prior to founding iVillage,
Ms. Carpenter was President of Q2, the upscale QVC, Inc. shopping channel, from
1993 through 1995. Ms. Carpenter was also a consultant to AOL and Discovery
Communications, Inc. in 1995. From 1989 to 1993, Ms. Carpenter was President of
Time Life Inc.'s Time Life Video and Television and previously was Vice
President in Consumer Marketing at American Express Company. Ms. Carpenter
received an M.B.A. from Harvard Business School and a B.A. from Stanford
University.
NANCY EVANS is a founder of iVillage and has been Editor-in-Chief since
inception in June 1995 and Co-Chairperson of the Board since December 1998.
Ms. Evans is primarily responsible for the editorial quality and content for all
of iVillage's editorial products online, in print or on television. Prior to
founding iVillage, Ms. Evans created Family Life magazine in 1991, which she
published in partnership with
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Jann Wenner. From 1987 to 1991, Ms. Evans served as President and Publisher of
Doubleday. Prior to her employment at Doubleday, Ms. Evans was Vice President
and Editor-In-Chief of the Book-of-the-Month Club, where she launched the
Children's Book-of-the-Month Club. Ms. Evans graduated from Skidmore College
with a B.A. and is also a graduate fellow at Columbia University.
CRAIG T. MONAGHAN has been Chief Financial Officer of iVillage since June
1998. From 1991 to June 1998, Mr. Monaghan held various positions at Reader's
Digest Association Inc., including Vice President and Treasurer, Vice President,
Business Development and Controller, Reader's Digest Europe. Prior to joining
Reader's Digest, Mr. Monaghan served as Director of International Finance and
Director of Corporate Finance at Bristol-Myers Squibb Company. Mr. Monaghan
received an M.B.A. from The Wharton School at the University of Pennsylvania and
a B.S. in Engineering from Lehigh University.
ALLISON ABRAHAM has been Chief Operating Officer since November 1998. From
June 1998 to October 1998, Ms. Abraham was the Executive Vice President of
iVillage. From August 1996 to May 1998, Ms. Abraham was President and Chief
Operating Officer of OnCart, an online grocery shopping service. From 1992 to
1996, she served as Vice President of Marketing for Ameritech Corporation, a
telephone and cellular telecommunications company, as well as other sales and
marketing positions. From 1988 to 1992, Ms. Abraham was employed by American
Express Travel Related Services, where she focused on loyalty programs and new
product development. Ms. Abraham received an M.B.A. from The Darden School at
the University of Virginia and a B.A. from Tufts University.
JOHN W. GLASCOTT has been Senior Vice President, Sponsorship since April
1998. From September 1996 to March 1998, Mr. Glascott was Senior Vice President
and Director of Corporate Marketing and Sales for Hearst Magazines. From August
1994 to September 1996, Mr. Glascott was a publisher and partner of SmartHealth
at Meigher Communications L.P., a magazine publisher. Prior to such time,
Mr. Glascott held various sales management positions at Whittle Communications
L.P., a media company, from 1982 to 1994. Mr. Glascott received an M.B.A. from
New York University and a B.A. from Ohio Wesleyan University.
CATERINA A. CONTI has been General Counsel and Secretary since November
1998. From January 1998 to November 1998, Ms. Conti was a partner with the law
firm of Orrick, Herrington & Sutcliffe LLP. From December 1995 to January 1998,
she was an associate with the same firm. From September 1988 to December 1995,
Ms. Conti was an associate with the law firm of Kelley Drye & Warren LLP.
Ms. Conti received her J.D. from St. John's University School of Law and her
B.S. from St. John's University. Ms. Conti has resigned from iVillage as General
Counsel and Secretary effective October 19, 1999 in order to pursue personal
interests. Ms. Conti will continue with iVillage as an employee performing
services on a special projects basis.
DONNA M. INTROCASO has been Senior Vice President, Human Resources since
February 1999. From October 1998 to February 1999, Ms. Introcaso was Vice
President, Human Resources. From March 1996 to September 1998, Ms. Introcaso was
Vice President of Human Resources for WinStar Communications, Inc., a
telecommunications company, where she focused on executive compensation and
employee benefit programs. From April 1995 until February 1996, Ms. Introcaso
was the Director of Human Resources at iGuide, an on-line Internet service
provider. From July 1991 to March 1995, she was the manager of Human Resources
of Wm. H. McGee and Co., Inc., a marine insurance company. Ms. Introcaso
received her M.B.A from Cornell University and her B.A. from the College of
Notre Dame.
STEVEN A. ELKES has been Senior Vice President, Business Affairs since
April 1999 and Assistant Secretary since September 1997. From August 1996 to
April 1999, Mr. Elkes was Vice President, Business Affairs. From August 1993 to
August 1996, Mr. Elkes was Vice President Credit/Structured Finance at CAN
Insurance Company. From August 1991 to August 1993, Mr. Elkes served as
Assistant Vice President at CAN Insurance Company.
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Mr. Elkes received his M.B.A. from Baruch College and his B.A. from Grinnell
College.
ELIZABETH J. HUDSON has been Senior Vice President, Corporate
Communications since June 1999. From January 1998 to May 1999, Ms. Hudson was a
director in the Global Media and Communications Practice for Spencer Stuart, an
executive recruiting firm. From May 1996 to July 1997, Ms. Hudson was Senior
Vice President of Corporate Communications at The Readers Digest Association.
From 1979 to 1996, Ms. Hudson held various positions at the National
Broadcasting Company, Inc., including Vice President of Corporate Projects, Vice
President of Corporate Relations and Advertising, Vice President of Corporate
and Media Relations, Vice President of Corporate Communications and Senior Vice
President of Corporate Communications and Executive Producer of NBC Productions,
a division of NBC. Ms. Hudson received a B.A. in Journalism from the University
of Georgia.
JOHN CURRAN has been Senior Vice President, Corporate Development since
August 1999. From 1995 to 1999, Mr. Curran was Director, Media Investment
Banking at Merrill Lynch & Co. From 1986 to 1995, Mr. Curran held various
positions at Goldman, Sachs & Co. including Vice President, Communications,
Media & Entertainment Group. Mr. Curran received a B.A. from DePauw University.
SCOTT LEVINE has been Vice President, Controller and Chief Accounting
Officer since February 1999. From July 1998 to February 1999, Mr. Levine was
Controller for Fundtech Ltd., a financial software company. From April 1997 to
July 1998, Mr. Levine was the Controller of AmeriCash, Inc., an operator of a
network of automated teller and electronic commerce machines. From 1993 to 1997,
Mr. Levine was employed by Coopers & Lybrand L.L.P. Mr. Levine is a Certified
Public Accountant and received his M.B.A. from Baruch College and his B.A. from
State University of New York, Buffalo.
ALAN COLNER has been a director of iVillage since February 1999. Since
August 1996, Mr. Colner has served as Managing Director, Private Equity
Investments at Moore Capital Management, Inc. Before joining Moore, he was a
Managing Director of Corporate Advisors, L.P., the general partner of Corporate
Partners, a private equity fund affiliated with Lazard Freres & Co. LLC.
Mr. Colner is a director of GoTo.com, Inc., an Internet search company and
NextCard, Inc., an Internet based provider of consumer credit. Mr. Colner also
serves as a director of several privately held companies. Mr. Colner received an
M.B.A. from the Stanford University Graduate School of Business and a B.A. from
Yale University.
JAY C. HOAG has been a director of iVillage since February 1999. Since June
1995, Mr. Hoag has been a General Partner of Technology Crossover Ventures, a
venture capital firm. From 1982 to 1994, Mr. Hoag served in a variety of
capacities at Chancellor Capital Management, Inc. Mr. Hoag is currently a
director of ONYX Software Corporation, a provider of customer management
software and Autoweb.com, a consumer automotive Internet service. He also serves
as a director of several privately held companies. Mr. Hoag received his M.B.A.
from the University of Michigan and a B.A. in Economics and political science
from Northwestern University.
HABIB KAIROUZ has been a director of iVillage since March 1998. Currently,
Mr. Kairouz is Managing Director of Rho Management Company, Inc., an investment
company, and has been with Rho since 1993. He also serves as a director at
Bellwether Exploration Company, Inc., an oil drilling company, and a number of
other private companies. Mr. Kairouz received a B.S. in Engineering and a B.A.
in Economics from Cornell University and an M.B.A. in Finance from Columbia
University.
LENNERT J. LEADER has been a director of iVillage since July 1998. Since
February 1998, Mr. Leader has been President of AOL Investments, a division of
America Online, Inc. Mr. Leader served as Senior Vice President, Chief Financial
Officer and Treasurer of AOL from September 1989 until July 1998 and was Chief
Accounting Officer from October 1993 until July 1998. Prior to joining AOL,
Mr. Leader was Vice President, Finance, of LEGENT Corporation, a computer
software and services company, from March 1989 to September 1989, and Chief
Financial Officer of Morino, Inc., a computer software and services
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company, from 1986 to March 1989 and its Director of Finance from 1984 to 1986.
Prior to joining Morino, Inc. in 1984, he was an audit manager at Price
Waterhouse. Mr. Leader serves as a director at Multex.com, Inc. Mr. Leader
graduated with a B.S. in Accounting in 1977 from the University of Baltimore.
MICHAEL LEVY has been a director of iVillage since November 1998. Mr. Levy
currently serves as President and Chief Executive Officer at SportsLine USA,
Inc., a position he has held since February 1994. Mr. Levy is also a director of
SportsLine USA. Prior to joining Sportsline USA, Mr. Levy was a private
investor. Mr. Levy received a B.S. in Electrical Engineering from the Georgia
Institute of Technology.
DOUGLAS MCCORMICK has been a director of iVillage since February 1999. From
1993 to 1998, Mr. McCormick was President and Chief Executive Officer of
Lifetime Television, a joint venture of The Hearst Corporation and The Walt
Disney Company. Mr. McCormick held various positions at Lifetime from 1984 to
1994 in the sales, marketing and research areas. Mr. McCormick received an
M.B.A. from the Columbia University School of Business and a B.A. in
speech/communications from the University of Dayton.
DANIEL H. SCHULMAN has been a director of iVillage since February 1999.
Since June 1999, Mr. Schulman has been President and Chief Operating Officer of
Priceline.com. From October 1998 to June 1999, Mr. Schulman had been an
Executive Vice President at AT&T Corp. and was President of AT&T WorldNet
Services from January 1997 to October 1998. From January 1996 to January 1997,
Mr. Schulman was a Vice President of Business Services at AT&T Corp. From
December 1994 to January 1996, he served as a Marketing Vice President at AT&T
Corp. and also was a General Manager at AT&T Corp. from June 1993 to December
1994. Mr. Schulman received an M.B.A. from New York University and a B.S. from
Middlebury College.
MARTIN YUDKOVITZ has been a director of iVillage since February 1999. Since
December 1995, Mr. Yudkovitz has been the President and Chief Executive Officer
of NBC Multimedia, Inc., a division of the National Broadcasting Company, Inc.
In January 1997, Mr. Yudkovitz also became the Senior Vice President of Business
Development, Broadcast Network Applications for NBC. From 1994 to 1999,
Mr. Yudkovitz was Senior Vice President of NBC Multimedia. From 1992 to 1994, he
served as Senior Vice President of Strategic Development at NBC. His other
positions at NBC have included Vice President of Business Affairs for NBC's 1992
Olympics Unit; First General Counsel and Vice President for Business Affairs at
CNBC and Senior Counsel to NBC's 1988 Seoul Olympics Unit in NBC Sports.
Mr. Yudkovitz joined NBC in January 1984 in the law department. Mr. Yudkovitz
received his J.D. from Columbia University and his B.A. from Rutgers University.
BOARD COMPOSITION
iVillage's bylaws provide for a classified board of directors consisting of
three classes. The term of the initial Class I directors, consisting of three
directors, will terminate on the date of the 1999 annual meeting of
stockholders; the term of the initial Class II directors, consisting of three
directors, will terminate on the date of the 2000 annual meeting of
stockholders; and the term of the initial Class III directors, consisting of
four directors, will terminate on the date of the 2001 annual meeting of
stockholders. At each annual meeting of stockholders, the successors to
directors whose term will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election. In
addition, iVillage's bylaws provide that the authorized number of directors may
be changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or preventing changes
in control or management of iVillage. Please see "Description of Capital
Stock--Certain Charter and Bylaw Provisions and Delaware Anti-Takeover Statute".
Each officer is elected by, and serves at the discretion of, the board of
directors. Each of
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iVillage's officers and directors, other than nonemployee directors, devotes
full time to the affairs of iVillage. iVillage's nonemployee directors devote
time to the affairs of iVillage as is necessary to discharge their duties. There
are no family relationships among any of the directors, officers or key
employees of iVillage.
BOARD COMMITTEES
The audit committee of the board of directors reviews the internal
accounting procedures of iVillage and consults with and reviews the services
provided by iVillage's independent accountants. The audit committee currently
consists of Jay C. Hoag, Lennert J. Leader and Martin Yudkovitz.
The compensation committee of the board of directors reviews and recommends
to the Board the compensation and benefits of all executive officers of
iVillage, administers iVillage's stock option plans and establishes and reviews
general policies relating to compensation and benefits of employees of iVillage.
The compensation committee currently consists of Douglas McCormick, Habib
Kairouz and Michael Levy. Except as set forth in "Certain Transactions", no
interlocking relationships exist between iVillage's board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
DIRECTOR COMPENSATION
Directors do not currently receive cash compensation from iVillage for
their service as members of the board of directors, although they are reimbursed
for certain expenses in connection with attendance at board and committee
meetings. iVillage does not provide additional compensation for committee
participation or special assignments of the board of directors. From time to
time, certain directors of iVillage have received grants of options to purchase
shares of iVillage's common stock pursuant to the 1995 Amended and Restated
Employee Stock Option Plan. Nonemployee directors of iVillage are eligible to
receive nondiscretionary, automatic grants of options to purchase shares of
iVillage's common stock pursuant to the 1999 Director Option Plan. Please see
"--Stock Option Plans" and "Certain Transactions".
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 for iVillage's Chief Executive Officer and its
four most highly compensated executive officers, other than its Chief Executive
Officer, whose salary and bonus for such fiscal year were in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL ---------------------
COMPENSATION SECURITIES UNDERLYING
----------------------- OPTIONS/SARS
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) (#)(1)
- ----------------------------------- ---------- --------- ---------------------
<S> <C> <C> <C>
Candice Carpenter
Chief Executive Officer.......... $225,000 $ -- 153,333
Nancy Evans
Editor-in-Chief.................. 195,000 -- 76,667
John W. Glascott
Senior Vice President,
Sponsorship...................... 155,906 50,000 66,667
Stephen Lake
Senior Vice President, Business
Development...................... 146,250 -- 8,333
Steven A. Elkes
Senior Vice President, Business
Affairs.......................... 158,968 12,150 16,667
</TABLE>
- ------------------
(1) Options were granted under iVillage's 1995 Amended and Restated Employee
Stock Option Plan and vest 1/4 of the total after one year and 1/4 of the
total at the end of each year thereafter.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options to iVillage's Chief
Executive Officer and its four most highly compensated executive officers, other
than its Chief Executive Officer, for the year ended December 31, 1998. iVillage
has never granted any stock appreciation rights. The exercise price per share of
each option was equal to the fair market value of the common stock on the date
of grant as determined by the board of directors. The potential realizable value
is calculated based on the term of the option at its time of grant (seven
years). It is calculated assuming that the fair market value of common stock on
the date of grant appreciates at the indicated annual rate compounded annually
for the entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price. These numbers are
calculated based on the requirements of the Securities and Exchange Commission
and do not reflect iVillage's estimate of future stock price growth.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
PERCENT OF TOTAL STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR
UNDERLYING EMPLOYEES IN PRICE PER OPTION TERM
OPTIONS FISCAL SHARE EXPIRATION --------------------
NAME GRANTED (#) YEAR(%)(1) ($/SH) DATE 5%($) 10%($)
- -------------------- ----------- ---------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Candice Carpenter... 153,333 10% $6.00 5/25/05 $374,532 $872,820
Nancy Evans......... 76,667 5 6.00 5/25/05 187,266 436,410
John W. Glascott.... 66,667 4 6.00 4/4/05 162,840 379,487
Stephen Lake........ 8,333 1 6.00 5/25/05 20,355 47,436
Steven A. Elkes..... 16,667 1 6.00 4/1/05 40,710 94,872
</TABLE>
- ------------------
(1) Based on options to purchase an aggregate of 1,515,143 shares of common
stock granted under the 1995 Amended and Restated Employee Stock Option Plan
and the 1997 Amended and Restated Acquisition Stock Option Plan by iVillage
in the year ended December 31, 1998 to employees, consultants and directors
of iVillage.
FISCAL YEAR END OPTION VALUES
The following table provides certain summary information concerning stock
options held as of December 31, 1998 by iVillage's Chief Executive Officer and
its four most highly compensated executive officers, other than its Chief
Executive Officer. No options were exercised during fiscal 1998 by any of the
officers. The value of unexercised in-the-money options at fiscal year-end is
based on $9.45 per share, the assumed fair market value of the common stock at
December 31, 1998, less the exercise price per share.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-THE-MONEY
SECURITIES UNDERLYING OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-END
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Candice Carpenter... 23,333 223,333 $ 101,500 $ 833,500
Nancy Evans......... -- 76,667 -- 264,500
John W. Glascott.... -- 66,667 -- 230,000
Stephen Lake........ 14,583 52,083 63,438 219,063
Steven A. Elkes..... 9,583 40,417 41,688 160,813
</TABLE>
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STOCK OPTION PLANS
iVillage's currently active stock option plans include: the 1995 Amended
and Restated Employee Stock Option Plan, the 1997 Amended and Restated
Acquisition Stock Option Plan, the 1999 Employee Stock Option Plan, the 1999
Acquisition Stock Option Plan and the 1999 Director Option Plan. Each of the
plans, except for the 1999 Director Option Plan, generally provides for:
o the grant of incentive stock options and non-qualified stock options;
o the administration of the plan by the Board of Directors and the
Compensation Committee;
o the exercise price of options granted under the plan to be as determined
by the board, except that the exercise price of incentive stock options
must be at least as equal to the fair market value of iVillage's common
stock on the date of grant; and
o vesting in four equal installments over four three-month periods
beginning one year after the date of grant.
Each of the plans provides for option vesting to accelerate and become
fully vested in the event of a change of control of iVillage where the options
are not assumed or substituted by a successor corporation.
Under the 1999 Director Option Plan, commencing with the 2000 annual
meeting of stockholders, each nonemployee director will automatically be granted
a nonstatutory option to purchase 1,666 shares of common stock, provided that he
or she has served on the Board of Directors for at least six months as of that
date. The exercise price of each of these options will be equal to the fair
market value of the common stock on the date of grant. Each option granted will
vest 25% annually over a four-year period. As of September 28, 1999, 133,333
shares were authorized under the 1999 Director Option Plan, options to purchase
an aggregate of 66,667 shares had been granted and 66,666 shares were available
for future grant.
As of September 28, 1999, under the 1995 Amended and Restated Employee
Stock Option Plan, options to purchase 1,802,549 shares were authorized,
1,802,069 shares were outstanding and 480 shares were available for future
grant. Under the 1997 Amended and Restated Acquisition Stock Option Plan,
options to purchase 360,727 shares were outstanding and no shares were available
for future grant. As of September 28, 1999, under the 1999 Employee Stock Option
Plan, 1,340,163 shares were authorized, options to purchase 1,340,159 shares had
been granted, and 4 shares were available for future grant. As of September 28,
1999, under the 1999 Acquisition Stock Option Plan, 333,333 shares were
authorized, options to purchase 333,333 shares had been granted and no shares
were available for future grant.
1999 EMPLOYEE STOCK PURCHASE PLAN
The 1999 Employee Stock Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code and will be administered by the board
of directors or by the Compensation Committee. Any employee who is customarily
employed for more than 20 hours per week and more than five months in any
calendar year by iVillage or a participating subsidiary owned 50% or more by
iVillage, will be eligible to participate. A total of 83,333 shares are
authorized and reserved for issuance under the plan.
Under the plan, iVillage will withhold a whole percentage (up to 15%, as
elected by the employee) from each salary or commission payment to a
participating employee over certain offering periods. Payroll distributions are
after tax and are limited to $25,000 per calendar year. Unless determined
otherwise by the board or the Committee, each offering period will run for 24
months and will be divided into four consecutive purchase periods of
approximately six months. The first offering period and the first purchase
period currently is expected to commence by October 1, 1999. In the event of a
change of control of iVillage, the offering and purchase periods will be
shortened unless the rights to purchase stock are assumed by the successor or
acquiring company. The price at which common stock will be purchased under the
plan is equal to 85% of the fair market value of the common stock on the first
day of the applicable offering period or the last day of the applicable purchase
period, whichever is lower.
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CHANGE OF CONTROL
iVillage's board of directors has adopted resolutions providing that, in
the event of a change of control of iVillage, 50% and 100% of the unvested stock
options held by iVillage's employees and senior executive officers,
respectively, will immediately vest. A change of control is defined as the
acquisition by a third party of 50% or more of iVillage's voting securities and
control of 50% or more of the members of iVillage's board of directors in office
at that time. The remaining unvested stock options held by iVillage's employees
will vest one year after the change of control event. If an iVillage employee is
terminated without cause or leaves his or her employment for good reason, during
the first year after the change of control event, then 100% of the terminated
employee's unvested stock options will immediately vest. A good reason includes
a reduction in the employee's title or responsibilities as a result of the
change of control event.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation,
to indemnify its officers, directors, employees and other individuals against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement that are actually and reasonably incurred in connection with any
threatened, pending or completed actions, suits or proceedings that they become
involved in because of their status as an officer, director, employee or agent
of the corporation. Our certificate of incorporation and bylaws require that we
indemnify our officers and directors to the fullest extent permitted under
Section 145, except that we will indemnify a director or officer in connection
with an action initiated by that person only if the action was authorized by our
board of directors. The indemnification includes the right to be paid expenses
in advance of the final disposition of a proceeding, but only if the director or
officer agrees to repay the amounts if it is determined he or she is not
entitled to indemnification.
Also as permitted by the Delaware General Corporation Law, our certificate
of incorporation provides that our directors are not personally liable to us or
our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for any breach of the director's duty of loyalty
to us or our stockholders; for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; under Section 174
of the Delaware General Corporation Law, relating to unlawful dividends or
unlawful stock purchases or redemptions; or for any transaction where the
director derives an improper personal benefit. As result of this provision, we
and our stockholders may be unable to obtain monetary damages from a director
for breach of his or her duty of care.
Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, against any liability asserted against the person or incurred by him or
her in one of these roles, whether or not we would have the power to indemnify
the person against the claim under the provisions of the Delaware General
Corporation Law. We have purchased director and officer liability insurance on
behalf of our directors and officers.
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified. Some liabilities may not be covered by insurance.
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CERTAIN TRANSACTIONS
In April 1996, iVillage issued to AOL a promissory note in the principal
amount of $500,000 with interest payable at the rate of 10% per annum.
In May 1996, iVillage entered into an information provider agreement with
AOL, pursuant to which AOL agreed to carry up to four additional iVillage
channels for a period of two years. As an inducement to, and in consideration
of, AOL entering into such agreement, iVillage issued to AOL a warrant to
purchase 800,000 shares of series B convertible preferred stock at an exercise
price of $2.50 per share or 266,666 shares, on a post-split basis, at an
exercise price of $7.50 per share.
In May 1996, iVillage issued shares of series B convertible preferred stock
and series B-1 convertible preferred stock to certain investors, including AOL,
at a purchase price of $2.50 per share. iVillage issued to AOL 797,130 shares of
series B convertible preferred stock and 300,000 shares of series B-1
convertible preferred stock. iVillage issued such shares to AOL in exchange for
the cancellation of the notes whereby iVillage received $1.1 million and
$500,000 in February and April 1996, respectively. Upon completion of iVillage's
initial public offering on March 24, 1999, the series B convertible preferred
stock and series B-1 convertible preferred stock automatically converted into an
aggregate of 1,810,407 shares of common stock.
In February 1997, iVillage entered into a note and warrant purchase
agreement with AOL and several other investors. iVillage issued to AOL a
convertible secured promissory note in an aggregate principal amount of
$900,000. In connection with the issuance of these notes, iVillage issued a
stock subscription warrant to AOL, representing the right to purchase 66,875
shares of common stock at an exercise price of $5.86 per share.
In April 1997, iVillage issued to AOL a convertible secured promissory note
in an aggregate principal amount of $1 million. In April 1997, AOL exchanged the
note issued to it in February 1997 for an amended and restated convertible
secured promissory note in an aggregate principal amount of approximately
$1.3 million.
In May 1997, iVillage issued shares of series C convertible preferred stock
to certain investors, including AOL and Rho Management Trust I, at a purchase
price of $1.954 per share. AOL converted the note it received in April 1997 for
approximately $1.3 million and $200,000 of the note for $1 million it received
in April 1997 for 793,245 shares of series C convertible preferred stock. Upon
completion of iVillage's initial public offering on March 24, 1999, the series C
convertible preferred stock automatically converted into an aggregate of
4,397,815 shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES C
NAME OF INVESTOR PREFERRED STOCK
- ---------------------------------- ----------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
America Online, Inc. ............. 1,202,661
Rho Management Trust I............ 3,070,624
</TABLE>
In connection with the acquisition of Health ResponseAbility Systems, Inc.
in May 1997, iVillage issued to AOL 203,000 shares of common stock for AOL's
equity rights in Health ResponseAbility Systems.
In July 1997, iVillage entered into an interactive services agreement with
AOL, in which some of iVillage's icons are placed within the AOL service. In
consideration for AOL carrying certain channels of iVillage, iVillage received a
guaranty of a minimum number of impressions per year. Lennert Leader, a director
of iVillage, currently serves as President of AOL Investments.
In December 1997, AOL converted the remaining $800,000 aggregate principal
amount of the note it received in April 1997 into 409,416 shares of series C
convertible preferred stock.
In January 1998, iVillage entered into a shopping channel promotional
agreement with AOL, in which AOL agreed to promote iVillage and its services on
the AOL shopping channel and provide access to iVillage's online sites. The
shopping channel agreement expires on October 1, 1999. iVillage makes payments
to
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AOL in monthly installments for AOL's promotion of iVillage.
In February 1998, March 1998 and May 1998, iVillage issued shares of series
D convertible preferred stock to certain entities affiliated with directors of
iVillage at a purchase price of $2.50 per share. The number of shares of series
D convertible preferred stock issued to each entity is set forth below. Upon
completion of iVillage's initial public offering on March 24, 1999, the series D
convertible preferred stock automatically converted into an aggregate of
4,333,333 shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES D
NAME OF INVESTOR PREFERRED STOCK
- ---------------------------------- ----------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
America Online, Inc. ............. 1,200,000
Rho Management Trust I............ 1,080,000
TCV II Strategic Partners, L.P. .. 104,429
TCV II (Q), L.P. ................. 588,448
TCV II, V.O.F. ................... 24,864
Technology Crossover Ventures II,
C.V. ........................... 116,861
Technology Crossover Ventures II,
L.P. ........................... 765,398
</TABLE>
On June 5, 1998, Candice Carpenter executed a promissory note in favor of
iVillage for borrowings up to a maximum principal amount of $500,000, of which
$500,000 was outstanding at December 31, 1998. Subject to prepayment or
acceleration, any loans made to Ms. Carpenter under the note mature on December
31, 2001. Borrowings made under the note bear interest at 5.58% per annum and
the note is payable on an annual basis on December 31 of each year commencing on
December 31, 1998. The note is collateralized by a pledge by Ms. Carpenter of
166,666 shares of common stock.
On September 14, 1998, iVillage entered into a sponsorship agreement with
Re.Store, Inc. now known as MyBasics.com. In 1998, iVillage recognized $546,875
as revenue from the agreement. As of December 31, 1998, MyBasics.com had paid
$312,500 of such amount. The balance of $234,375 was invoiced in 1999. In
addition, in 1998, iVillage received 2,243 shares of common stock of
MyBasics.com in accordance with the agreement. Candice Carpenter resigned as a
director of MyBasics.com on April 5, 1999.
In December 1998, iVillage issued shares of series E convertible preferred
stock to certain entities affiliated with directors of iVillage at a purchase
price of $2.85 per share. The number of shares of series E convertible preferred
stock issued to each entity is set forth below. Upon completion of iVillage's
initial public offering, the series E convertible preferred stock automatically
converted into an aggregate of 3,910,316 shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES E
NAME OF INVESTOR PREFERRED STOCK
- ---------------------------------- ----------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
TCV II Strategic Partners, L.P.... 12,003
TCV II (Q), L.P. ................. 67,638
TCV II, V.O.F. ................... 2,858
Technology Crossover Ventures II,
C.V. ........................... 13,432
Technology Crossover Ventures II,
L.P. ........................... 87,976
America Online, Inc. ............. 701,754
Rho Management Trust I............ 477,079
</TABLE>
In December 1998, iVillage entered into an interactive services agreement
with AOL, in which some of iVillage's icons are placed within the AOL service.
The AOL agreement supersedes all prior services agreements between iVillage and
AOL and expires December 21, 2000. Either party may extend the agreement for an
additional year. In consideration for AOL carrying certain channels, iVillage
received a guaranty of a minimum number of impressions. iVillage is obligated to
pay AOL in quarterly installments, provide AOL with or purchase from AOL
advertising and provide in-kind commitments to AOL consisting of specific
references to AOL through specified media.
On February 4, 1999, Candice Carpenter and Nancy Evans were granted
incentive stock options under the 1999 Employee Stock Option Plan to purchase
333,333 and 116,666 shares of common stock, respectively, at an exercise price
equal to $24.00 per share. The stock options granted to Ms. Carpenter vest 20%
upon each of the second and third anniversaries of the date of grant and 30%
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upon each of the fourth and fifth anniversaries of the date of grant.
Ms. Evans' options vest at the rate of 25% per year beginning on the second
anniversary of the date of grant.
Upon being elected to the board of directors, Douglas McCormick and Daniel
Schulman were granted stock options under the 1999 Director Option Plan to
purchase 33,333 and 16,666 shares of common stock, respectively, at an exercise
price equal to $24.00 per share. One-third of the options vested upon the date
of grant and one-third vest upon each of the second and third anniversaries of
the date of grant.
On March 9, 1999, iVillage and NBC amended their November 11, 1998
advertising and promotional agreement and entered into a stock purchase
agreement pursuant to which iVillage issued 4,889,030 shares of series E
convertible preferred stock and warrants to purchase up to 970,874 shares of
series E convertible preferred stock at $5.15 per share during 2000 and 813,008
shares at $6.15 per share during 2001 in exchange for a promissory note in the
approximate amount of $15.5 million. The note, which bears interest at the rate
of 5% per annum is payable quarterly in twelve equal installments of
approximately $1.4 million beginning April 1, 1999. In addition, iVillage has
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. iVillage has also
agreed to pay $1.1 million during 1999 for prominent placement on the NBC.com
Web site.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of iVillage common stock as of September 28, 1999, and as adjusted to
reflect the sale of common stock offered in this prospectus:
o each person known by iVillage to beneficially own more than 5% of the
common stock;
o each director of iVillage;
o each executive officer named in the Summary Compensation Table;
o all directors and executive officers of iVillage as a group; and
o all other selling stockholders.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address for each listed director and officer is
c/o iVillage Inc., 212 Fifth Avenue, New York, New York 10010. Except as
indicated by footnote, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. The number of
shares of common stock outstanding used in calculating the percentage for each
listed person includes the shares of common stock underlying options or warrants
held by such person that are exercisable within 60 days of September 28, 1999,
but excludes shares of common stock underlying options or warrants held by any
other person. Percentage of beneficial ownership is based on 26,792,923 shares
of common stock actually outstanding as of September 28, 1999.
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<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
SHARES OF COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE SALE UNDER THIS AFTER SALE UNDER THIS
PROSPECTUS SHARES TO BE SOLD PROSPECTUS
------------------------ ----------------- -----------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
NAME OF BENEFICIAL OWNER
America Online, Inc.(1)
22000 AOL Way
Dulles, Virginia 20166-9323 ......... 2,404,840 8.9%
National Broadcasting Company, Inc.(2)
30 Rockefeller Plaza
New York, New York 10112 ............ 1,838,009 6.9
Rho Management Trust I(3)
767 Fifth Avenue
New York, New York 10153............. 1,662,842 6.2
Candice Carpenter(4)................... 770,876 2.9
Nancy Evans(5)......................... 362,084 1.3
Alan Colner(6)......................... 743,293 2.8
Jay C. Hoag(7)......................... 616,634 2.3
Habib Kairouz(8)....................... 1,662,842 6.2
Lennert J. Leader(9)................... 2,404,840 8.9
Michael Levy(10)....................... 38,333 *
Douglas McCormick(11).................. 11,111 *
Daniel Schulman(12).................... 5,556 *
Martin Yudkovitz(13)................... 1,842,009 6.9
Steven A. Elkes(14).................... 28,518 *
Stephen Lake(15)....................... 45,460 *
John W. Glascott(16)................... 28,002 *
All directors and executive officers as
a group (20 persons) ................ 14,588,610 52.4
</TABLE>
- ------------------
* Represents beneficial ownership of less than one percent of the common
stock.
(1) Includes 350,908 shares of common stock issuable upon the exercise of
warrants.
(2) According to a Schedule 13D, dated March 31, 1999, the National
Broadcasting Company, Inc. has sole voting and dispositive power over all
shares.
(3) Rho Management Partners L.P., a Delaware limited partnership, may be deemed
the beneficial owner of the 1,662,842 shares registered in the name of Rho
Management Trust I, according to an investment advisory relationship by
which Rho Management Partners L.P. exercises voting and investment control
over the shares.
(4) Includes (a) options to purchase 104,168 shares of common stock that are
currently exercisable and (b) 104,166 shares of common stock beneficially
owned by the Carpenter Family 1998 Irrevocable Trust. Ms. Carpenter
disclaims beneficial ownership of the shares of common stock held by the
Carpenter Family 1998 Irrevocable Trust.
(5) Includes (a) options to purchase 28,752 shares of common stock that are
currently exercisable and (b) 104,166 shares of common stock beneficially
owned by the Evans/Wishman 1998 Irrevocable Trust. Ms. Evans disclaims
beneficial ownership of the shares of common stock held by the
Evans/Wishman 1998 Irrevocable Trust.
(6) Mr. Colner is Managing Director, Private Equity Investments at Moore
Management, Inc., the investment advisor to Moore Global Investments, Ltd.
and Remington Investment Strategies, L.P. Mr. Colner does not have voting
or investment power with respect to the shares of common stock owned by
Moore or Remington. Mr. Colner disclaims beneficial ownership of the
(Footnotes continued on next page)
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(Footnotes continued from previous page)
shares of common stock beneficially owned by Moore Global Investments, Ltd.
and Remington Investment Strategies, L.P.
(7) Mr. Hoag is a Managing Member of Technology Crossover Management II,
L.L.C., the General Partner of TCV II Strategic Partners, L.P., TCV II (Q),
L.P., TCV II V.O.F., Technology Crossover Ventures II, C.V. and Technology
Crossover Ventures II, L.P. Mr. Hoag may be deemed to have beneficial
ownership of 40,246 shares owned by TCV II Strategic Partners, L.P.,
226,786 shares owned by TCV II (Q), L.P., 9,582 shares owned by TCV II
V.O.F., 45,037 shares owned by Technology Crossover Ventures II, C.V. and
294,981 shares owned by Technology Crossover Ventures II, L.P. Mr. Hoag
disclaims beneficial ownership of the shares, except to the extent of his
pecuniary interest therein arising from his interest in Technology
Crossover Management II, L.L.C.
(8) Mr. Kairouz is Managing Director of Rho Management Company, Inc., an
affiliate of Rho Management Partners L.P. In such capacity, Mr. Kairouz may
be deemed to have beneficial ownership of the 1,662,842 shares owned by Rho
Management Trust I. Mr. Kairouz disclaims beneficial ownership of the
shares reported by Rho Management Trust I, other than 17,249 shares in
which Mr. Kairouz has a pecuniary interest.
(9) Consists of 2,404,840 shares of common stock beneficially owned by America
Online, Inc., including 350,908 shares of common stock issuable upon the
exercise of warrants. Mr. Leader shares voting power with America Online,
Inc. Mr. Leader disclaims beneficial ownership of the shares of common
stock beneficially owned by America Online, Inc.
(10) Includes options to purchase 16,667 shares of common stock that are
currently exercisable.
(11) Consists of options to purchase 11,111 shares of common stock that are
currently exercisable.
(12) Consists of options to purchase 5,556 shares of common stock that are
currently exercisable.
(13) Mr. Yudkovitz is President and Chief Executive Officer of NBC Multimedia,
Inc., a division of the National Broadcasting Company, Inc. Mr. Yudkovitz
does not have voting or investment power with respect to the shares of
common stock owned by NBC. Mr. Yudkovitz disclaims beneficial ownership of
the shares of common stock beneficially owned by NBC.
(14) Includes options to purchase 25,418 shares of common stock that are
currently exercisable.
(15) Includes options to purchase 42,710 shares of common stock that are
currently exercisable.
(16) Includes options to purchase 25,002 shares of common stock that are
currently exercisable.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
iVillage's certificate of incorporation authorizes the issuance of up to
65,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.01 per share, the rights and preferences
of which may be established from time to time by iVillage's board of directors.
As of September 28, 1999, 26,792,923 shares of common stock were outstanding and
no shares of preferred stock were outstanding.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences that may be applicable to any preferred stock
outstanding at the time, holders of common stock are entitled to receive ratably
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of iVillage, holders of common stock
would be entitled to share in iVillage's assets remaining after the payment of
liabilities and liquidation preferences on any outstanding preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights and there are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable.
PREFERRED STOCK
The board of directors is authorized, subject to Delaware law, without
stockholder approval, from time to time to issue up to an aggregate of 5,000,000
shares of preferred stock in one or more series. The board of directors can fix
the rights, preferences and privileges of the shares of each series and any
qualifications, limitations or restrictions. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire a majority of the outstanding voting stock of iVillage. iVillage has no
present plans to issue any shares of preferred stock.
WARRANTS
As of June 30, 1999, iVillage had outstanding warrants to purchase
1,020,625 shares of common stock at a weighted average exercise price of $12.53
per share. These warrants have net exercise provisions under which the holder
may, in lieu of payment of the exercise price in cash, surrender the warrant and
receive a net amount of shares, based on the fair market value of iVillage's
common stock at the time of the exercise of the warrant, after deducting the
aggregate exercise price. These warrants expire on dates ranging from September
2000 to May 2003.
REGISTRATION RIGHTS
According to the terms of the Fourth Amended and Restated Registration
Rights Agreement, as amended, the holders of 40% of the outstanding shares of
common stock held by parties to that agreement (except for founders of
iVillage), including shares issuable upon the exercise of warrants to purchase
common stock, are entitled to demand that iVillage file a registration statement
with respect to the registration of such shares under the Securities Act.
iVillage is not required to effect:
o more than four registrations;
o a registration during any period in which any other registration
statement has been filed or has been declared effective within the prior
180 days;
o a registration within 60 days following the determination of the board of
directors of iVillage to file a registration statement; or
o a registration for a period not to exceed 60 days, if the board of
directors of iVillage has made a good faith determination that it would
be seriously detrimental to iVillage or the holders of registration
rights for a registration statement to be filed.
In addition, one stockholder is entitled to one separate demand
registration right with
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respect to the registration of its 1,629,676 shares of common stock under the
Securities Act, subject to the limitations set forth above. Furthermore,
according to the terms of the registration rights agreement the holders of
18,829,174 shares of common stock, including shares issuable upon the exercise
of warrants to purchase common stock, are entitled to piggyback registration
rights in connection with any registration by iVillage of its securities for its
own account or the account of other securityholders.
At any time after iVillage becomes eligible to file a registration
statement on Form S-3, some holders of demand registration rights may require
iVillage to file an unlimited number of registration statements on Form S-3
under the Securities Act with respect to their shares of common stock. iVillage
is not required to effect more than one such registration in any six-month
period.
Effective as of July 23, 1999, the Fourth Amended and Restated Registration
Rights Agreement was amended to provide that the holders of registrable shares
thereunder do not have piggyback registration rights with respect to
registrations of their shares on a registration statement which was previously
filed by iVillage.
iVillage has also granted piggyback registration rights to the former
Online Psych stockholders with respect to the 577,484 shares of iVillage common
stock issued to these stockholders in connection with iVillage's acquisition of
Online Psych, pursuant to a registration rights agreement and subject to the
piggyback registration rights of the holders under the Fourth Amended and
Restated Registration Rights Agreement.
According to a registration rights agreement entered into in connection
with the Family Point acquisition, iVillage has agreed to file a shelf
registration statement with respect to the approximately 511,000 shares of
common stock issued to the Family Point stockholders within 90 days after the
closing of the acquisition. Under certain circumstances, iVillage may defer the
filing of the shelf registration statement. In addition, Family Point
stockholders have piggyback registration rights subject to the piggyback
registration rights of iVillage's existing holders of registrable shares.
The registration rights of any holder terminate when the shares held by the
holder may be sold under Rule 144 during any three-month period. iVillage is
generally required to bear all of the expenses of all registrations under the
registration rights agreements, except underwriting discounts and commissions.
The registration rights agreements also contain a commitment of iVillage to
indemnify the holders of registration rights.
CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE
iVillage is subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents Delaware corporations from
engaging under certain circumstances, in a "business combination", which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder", or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder" unless:
o the transaction in which such stockholder became an "interested
stockholder" is approved by the board of directors prior to the date the
"interested stockholder" attained such status;
o upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers; or
o on or after the date the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders
by the affirmative vote of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder.
iVillage's bylaws divide the board of directors into three classes of
directors with each class serving a staggered three-year
64
<PAGE>
term. The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of iVillage and may maintain the incumbency of the board of directors, as the
classification of the board of directors generally increases the difficulty of
replacing a majority of the directors. iVillage's certificate of incorporation
eliminates the right of stockholders to act by written consent without a meeting
and iVillage's bylaws eliminate the right of stockholders to call special
meetings of stockholders. The certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors. The authorization of
undesignated preferred stock makes it possible for the board of directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of iVillage. These and other
provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of iVillage. The amendment of any of these
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
because of the contractual and legal restrictions on resale described below,
sales of substantial amounts of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
29,492,923 shares of our common stock, assuming no exercise of outstanding
options. Of these shares, all of the shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
unless such shares are owned by "affiliates" as that term is defined in
Rule 144 under the Securities Act. Of the remaining 26,492,923 shares of common
stock held by existing stockholders, 18,972,273 are "restricted securities" as
that term is defined in Rule 144 under the Securities Act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or 701 under the Securities Act,
which rules are summarized below.
LOCK-UP AGREEMENTS
All of our officers, directors and the selling stockholders have signed
lock-up agreements under which they have agreed not to transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock, for a period of
90 days after the date of this prospectus. Transfers or dispositions can be made
sooner:
o with the prior written consent of Goldman Sachs;
o in the case of some transfers to affiliates;
o as a bona fide gift; or
o to any trust.
Subject to the provisions of Rule 144 and 144(k), restricted shares
totaling 12,582,036 are available for sale in the public market, subject in the
case of shares held by affiliates to the volume restrictions contained in those
rules.
RULE 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-
65
<PAGE>
month period a number of shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding, which will
equal approximately 294,929 shares immediately after this offering; or
o the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell the shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
REGISTRATION RIGHTS
The holders of 16,499,265 shares of our common stock, including shares
issuable upon the exercise of warrants to purchase common stock, or their
transferees, are entitled to certain rights with respect to the registration of
such shares under the Securities Act. See "Description of Capital
Stock--Registration Rights".
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
iVillage by Orrick, Herrington & Sutcliffe LLP, New York, New York. Certain
legal matters will be passed upon for the underwriters by Hale and Dorr LLP,
Boston, Massachusetts. A partner of Orrick, Herrington & Sutcliffe LLP owns an
aggregate of 4,408 shares of iVillage's common stock.
EXPERTS
The consolidated balance sheets of iVillage Inc. and subsidiaries as of
December 31, 1997 and 1998 and the consolidated statements of operations,
stockholders' equity and cash flows for the three years in the period ended
December 31, 1998, the balance sheets of Health ResponseAbility Systems, Inc. as
of December 31, 1995 and 1996 and the statements of operations, stockholders'
(deficit) equity and cash flows for the two years then ended, the balance sheets
of KnowledgeWeb, Inc., as of December 31, 1997 and 1998 and the statements of
operations, stockholders' equity and cash flows for the two years then ended,
the balance sheets of Lamaze Publishing Company, Inc. as of December 31, 1997
and 1998 and the statements of operations, stockholders' deficit and cash flows
for the two years then ended and the balance sheets of Online Psychological
Services, Inc., as of December 31, 1997 and 1998 and the statements of
operations, stockholders' deficit and cash flows for the two years then ended
have been included in this registration statement in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
iVillage is subject to the informational requirements of the Exchange Act
of 1934, as amended, and files reports, proxy and information statements and
other information with the Commission. You may read and copy all or any portion
of the reports, proxy and information statements or other information iVillage
files at the Commission's public
66
<PAGE>
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the Commission.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. iVillage's Commission filings are also
available to you on the Commission's Internet site (http://www.sec.gov).
iVillage has filed with the Commission a registration statement on Form S-1
(including the exhibits and schedules thereto) under the Securities Act with
respect to the common stock to be sold in this offering. This prospectus, which
constitutes a part of the registration statement, does not contain all the
information set forth in the registration statement or the exhibits and
schedules which are part of the registration statement. For further information,
reference is made to the registration statement and the exhibits and schedules
thereto. Copies of the registration statement may be inspected, without charge,
at the principal office of the Commission or at the regional offices referred to
above, or obtained upon payment of prescribed rates from the Public Reference
Section of the Commission at its principal office.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------------------
<S> <C>
Report of Independent Accountants......................... F-3
Consolidated Balance Sheets at December 31, 1997 and
1998.................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998........................ F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998............ F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998........................ F-7
Notes to Consolidated Financial Statements................ F-8 - F-25
Schedule of Valuation and Qualifying Accounts............. F-26
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at December 31, 1998
and June 30, 1999 (unaudited)........................... F-27
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 1998 and 1999
(unaudited)............................................. F-28
Condensed Consolidated Statements of Cash Flows for the
three months and six months ended June 30, 1998 and 1999
(unaudited)............................................. F-29
Notes to Condensed Consolidated Financial Statements...... F-30 - F-34
<CAPTION>
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................. F-35 - F-36
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1999..................................... F-37
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1998......... F-38
Unaudited Pro Forma Consolidated Statement of Operations
for the six months
ended June 30, 1999..................................... F-39
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.................................... F-40 - F-41
HEALTH RESPONSEABILITY SYSTEMS, INC.
FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-42
Balance Sheets at December 31, 1995 and 1996 and May
29,1997 (unaudited)..................................... F-43
Statements of Operations for the years ended December 31,
1995 and 1996 and the periods ended May 29, 1996 and
1997 (unaudited)........................................ F-44
Statements of Stockholder's (Deficit) Equity for the years
ended December 31, 1995 and 1996 and the period ended
May 29, 1997 (unaudited)................................ F-45
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and the periods ended May 29, 1996 and
1997 (unaudited)........................................ F-46
Notes to Financial Statements............................. F-47 - F-50
KNOWLEDGEWEB, INC.
FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-51
Balance Sheets at December 31, 1997 and 1998.............. F-52
Statements of Operations for the years ended December 31,
1997 and 1998........................................... F-53
Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1998.............................. F-54
Statements of Cash Flows for the years ended December 31,
1997 and 1998........................................... F-55
Notes to Financial Statements............................. F-56 - F-61
LAMAZE PUBLISHING COMPANY, INC.
FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-62
Balance Sheets at December 31, 1997 and 1998 and June 30,
1999 (unaudited)........................................ F-63
Statements of Operations for the years ended December 31,
1997 and 1998 and the six month period ended June 30,
1998 and 1999 (unaudited)............................... F-64
Statements of Changes in Stockholder's Deficit for the
years ended December 31, 1997 and 1998 and the period
ended June 30, 1999 (unaudited)......................... F-65
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and the six month period ended June 30,
1998 and 1999 (unaudited)............................... F-66
Notes to Financial Statements............................. F-67 - F-72
ONLINE PSYCHOLOGICAL SERVICES, INC.
FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-73
Balance Sheets at December 31, 1997 and 1998 and
March 31, 1999 (unaudited).............................. F-74
Statements of Operations for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1998
and 1999 (unaudited).................................... F-75
Statements of Stockholders' Deficit for the years ended
December 31, 1997 and 1998 and the period ended
March 31, 1999 (unaudited).............................. F-76
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1998
and 1999 (unaudited).................................... F-77
Notes to Financial Statements............................. F-78 - F-81
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
iVillage Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of iVillage
Inc. and Subsidiaries (the "Company") at December 31, 1998 and 1997, and the
consolidated results of operations and cash flows for each of the three years
then ended, in conformity with generally accepted accounting principles. In
addition, in our opinion, the accompanying financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
February 4, 1999
F-3
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA AS OF
---------------------------- DECEMBER 31,
1997 1998 1998
------------ ------------ ---------------
(UNAUDITED)
(SEE NOTE 2)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 4,334,721 $ 30,824,869 $ 30,824,869
Accounts receivable, less allowance of $279,829
and $746,349, respectively...................... 2,199,520 3,147,561 3,147,561
Other current assets.............................. 153,985 715,161 715,161
------------ ------------ -------------
Total current assets.......................... 6,688,226 34,687,591 34,687,591
------------ ------------ -------------
Fixed assets, net................................. 3,802,823 7,380,366 7,380,366
Goodwill and other intangible assets, net......... 5,598,233 4,535,148 4,535,148
Other assets...................................... 146,801 187,860 187,860
------------ ------------ -------------
Total assets.................................. $ 16,236,083 $ 46,790,965 $ 46,790,965
------------ ------------ -------------
------------ ------------ -------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued expenses............. $ 3,989,945 $ 11,559,711 $ 11,559,711
Capital leases payable............................ 247,943 136,573 136,573
Deferred revenue.................................. 1,004,199 2,909,740 2,909,740
Other current liabilities......................... 332,531 162,859 162,859
------------ ------------ -------------
Total current liabilities..................... 5,574,618 14,768,883 14,768,883
Capital leases payable, net of current portion.... 139,346 -- --
------------ ------------ -------------
Total liabilities............................. 5,713,964 14,768,883 14,768,883
------------ ------------ -------------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock--par value
$.0005, 1,000,000 shares authorized, issued and
outstanding..................................... 500 500 --
Series B and B-1 convertible preferred stock--par
value $.0005, 5,929,846 shares authorized,
4,777,746 issued and outstanding................ 2,389 2,389 --
Series C convertible preferred stock--par value
$.0005,
13,528,765 shares authorized, 13,193,445 issued
and outstanding................................. 6,597 6,597 --
Series D convertible preferred stock--par value
$.0005,
13,000,000 shares authorized, issued and
outstanding..................................... -- 6,500 --
Series E convertible preferred stock--par value
$.0005,
18,953,616 shares authorized, 11,730,948 issued
and outstanding................................. -- 5,865 --
Common stock, par value $.01, 35,000,000 and
65,000,000 shares authorized, 1,819,735 and
2,113,385 issued and outstanding at
December 31, 1997 and 1998, respectively;
16,898,590 issued and outstanding, pro forma
(unaudited)..................................... 18,197 21,133 168,986
Additional paid-in capital........................ 43,180,649 112,848,505 112,722,503
Accumulated deficit............................... (32,621,213) (76,274,895) (76,274,895)
Stockholders notes receivable..................... (65,000) (565,000) (565,000)
Unearned compensation and deferred advertising.... -- (4,029,512) (4,029,512)
------------ ------------ -------------
Total stockholders' equity.................... 10,522,119 32,022,082 32,022,082
------------ ------------ -------------
Total liabilities and stockholders' equity.... $ 16,236,083 $ 46,790,965 $ 46,790,965
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Sponsorship, advertising and usage......... $ 732,045 $ 6,018,696 $ 12,450,620
Commerce................................... -- -- 2,561,203
----------- ------------ ------------
Total revenues........................... 732,045 6,018,696 15,011,823
----------- ------------ ------------
Cost of revenues............................. 3,468,374 5,530,431 12,403,247
----------- ------------ ------------
Gross margin................................. (2,736,329) 488,265 2,608,576
Operating expenses:
Product development and technology......... 1,053,036 2,075,924 2,117,768
Sales and marketing........................ 2,708,779 8,770,581 28,522,874
General and administrative................. 3,103,864 7,840,588 10,612,434
Depreciation and amortization.............. 108,956 2,886,256 5,683,006
----------- ------------ ------------
Total operating expenses................. 6,974,635 21,573,349 46,936,082
----------- ------------ ------------
Loss from operations......................... (9,710,964) (21,085,084) (44,327,506)
Interest income (expense), net............... 28,282 (215,876) 591,186
Loss on sale of Web site..................... -- -- (503,961)
Minority interest............................ -- -- 586,599
----------- ------------ ------------
Net loss..................................... $(9,682,682) $(21,300,960) $(43,653,682)
----------- ------------ ------------
Basic and diluted net loss per share......... $ (8.90) $ (13.65) $ (21.10)
----------- ------------ ------------
----------- ------------ ------------
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share................. 1,087,353 1,560,957 2,068,473
----------- ------------ ------------
----------- ------------ ------------
Pro forma basic and diluted net loss per
share (Note 2)............................. $ (2.59)
------------
------------
Shares of common stock used in computing pro
forma basic and diluted net loss per share
(Note 2)................................... 16,853,678
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B SERIES C SERIES D SERIES E
----------------- ----------------- ------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996.... 1,000,000 $500
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock in
connection with
acquisition..................
Issuance of Series B and
Series B-1 convertible
preferred stock.............. 4,777,746 $2,389
Issuance of stock options to
consultants and directors....
Issuance of warrants to AOL
for channel services.........
Net loss......................
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
Balance at December 31,
1996......................... 1,000,000 500 4,777,746 2,389
Issuance of common stock in
connection with exercise of
stock options................
Notes receivable due from
stockholders in connection
with exercise of options.....
Issuance of Series C
convertible preferred
stock........................ 13,193,445 $6,597
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock and
options in connection with
business acquisitions........
Issuance of stock options to
consultants and directors....
Net loss......................
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
Balance at December 31,
1997......................... 1,000,000 500 4,777,746 2,389 13,193,445 6,597
Issuance of common stock for
cash.........................
Issuance of Series D
convertible preferred
stock........................ 13,000,000 $6,500
Issuance of Series E
convertible preferred
stock........................ 11,730,948 $5,865
Issuance of stock options to
consultants and directors....
Issuance of common stock in
connection with exercise of
stock options................
Issuance of stock options in
connection with business
transactions.................
Officer loan receivable.......
Issuance of options to NBC....
Net loss......................
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
Balance at December 31,
1998......................... 1,000,000 $500 4,777,746 $2,389 13,193,445 $6,597 13,000,000 $6,500 11,730,948 $5,865
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
<CAPTION>
COMMON STOCK
------------------
SHARES AMOUNT
--------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996.... 1,083,335 $10,833
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock in
connection with
acquisition.................. 66,667 667
Issuance of Series B and
Series B-1 convertible
preferred stock..............
Issuance of stock options to
consultants and directors....
Issuance of warrants to AOL
for channel services.........
Net loss......................
--------- -------
Balance at December 31,
1996......................... 1,150,002 11,500
Issuance of common stock in
connection with exercise of
stock options................ 33,333 333
Notes receivable due from
stockholders in connection
with exercise of options.....
Issuance of Series C
convertible preferred
stock........................
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock and
options in connection with
business acquisitions........ 636,400 6,364
Issuance of stock options to
consultants and directors....
Net loss......................
--------- -------
Balance at December 31,
1997......................... 1,819,735 18,197
Issuance of common stock for
cash......................... 284,317 2,843
Issuance of Series D
convertible preferred
stock........................
Issuance of Series E
convertible preferred
stock........................
Issuance of stock options to
consultants and directors....
Issuance of common stock in
connection with exercise of
stock options................ 9,333 93
Issuance of stock options in
connection with business
transactions.................
Officer loan receivable.......
Issuance of options to NBC....
Net loss......................
--------- -------
Balance at December 31,
1998......................... 2,113,385 $21,133
--------- -------
--------- -------
<CAPTION>
UNEARNED
ADDITIONAL STOCKHOLDERS COMPENSATION
PAID IN NOTES AND DEFERRED ACCUMULATED
CAPITAL RECEIVABLE ADVERTISING COST DEFICIT TOTAL
----------- ------------- ---------------- ------------ ------------
Balance at January 1, 1996.... $ 997,037 $ (1,637,571) $ (629,201)
Issuance of warrants in
connection with interest on
convertible notes............ 30,101 30,101
Issuance of common stock in
connection with
acquisition.................. 499,333 500,000
Issuance of Series B and
Series B-1 convertible
preferred stock.............. 11,941,976 11,944,365
Issuance of stock options to
consultants and directors.... 62,007 62,007
Issuance of warrants to AOL
for channel services......... 1,034,838 1,034,838
Net loss...................... (9,682,682) (9,682,682)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1996......................... 14,565,292 (11,320,253) 3,259,428
Issuance of common stock in
connection with exercise of
stock options................ 99,667 100,000
Notes receivable due from
stockholders in connection
with exercise of options..... $ (65,000) (65,000)
Issuance of Series C
convertible preferred
stock........................ 24,823,398 24,829,995
Issuance of warrants in
connection with interest on
convertible notes............ 334,339 334,339
Issuance of common stock and
options in connection with
business acquisitions........ 3,292,558 3,298,922
Issuance of stock options to
consultants and directors.... 65,395 65,395
Net loss...................... (21,300,960) (21,300,960)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1997......................... 43,180,649 (65,000) (32,621,213) 10,522,119
Issuance of common stock for
cash......................... 1,663,823 1,666,666
Issuance of Series D
convertible preferred
stock........................ 31,481,978 31,488,478
Issuance of Series E
convertible preferred
stock........................ 32,089,088 32,094,953
Issuance of stock options to
consultants and directors.... 146,994 $ (68,845) 78,149
Issuance of common stock in
connection with exercise of
stock options................ 47,507 47,600
Issuance of stock options in
connection with business
transactions................. 277,799 277,799
Officer loan receivable....... (500,000) (500,000)
Issuance of options to NBC.... 3,960,667 (3,960,667)
Net loss...................... (43,653,682) (43,653,682)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1998......................... $112,848,505 $(565,000) $ (4,029,512) $(76,274,895) $ 32,022,082
----------- --------- ------------ ------------ ------------
----------- --------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(9,682,682) $(21,300,960) $(43,653,682)
Adjustments to reconcile net loss to net cash used in operating
activities:
Expense recognized in connection with issuance of warrants and
stock options.................................................... 92,108 1,434,572 255,954
Depreciation and amortization...................................... 108,956 2,886,256 5,683,006
Bad debt expense................................................... -- 746,589 855,000
Loss on sale of Web site........................................... -- -- 503,961
Minority interest.................................................. -- -- (586,599)
Changes in operating assets and liabilities:
Accounts receivable.............................................. (528,968) (2,410,489) (1,878,637)
Other current assets............................................. (71,787) (194,781) (360,580)
Accounts payable and accrued expenses............................ 1,034,070 2,609,437 5,144,391
Deferred revenue................................................. 294,998 709,201 1,905,541
Other liabilities................................................ 64,236 268,295 (169,672)
----------- ------------ ------------
Net cash used in operating activities.......................... (8,689,069) (15,251,880) (32,301,317)
----------- ------------ ------------
Cash flows from investing activities:
Purchase of fixed assets............................................. (665,148) (4,001,052) (5,315,516)
Acquisitions of Web sites............................................ -- (2,865,000) (1,040,000)
Proceeds from sale of Web sites...................................... -- -- 600,000
----------- ------------ ------------
Net cash used in investing activities.......................... (665,148) (6,866,052) (5,755,516)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from convertible notes payable.............................. 1,800,000 3,775,000 --
Proceeds from issuance of common stock............................... -- 37,500 1,714,266
Proceeds from issuance of convertible preferred stock, net........... 9,494,365 21,054,995 63,583,431
Principal payments on capital leases................................. -- (516,621) (250,716)
Stockholder note receivable.......................................... -- -- (500,000)
----------- ------------ ------------
Net cash provided by financing activities...................... 11,294,365 24,350,874 64,546,981
----------- ------------ ------------
Net increase in cash for the period.................................... 1,940,148 2,232,942 26,490,148
Cash and cash equivalents, beginning of period......................... 161,631 2,101,779 4,334,721
----------- ------------ ------------
Cash and cash equivalents, end of period............................... $ 2,101,779 $ 4,334,721 $ 30,824,869
----------- ------------ ------------
----------- ------------ ------------
Cash paid during the period for interest............................... $ -- $ 66,223 $ 37,392
----------- ------------ ------------
----------- ------------ ------------
Supplemental disclosure of non-cash investing and financing activities:
During 1996 and 1997, certain convertible notes were converted into preferred stock (see Note 8).
During December 1996, iVillage acquired ParentsPlace.com in exchange for the issuance of common stock (see
Note 5).
During 1997, iVillage entered in capital leases for computer equipment totaling $1,015,460.
During 1997, iVillage acquired several Web site assets through the issuance of stock (see Note 5).
During 1998, iVillage recorded a liability of $1,040,000 in connection with a contingent payment to be provided
to the prior owners of Health ResponseAbility Systems, Inc. (see Note 5).
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND 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") is engaged in the development of programming
material for distribution through online service providers and the Internet and
is involved in the sale of products through its Web sites. The Company has
sustained net losses and negative cash flows from operations since its
inception. The Company's ability to meet its obligations in the ordinary course
of business is dependent upon its ability to establish profitable operations and
raise additional financing through public or private equity financings,
collaborative or other arrangements with corporate sources, or other sources of
financing to fund operations. During 1998, the Company has received additional
financing of approximately $65.3 million through the issuance of common stock
and Series D and Series E convertible preferred stock. Management believes that
its current funds will be sufficient to enable the Company to meet its planned
expenditures through at least December 31, 1999. If anticipated operating
results are not achieved, management has the intent and believes it has the
ability to delay or reduce expenditures so as not to require additional
financial resources, if such resources were not available on terms acceptable to
the Company.
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 that the Company does not successfully implement its business plan,
certain assets may not be recoverable.
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany balances and transactions have been
eliminated.
REVENUE RECOGNITION
To date, the Company's revenues have been derived primarily from the sale
of sponsorship and advertising contracts and commerce revenues.
Sponsorship and Advertising
Sponsorship revenues are derived principally from contracts ranging from
one to three years in which the Company commits to provide sponsors promotional
opportunities in addition to traditional banner advertising. Typically,
sponsorship agreements provide for the delivery of impressions (on-line
advertisements displayed to a user) on the Company's Web sites, exclusive
relationships and the design and development of customized sites designed to
enhance the promotional objective of the sponsor. The portion of sponsorship
revenues related to the delivery of impressions are recognized ratably in the
period in which the advertisement is displayed, provided that none of the
Company'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. The portion of the up-front non refundable
fee specified in the contract related to the up-front customized design work is
recognized in the period in which the design work is performed, typically within
the first three months of the contract term.
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees a minimum number of
impressions or pages to be delivered to users over
F-8
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a specified period of time for a fixed fee. Advertising revenues are recognized
ratably in the period in which the advertisement is displayed, provided that no
significant Company 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. To the extent that minimum guaranteed
impressions are not met, the Company defers recognition of the corresponding
revenues until the guaranteed impressions are achieved. Sponsorship and
advertising revenues were approximately 74%, 93% and 80% of total revenues for
the years ended December 31, 1996, 1997 and 1998, respectively.
Sponsorship and advertising revenues include barter revenues, which is the
exchange by the Company of advertising space on the Company'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 the Company's Web sites. Barter expenses are
recognized at the value of advertisements received when the Company's
advertisements are run on the reciprocal Web sites, which typically occurs in
the same period as when the revenue is recognized, and are included as part of
sales and marketing expenses. Barter revenues represented 1%, 10% and 20% of
total revenues for the years ended December 31, 1996, 1997 and 1998,
respectively.
Usage revenues received from America Online, Inc. ("AOL"), which totaled
approximately $187,000 and $390,000 for the years ended December 31, 1996 and
1997, are derived from AOL customers visiting the Company's site on the AOL
online service and are recognized as they are earned (based upon visitations to
the site). As discussed in Note 4, the Company signed a new agreement with AOL
during 1997 which eliminated future usage revenues.
In 1996, no one advertiser accounted for greater than 10% of total
revenues. In 1997, revenues from the Company's five largest advertisers
accounted for approximately 26% of total revenues, however, no one advertiser
accounted for greater than 10% of total revenues. In 1998, revenues from the
Company's five largest advertisers accounted for approximately 17% of total
revenues, however, no one advertiser accounted for greater than 10% of total
revenues. At December 31, 1996, four customers individually represented greater
than 10% of the net accounts receivable balance. At December 31, 1997, one
customer accounted for approximately 31% of the net accounts receivable balance.
At December 31, 1998, one customer accounted for 11% of the net accounts
receivable balance.
Commerce
As discussed in Note 5, in April 1998, the Company acquired a majority
interest in a subsidiary, iBaby, an on-line distributor of children's products.
The Company recognizes revenue from product sales, net of any discounts, when
products are shipped to customers and the collection of the receivable is
reasonably assured. Outbound shipping and handling charges billed to customers
are included in sales. The Company provides an allowance for sales returns,
which have not been significant, based on iBaby's historical experience. Total
net revenues of iBaby were approximately $2.6 million for the period April 1998
(date of acquisition) through December 31, 1998.
FIXED ASSETS
Depreciation of equipment, furniture and fixtures, and purchased computer
software is provided for by the straight-line method over their estimated useful
lives ranging from three to five years. Amortization of leasehold improvements
is provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions and betterments
is capitalized, and repairs and maintenance costs are charged to operations in
the periods incurred.
F-9
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of trademarks and the excess of
purchase price paid over identified intangible and tangible net assets of
acquired companies. Goodwill and intangible assets are amortized using the
straight-line method over the period of expected benefit, generally between
three and five years. The Company assesses the recoverability of its goodwill
and intangible assets by determining whether the amortization of the unamortized
balance over its remaining life can be recovered through forecasted cash flows.
If undiscounted forecasted cash flows indicate that the unamortized amounts will
not be recovered, an adjustment will be made to reduce the net amounts to an
amount consistent with forecasted future cash flows discounted at the Company's
incremental borrowing rate. Cash flow forecasts are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Amortization expense for goodwill and intangible assets for the years ended
December 31, 1997 and 1998 was approximately $1,100,000 and $2,996,000,
respectively.
INCOME TAXES
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax basis of assets and liabilities at enacted statutory tax rates in effect for
the years in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market accounts and all highly
liquid investments purchased with original maturities of three months or less.
The Company maintains its cash and cash equivalents in highly rated financial
institutions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, approximate fair value because of their short maturities. The
carrying amount of the Company's capital lease and other equipment financing
obligations approximates the fair value of such instruments based upon
management's best estimate of interest rates that would be available to the
Company for similar debt obligations at December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates made by the Company include the useful lives of fixed assets and the
recoverability of fixed assets, capitalized software, goodwill and deferred tax
assets.
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
F-10
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 equivalent shares outstanding during the
period. Common stock equivalent shares are excluded from the computation if
their effect is antidilutive. 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 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.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). This statement requires companies to classify items of
other comprehensive income by their nature in the financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company adopted SFAS No. 130 in the first quarter of 1998. The Company has had
no other comprehensive income items to report.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
PRO FORMA INFORMATION (UNAUDITED)
The pro forma balance sheet as of December 31, 1998 reflects the
issuance/conversion of the following equity securities into an aggregate of
14,785,205 shares of common stock:
i. 1,000,000 shares of Series A Convertible Preferred Stock;
ii. 4,777,746 shares of Series B and B-1 Convertible Preferred Stock;
iii. 13,193,445 shares of Series C Convertible Preferred Stock;
iv. 13,000,000 shares of Series D Convertible Preferred Stock;
v. 217,825 shares of common stock to holders of Series B and B-1
Convertible Preferred Stock resulting from anti-dilution protection;
and
vi. 11,730,948 shares of Series E Convertible Preferred Stock.
Excludes (a) such number of shares that may be issuable in connection with
the acquisition of the minority interest in iBaby and (b) 4,889,030 shares of
Series E Convertible Preferred Stock issuable to National Broadcasting Company,
Inc. ("NBC") over the next three years pursuant to the Company's agreement with
NBC, plus a warrant granted to NBC to purchase up to 1,783,882 additional shares
of Series E Convertible Preferred Stock and (c) 802,125 shares issuable in
connection with the acquisition of KnowledgeWeb, Inc. d/b/a/Astrology.Net and
181,208 options to purchase shares issuable in conjunction with employment
agreements with certain stockholders and employees of KnowledgeWeb, Inc.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 is effective for financial statements for years beginning after
December 15, 1998. SOP 98-1 provides guidance over accounting for computer
software developed or
F-11
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on the Company's capitalization
policy.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As the
Company has expensed these costs historically, the adoption of this standard is
not expected to have a significant impact on the Company's results of
operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect the adoption of
this statement to have a significant impact on the Company's results of
operations, financial position or cash flows.
3. FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Computer equipment..................................................... $ 2,579,083 $ 6,949,815
Capitalized software................................................... 2,295,138 2,655,838
Furniture and fixtures................................................. 283,024 1,165,283
Leasehold improvements................................................. 462,262 1,113,386
-------------- --------------
5,619,507 11,884,322
Less, accumulated depreciation and amortization........................ (1,816,684) (4,503,956)
-------------- --------------
$ 3,802,823 $ 7,380,366
-------------- --------------
-------------- --------------
</TABLE>
Depreciation and amortization of fixed assets was approximately $109,000,
$1,780,000 and $2,687,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
4. RELATED-PARTY TRANSACTIONS:
AOL
In September 1995, the Company entered into an information provider
agreement with AOL, a holder of different classes of iVillage stock, whereby AOL
had agreed to carry the Company's programming material on the AOL service for a
period of one year. As a result of this agreement, AOL received a percentage, as
defined, of the Company's revenues and paid the Company a usage fee based upon
hours of viewership of the iVillage site on the AOL network.
In May 1996, the Company entered into an information provider agreement
with AOL whereby AOL agreed to carry up to four Company channels for a period of
two years. In return, the Company issued to AOL 266,666 warrants (on a
post-split basis) convertible into Series B Convertible Preferred Stock at an
exercise price of $7.50 per warrant. In accordance with Statement of Financial
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
the Company valued the warrants issued to AOL, using the Black-Scholes option
pricing model, at $3.87 per share. The following assumptions were used in the
option pricing model: stock price of $7.50, exercise price of $7.50, option term
of 5 years, risk free rate of interest of 6.5%, 50% volatility and a dividend
yield of 0%. The cost of the warrants were to be expensed over the life of each
channel, however, the agreement was canceled
F-12
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in 1997; as a result, the Company expensed the unamortized value of these
warrants, $1,034,838, in 1997.
In July 1997, the Company entered into an interactive services agreement
with AOL (the "AOL Agreement"), whereby the Company received anchor tenant
distribution within the AOL service. This agreement superseded any prior
agreements between the Company and AOL. The AOL Agreement, which was due to
expire on February 28, 1999, provided both parties with the right to extend the
agreement. In consideration for AOL carrying certain channels of the Company,
the Company receiving guaranteed impressions and other services, the Company was
obligated to pay AOL monthly payments of approximately $229,000 until
September 1, 1998 and approximately $201,000 thereafter until February 28, 1999,
make certain additional payments based on revenues and provide $2,334,000 of in-
kind commitments to AOL which primarily consisted of the mentioning of "AOL
Keyword: iVillage" within iVillage advertisements and other promotions. These
commitments were not valued as part of the obligation to AOL as no incremental
costs were incurred and fair value could not be reasonably determined. At
December 31, 1997, the Company owed AOL approximately $947,000 in connection
with the AOL Agreement and other expenses.
In January 1998, iVillage entered into a shopping channel promotional
agreement with AOL (the "Shopping Channel Agreement"), whereby AOL agreed to
promote iVillage and its services on the AOL shopping channel and provide access
to iVillage's online sites. The Shopping Channel Agreement provided for monthly
installments of $10,417 paid to AOL through December 31, 1998.
On December 31, 1998, the Company entered into an interactive services
agreement with AOL (the "1998 AOL Agreement"), which supersedes the AOL
Agreement. The 1998 AOL Agreement expires on December 31, 2000 and allows both
parties to extend the term of the agreement for an additional year. The 1998 AOL
Agreement provides for the Company to receive anchor tenant distribution on
certain AOL channels, guaranteed impressions, and other services. In
consideration for such services the Company is obligated to (i) pay AOL minimum
quarterly payments of approximately $921,000 until March 31, 1999, approximately
$611,000 from April 1, 1999 through December 31, 1999 and approximately $807,000
from January 1, 2000 through December 31, 2000, and (ii) provide up to $2
million of advertising to AOL, as defined in the 1998 AOL Agreement. At
December 31, 1998 no amounts were owed to AOL in connection with the 1998 AOL
Agreement, however, the Company recorded a prepaid expense of approximately
$201,000 as a result of an advance payment on the new agreement.
The Company estimates that a significant portion of its traffic is derived
from AOL and if the financial condition and operations of AOL were to
deteriorate significantly, or if the traffic to the Company's site generated by
AOL were to substantially decrease, the Company's advertising revenues could be
adversely affected.
OTHER RELATED PARTIES
In July 1997, iVillage entered into a one-year agreement with Tenet
Healthcare Corporation ("Tenet"), a stockholder, whereby Tenet was a sponsor of
one of iVillage's channels and developed content for use on the channel in
exchange for a fee paid in quarterly installments. For the year ended
December 31, 1998, this agreement generated revenues of approximately $247,000.
As of December 31, 1998, the Company was owed approximately $75,000 from this
stockholder.
During 1997 and 1998, the Company had sponsorship and advertising
agreements with Intel Corp., a stockholder, which generated revenues of
approximately $19,000 and $130,000, respectively. As of December 31, 1997 and
1998, the Company was owed approximately $16,000 and $120,000, respectively,
from this stockholder.
F-13
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In November 1998, iVillage entered into a one-year content distribution
agreement with Cox Interactive Media ("Cox"), a stockholder, whereby iVillage
agreed to provide content for Cox's Web sites in return for displaying the
iVillage logo on the Cox Web sites and establishing links on the Cox Web sites
to iVillage's network.
OFFICER LOAN RECEIVABLE
In June 1998, the Company accepted a non-recourse promissory note in the
principal amount of $500,000 (the "Note") from its chief executive officer
("CEO"). The Note is collateralized by 166,666 shares of the Company's common
stock which is held by the Company. Interest is payable annually on December 31
of each year, commencing December 31, 1998, at the rate of 5.58%. The
outstanding principal balance on the Note is payable on June 5, 2001. As of
December 31, 1998, the CEO has borrowed $500,000 under the note, which is
recorded as a stockholder note receivable and classified as a reduction of
equity.
5. BUSINESS ACQUISITIONS AND DISPOSITIONS:
PARENTSPLACE.COM
On December 9, 1996, the Company acquired all of the outstanding stock of
ParentsPlace.com, an Internet content provider, in exchange for 66,666 shares of
the Company's common stock. The cost of the acquisition was allocated to the
assets and liabilities assumed based upon their estimated fair values as
follows:
<TABLE>
<S> <C>
Working capital.................................................................. $ (77,323)
Equipment........................................................................ 19,726
Goodwill......................................................................... 557,597
-----------
$ 500,000
-----------
-----------
</TABLE>
HRS
In May 1997, the Company completed the acquisition of Health
ResponseAbility Systems, Inc. ("HRS"), an Internet content provider, in exchange
for $2,600,000 in cash, 433,400 shares of the Company's common stock valued at
$2,210,340 or $5.10 per share, and additional cash amounts contingent on future
performance levels of HRS and the Company. In addition, the Company issued to
AOL 203,000 shares of common stock in exchange for the release of all equity
rights in HRS held by AOL valued at $1,035,300.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows:
<TABLE>
<S> <C>
Working capital................................................................ $ (159,991)
Equipment...................................................................... 50,300
Goodwill....................................................................... 5,955,331
-------------
$ 5,845,640
-------------
-------------
</TABLE>
In January 1998, the Company agreed to pay $1,560,000 to the prior owners
of HRS in a final settlement of the cash amounts contingent upon future
performance levels, as stipulated in the agreement for the acquisition of HRS.
This amount was recorded as additional goodwill and is being amortized over the
remaining period of expected benefit.
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if the acquisition of HRS had been consummated on
January 1, 1996. The acquisitions of ParentsPlace.com and StudentCenter would
not have had a significant impact on the pro forma
F-14
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
information. 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>
1996 1997
------------ ------------
<S> <C> <C>
Revenues.......................................................... $ 1,674,226 $ 6,381,437
Net loss.......................................................... $(12,092,617) $(22,910,945)
</TABLE>
STUDENTCENTER
In September 1997, the Company acquired substantially all of the assets of
StudentCenter LLC ("StudentCenter"), an Internet content provider, for $125,000
and the issuance of options to purchase 41,666 shares of common stock of the
Company at $5.10 per share. These options were valued at approximately $53,000
using the Black-Scholes option pricing model. The following assumptions were
used in the option pricing model: stock price of $5.10, exercise price of $7.50,
term of 3 years, risk free rate of interest of 6%, 50% volatility and a dividend
yield of 0%. In addition, the Company was required to make revenue-based and
other bonus payments, of which $30,000 was recorded as of December 31, 1997,
based on the amount of StudentCenter revenues, page views and other criteria.
The $208,000 purchase price was allocated to goodwill and intangible assets and
is being amortized over three years.
In May 1998, the Company sold the assets of StudentCenter as part of the
sale of About Work.
ABOUT WORK
In May 1998, the Company sold About Work, one of the Company's channels, as
well as the assets of StudentCenter, to TMP Worldwide Inc. ("TMP") in exchange
for net proceeds of $600,000. In connection with the sale of About Work, the
Company paid the former owners of StudentCenter $520,000 and issued options to
purchase 33,333 shares at $5.10 per share as settlement of all revenue-based and
other bonus payments. The options were valued at approximately $100,000 using
the Black-Scholes option pricing model using the following assumptions: stock
price of $6.00, exercise price of $6.00, term of 5 years, risk free rate of
interest of 5.44%, 50% volatility and a dividend yield of 0%. In addition, the
Company accrued a cost of $340,000 in connection with AOL carriage fees to be
paid on behalf of TMP for About Work. The Company recorded a loss of
approximately $504,000 on this sale due to the bonus payment, the options issued
to StudentCenter, the write off of approximately $195,000 of remaining goodwill
and the accrual for AOL carriage fees.
An additional $575,000 was received in exchange for production, sponsorship
and consulting services provided to TMP during 1998. The agreement also calls
for a $600,000 reimbursement payment to be made to the Company for maintaining
the About Work tenancy on AOL for a one year period beginning May 1, 1999. In
the event that the About Work site is not carried on AOL after April 1999
through iVillage's distribution agreement, this reimbursement payment will not
be made.
iBABY
In April 1998, the Company entered into a joint venture agreement (the
"iBaby Agreement") with Ourbaby, LLC, a California limited liability company, to
form iBaby, Inc., a Delaware corporation ("iBaby"). The Company has purchased
1,000,000 shares of iBaby (of the total 1,666,666 shares outstanding) for
$1,350,000 and for the delivery of certain promotional rights, including
impressions on the iVillage web site. In connection with the acquisition, the
Company recorded approximately $500,000 of goodwill to be amortized over a
period of three years. The Company's equity ownership in iBaby may be altered
due to various provisions included in the joint venture agreement including: (i)
conversion of any convertible notes issued in connection with any bridge loan
financing provided to iBaby by the Company, (ii) the issuance of iBaby shares
upon exercise of stock options and grants of restricted stock, (iii) the
Company's failure to meet certain promotional obligations or (iv) the occurrence
of an
F-15
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
initial public offering of the Company's stock or a merger, consolidation or
sale transaction ("call event" or "put event").
Since the formation of iBaby in April 1998, the accounts of iBaby have been
consolidated into the Company's financial statements, as the Company holds a
majority interest and has control of iBaby.
In connection with the formation of iBaby, iBaby entered into an inventory
and services agreement with Kids Warehouse, the minority interest holder of
iBaby. The agreement, dated April 8, 1998, has a one-year term and provides for
Kids Warehouse to make available to iBaby at least $2,000,000 of inventory at
wholesale value, as defined, for iBaby to sell to customers. In addition, Kids
Warehouse is to stock and provide storage of iBaby inventory. In consideration
for such services, iBaby is to pay Kids Warehouse an inventory fee, as defined,
based on the cost of items sold by iBaby. This agreement is terminable at the
sole option of iBaby.
In connection with the joint venture agreement, the Company also entered
into a rights agreement with the minority stockholders which provides for
various rights including:
o The right and option by the Company, exercisable upon the occurrence of a
call or put event, to purchase all of the shares held by the minority
stockholders ("call option"); and
o The right and option by the minority stockholders, exercisable upon the
occurrence of a put event, to require iVillage to purchase the shares
held by the minority stockholders ("put option").
In December 1998, the board of directors of iVillage opted to exercise the
call option to acquire the minority interest in iBaby.
6. STOCK OPTION PLANS:
1995 Amended And Restated Employee Stock Option Plan
In 1995, iVillage's Board of Directors and stockholders adopted the
Company's 1995 Amended and Restated Employee Stock Option Plan (the "ESOP"),
which was amended in May 1997. The ESOP provides for the granting, at the
discretion of the Stock Option Committee of the board of directors (the "SOC"),
of: (i) options that are intended to qualify as incentive stock options, within
the meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), as
amended, to employees and (ii) options not intended to so qualify to employees,
officers, consultants and directors. The total number of shares of common stock
for which options may be granted under the ESOP is 1,798,548.
The exercise price of all stock options granted under the ESOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the ESOP is 10 years from the date of grant. Options shall become
exercisable at such times and in such installments as the SOC shall provide in
the terms of each individual option.
The exercise price of all of the options under the ESOP which range from
$3.00-$9.45, were determined based upon the fair market value of iVillage's
common stock on the date of grant. In September 1997, the SOC adjusted the
exercise price of all ESOP shares priced above $5.10 to $5.10 per share based
upon the then determined current fair market value of the Company's common
stock. Generally, the options vest equally over a period of four years and
expire 5-10 years from the date of grant.
As of December 31, 1998, there were no shares available for future grants
under the ESOP.
F-16
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in options outstanding under the ESOP, the fair value per option
and weighted average exercise price of stock option activity for the years ended
December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE FAIR AVERAGE
VALUE PER EXERCISE PRICE
OPTIONS OPTION PER SHARE
--------- ------------- --------------
<S> <C> <C> <C>
Outstanding, January 1, 1996........................................ 108,666 $ .78 $ 3.15
Granted............................................................. 254,048 2.10 4.56
--------- ----- ------
Outstanding, December 31, 1996...................................... 362,714 1.71 3.96
Granted............................................................. 687,833 1.41 5.10
Exercised........................................................... (33,333) 1.05 3.00
Canceled............................................................ (215,750) 1.62 3.84
--------- ----- ------
Outstanding, December 31, 1997...................................... 801,464 1.50 5.04
Granted............................................................. 1,256,750 1.92 6.90
Exercised........................................................... (9,333) 2.49 5.10
Canceled............................................................ (250,333) 1.38 5.25
--------- ----- ------
Outstanding, December 31, 1998...................................... 1,798,548 $1.80 $ 6.30
--------- ----- ------
--------- ----- ------
Options exercisable at December 31, 1996............................ 35,500 $1.08 $ 3.63
Options exercisable at December 31, 1997............................ 103,333 $1.71 $ 4.92
Options exercisable at December 31, 1998............................ 287,057 $1.77 $ 5.28
</TABLE>
At December 31, 1998, the weighted average remaining contractual life of
the options outstanding, under the ESOP, was approximately 6.3 years.
1997 Amended and Restated Acquisition Stock Option Plan
In May 1997, the Company's Board of Directors and stockholders adopted the
Company's 1997 Amended and Restated Acquisition Stock Option Plan (the "ASOP").
The ASOP provides for the granting, at the discretion of the SOC of:
(i) options that are intended to qualify as incentive stock options, within the
meaning of Section 422 of the Code, as amended, to directors who are employees
of the Company or any of its subsidiaries, or as part of one or more of such
acquisitions and (ii) options not intended to so qualify to employees, officers,
consultants and directors of the Company, or as part of one or more of such
acquisitions. The total number of shares of common stock for which options may
be granted under the ASOP is 360,726.
The exercise price of all stock options granted under the ASOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the ASOP is 10 years from the date of grant. Options shall become
exercisable at such times and in such installments as the SOC shall provide in
the terms of each individual option.
Generally, the options vest equally over a period of four years and expire
7-10 years from the date of grant. The exercise price of all of the options
under the ASOP is $5.10, which was determined based upon the fair market value
of the Company's common stock on the date of grant.
In September 1997, the SOC adjusted the exercise price of all outstanding
options of the ASOP from the original exercise price of $7.50 a share to $5.10 a
share, based on the then determined current fair market value of the Company's
common stock.
As of December 31, 1998, no shares were available for future grants under
the ASOP.
F-17
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in options outstanding under the ASOP, the fair value per option
and weighted average exercise price of stock option activity for the years ended
December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FAIR VALUE EXERCISE PRICE
OPTIONS PER OPTION PER SHARE
-------- ---------- --------------
<S> <C> <C> <C>
Outstanding, January 1, 1997................................... -- $ -- $ --
Granted........................................................ 393,393 1.44 5.10
-------- ------ ------
Outstanding, December 31, 1997................................. 393,393 1.44 5.10
Granted........................................................ 258,393 3.00 5.10
Canceled....................................................... (291,060) 1.35 5.10
-------- ------ ------
Outstanding, December 31, 1998................................. 360,726 $ 2.64 $ 5.10
-------- ------ ------
-------- ------ ------
Options exercisable at December 31, 1997....................... 10,833 $ 1.98 $ 5.10
Options exercisable at December 31, 1998....................... 305,226 $ 2.79 $ 5.10
</TABLE>
At December 31, 1998, the weighted average remaining contractual life of
the options outstanding, under the ASOP, was approximately 6.4 years.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for its
stock option issuances. The Company has adopted the disclosure-only provisions
of SFAS No. 123. Had compensation cost for the Company's stock options issued at
the fair value of the Company's stock been determined based on the fair value of
the stock options at the grant date for awards in 1996, 1997 and 1998 consistent
with the provisions of SFAS No. 123, the Company's net loss would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1997 1998
-------------- --------------- ---------------
<S> <C> <C> <C>
Net loss as reported................................. $ (9,682,682) $ (21,300,960) $ (43,653,682)
Net loss pro forma................................... $ (9,767,127) $ (21,693,415) $ (44,213,487)
</TABLE>
The fair value of each option grant is estimated using the minimum value
method of the Black-Scholes option pricing model which assumes no volatility.
The weighted average assumptions used for grants made in 1996, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING THE
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate................................ 6.10% 6.22% 5.44%
Expected option life................................... 5 years 5 years 5 years
Dividend yield......................................... 0.0% 0.0% 0.0%
</TABLE>
In 1997, in connection with the exercise of options by former employees,
the Company accepted two promissory notes, with recourse, from the former
employees to cover the costs to exercise the options.
iBABY, INC. 1998 STOCK OPTION PLAN
In 1998, the Board of Directors and stockholders of iBaby adopted the
iBaby, Inc. 1998 Stock Option Plan ("iBaby SOP"). The iBaby SOP provides for the
granting, at the discretion of the iBaby Stock Option Committee ("iBaby SOC")
of: (i) options that are intended to qualify as incentive stock options, within
the meaning of the Code, to employees and (ii) options not intended to so
qualify to
F-18
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
employees, officers, consultants and directors. The total number of shares of
iBaby common stock for which options may be granted under the iBaby SOP is
294,118.
The exercise price of all stock options granted under the iBaby SOP is
determined by the iBaby SOC at the time of grant. The maximum term of each
option granted under the iBaby SOP is seven years from the date of grant.
Options shall become exercisable at such time and in such installments as the
iBaby SOC shall provide in the terms of each individual option.
Under the iBaby SOP, options to purchase 110,059 shares of iBaby common
stock were granted during the year ended December 31, 1998, with a weighted
average exercise price per share of $2.68 and a weighted average remaining
contractual life of 6.4 years. As of December 31, 1998, 184,059 shares remain
available for future grants.
7. COMMITMENTS AND CONTINGENCIES:
LEASES:
The Company leases office space, under non-cancelable operating leases
expiring at various dates through April 2001. The following is a schedule of
future minimum lease payments under non-cancelable operating leases as of
December 31, 1998:
<TABLE>
<CAPTION>
Year ending December 31: 1998
- --------------------------------------------------------------------------------- -----------
<S> <C>
1999............................................................................. $ 669,684
2000............................................................................. 279,540
2001............................................................................. 12,280
-----------
$ 961,504
-----------
-----------
</TABLE>
Rent expense was approximately $149,000, $486,000 and $714,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
At December 31, 1998, minimum future lease payments due under capital
leases for computer equipment are as follows:
<TABLE>
<CAPTION>
Year ending December 31: 1998
- --------------------------------------------------------------------------------- -----------
<S> <C>
1999............................................................................. $ 144,203
Less: amount representing interest............................................... 7,630
-----------
Net minimum lease payments....................................................... $ 136,573
-----------
-----------
</TABLE>
Accumulated amortization on assets accounted for as capital leases amounted
to approximately $301,000 and $553,000 as of December 31, 1997 and 1998,
respectively.
LITIGATION
The Company has been involved in litigation relating to claims arising out
of its operations in the normal course of business, including a claim by a
former employee. The Company does not believe that an adverse outcome of any of
these legal proceedings will have a material adverse effect on the Company's
results of operations.
8. CONVERTIBLE NOTES
In August 1995, the Company entered into a promissory note agreement with
AOL whereby the Company received $500,000. This note was converted into shares
of Series A Convertible Preferred Stock ("Series A") in September 1995.
F-19
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In September 1995, the Company entered into a promissory note agreement
with AOL whereby the Company received $650,000 in 1995 and an additional
$1,100,000 in 1996. In connection with this note, the Company issued warrants to
purchase 17,366 shares (on a post-split basis) of Series B Convertible Preferred
Stock ("Series B") at $7.50 a share which resulted in interest expense of $6,745
in 1995 and $30,101 in 1996.
In 1996, the Company entered into promissory note agreements with AOL and
certain other investors whereby the Company received $1,800,000 inclusive of the
$1,000,000 received from AOL as described above. These notes, as well as the
$650,000 discussed above that was received in 1995, were converted into 980,000
shares of Series B.
In 1997, the Company entered into promissory note agreements with AOL and
certain other investors whereby the Company received $3,775,000. In connection
with these notes, the Company issued warrants to purchase 111,771 shares of
common stock for $5.86 per share, which resulted in an interest charge of
$334,339 in 1997. The Company valued these options using the Black-Scholes
option pricing model at $3.00 per share. The following assumptions were used in
determining the value of the option: stock price of $5.86, exercise price of
$5.86, term of 5 years, risk free rate of interest 6%, 50% volatility and a
dividend yield of 0%. In 1997, these notes were converted into approximately
1.93 million shares of Series C Convertible Preferred Stock ("Series C").
9. CAPITAL STOCK
COMMON STOCK
At December 31, 1998, the authorized capital stock of the Company consists
of 65,000,000 shares of common stock, $0.01 par value per share and 25,000,000
shares of preferred stock, $0.0005 par value per share. The Board of Directors
(the "Board") of the Company has the authority to issue preferred stock in
series with rights and privileges determined by the Board. Upon formation of the
Company, 1,083,335 shares of $0.01 par value common stock were issued to the
founders.
In February 1998, the Company issued 284,317 shares of common stock in
exchange for net proceeds of approximately $1,700,000.
CONVERTIBLE PREFERRED STOCK
In September 1995, the Company issued 1,000,000 shares of Series A
Convertible Preferred Stock ("Series A"), through a private placement, in
consideration for net proceeds of approximately $1,000,000, inclusive of the
conversion of a $500,000 convertible note payable.
In May 1996, the Company issued 4,777,746 shares of Series B and
Series B-1 Convertible Preferred Stock ("Series B-1") through a private
placement in exchange for net proceeds of approximately $11,944,000, inclusive
of the conversion of convertible notes payable in the amount of $2,450,000. The
holder of Series B-1 has the same rights as the Series B holders, however, the
Series B-1 holder does not have voting rights.
In May 1997, the Company issued 11,003,067 shares of Series C Convertible
Preferred Stock ("Series C") through a private placement in exchange for net
proceeds of approximately $20,550,000, inclusive of the conversion of
convertible notes payable in the amount of approximately $2,975,000. In
connection with the issuance of Series C, the Company will issue additional
shares of common stock to Series B holders that had anti-dilution provisions,
upon the conversion to common stock. The Company also issued 30,194 warrants to
purchase shares of common stock at $.03 a share to the Company's placement agent
in consideration for services provided in connection with the private placement.
F-20
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1997, the Company issued an additional 2,190,378 shares of
Series C through a private placement in exchange for net proceeds of
approximately $4,280,000, inclusive of the conversion of an $800,000 convertible
note payable.
In February 1998, the Company issued 13,000,000 shares of Series D
Convertible Preferred Stock ("Series D") in exchange for net proceeds of
approximately $31,500,000.
In December 1998, the Company issued 11,730,948 shares of Series E
Convertible Preferred Stock ("Series E") through a private placement in exchange
for net proceeds of approximately $32,100,000. Holders of Series E have
participating preferred rights.
The holders of convertible preferred stock are entitled to receive
noncumulative dividends when and if declared by the Board. These dividends are
in preference to any declaration or payment of any dividend on the common stock
of the Company.
In the event of liquidation, the holders of convertible preferred stock have a
liquidation preference over the holders of common stock with holders of
Series C, D and E having preference to Series A and B holders. Such preference
is equal to the original cost of the respective class of convertible preferred
stock, plus any declared or unpaid dividends.
All classes of convertible preferred stock are convertible into common
stock at prices and at times, subject to the provisions set forth in the
Company's restated Certificate of Incorporation, on a one for one basis. In the
event of a public offering of the Company's shares with gross proceeds and an
offering price as defined, the convertible preferred stock will be automatically
converted into common stock on a one for one basis (on a pre-split basis). The
holders of Series B and B-1 shares will receive an additional 217,825 shares of
common stock as a result of the anti-dilution provisions contained in the Series
B and Series B-1 agreements. Convertible preferred stockholders maintain voting
rights equivalent to the number of shares of common stock on an as if converted
basis.
As discussed in Notes 4, 8 and above, as of December 31, 1998, the Company
has 425,998 warrants outstanding with a weighted average exercise price of $6.54
per share.
INITIAL PUBLIC OFFERING
In December 1998, the Board of Directors and stockholders of the Company,
authorized the Company's management to file a registration statement for an
initial public offering (the "IPO") of the Company's common stock.
10. ADVERTISING AND PROMOTIONAL AGREEMENTS:
NBC
On November 11, 1998, the Company entered into an agreement with NBC
pursuant to which NBC will promote the Company's Web site, iVillage.com, on
television primarily during prime time programs, as well as through its web
sites. The terms of the NBC agreement provide for the following:
i. NBC to provide the Company with the use of advertising spots having an
aggregate value of $3.5 million per annum over a three-year period. For
each $3.5 million of advertising spots, the Company will issue
1,228,070 shares of Series E (or 409,356 shares of the Company's common
stock after the IPO).
ii. NBC will have the option, exercisable at its sole discretion, to
provide the Company with additional spots having an aggregate value of
$5 million for each of the three years. Upon exercise of NBC's option,
iVillage will issue shares of series E (or shares of iVillage's common
stock after the IPO), subject to anti-dilution protection, equal to
the aggregate value of additional
F-21
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
spots divided by $4.15 in the first year, $5.15 in the second year and
$6.15 in the third year ($12.45, $15.45 and $18.45 if converted to
common stock).
iii. NBC may terminate the agreement in the event that a change of control
of iVillage, as defined in the agreement, occurs involving a
television broadcast network entity or its affiliate that directly
competes with NBC.
The Company will account for the NBC agreement in accordance with Emerging
Issues Task Force Abstract No. 96-18, "Accounting for Equity Instruments That
are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
In addition, iVillage has valued the option provided to NBC using the
Black-Scholes option pricing model. The $3,960,667 value has been recorded in
the equity section as deferred compensation, and will be adjusted at each
balance sheet date to market value. If and when NBC exercises their option by
delivering advertising, then any amounts previously deferred in the equity
section related to those shares will be reversed into the statement of
operations along with any additional amounts necessary to bring the total charge
up to the then current market value.
On March 9, 1999, the Company and NBC entered into an agreement to amend,
subject to closing conditions, the November 11, 1998 advertising and promotional
agreement with NBC. See Note 13-Subsequent Events.
SNAP
In November 1998, iVillage entered into a two-year agreement with Snap! LLC
("Snap") which provided for Snap assisting iVillage in promoting its network of
Web sites and related services. Under the agreement, Snap is to deliver
guaranteed impressions as well as certain exclusivity rights in connection with
limitations on the percentage of content that can be provided by iVillage's
competitors. In exchange for the impressions and exclusivity provided by Snap,
iVillage is required to make payments of: (i) $1 million in the first year and
$2.26 million in the second year, (ii) an amount equal to 20% of all gross
margin earned by iVillage from all sales made through the Company's iBaby Web
site arising from customers directed by Snap and (iii) a standard monthly fee
based on the daily average number of successful search results page on the Snap
Web site that is served by Snap in response to a search inquiry.
iVillage will record all of the payments required under the agreement as
sales and marketing expense and will be recognized ratably over the term of the
contract as services are provided.
AT&T
In October 1998, iVillage entered into a two-year agreement with AT&T under
which (subject to meeting certain quarterly performance measures) iVillage will
promote and market certain AT&T telecommunication services in exchange for
minimum payments, subject to adjustments based upon delivered impressions, as
defined in the agreement. In return, AT&T will display a text line for
iVillage.com on the AT&T WorldNet service and promote and market iVillage.com
through AT&T television, mass media marketing or other mass media.
F-22
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES:
The components of the net deferred tax asset as of December 31, 1997 and
1998 consists of the following:
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
Operating loss carryforward.......................................... $ 13,940,842 31,321,682
Depreciation and amortization........................................ (50,508) (166,554)
Bad debt allowance and reserves...................................... -- 674,864
Benefits related costs............................................... -- 230,701
--------------- ---------------
Net deferred tax asset................................... 13,890,334 32,060,693
Less, valuation allowance............................................ (13,890,334) (32,060,693)
--------------- ---------------
Deferred tax asset....................................... $ -- --
--------------- ---------------
--------------- ---------------
</TABLE>
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit, of 10%, when
compared to the effective rate is principally comprised of the valuation
allowance.
As of December 31, 1998, the Company has a net operating loss carryforward
for federal income tax purposes of approximately $69,990,000 which begin to
expire in 2010. The net deferred tax asset has been fully reserved due to the
uncertainty of the Company's ability to realize this asset in the future.
12. SEGMENT INFORMATION:
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which established standards for reporting information about
operating segments in annual financial statements. The Company's business is
comprised of the development of programming material by iVillage for
distribution through online service providers and the Internet ("New Media") and
the sale of products by iBaby through its Web sites ("Commerce"). The Company's
management reviews corporate assets and overhead expenses combined with the New
Media segment. The summarized segment information, as of and for the year ended
December 31, 1998, is as follows:
<TABLE>
<CAPTION>
NEW MEDIA COMMERCE TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Revenues............................................ $ 12,450,620 $ 2,561,203 $ 15,011,823
Cost of revenues and product development and
technology........................................ 11,741,776 2,779,239 14,521,015
Sales and marketing................................. 28,176,407 346,467 28,522,874
General and administrative.......................... 9,546,082 1,066,352 10,612,434
Depreciation and amortization....................... 5,628,322 54,684 5,683,006
Loss from operations................................ (42,641,967) (1,685,539) (44,327,506)
Interest income, net................................ 570,704 20,482 591,186
Total assets........................................ 45,944,997 845,968 46,790,965
</TABLE>
Information for the years ended December 31, 1996 and 1997 has not been
provided since during those years the Company operated only in the New Media
segment.
F-23
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENTS (UNAUDITED):
Acquisition of Minority Interest of iBaby
On February 10, 1999, the Company entered into an agreement to purchase all
of the outstanding shares of iBaby held by the minority stockholders (the
"Minority Interest") for $11.0 million (the "Purchase Price") (the "iBaby
Purchase Agreement"). The Purchase Price is comprised of $8 million in cash and
common stock having an aggregate value of $3.0 million. The Company paid $1.5
million on February 12, 1999, with the remaining $6.5 million being payable
within two business days of the closing of the IPO and receipt, by the Company,
of at least $6.5 million of IPO proceeds. The number of shares to be issued will
be dependent upon the IPO price per share, less the underwriters' discount.
If an IPO does not occur, the iBaby Purchase Agreement also provides for
the right by the Company to purchase the Minority Interest for an aggregate
$9.3 million in cash until May 31, 1999 (the "Additional Purchase Period")
provided that (i) written notice is given by April 15, 1999 and a non-
refundable payment of $1 million is made to the minority stockholders (the
"Deposit") as a credit toward the remaining $9.3 million. In the event that the
Minority Interest is not purchased in accordance with the terms of the iBaby
Purchase Agreement, the Deposit will be forfeited by the Company and the terms
of the iBaby Agreement shall continue in full force except that the parties will
have 10 business days to agree to a fair value per share or select a mutually
acceptable investment bank to issue a valuation within 15 business days.
The iBaby Purchase Agreement also provides for certain other provisions,
the most significant of which include the extension of the management, and
inventory and services agreements until April 8, 2000 and certain piggyback
registration rights to the minority stockholders.
Acquisition of Astrology.Net
On February 18, 1999, the Company acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a/ Astrology.Net ("Astrology.Net"), an Internet content
provider, in exchange for 802,125 shares of iVillage's common stock and
$1 million in cash. The Astrology.Net Agreement also provides for employment,
non-compete and stock option agreements for the founding stockholders of
Astrology.Net.
The terms of the agreement are such that 326,331 of the shares of common
stock are issued up-front and the remaining 475,794 will be placed into escrow
to be released to the stockholders of Astrology.Net within a period of five
years. The release from escrow will be accelerated dependent on Astrology.Net
meeting revenue targets. In the event there is no acceleration of the release of
these shares by the end of the five-year term, all remaining shares in escrow
will be released to Astrology.Net's stockholders. In addition, all outstanding
options to purchase Astrology.Net common stock were converted into non-qualified
options to purchase an aggregate of 31,208 shares of iVillage common stock.
In addition to the shares issued, the Company has issued the founding
stockholders of Astrology.Net, who will continue as employees of Astrology.Net,
options to purchase 150,000 shares of iVillage common stock at an exercise price
equal to the IPO price. These options vest over a period of seven years, with
accelerated vesting dependent on Astrology.Net meeting certain revenue targets.
The Company also granted to the founding stockholders of Astrology.Net, subject
to its existing agreements with respect to registration rights, piggyback
registration rights in connection with the shares of the Company's common stock
to be issued pursuant to the agreement.
The acquisition will be accounted for as a purchase with an estimated
purchase price of approximately $21.0 million, based on a value of the Company's
common stock of $24.00 per share and an estimate for the value of the
Astrology.Net options assumed by iVillage. The difference between the
F-24
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purchase price and the fair value of the acquired net assets of Astrology.Net
will be recorded as goodwill and amortized over the period of expected benefit.
Reverse Stock Split
On March 11, 1999, the Board 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 consolidated financial
statements has been retroactively restated to reflect the effect of this reverse
stock split.
NBC
On March 9, 1999, the Company and NBC entered into an agreement to amend,
subject to closing conditions, the November 11, 1998 advertising and promotional
agreement with NBC as follows:
i. The Company has agreed to purchase, for cash, $8.5 million of
advertising and promotional spots per annum, over the next three
years.
ii. Upon signing the amended agreement, the Company will issue, subject
to certain anti-dilution protection, 4,889,030 shares of Series E
Convertible Preferred Stock and a warrant to purchase 970,873 shares
of Series E Convertible Preferred Stock at $5.15 per share during
2000 and 813,008 shares of Series E Convertible Preferred Stock at
$6.15 per share during 2001 in exchange for a promissory note in the
approximate amount of $15.5 million at 5% interest per annum. The
principal amount of the note and interest is payable in twelve equal
installments of approximately $1.4 million, payable each quarter
beginning April 1, 1999.
iii. The Company has also agreed to pay $1,100,000 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
Nondetachable Conversion Feature," the $23.6 million difference between the
purchase price of the Series E Convertible Preferred Stock and the fair market
value on the date of issuance will be accounted for as a deemed dividend and
amortized using the effective interest method from the date of issuance through
the date the securities are first convertible. The Company expects this to occur
in March 1999 with the effectiveness of its anticipated initial public offering.
In addition, the fair value of the warrant of approximately $8.4 million, will
be recorded in stockholders' equity as deferred advertising costs and amortized
to advertising expense--non cash over the three year advertising agreement. The
fair value of the warrant was determined using the Black-Scholes option pricing
model in accordance with SFAS No. 123.
F-25
<PAGE>
SCHEDULE II
iVILLAGE INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------- ---------- -------- ---------- ----------
ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1996:
Provision for doubtful accounts............ $ -- $ -- $ -- $ -- $ --
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
For the year ended December 31, 1997:
Provision for doubtful accounts............ $ -- $746,589 $100,000(1) $566,760(2) $279,829
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
For the year ended December 31, 1998:
Provision for doubtful accounts............ $279,829 $855,000 $125,000(2) $513,480 $746,349
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ------------------
(1) Doubtful accounts written off against revenue
(2) Doubtful accounts written off, net of cash recovered
F-26
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 30,825 $ 85,279
Accounts receivable, net.......................................................... 2,078 2,843
Other current assets.............................................................. 715 1,162
-------- ---------
Total current assets...................................................... 33,618 89,284
Fixed assets, net................................................................... 7,380 6,968
Goodwill and intangible assets, net................................................. 4,535 61,631
Other assets........................................................................ 188 189
-------- ---------
Total assets.............................................................. $ 45,721 $ 158,072
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses............................................. $ 11,561 $ 10,398
Capital leases payable............................................................ 137 73
Deferred revenue.................................................................. 1,838 2,117
Other current liabilities......................................................... 163 192
-------- ---------
Total liabilities......................................................... 13,699 12,780
Commitments and contingencies
Stockholders' equity:
Series A, convertible preferred stock--par value $.0005, 1,000,000 and 0 shares
authorized, issued and outstanding as of December 31, 1998 and June 30, 1999,
respectively................................................................... 1 --
Series B and B-1, convertible preferred stock--par value $.0005, 5,929,846 and 0
shares authorized, 4,777,746 and 0 issued and outstanding as of December 31,
1998 and June 30, 1999, respectively........................................... 2 --
Series C, convertible preferred stock--par value $.0005, 13,528,765 and 0 shares
authorized, 13,193,445 and 0 issued and outstanding as of December 31, 1998 and
June 30, 1999, respectively.................................................... 7 --
Series D, convertible preferred stock--par value $.0005, 13,000,000 and 0 shares
authorized, issued and outstanding as of December 31, 1998 and June 30, 1999,
respectively................................................................... 6 --
Series E, convertible preferred stock--par value $.0005, 12,280,702 and 0 shares
authorized, 11,730,948 and 0 issued and outstanding as of December 31, 1998 and
June 30, 1999, respectively.................................................... 6 --
Common stock, par value $.01, 35,000,000 and 65,000,000 shares authorized,
2,113,385 and 24,324,218 issued and outstanding at December 31, 1998 and
June 30, 1999, respectively.................................................... 21 243
Additional paid-in capital.......................................................... 112,849 302,430
Accumulated deficit................................................................. (76,275) (134,549)
Stockholders' notes receivable...................................................... (565) (14,681)
Unearned compensation............................................................... (4,030) (8,151)
-------- ---------
Total stockholders' equity................................................ 32,022 145,292
-------- ---------
Total liabilities and stockholders' equity................................ $ 45,721 $ 158,072
-------- ---------
-------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-27
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sponsorship, advertising and other..................... $ 2,118 $ 5,994 $ 4,318 $ 10,684
Commerce............................................... 520 2,114 520 3,888
-------- -------- -------- --------
Total revenues...................................... 2,638 8,108 4,838 14,572
Cost of revenues......................................... 3,262 4,210 5,437 9,112
Operating margin....................................... (624) 3,898 (599) 5,460
-------- -------- -------- --------
Operating expenses:
Product development and technology..................... 504 1,353 986 3,038
Sales and marketing.................................... 7,184 7,852 12,054 15,634
Sales and marketing--NBC expenses...................... -- 4,466 -- 7,572
General and administrative............................. 2,202 3,847 4,206 7,872
Depreciation and amortization.......................... 1,397 4,665 2,658 7,519
-------- -------- -------- --------
Total operating expenses............................ 11,287 22,183 19,904 41,635
-------- -------- -------- --------
Loss from operations................................ (11,911) (18,285) (20,503) (36,175)
Interest income, net..................................... 161 1,182 237 1,513
-------- -------- -------- --------
Net loss............................................... (11,750) (17,103) (20,266) (34,662)
-------- -------- -------- --------
Preferred stock deemed dividend.......................... -- -- -- (23,612)
Net loss attributable to common stockholders............. $(11,750) $(17,103) $(20,266) $(58,274)
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted net loss per share attributable to
common shareholders.................................... $ (1.85) $ (0.72) $ (3.28) $ (3.98)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share...... 6,337 23,728 6,179 14,656
-------- -------- -------- --------
-------- -------- -------- --------
Pro forma basic and diluted net loss per share........... $ (2.77)
--------
--------
Shares of common stock used in computing pro forma basic
and diluted net loss per share......................... 21,027
--------
--------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-28
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- --------------------
1998 1999 1998 1999
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $(11,750) $ (17,103) $(20,266) $(34,662)
Adjustments to reconcile net loss to net cash used in
operating activities:
Expense recognized in connection with issuance of
warrants and stock options............................. 186 1,102 186 2,979
Depreciation and amortization............................ 1,397 4,665 2,658 7,519
Bad debt expense......................................... 255 -- 255 500
Loss on sale............................................. 165 -- 165 --
Minority interest........................................ (138) -- (138) --
Changes in assets and liabilities: Accounts
receivable........................................... (1,559) (1,136) (1,175) (1,265)
Prepaid expenses and other assets...................... 253 678 (339) (455)
Accounts payable and accrued expenses.................. 1,735 (1,760) 146 (1,168)
Deferred revenue....................................... 416 (521) 1,583 278
Other liabilities...................................... (77) -- (77) 36
-------- --------- -------- --------
Net cash used in operating activities.................... (9,117) (14,075) (17,002) (26,238)
-------- --------- -------- --------
Cash flows from investing activities:
Purchase of fixed assets...................................... (2,119) (958) (2,828) (1,693)
Acquisitions of Web sites..................................... -- (1,609) (520) (10,831)
Sale of Web sites............................................. 600 -- 600 --
-------- --------- -------- --------
Net cash used in investing activities.................... (1,519) (2,567) (2,748) (12,524)
-------- --------- -------- --------
Cash flows from financing activities:
Exercise of stock options..................................... -- 241 -- 505
Stockholder note receivable................................... (250) 1,382 (250) 1,382
Issuance of common stock, net of fees......................... 1,667 (226) 1,667 91,392
Issuance of preferred stock, net of fees paid................. (630) -- 31,488 --
Principal payments on capitalized leases...................... (86) -- (124) (63)
-------- --------- -------- --------
Net cash provided by financing activities....................... 701 1,397 32,781 93,216
-------- --------- -------- --------
Net increase (decrease) in cash for the period.................. (9,935) (15,245) 13,031 54,454
Cash and cash equivalents, beginning of period.................. 27,301 100,524 4,335 30,825
-------- --------- -------- --------
Cash and cash equivalents, end of period........................ $ 17,366 $ 85,279 $ 17,366 $ 85,279
-------- --------- -------- --------
-------- --------- -------- --------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-29
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 its 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 the 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 six months ended June 30, 1998 and June 30, 1999 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 June 30, 1999, and the results of its operations and its cash
flows for the three and six months ended June 30, 1998 and June 30, 1999. The
results for the three and six months ended June 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.
NET LOSS PER SHARE
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.
F-30
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. RELATED-PARTY TRANSACTIONS
NBC
On March 9, 1999, iVillage and NBC 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 quarterly in twelve equal installments of approximately
$1.4 million beginning April 1, 1999. In connection with the IPO and the reverse
stock split, the shares of Series E were converted into 1,629,676 shares of
common stock and the Series E warrants were converted into 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. In addition, iVillage has agreed to purchase from
NBC, for cash, $13.5 million, $8.5 million and $8.5 million of advertising and
promotional spots during 1999, 2000 and 2001, respectively. iVillage has also
agreed to pay NBC $1.1 million during 1999 for prominent placement on the
NBC.com Web site.
Under the revised NBC advertising and promotional 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.
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) $8.0 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:
<TABLE>
<S> <C>
Working Capital........................................... $ (452,752)
Fixed assets.............................................. 399,181
Goodwill.................................................. 11,064,324
-----------
$11,010,753
-----------
-----------
</TABLE>
F-31
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS--(CONTINUED)
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.
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if the acquisition of Astrology.Net had been
consummated 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>
1998 1999
------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Revenues.............................................................. $ 2,345 $ 6,660
Net loss.............................................................. (8,607) (17,543)
Net loss per share, excluding deemed dividend......................... (3.15) (2.96)
</TABLE>
ONLINE PSYCH AND CODE STONE
On June 30, 1999, iVillage acquired OnLine Psychological Services, Inc.
("OnLine Psych") and Code Stone Technologies, Inc. ("Code Stone"). 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
consisted of $1.5 million cash and approximately 577,000 shares of iVillage
common stock, valued under the purchase method of accounting at approximately
$30.0 million in the aggregate. The difference between the purchase price and
the fair value of the acquired net assets of OnLine Psych and Code
F-32
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS--(CONTINUED)
Stone have been recorded as goodwill and are being amortized over the period of
expected benefit, which is estimated to be three years.
iVillage also issued to certain employees of Online Psych options to
purchase shares of iVillage common stock. The options, which are contingent upon
continued employment with Online Psych, vest over a period of seven years, with
accelerated vesting dependent on Online Psych meeting certain revenue and other
performance targets. iVillage also granted to the founding stockholders of
Online Psych, subject to its existing registration rights agreements, piggyback
registration rights in connection with the shares.
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
June 30, 1999, is as follows:
<TABLE>
<CAPTION>
E-
MEDIA COMMERCE TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................................ $ 5,994 $ 2,114 $ 8,108
Cost of revenues................................................ 2,572 1,638 4,210
Product development and technology.............................. 957 396 1,353
Sales and marketing............................................. 11,428 890 12,318
General and administrative...................................... 3,283 564 3,847
Depreciation and amortization................................... 1,460 3,205 4,665
Loss from operations............................................ (13,705) (4,580) (18,285)
Total assets.................................................... 156,326 1,746 158,072
-------- -------- --------
-------- -------- --------
</TABLE>
The summarized segment information, as of and for the six months ended
June 30, 1999, is as follows:
<TABLE>
<CAPTION>
MEDIA E-COMMERCE TOTAL
-------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues.................................................. $ 10,684 $ 3,888 $ 14,572
Cost of revenues.......................................... 6,081 3,031 9,112
Product development and technology........................ 2,274 764 3,038
Sales and marketing....................................... 21,704 1,502 23,206
General and administrative................................ 6,851 1,021 7,872
Depreciation and amortization............................. 3,099 4,420 7,519
Loss from operations...................................... (29,324) (6,851) (36,175)
Total assets.............................................. 156,326 1,746 158,072
-------- -------- --------
-------- -------- --------
</TABLE>
F-33
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS--(CONTINUED)
NOTE 5--SUBSEQUENT EVENTS
On July 13, 1999, iVillage entered into an agreement to acquire all of the
outstanding stock of Lamaze Publishing Company, Inc. ("Lamaze Publishing"), a
multimedia provider of education information to expectant and new mothers. The
total purchase price, valued at approximately $100.0 million under the purchase
method of accounting, consists of approximately 1.7 million shares of iVillage
common stock, subject to certain adjustments, and approximately $5.0 million of
assumed debt. The closing of the transaction is subject to customary closing
conditions and the filing of a registration statement with the Securities and
Exchange Commission covering the resale of the issued shares. Lamaze Publishing
is the exclusive licensee of the LAMAZE mark for use in connection with consumer
publications and other communications, which include print, audio, visual and
other consumer oriented media, that are commercial in nature. Lamaze Publishing
is also the exclusive marketing agent for Lamaze Publishing International, Inc.,
the owner of the Lamaze Publishing family of marks.
On August 4, 1999, iVillage acquired the domain name Astrology.com from
Boulevards New Media, Inc.
On August 6, 1999, iVillage entered into a three-year employment agreement
with Harriet Rubin, an author and publisher on the subjects of business and
money/life issues, to develop content for the iVillage Work channel. On
August 6, 1999, iVillage also entered into an agreement with Ms. Rubin to
license certain assets, including the domain name The Soloist.com, for one year,
with an option to purchase such assets at the end of the one-year term.
F-34
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The pro forma financial information gives effect to the following
transactions.
ACQUISITION OF MINORITY INTEREST OF iBABY, INC.
On February 10, 1999, iVillage Inc. entered into an agreement to purchase
all of the outstanding shares of iBaby, Inc. held by the minority stockholders
in exchange for approximately $11.0 million. The purchase price is comprised of
$8 million in cash and common stock having an aggregate value of $3.0 million.
iVillage paid $1.5 million on February 12, 1999, with the remaining
$6.5 million being payable within two business days of the closing of iVillage's
initial public offering of common stock ("IPO") and receipt by iVillage, of at
least $6.5 million of IPO proceeds. The number of shares to be issued were
dependent upon the IPO price per share, less underwriters' discount.
The acquisition of the minority interest of iBaby has been accounted for as
a purchase. As iVillage has held a majority interest and control of iBaby since
April 1998, the results of operations have already been reflected in iVillage's
consolidated financial statements.
ACQUISITION OF ASTROLOGY.NET
On February 18, 1999, the Company acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a/ Astrology.Net ("Astrology.Net"), an Internet content
provider, in exchange for 802,125 shares of iVillage's common stock and $1
million in cash. The Astrology.Net Agreement also provides for employment,
non-compete and stock option agreements for the founding stockholders of
Astrology.Net.
The terms of the agreement are such that 326,331 of the shares of common
stock were issued up-front and the remaining 475,794 will be placed into escrow
to be released to the stockholders of Astrology.Net within a period of five
years. The release from escrow will be accelerated dependent on Astrology.Net
meeting revenue targets. In the event there is no acceleration of the release of
these shares by the end of the five-year term, all remaining shares in escrow
will be released to Astrology.Net's stockholders. In addition, all outstanding
options to purchase Astrology.Net common stock were converted into non-qualified
options to purchase an aggregate of 31,208 shares of iVillage common stock.
In addition to the shares issued, the Company has issued the founding
stockholders of Astrology.Net who will continue as employees of Astrology.Net
options to purchase 150,000 shares of iVillage common stock at an exercise price
equal to the IPO price. These options vest over a period of seven years, with
accelerated vesting dependent on Astrology.Net meeting certain revenue targets,
however, they are contingent on continued employment with iVillage.
The acquisition has been accounted for as a purchase with an estimated
purchase price of approximately $21.0 million, based on a value of the Company's
common stock of $24.00 a share and an estimate for the value of the
Astrology.Net options assumed by iVillage. The difference between the purchase
price and the fair value of the acquired net assets of Astrology.Net has been
recorded as goodwill and amortized over the period of expected benefit.
NBC AGREEMENT
On March 9, 1999, the Company and National Broadcasting Company, Inc.
("NBC") entered into an agreement to amend, subject to closing conditions, the
November 11, 1998 advertising and promotion agreement with NBC which included,
among other things, the issuance of 4,889,030 shares of Series E Convertible
Preferred Stock.
F-35
<PAGE>
ONLINE PSYCH
On June 30, 1999, iVillage acquired Online Psychological Services, Inc. and
Code Stone Technologies, Inc. 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 consisted of $1.5 million cash and
approximately 577,000 shares of iVillage common stock valued at approximately
$28.5 million under the purchase method of accounting. The difference between
the purchase price and the fair value of the acquired net assets of Online Psych
will be recorded as goodwill and amortized over the period of expected benefit
which is estimated at three years. For purposes of the following unaudited pro
forma condensed consolidated financial statements, Online Psych and Code Stone
are collectively referred to as "Online Psych".
LAMAZE PUBLISHING
On July 13, 1999, iVillage entered into an agreement to acquire all of the
outstanding stock of Lamaze Publishing Company, Inc. ("Lamaze Publishing"), a
multimedia provider of education information to expectant and new mothers. The
total purchase price consisted of 1,748,791 shares of iVillage common stock,
subject to certain adjustments, and approximately $5 million to repay debt. The
difference between the purchase price of $101.3 million as calculated according
to generally accepted accounting principles and the fair value of the acquired
net assets of Lamaze Publishing will be recorded as goodwill and amortized over
the period of expected benefit which is estimated at ten years.
The accompanying unaudited pro forma condensed consolidated financial
statements illustrate the effect of all of the events discussed above as if they
had occurred on January 1, 1998 for the unaudited pro forma condensed
consolidated statements of operations. The unaudited pro forma condensed
consolidated balance sheet gives effect to the acquisition of Lamaze Publishing
as if it had occurred on June 30, 1999.
The unaudited pro forma condensed consolidated financial statements have
been included as required by the rules of the Securities and Exchange Commission
and are provided for comparative purposes only. The unaudited pro forma
condensed consolidated financial statements do not purport to be indicative of
the results of operations or financial position that would have been obtained if
the transactions had been effected on the date indicated or which may be
obtained in the future.
The accompanying unaudited pro forma condensed consolidated financial
statements should be read in connection with the audited and unaudited
historical financial statements of iVillage which are contained elsewhere in
this prospectus.
F-36
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
iVILLAGE INC. PRO FORMA
AND SUBSIDIARIES LAMAZE PUBLISHING ADJUSTMENTS PRO FORMA
----------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 85,279 $ 85 1(a) $ (4,720) $ 80,644
Accounts receivable, net.............. 2,843 2,191 -- 5,034
Prepaid expenses and other current
assets.............................. 1,162 2,646 -- 3,808
--------- ------- --------- ---------
Total current assets............ 89,284 4,922 (4,720) 89,486
Fixed assets, net..................... 6,968 2,216 -- 9,184
Other assets.......................... 189 189
Prepaid distribution costs............ -- 65 -- 65
Goodwill and intangible assets, net... 61,631 402 1(b) 101,279 163,312
--------- ------- --------- ---------
Total assets.................... $ 158,072 $ 7,605 $ 96,559 $ 262,236
--------- ------- --------- ---------
--------- ------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable and accrued
expenses............................ $ 10,398 $ 2,708 1(f) $ 350 $ 13,456
Capital leases payable................ 73 -- -- 73
Deferred revenue...................... 2,117 4,345 1(g) -- 6,462
Other current liabilities............. 192 2,552 1(c) (2,552) 192
--------- ------- --------- ---------
Total current liabilities....... 12,780 9,605 (2,202) 20,183
Long term debt and Shareholders'
loans............................... -- 2,168 1(c) (2,168) --
--------- ------- --------- ---------
Total liabilities............... 12,780 11,773 (4,370) 20,183
--------- ------- --------- ---------
Commitments and Contingencies
Stockholder's equity:
Common stock 243 534 1(d) (534) 260
1(e) 17
Additional paid-in capital............ 302,430 -- 1(e) 96,744 399,174
Accumulated deficit................... (134,549) (4,702) 1(d) 4,702 (134,549)
Stockholders' notes receivable........ (14,681) -- -- (14,681)
Unearned compensation and deferred
advertising......................... (8,151) -- -- (8,151)
--------- ------- --------- ---------
Total stockholder's equity...... 145,292 (4,168) 100,929 242,053
--------- ------- --------- ---------
Total liabilities and
stockholders' equity......... $ 158,072 $ 7,605 $ 96,559 $ 262,236
--------- ------- --------- ---------
--------- ------- --------- ---------
</TABLE>
F-37
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
iVILLAGE INC. LAMAZE ONLINE PRO FORMA
AND SUBSIDIARIES ASTROLOGY.NET(4) PUBLISHING(4) PSYCH(4) ADJUSTMENTS PRO FORMA
---------------- ---------------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 15,012 $ 848 $11,212 $ 221 $ -- $ 27,293
Cost of revenues................ 12,403 204 5,488 155 18,250
-------- ------ ------- ------ --------- ---------
Gross margin................ 2,609 644 5,724 66 -- 9,043
-------- ------ ------- ------ --------- ---------
Operating expenses:
Product development and
technology.................. 2,118 -- -- -- -- 2,118
Sales and marketing........... 28,523 127 2,666 4 -- 31,320
General and administrative.... 10,612 537 2,812 323 -- 14,284
Depreciation and
amortization................ 5,683 91 830 4 2(a) 10,112 37,603
-------- ------ ------- ------ ---------
2(a) 3,670
2(a) 6,970
2(a) 10,243
---------
Total operating
expenses.................. 46,936 755 6,308 331 30,995 85,325
-------- ------ ------- ------ --------- ---------
Loss from operations........ (44,327) (111) (584) (265) (30,995) (76,282)
Interest income (expense),
net........................... 591 -- (299) (3) 2(b) 299 588
Loss on sale of Web site........ (504) -- -- -- -- (504)
Minority interest............... 587 -- -- -- 2(c) (587) --
-------- ------ ------- ------ --------- ---------
Net loss...................... $(43,653) $ (111) $ (883) $ (268) $ (31,283) $ (76,198)
-------- ------ ------- ------ --------- ---------
-------- ------ ------- ------ --------- ---------
Basic and diluted net loss per
share attributable to common
stockholders.................. $ (2.59) $ (3.51)
-------- ---------
-------- ---------
Weighted average shares
of common stock 2(d) 577
outstanding used 2(d) 1,630
in computing basic and 2(d) 125
diluted net loss 2(d) 802
per share..................... 16,854 2(d) 1,750 21,738
-------- --------- ---------
-------- --------- ---------
</TABLE>
F-38
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
iVILLAGE INC. LAMAZE ONLINE PRO FORMA
AND SUBSIDIARIES ASTROLOGY.NET(5) PUBLISHING(5) PSYCH(5) ADJUSTMENTS PRO FORMA
---------------- ---------------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 14,572 $ 190 $ 6,403 $ 171 -- $ 21,336
Cost of revenues................ 9,112 124 3,393 56 -- 12,685
-------- ------ ------- ------ --------- ---------
Gross margin.................. 5,460 66 3,010 115 -- 8,651
-------- ------ ------- ------ --------- ---------
Operating expenses:
Product development and
technology.................. 3,038 -- -- -- 3,038
Sales and marketing........... 23,206 29 1,327 8 -- 24,570
General and administrative.... 7,872 64 1,461 92 -- 9,489
Depreciation and
amortization................ 7,519 9 435 2 3(a) 5,056 19,473
-------- ------ ------- ------ ---------
3(a) 871
3(a) 459
3(a) 5,122
---------
Total operating expenses.... 41,635 102 3,223 102 11,508 56,570
-------- ------ ------- ------ --------- ---------
Loss from operations........ (36,175) (36) (213) 13 (11,508) (47,919)
Interest income (expense), net.. 1,513 (3) (180) -- 3(b) 180 1,510
-------- ------ ------- ------ --------- ---------
Net loss.................... $(34,662) $ (39) $ (393) $ 13 $ (11,328) $ (46,409)
-------- ------ ------- ------ --------- ---------
-------- ------ ------- ------ --------- ---------
Preferred stock deemed
dividend...................... (23,612) -- -- -- -- (23,612)
Net loss attributable to common
stockholders.................. $(58,274) $ (39) $ (393) $ 13 $ (11,328) $ (70,021)
-------- ------ ------- ------ --------- ---------
-------- ------ ------- ------ --------- ---------
Basic and diluted net loss per
share attributable to common
stockholders.................. $ (2.77) $ (2.89)
-------- ---------
-------- ---------
Weighted average shares
of common stock 577
outstanding used in 214
computing basic and 29
diluted net loss 625
per share..................... 21,027 3(c) 1,749 24,221
-------- ------ ------- ------ --------- ---------
-------- ------ ------- ------ --------- ---------
</TABLE>
F-39
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet as of June 30, 1999 are as follows:
a) Adjustment to cash, for the cash portion of the acquisition price,
of approximately $4,720 for Lamaze Publishing.
b) Adjustment to goodwill and intangible assets to reflect the excess
of the purchase price over the fair value of net assets acquired of Lamaze
Publishing, calculated as follows:
<TABLE>
<CAPTION>
LAMAZE
--------
<S> <C>
Cash portion of purchase price................................................... $ 4,720
Value of stock and option portion of purchase price.............................. 96,761
Acquisition costs................................................................ 350
--------
Purchase price................................................................... 101,831
Fair value of net assets to be acquired.......................................... 552
--------
Goodwill and intangible assets................................................... $101,279
--------
--------
</TABLE>
- ------------------
* The value of the common stock to be issued in connection with the
acquisition of Lamaze Publishing was estimated as $55.24, the average
value of the iVillage common stock surrounding the date the terms of
the acquisition were agreed to.
The allocation of the purchase price to the assets and liabilities
acquired are preliminary. Final allocations will be based on appraisal
and other analyses of fair values. The final allocation may differ
from the amounts reflected above.
c) Adjustment to remove the short-term and long-term notes payable of
Lamaze Publishing that are to be paid off by iVillage on the date of
acquisition.
d) Adjustment to reflect the elimination of all of the stockholders'
equity balances of Lamaze Publishing.
e) Adjustment to reflect the issuance of 1,748,791 shares of iVillage
common stock for the acquisition of Lamaze Publishing.
f) Adjustment to record the estimated acquisition expenses incurred by
iVillage of approximately $350.
2. The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1998 are as follows:
a) Adjustment to depreciation and amortization of goodwill of $10,112,
$3,670, $6,970 and $10,243 resulting from the acquisitions of Lamaze
Publishing, iBaby, Astrology.Net and Online Psych, respectively, over the
expected period of benefit (three years for iBaby, Astrology.Net and Online
Psych and ten years for Lamaze Publishing).
b) Adjustment to remove Lamaze Publishing interest expense of $299,
assuming all notes were paid off by iVillage on January 1, 1998.
c) Adjustment to minority interest of $587 to add back the net loss
previously attributed to the minority stockholders of iBaby.
d) Adjustment to weighted average shares of common stock outstanding
used in computing basic and diluted net loss per share to reflect the
issuance of approximately 802,000, 125,500, 1,750,000 and 577,000 shares of
common stock, in connection with the acquisitions of
F-40
<PAGE>
Astrology.Net, iBaby, Lamaze Publishing and Online Psych, respectively, and
the 1,629,676 shares issued to NBC in connection with the advertising and
promotion agreement as of January 1, 1998.
3. The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations for the six months ended June 30, 1999 are as follows:
a) Adjustment to reflect the amortization of goodwill of $5,056, $459,
$871 and $5,122 resulting from the acquisitions of Lamaze Publishing,
iBaby, Astrology.Net and Online Psych, respectively, over the expected
period of benefit (three years for iBaby, Astrology.Net and Online Psych
and ten years for Lamaze Publishing).
b) Adjustment to remove Lamaze Publishing interest expense of $180,
assuming all notes were paid off by iVillage on January 1, 1998.
c) Adjustment to reflect weighted average shares of common stock
outstanding used and computing basic and diluted net loss per share. This
adjustment reflects the issuance of approximately 802,000, 125,500,
1,750,000 and 577,000 shares of common stock, in connection with the
acquisitions of Astrology.Net, iBaby, Lamaze Publishing and Online Psych,
respectively, and the issuance of 1,629,676 shares to NBC in connection
with the NBC agreement.
4. Represents the historical results of operations of Astrology.Net, Lamaze
Publishing and Online Psych for the year ended December 31, 1998.
5. Represents the historical results of operations of Astrology.Net, Lamaze
Publishing and Online Psych for the periods ended February 18, 1999, June 30,
1999 and June 30, 1999, respectively.
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of iVillage Inc. and Subsidiaries:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholder's (deficit) equity and cash flows present fairly, in all
material respects, the financial position of Health ResponseAbility Systems,
Inc. (the "Company") at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
December 23, 1998
F-42
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
-------------------- -----------
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................... $ 91,265 $188,696 $ 205,641
Certificates of deposit................................................. 100,000 108,621 --
Accounts receivable..................................................... -- 119,854 9,299
Other current assets.................................................... -- 1,467 --
-------- -------- ---------
Total current assets...................................................... 191,265 418,638 214,940
Fixed assets, net......................................................... 35,092 22,806 48,044
Stockholder notes receivable.............................................. 20,000 -- --
Other assets.............................................................. 2,256 2,256 2,256
-------- -------- ---------
Total assets.............................................................. $248,613 $443,700 $ 265,240
-------- -------- ---------
-------- -------- ---------
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses................................... $ 50,626 $ 74,863 $ 61,269
Employee retirement plan payable........................................ -- 71,000 --
Deferred revenue........................................................ 33,333 -- --
Accrued interest........................................................ 15,146 35,396 43,662
Note payable, less unamortized discount of $67,902, $13,580 and $0
(unaudited) in 1995, 1996 and 1997, respectively..................... 202,098 256,420 270,000
-------- -------- ---------
Total current liabilities................................................. 301,203 437,679 374,931
-------- -------- ---------
Commitments
Stockholder's (deficit) equity:
Common stock, par value $.01, 10,000 shares authorized, 1,000 shares
issued and outstanding.................................................. 10 10 10
Additional paid-in capital................................................ 108,643 108,643 108,643
Accumulated deficit....................................................... (89,243) (30,632) (146,344)
Stockholder notes receivable.............................................. (72,000) (72,000) (72,000)
-------- -------- ---------
Total stockholder's (deficit) equity...................................... (52,590) 6,021 (109,691)
-------- -------- ---------
Total liabilities and stockholder's (deficit) equity...................... $248,613 $443,700 $ 265,240
-------- -------- ---------
-------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED MAY 29,
-------------------------------------------------- --------------------
1995 1996 1996
----------------------- ----------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................. $ 439,756 $ 942,181 $362,769
--------- --------- --------
Operating expenses:
Production and content............................. 93,700 457,449 148,116
Sales and marketing................................ 5,581 48,589 10,681
General and administrative......................... 388,382 322,255 87,269
--------- --------- --------
Total operating expenses........................ 487,663 828,293 246,066
--------- --------- --------
(Loss) income from operations........................ (47,907) 113,888 116,703
Interest expense, net................................ (52,205) (55,277) (17,492)
--------- --------- --------
Net (loss) income............................... $(100,112) $ 58,611 $ 99,211
--------- --------- --------
--------- --------- --------
<CAPTION>
PERIOD ENDED MAY 29,
1997
--------------------
(UNAUDITED)
<S> <C>
Revenues............................................. $ 362,741
----------
Operating expenses:
Production and content............................. 220,574
Sales and marketing................................ 7,955
General and administrative......................... 234,519
----------
Total operating expenses........................ 463,048
----------
(Loss) income from operations........................ (100,307)
Interest expense, net................................ (15,405)
----------
Net (loss) income............................... $ (115,712)
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
STATEMENTS OF STOCKHOLDER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDER
---------------- PAID IN ACCUMULATED NOTES
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
------ ------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995.......... 1,000 $ 10 $ -- $ 10,869 $ -- $ 10,879
Issuance of warrants to AOL in
connection with note.............. 108,643 108,643
Stockholder notes receivable ....... (72,000) (72,000)
Net loss............................ (100,112) (100,112)
------ ---- -------- --------- --------- ---------
Balance at December 31, 1995 ....... 1,000 10 108,643 (89,243) (72,000) (52,590)
Net income.......................... 58,611 58,611
------ ---- -------- --------- --------- ---------
Balance at December 31, 1996 ....... 1,000 10 108,643 (30,632) (72,000) 6,021
Net loss (unaudited)................ (115,712) (115,712)
------ ---- -------- --------- --------- ---------
Balance at May 29, 1997
(unaudited) ...................... 1,000 $ 10 $108,643 $(146,344) $ (72,000) $(109,691)
------ ---- -------- --------- --------- ---------
------ ---- -------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED MAY 29,
--------------------- --------------------
1995 1996 1996 1997
--------- -------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.......................................... $(100,112) $ 58,611 $99,211 $(115,712)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation.......................................... 22,702 22,590 8,770 24,427
Non-cash interest on note payable..................... 55,887 74,572 30,900 21,846
Changes in operating assets and liabilities:
Accounts receivable................................ -- (119,854) (50,002) 110,555
Other assets....................................... (1,339) (1,467) (7,459) 1,467
Stockholder notes receivable....................... (20,000) 20,000 -- --
Deferred revenue................................... 33,333 (33,333) (33,333) --
Accounts payable and accrued expenses.............. 50,626 24,237 (35,234) (13,594)
Employee retirement plan payable................... -- 71,000 -- (71,000)
--------- -------- ------- ---------
Net cash provided by (used in) operating
activities.................................... 41,097 116,356 12,853 (42,011)
--------- -------- ------- ---------
Cash flows from investing activities:
Certificates of deposit.................................... (100,000) (8,621) (5,586) 108,621
Purchase of fixed assets................................... (57,794) (10,304) (3,296) (49,665)
--------- -------- ------- ---------
Net cash (used in) provided by investing
activities.................................... (157,794) (18,925) (8,882) 58,956
--------- -------- ------- ---------
Cash flows from financing activities:
Proceeds from note payable................................. 270,000 -- -- --
Stockholder notes receivable............................... (72,000) -- -- --
--------- -------- ------- ---------
Net cash provided by financing activities ....... 198,000 -- -- --
--------- -------- ------- ---------
Net increase in cash for the period.......................... 81,303 97,431 3,971 16,945
Cash, beginning of period.................................... 9,962 91,265 91,265 188,696
--------- -------- ------- ---------
Cash, end of period.......................................... $ 91,265 $188,696 $95,236 $ 205,641
--------- -------- ------- ---------
--------- -------- ------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Health ResponseAbility Systems, Inc. (the "Company") was incorporated in
the State of Virginia on August 22, 1994 and commenced operations on January 1,
1995. The Company is engaged in the development of health-related programming
material for distribution through online service providers and the Internet.
As discussed in Note 8, all of the outstanding shares of the Company were
acquired by iVillage Inc. ("iVillage") on May 29, 1997. These financial
statements do not include any adjustments in connection with the sale.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenues have been derived primarily from America Online,
Inc. ("AOL") customers visiting the Company's site on the AOL online service and
are recognized as they are earned (based upon visitations to the site) and
reported to the Company by AOL. Usage revenues received from AOL totaled
approximately $343,822 and $618,644 for the years ended December 31, 1995 and
1996, respectively. In addition, the Company has derived revenues from the
design of customer web sites. Revenues from such design work is recognized over
the term of service of each contract.
FIXED ASSETS
Depreciation of computer equipment and software and furniture and fixtures
is provided for by the straight-line method over their estimated useful lives
ranging from three to five years. The cost of additions and betterments is
capitalized, and repairs and maintenance costs are charged to operations in the
periods incurred. Depreciation expense has been included in general and
administrative expense.
INCOME TAXES
The Company has elected to be treated as an "S" corporation for both
Federal and State of Virginia tax purposes. Accordingly, corporate income or
loss is included in the stockholder's individual tax return based upon her
ownership interest.
CASH
Cash includes money market accounts and all highly liquid investments
purchased with original maturities of three months or less. Certificates of
deposit with maturities greater than three months are classified as such on the
balance sheet. The Company maintains its cash balances in a highly rated
financial institution.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable. Cash is
deposited with high-credit, quality financial institutions. The Company's
accounts receivable are derived from revenue earned from customers located in
the U.S. and are denominated in U.S. dollars.
AOL accounted for approximately 78% and 66% of revenue for the years ended
December 31, 1995 and 1996, respectively, and approximately 63% of accounts
receivable at December 31, 1996.
F-47
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, certificates of deposit, accounts receivable, accounts payable and accrued
liabilities and note payable, approximate fair value because of their short
maturities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates made by the Company include the valuation of the warrant issued and
the useful lives and recoverability of fixed assets.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of May 29, 1997 and for the periods ended
May 29, 1996 and 1997 are unaudited but have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
statements which do not include all disclosures required by GAAP for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. To date, the Company has not had any transactions that
are required to be reported in comprehensive income.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current period presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). This statement establishes standards for the way companies
report information about operating segments in annual financial statements. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The disclosure prescribed by SFAS No. 131
is effective for the year ending December 31, 1998. The Company has determined
that it does not have any separately reportable business segments as of May 29,
1997.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not expect that the adoption of SOP No. 98-1 will have a material impact on its
financial statements.
F-48
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MAY 29,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software............................... $ 45,195 $ 54,775 $ 70,992
Furniture and fixtures........................................ 12,682 13,406 45,454
--------- --------- ---------
57,877 68,181 116,446
Less, accumulated depreciation................................ (22,785) (45,375) (68,402)
--------- --------- ---------
$ 35,092 $ 22,806 $ 48,044
--------- --------- ---------
--------- --------- ---------
</TABLE>
Depreciation of fixed assets was approximately $22,702 and $22,590 for the years
ended December 31, 1995 and 1996, respectively.
4. RELATED PARTY TRANSACTIONS
In January 1995, the Company loaned $29,700 to its sole stockholder who
also serves as an officer to the Company (the "Stockholder"). Interest is
payable annually at the rate of 7.92% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In February 1995, the Company loaned $20,000 to the Stockholder. Interest
is payable annually at the rate of 7.96% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In May 1995, the Company loaned $10,000 to the Stockholder. Interest is
payable annually at the rate of 7.12% per annum. The principal balance and
interest due on this note was repaid in full in July 1996.
In June 1995, the Company loaned $10,000 to the Stockholder. Interest is
payable annually at the rate of 6.83% per annum. The principal balance and
interest due on this note was repaid in full in July 1996.
In December 1995, the Company loaned $22,300 to the Stockholder. Interest
is payable annually at the rate of 5.91% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In 1995, the Company entered into a consultant agreement with the spouse of
the Stockholder, in which the Company paid the consultant $80,000 during the
year. In 1996, this consultant became an officer of the Company.
5. AOL NOTE PAYABLE
In April 1995, the Company entered into a promissory note agreement with
AOL whereby the Company received cash of $270,000 ("AOL Note"). Interest, at a
rate of 7.5% per annum, and principal, are payable on the earlier of demand or
April 2005. If payment is demanded, then such payment will be payable in 24
equal monthly installments of principal and interest beginning on the fifth day
following such demand.
In connection with the AOL Note, the Company issued a warrant (the "AOL
Warrant") to purchase a certain amount of shares of the Company's preferred
stock at a certain exercise price, both of which are based on a formula in the
warrant agreement. The Company recorded an unamortized discount of $108,643
which has been amortized as interest expense using the interest method. The AOL
Warrant
F-49
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
was valued using the Black-Scholes option pricing model. As discussed in
Note 8, the AOL Note and the AOL Warrant were cancelled as part of the sale of
the Company in May 1997.
Interest expense, including amortized discount related to the issuance of
the AOL Warrant, charged to operations for the year ended December 31, 1995 and
1996 was $55,887 and $74,572, respectively.
6. COMMITMENTS
LEASES
The Company leases office space in Herndon, Virginia, under a
non-cancelable operating lease expiring in June 1998. The following is a
schedule of future minimum lease payments under the lease as of December 31,
1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- --------------------------------------------------------------
<S> <C>
1997................................................. $53,920
1998................................................. 27,769
-------
$81,689
-------
-------
</TABLE>
Rent expense was approximately $9,898 and $16,073 for the years ended December
31, 1995 and 1996, respectively.
7. CAPITAL STOCK
At December 31, 1996, the authorized capital stock of the Company consists
of 10,000 shares of common stock, $0.01 par value per share. Upon formation of
the Company, 1,000 shares of common stock were issued to the founder.
8. SUBSEQUENT EVENT
On May 29, 1997, all of the outstanding shares of the Company were acquired
by iVillage in exchange for $2,600,000 in cash, 1,300,200 shares of iVillage
common stock on a pre-split basis, and cash amounts contingent on future
performance levels of the Company and iVillage, which was determined to be
$1,560,000 in January 1998. In addition, iVillage issued 609,000 shares of
common stock on a pre-split basis, to AOL in exchange for the release of the AOL
Note and the cancellation of the AOL Warrant.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of KnowledgeWeb, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders equity and cash flows present fairly, in all material
respects, the financial position of KnowledgeWeb, Inc. at December 31, 1998 and
1997, and the results of their operations and cash flows for the years then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
January 29, 1999
New York, New York
F-51
<PAGE>
KNOWLEDGEWEB, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................................................. $103,852 $ 9,718
Accounts receivable, net of allowance of $12,538 and $0 as of December 31, 1998 and
1997, respectively................................................................. 113,855 19,139
Prepaid expenses...................................................................... 1,126 956
-------- --------
Total current assets............................................................... 218,833 29,813
-------- --------
Property and equipment, net........................................................... 65,057 64,139
Internal use software, net............................................................ 71,954 44,110
Other assets.......................................................................... 5,429 4,027
Total assets....................................................................... $361,273 $142,089
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................................................... $ 84,156 $ 12,962
Due to stockholder.................................................................... 121,971 148,184
Current portion of capital lease obligations (Note 5)................................. 17,248 11,947
Accrued expenses and other current liabilities........................................ 66,017 2,032
-------- --------
Total current liabilities.......................................................... 289,392 175,125
Capital lease obligations, net of current obligations (Note 5)..................... 22,936 23,478
-------- --------
Total liabilities.................................................................. 312,328 198,603
Commitments and contingencies (Note 5)
Stockholders' Equity
Convertible preferred stock, par value $0.0001 per share; 5,000,000 shares authorized,
421,880 shares issued and outstanding.............................................. 42 --
Common stock, par value $0.0001 per share, 25,000,000 shares authorized, 5,111,111 and
4,973,000 shares issued and outstanding as of December 31, 1998 and 1997,
respectively....................................................................... 511 497
Additional paid-in capital............................................................ 313,552 64,502
Unearned compensation................................................................. (32,268) --
Accumulated deficit................................................................... (232,892) (121,513)
-------- --------
Total stockholders' equity/(deficit)............................................... 48,945 (56,514)
-------- --------
Total liabilities and stockholders' equity....................................... $361,273 $142,089
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
KNOWLEDGEWEB, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues.......................................................................... $ 847,517 $ 403,670
Costs and expenses:
Cost of revenues................................................................ 204,004 35,856
General and administrative expenses............................................. 754,792 374,023
Interest expense, net........................................................... 100 78
----------- -----------
Net loss.......................................................................... (111,379) (6,287)
----------- -----------
----------- -----------
Basic and diluted net loss per share.............................................. $ (0.02) $ (0.00)
----------- -----------
----------- -----------
Weighted average shares of common stock outstanding used in computing basic and
diluted net loss per share...................................................... 5,075,543 4,892,268
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
KNOWLEDGEWEB, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ------------------- PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
-------- -------- --------- -------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................... -- $ -- 4,600,000 $ 460 $ 39,540 $ -- $(115,226) $ (75,226)
Issuance of common
stock................... -- -- 373,000 37 24,962 -- -- 24,999
Net loss.................. -- -- -- -- -- -- (6,287) (6,287)
-------- -------- --------- -------- -------- ---------- --------- ---------
Balance at December 31,
1997.................... -- -- 4,973,000 497 64,502 -- (121,513) (56,514)
Issuance of common
stock................... -- -- 138,111 14 16,653 -- -- 16,667
Issuance of Series A
convertible preferred
stock at $0.49 per
share................... 421,880 42 -- -- 177,658 -- -- 177,700
Compensation expense on
option grants
(Note 7)................ -- -- -- -- 54,739 (32,268) 22,471
Net loss.................. -- -- -- -- -- -- (111,379) (111,379)
-------- -------- --------- -------- -------- ---------- --------- ---------
Balance at December 31,
1998.................... 421,880 $ 42 5,111,111 $ 511 $313,552 $ (32,268) $(232,892) $ 48,945
-------- -------- --------- -------- -------- ---------- --------- ---------
-------- -------- --------- -------- -------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
KNOWLEDGEWEB, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $(111,379) $ (6,287)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 91,061 66,490
Bad debt expenses................................................................ 12,538 --
Compensation expense on stock option grants...................................... 22,471 --
Changes in operating assets and liabilities:
Accounts receivable, net....................................................... (107,254) (18,269)
Prepaid expenses and other assets.............................................. (1,572) (4,689)
Accounts payable............................................................... 135,179 12,932
--------- ---------
Net cash provided by operating activities........................................... 41,044 50,177
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets............................................................ (15,628) (9,174)
Increase in capitalized software.................................................... (84,757) (46,351)
--------- ---------
Net cash used by investing activities............................................... (100,385) (55,525)
--------- ---------
Cash flow from financing activities:
Repayment of stockholder loan....................................................... (32,038) (23,087)
Interest accretion on stockholder loans............................................. 5,825 6,918
Advances by stockholder............................................................. -- 11,398
Repayment of capital lease obligations.............................................. (14,665) (8,241)
Proceeds from issuance of common stock.............................................. 16,653 25,000
Proceeds from issuance of convertible preferred stock............................... 177,700 --
--------- ---------
Net cash provided by financing activities........................................... 153,475 11,988
--------- ---------
Net increase in cash for the period................................................... 94,134 6,640
Cash and cash equivalents, beginning of year.......................................... 9,718 3,078
--------- ---------
Cash and cash equivalents, end of year................................................ $ 103,852 $ 9,718
--------- ---------
--------- ---------
Cash paid for:
Interest......................................................................... $ 12,381 $ 6,910
--------- ---------
--------- ---------
Income taxes..................................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
KnowledgeWeb, Inc. (the "Company") is a California corporation organized on
January 4, 1995. The Company owns and operates the internet web site,
Astrology.net. Astrology.net is a web site where users can receive information
on astrology, and obtain astrology charts and reports. The Company conducts its
business primarily in the United States within one industry segment.
The Company's future prospects are subject to the risks and uncertainties
frequently encountered by the companies in the new and evolving markets of the
Internet product and services industry. These risks include the failure to
develop and extend the Company's online services, 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 that
the Company does not successfully overcome these risks, certain assets may not
be recovered.
REVENUE RECOGNITION
The Company generates several types of revenue including the following:
Chart sales
The Company's web site enables users to generate personalized astrology
reports based on the user's particulars. These charts are delivered online to
the customer immediately upon request. Revenue is recognized upon delivery of
the charts and when the collection of the receivables are reasonably assured.
Advertising
Advertising revenues are derived from the sale of banner advertisements on
the Company's web site. The Company recognizes income from these advertisements
over the period in which the advertisements are displayed.
Custom licensing
The Company also generates revenues through the licensing of astrological
reports and editorials to other web sites and publications. Revenues from
licensing are recognized in the period when the editorial is sold.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method for software and the declining balance method for all
other property and equipment over the estimated useful lives of the assets,
generally three to five years.
INTERNAL USE SOFTWARE
The Company capitalizes internally developed software in accordance with
Statement of Position 98-1. These capitalized costs primarily include payroll
and benefits relating to employees engaged in developing the software plus
direct outside costs incurred during the application development stage being
achieved. Internally developed software is amortized on a straight-line basis
over three years, beginning in the year in which the software is placed in
service.
F-56
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
STATEMENT OF CASH FLOWS
The Company considers cash equivalents to be short term investments with
original maturities of three months or less.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash and accounts receivable.
Substantially all of the Company's excess cash has been invested in highly
liquid investments.
The Company performs ongoing credit evaluations of its advertising
customers' financial condition and generally does not require collateral on
accounts receivable. The Company maintains allowances for credit losses and such
losses have been within management's expectations. At December 31, 1998 three
customers accounted for a total of 78% of the accounts receivable balance. At
December 31, 1997 one customer represented 75% of the total accounts receivable
balance. The same customer represented 13% and 30% of total revenues for the
years ended December 31, 1998 and 1997, respectively.
INCOME TAXES
The Company calculates its income tax provision in accordance with
Financial Accounting Standards Board (FASB) Statement No. 109. Deferred taxes
are provided on temporary differences between the tax basis of assets or
liabilities and amounts reported in the financial statements.
BASIC AND DILUTED NET LOSS PER SHARE
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 equivalent
shares outstanding during the period. Common equivalent shares consist of the
common shares issuable upon conversion of the convertible preferred stock and
shares issuable upon the exercise of stock options. These common equivalent
shares could potentially dilute basic EPS in the future, however, they were not
included in the current computation of diluted EPS because to do so would have
been anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
SUPPLIER CONCENTRATION
The Company depends on one unrelated supplier for the software that
generates astrology reports and charts. The Company believes that, if necessary,
this supplier could be replaced and that the quality and price of the new
software would be similar.
F-57
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Computer equipment and software................................................. $ 155,901 $ 120,835
Furniture and fixtures.......................................................... 7,487 7,487
Motor vehicle................................................................... 12,848 12,848
--------- ---------
176,236 141,170
Less accumulated depreciation................................................... (111,179) (77,031)
--------- ---------
$ 65,057 $ 64,139
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997 totaled
$34,148 and $38,148, respectively.
3. DUE TO STOCKHOLDER
One of the stockholders periodically transfers cash and other property to
the Company in exchange for demand notes. In addition, this stockholder
periodically makes payments on behalf of the Company in exchange for demand
notes. These notes are unsecured, and carry a compounded interest rate of 5
percent.
The balance of loans, including accrued interest, at December 31, 1998 and
1997 was $121,971 and $148,184, respectively.
4. INTERNAL USE SOFTWARE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Internal use software........................................................... $ 180,781 $ 96,024
Less accumulated amortization................................................... (108,827) (51,914)
--------- ---------
$ 71,954 $ 44,110
--------- ---------
--------- ---------
</TABLE>
Amortization expense for the years ended December 31, 1998 and 1997 totaled
$56,913 and $32,008, respectively.
5. COMMITMENTS AND CONTIGENCIES
LEASE COMMITMENTS
As of December 31, 1998, the Company leases office space under a cancelable
operating lease. Rent expense was $38,624 and $16,761 for the years ended
December 31, 1998 and 1997, respectively.
F-58
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
As of December 31, 1998, the Company leased certain computer equipment
under noncancelable capital leases. Future minimum lease payments required under
the capital leases are as follows:
<TABLE>
<S> <C>
1999.................................................................................................. $26,153
2000.................................................................................................. 23,451
2001.................................................................................................. 5,029
2002.................................................................................................. --
2003 and thereafter................................................................................... --
-------
Total minimum lease payments..................................................................... $54,633
Less amount representing interest..................................................................... 14,449
-------
Present value of net minimum lease payments........................................................... 40,184
Less current portion.................................................................................. 17,248
-------
$22,936
-------
-------
</TABLE>
The cost of equipment under capital lease included in property and
equipment was $64,656 and $45,218 at December 31, 1998 and 1997, respectively.
Employee Benefits
The Company does not provide postretirement benefits to its employees, nor
does the Company offer company-sponsored savings or pension plans.
6. INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses through December 31, 1998. The
following table sets forth the primary components of deferred tax assets:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss and credit carryforwards..................................... $ 86,270 $ 46,495
Nondeductible expenses and reserves............................................. 15,404 5,838
--------- ---------
Gross deferred tax assets....................................................... 101,674 52,333
Valuation allowance............................................................. (101,674) (52,333)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
At December 31, 1998 and 1997, the Company fully reserved its deferred tax
assets. The Company believes uncertainty exists regarding the ultimate
realizability of the deferred tax assets such that a full valuation allowance is
required. If the Company achieves profitability, these net deferred tax assets
would be available to offset future income taxes. Deferred tax assets and
related valuation allowances of approximately $9,000 relate to operating loss
carryforwards resulting from the issuance of employee stock options, the tax
benefit of which, when recognized, will be accounted for as a credit to
additional paid-in capital rather than a reduction of the income tax provision.
At December 31, 1998, the Company had approximately $230,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income; such carryforwards will expire beginning in 2010.
F-59
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
7. STOCKHOLDERS' EQUITY
On August 18, 1998, the Company's Board of Directors approved an Amended
and Restated Articles of Incorporation, for the purpose of (i) effecting a 100
for one stock split, (ii) the authorization of the Corporation to issue up to
25,000,000 shares of Common Stock and 5,000,000 of Preferred Stock, and
(iii) the creation of a class of Series A Preferred Stock. It was also
determined that the par value of the Preferred Stock and the Common Stock would
be $0.0001 per share.
STOCK SPLIT
In August 1998, the Company's Board of Directors approved a 100 for one
Common Stock split whereby stockholders of record on September 17, 1998 received
100 shares of Common Stock in exchange for each common share held on that date.
All references to the number of shares of Common Stock, weighted average common
shares, and per share amounts have been retroactively restated in the
accompanying financial statements to reflect the 100 for one split.
PREFERRED STOCK
At December 31, 1998, the Company has authorized 5,000,000 shares of
Preferred Stock, of which 1,300,000 has been designated Series A Convertible
Preferred Stock ("Series A"). The remaining shares of Preferred Stock may be
issued from time to time in one or more series. At December 31, 1998, the
Company has 421,880 Series A shares issued and outstanding.
Holders of Series A were entitled to receive noncumulative, preferential
dividends of $0.0392 per annum, when and if declared by the Board of Directors.
No such dividends were declared. In the event of liquidation, sale of the
Company or corporate reorganization in which the shareholders of the Company do
not own a majority of the outstanding shares of the surviving Company, Series A
shareholders were entitled to a per share distribution in preference to common
shareholders equal to the original issue price per share of $0.49, plus any
declared but unpaid dividends on each such share.
STOCK OPTION PLAN
In August 1998, the Board of Directors adopted the 1998 Stock Incentive
Plan (the "Plan") which provided for the grant of up to 1,000,000 incentive
stock options and non-qualified stock options. Notwithstanding the foregoing, at
any given time the number of shares issuable upon exercise of all outstanding
stock options shall not exceed a number of shares which is equal to 30% of the
then outstanding shares of the Company.
Under the Plan, incentive stock options may be granted to employees,
officers and directors of the Company and non-qualified stock options may be
granted to consultants, employees, directors, and officers of the Company.
Options granted under the Plan must be issued at prices not less than 100% and
85%, for incentive and nonqualified stock options, respectively, of the fair
market value of the stock on the date of grant as determined by the Board of
Directors. The Plan requires that all options be exercised at a rate of not less
than 20% per year, over five years, from the date of grant. Incentive options
granted under the Plan shall vest over a four year period at a rate of 1/16th of
the total shares subject to the option on the first day of each calendar quarter
from the various vesting start dates. All non-qualified stock options were
issued fully vested on the date of grant with the exception of 59,549 shares for
which vesting is contingent upon a future event. Options to purchase 93,629
shares were exercisable at December 31, 1998.
F-60
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
A summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE
AVAILABLE OPTIONS PER
FOR GRANT OUTSTANDING SHARE
--------- ----------- --------
<S> <C> <C> <C>
Balance at December 31, 1997.............................................. -- -- $ --
Shares reserved........................................................... 1,000,000 -- --
Options granted........................................................... (228,079) 93,629 0.25
Options exercised......................................................... -- -- --
--------- ------- ------
Balance at December 31, 1998.............................................. 771,921 93,629 $ 0.25
--------- ------- ------
--------- ------- ------
</TABLE>
In November 1998, the Company granted options to purchase an aggregate of
228,079 shares of Common Stock at an exercise price of $0.25 per share. Based on
an estimated market price of the stock, $0.49, at grant date, $54,739 of
compensation expense relating to these options is to be recognized, of which
$22,471 was recognized in 1998. The balance of the compensation expense is to be
recognized over the remaining vesting period of the options.
STOCK COMPENSATION
The Company accounts for stock-based compensation in accordance with the
provisions of APB 25. Had compensation expense been determined based on the fair
value at the grant dates, as prescribed in SFAS 123, the Company's net loss
would have been $114,188 and basic and diluted loss per share would have been
$0.02 for the year ended December 31, 1998. The fair value of each option grant
was determined on the date of grant using the minimum value method. The
following assumptions were used to estimate the fair value of stock options
granted to employees: expected life of 30 months; risk free interest rate of
4.55%; and no dividend yield. The weighted average fair value of options granted
to employees at December 31, 1998 is $0.49. For pro forma purposes, the
estimated fair value of the Company's stock options to employees is amortized
over the options vesting period. Because additional stock options are expected
to be granted each year, the above pro forma disclosures are not representative
of pro forma effects on reported financial results for future years.
8. SUBSEQUENT EVENTS
On February 18, 1999, the Company sold 100% of the outstanding stock of the
Company to iVillage Inc. in exchange for 802,125 shares of iVillage Inc. common
stock and approximately $1 million.
F-61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Lamaze Publishing Company, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Lamaze Publishing Company, Inc. (the
"Company") at December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
June 14, 1999
except for note 10,
as to which the date
is July 13, 1999
F-62
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents............................................. $ 187 $ 164 $ 85
Accounts receivable, less allowance of $30,000 and $55,000 and $80,000
(unaudited) in 1997, 1998 and 1999, respectively.................... 1,175 2,000 2,191
Other current assets.................................................. 1,024 1,538 2,646
-------- -------- ---------
Total current assets................................................ 2,386 3,702 4,922
-------- -------- ---------
Fixed assets, net........................................................ 1,674 1,997 2,216
Goodwill, net............................................................ 636 483 402
Other assets............................................................. 12 55 65
-------- -------- ---------
Total assets........................................................ $ 4,708 $ 6,237 $ 7,605
-------- -------- ---------
-------- -------- ---------
Liabilities and Stockholders' Deficit:
Current liabilities:
Accounts payable and accrued expenses................................. $ 2,862 $ 2,996 $ 2,708
Deferred revenue...................................................... 2,566 3,288 4,345
Current maturities or long-term debt.................................. -- 234 312
Bank credit line...................................................... 950 1,300 2,240
-------- -------- ---------
Total current liabilities........................................... 6,378 7,818 9,605
-------- -------- ---------
Long term debt, less current maturities.................................. -- 1,016 938
Stockholders' notes payable, including accrued interest.................. 1,188 1,178 1,230
-------- -------- ---------
Total liabilities................................................... 7,566 10,012 11,773
-------- -------- ---------
Commitments and contingencies
Stockholders' deficit:
Common stock, 40,000 shares authorized, no par value, 36,478 shares
issued and outstanding................................................ 534 534 534
Accumulated deficit...................................................... (3,392) (4,309) (4,702)
-------- -------- ---------
Total stockholders' deficit......................................... (2,858) (3,775) (4,168)
-------- -------- ---------
Total liabilities and stockholders' deficit......................... $ 4,708 $ 6,237 $ 7,605
-------- -------- ---------
-------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, JUNE 30,
---------------- ----------------
1997 1998 1998 1999
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Publishing............................................................ $3,800 $4,325 $1,895 $2,712
Satellite broadcasting................................................ 2,793 3,750 1,624 1,807
Video................................................................. 1,376 1,605 765 954
Sampling/Coupons...................................................... 683 995 470 627
Other................................................................. 247 537 168 303
------ ------ ------ ------
Total revenue...................................................... 8,899 11,212 4,922 6,403
------ ------ ------ ------
Cost of revenues........................................................ 4,144 5,488 2,257 3,393
------ ------ ------ ------
Gross profit....................................................... 4,755 5,724 2,665 3,010
------ ------ ------ ------
Operating expenses:
Sales and marketing................................................... 2,145 2,666 1,158 1,327
General and administrative............................................ 2,526 2,812 1,357 1,461
Depreciation and amortization......................................... 549 830 401 435
------ ------ ------ ------
Total operating expenses........................................... 5,220 6,308 2,916 3,223
------ ------ ------ ------
Loss from operations............................................... (465) (584) (251) (213)
------ ------ ------ ------
Interest expense........................................................ (152) (299) (119) (180)
------ ------ ------ ------
Net loss........................................................... $ (617) $ (883) $ (370) $ (393)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997........................... $31,002 $ 450 $(2,475) $(2,025)
Issuance of common stock.................................. 604 80 -- 80
Issuance of common stock in connection with business
acquisition............................................. 4,872 4 -- 4
Distributions............................................. -- (300) (300)
Net loss.................................................. -- -- (617) (617)
------- ------- ------- -------
Balance at December 31, 1997......................... 36,478 534 (3,392) (2,858)
Distributions............................................. -- -- (34) (34)
Net loss.................................................. -- -- (883) (883)
------- ------- ------- -------
Balance at December 31, 1998......................... 36,478 534 (4,309) (3,775)
Net loss (unaudited)...................................... -- -- (393) (393)
------- ------- ------- -------
Balance at June 30, 1999 (unaudited)................. 36,478 $ 534 $(4,702) $(4,168)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, JUNE 30,
------------------ ------------------
1997 1998 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (617) $ (883) $ (370) $ (393)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization................................... 549 830 401 435
Bad debt expense................................................ 30 25 -- --
Changes in operating assets and liabilities:
Accounts receivable........................................... (531) (850) (239) (191)
Other current assets.......................................... (2) (514) (513) (1,108)
Accounts payable and accrued expenses......................... 1,639 124 (1,293) (239)
Deferred revenue.............................................. (2) 722 855 1,057
------- ------- ------- -------
Net cash provided by (used in) operating activities........... 1,066 (546) (1,159) (439)
------- ------- ------- -------
Cash flows from investing activities:
Purchase of fixed assets........................................... (1,152) (991) (376) (565)
Acquisition of a business.......................................... (730) -- -- --
------- ------- ------- -------
Net cash used in investing activities......................... (1,882) (991) (376) (565)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from bank term loan....................................... -- 1,250 1,250 --
Borrowings (repayments) under revolving credit facilities.......... 950 350 150 940
Payment for debt issuance cost..................................... -- (52) (52) (15)
Distributions paid to stockholders................................. (300) (34) -- --
Stockholders' notes payable........................................ 200 -- -- --
Proceeds from issuance of common stock............................. 80 -- -- --
------- ------- ------- -------
Net cash provided by financing activities..................... 930 1,514 1,348 925
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... 114 (23) (187) (79)
Cash and cash equivalents, beginning of period....................... 73 187 187 164
------- ------- ------- -------
Cash and cash equivalents, end of period............................. $ 187 $ 164 $ -- $ 85
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY:
ORGANIZATION AND BUSINESS
Lamaze Publishing Company, Inc. (the "Company"), publishes magazines
regarding pre- and post-natal educational material which are distributed to over
3.0 million new and expecting parents annually. These are distributed in
childbirth education classes, as well as in hospitals, at no cost. The Company
produces an educational video tape "You and Your Baby" which is distributed to
childbirth educators and reaches 1.8 million expectant parents. The Company
Newborn Channel has exclusive rights to broadcast on closed-circuit television
in approximately 700 hospitals, providing infant care programming to new
mothers. In 1998, the Company launched Lamaze Family Magazine which is expected
to be mailed to 750,000 homes in 1999, targeting families with pre-school
children.
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES:
REVENUE RECOGNITION
Revenues are principally derived from advertising inserts and are recorded
as follows:
Publishing and Sampling/Coupons--Publications are mailed to Certified Child
Birth Educators for distribution to expecting parents. Revenue is recognized
upon the distribution to expecting parents, which approximates the straight-line
method. The publications are issued twice a year as a Spring/Summer issue and a
Fall/Winter issue.
Satellite Broadcasting--Advertising revenue is recognized monthly based on
the actual number of births per month divided by the number of births specified
in the contract period and multiplied by the contract amount.
Video--Revenue is recognized upon the distribution to expecting parents by
the Certified Child Birth Educators, which approximates the straight-line
method. Videos are shipped in March of each year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market accounts and all highly
liquid investments purchased with original maturities of three months or less.
The Company maintains its cash and cash equivalents in highly rated financial
institutions.
FIXED ASSETS
Depreciation of equipment, furniture and fixtures, and purchased computer
software is provided for by the straight-line method over their estimated useful
lives ranging from three to five years. Amortization of leasehold improvements
is provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions and betterments
are capitalized, and repairs and maintenance costs are charged to operations in
the periods incurred.
GOODWILL
Goodwill consists of the excess of purchase price paid over identified
intangible and tangible net assets of acquired companies. Goodwill is amortized
using the straight-line method over the period of expected benefit, five years.
The Company assesses the recoverability of its goodwill by determining whether
the amortization of the unamortized balance of its remaining life can be
recovered through forecasted cash flows. If undiscounted forecasted cash flows
indicate that the unamortized amounts will not be recovered, an adjustment will
be made to reduce the net amounts to an amount consistent with forecasted future
cash flows discounted at the Company's incremental borrowing rate. Cash flow
forecasts are based on trends of historical performance and management's
estimate of future
F-67
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
performance, giving consideration to existing and anticipated competitive and
economic conditions. Amortization expense for goodwill for the years ended
December 31, 1997 and 1998 was approximately $127,000 and $153,000,
respectively.
INCOME TAXES
The Company has elected to be taxed as an S Corporation as provided for by
the Internal Revenue Code. Under "S" Corporation status, the Company's net
income or loss is taxed to its stockholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, approximate fair value because of their short maturities. The
carrying amount of the Company's bank financing obligations approximates the
fair value of such instruments based upon management's best estimate of interest
rates that would be available to the Company for similar debt obligations at
December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates made by the Company include the useful lives of fixed assets and the
recoverability of fixed assets, goodwill and deferred tax assets.
CONCENTRATION OF CREDIT RISK AND OTHER
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash, cash equivalents, and accounts
receivable. The Company's accounts receivable is derived from revenue earned
from customers, principally advertisers, without requiring collateral. The
Company maintains an allowance for potential bad debt based upon the expected
collectibility of all accounts receivable; historically, such losses have not
been significant.
The Company is dependent on a limited number of customers for a significant
part of its revenues. The Company had two customers which accounted for
approximately 18% and 12% of net accounts receivable at December 31, 1997. The
Company had one customer which accounted for 10% of net accounts receivable at
December 31, 1998. The Company had two different customers which individually
accounted for 14% of revenues as of December 31, 1997. The Company had a
different customer which accounted for 18% of revenues as of December 31, 1998.
Additionally, revenues from the Company's ten largest advertisers accounted for
approximately 66% and 63% of total revenues for the year ended December 31, 1997
and 1998, respectively.
RISKS AND UNCERTAINTIES
The Company's operations are subject to certain risks and uncertainties
including actual or prospective competition by entities with greater financial
resources, experience and market presence than the Company, in addition to risks
associated with growth, technology and regulatory matters.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). This statement requires companies to
classify items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the statement of operations. SFAS No. 130 is effective for financial
statements issued for fiscal years beginning after December 15,
F-68
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1997. The Company adopted SFAS No. 130 in the first quarter of 1998. The Company
has had no other comprehensive income items to report.
SEGMENT REPORTING
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 uses a management approach
to report financial and descriptive information about a company's operating
segments. Operating segments are revenue-producing components of the enterprise
for which separate financial information is produced internally for management.
Under this definition, the Company operated as a single segment for all years
presented. The adoption of SFAS 131 did not have a material impact on the
Company's financial position or results of operations.
START-UP COSTS
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As the
Company has expensed these costs historically, the adoption of this standard did
not have a significant impact on the Company's results of operations, financial
position or cash flow for the six months ended June 30, 1999.
SOFTWARE COSTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specific
specified costs and amortization of such costs. The Company does not expect the
adoption of this standard to have a material effect on the Company's
capitalization policy.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect the adoption of
this statement to have a significant impact on the Company's results of
operations, financial position or cash flows.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1999 and for the periods ended
June 30, 1998 and 1999 are unaudited but have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
statements which do not include all disclosures required by GAAP for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year.
F-69
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS:
Fixed assets consist of the following:
($ in 000's)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Hospital equipment....................................................... $2,321 $3,111
Office and computer equipment............................................ 121 223
Capitalized software..................................................... 56 92
Furniture and fixtures................................................... 102 118
Leasehold improvements................................................... 56 103
------ ------
2,656 3,647
Less, accumulated depreciation and amortization........................ (982) (1,650)
------ ------
$1,674 $1,997
------ ------
------ ------
</TABLE>
Depreciation and amortization of fixed assets was approximately $422,000 and
$668,000 for the years ended December 31, 1997 and 1998, respectively.
4. BUSINESS ACQUISITION:
THE NEWBORN CHANNEL, L.P.
On February 28, 1997, the Company acquired all of the outstanding stock of
the Newborn Channel, L.P. ("TNCLP") a closed-circuit television channel which
provides information regarding various baby care issues, in exchange for 4,872
shares of the Company's common stock. The cost of the TNCLP acquisition was
allocated to the assets and liabilities assumed based upon their estimated fair
values as follows:
($ in 000's)
<TABLE>
<S> <C>
Working capital.................................................. $(841)
Equipment........................................................ 808
Goodwill......................................................... 763
-----
$ 730
-----
-----
</TABLE>
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if the acquisition of TNCLP had been consummated
on January 1, 1996. 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.
($ in 000's)
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Revenues................................................................. $9,208 $9,455
Net income (loss)........................................................ $1,047 $ (769)
</TABLE>
5. RELATED PARTY TRANSACTIONS:
NOTES PAYABLE TO STOCKHOLDERS
The Company has received loans from its stockholders payable on demand. As
of December 31, 1998, total principal of $1,099,086 was due to stockholders.
Interest on the amounts advanced accrue at the rate of one percent above the
prime interest rate. Accrued interest at December 31, 1997 and
F-70
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1998 was $88,504 and $78,871, respectively. Interest expense for 1997 and 1998
was $88,504 and $107,714, respectively. The stockholders' loans are subordinate
to senior bank debt. The stockholders have informed the Company that they do not
intend to make a demand within the next twelve months, and are committed to
support the operations through 1999.
FEES PAID TO STOCKHOLDERS
The Company has entered into an informal consulting agreement with a
principal stockholder of the Company's common stock. During 1997, approximately
$258,000 was paid in consulting fees related to video production, management and
marketing. During 1998, approximately $108,000 was paid in video production
consulting fees.
6. BANK LOANS PAYABLE:
The Company had the following bank loans outstanding as of December 31:
($ in 000's)
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Term loan.................................................................. $ -- $1,250
Secured line of credit..................................................... $950 $1,300
---- ------
$950 $2,550
---- ------
---- ------
</TABLE>
The Company has entered into loan agreements with the Bank of New York (the
"Bank"), providing for a $2.75 million credit facility. The Term Loan Agreement,
dated March 9, 1998, provides for a long-term credit facility of $1.25 million.
The Secured Line of Credit, entered into on February 9, 1998 and renewed on
June 12, 1998, provides for a revolving credit facility of $1.5 million.
The long-term facility includes a $1.25 million term loan (the "Term Loan")
which is payable in 48 equal consecutive monthly installments in the amount of
$26,042 each, the first of which shall be due and payable on April 1, 1999.
Interest accrues at the Bank's prime rate or Eurodollar rate plus a margin of
between 1.5% to 2%, depending on attaining certain bank covenants. On
January 21, 1999, the agreement was amended making the first installment payable
on July 1, 1999 and extending the Term Loan to July 2003.
The credit facility is collateralized by receivables, inventories,
equipment and certain real property. Under the terms of the Agreement, the
Company is required to maintain certain financial ratios and other financial
conditions. The Agreement also prohibits the Company from incurring certain
additional indebtedness, limits certain investments, advances or loans and
restricts substantial asset sales, capital expenditures and cash dividends.
The revolving credit facility requires payment of interest at the Bank's
prime rate which was 7.50% at December 31, 1998 or Eurodollar rate plus a margin
of between 1.5% to 2%, depending on attaining certain bank covenants. The total
amount of unused revolving credit available to the Company at December 31, 1998
was $200,000. Either party may cancel the line of credit at any time. Unless
cancelled earlier the line of credit shall be available until May 31, 1999. On
January 21, 1999 the credit facility was increased to $2.5 million and extended
until December 31, 1999.
7. STOCK APPRECIATION PLAN:
Under the Company's key employee stock bonus plan, stock appreciation units
("SAU's") were granted to three key employees under terms and conditions as
stated in their respective employment letter. Each employee was granted three
SAU's, one of which shall vest on each of the first three anniversaries provided
they remain employed by the Company as of each anniversary. All SAU's
F-71
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
granted shall vest in full as a result of a merger, consolidation, sale,
transfer or acquisition. The redemption price shall be determined based on a
multiple of earnings before interest and taxes of the Company for the period of
four consecutive fiscal quarters of the Company immediately proceedings
redemption of such SAU and the number of shares outstanding at several points in
time. The effects of changes in redemption price during the vesting period are
recognized as compensation cost over the vesting period in accordance with the
method illustrated in SFAS 123, "Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans". Changes in the amount of the
liability due to stock price changes after the vesting period are compensation
cost of the period in which the changes occur. Due to negative earnings before
interest and taxes in 1998 and 1997, no compensation expense for fiscal 1998 and
1997 was recorded. During 1997 one employee elected to redeem their SAU's. As a
result, the value of the employee's equity position of $240,000 was paid out,
half in January 1998 while the other half will be paid in January 1999 plus
accrued interest.
8. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space, under non-cancelable operating lease
expiring in June 2000. The following is a schedule of future minimum lease
payments under the non-cancelable operating lease as of December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: 1988
- -------------------------------------------------------------------------------------- ----
($ in 000's)
<S> <C>
1999.................................................................................. $158
2000.................................................................................. $ 79
----
$237
----
----
</TABLE>
Rent expense was approximately $142,000 and $179,000 for the years ended
December 31, 1997 and 1998, respectively.
LITIGATION
The Company has been involved in litigation relating to claims arising out
of its operations in the normal course of business, including a claim by a
former employee. The Company does not believe that an adverse outcome of any of
these legal proceedings will have a material adverse effect on the Company's
results of operations, financial position or cash flows.
9. CAPITAL STOCK:
COMMON STOCK
In October 1997, the Company issued 604 shares of common stock in exchange
for net proceeds of approximately $80,000.
10. SUBSEQUENT EVENT (UNAUDITED):
On July 13, 1999, the Company entered into a definitive agreement to be
acquired by iVillage Inc., which runs a network of web sites for women, in
exchange for 1.75 million shares of iVillage Common Stock and approximately
$5 million in cash to retire certain indebtedness. iVillage Inc. has agreed that
in the event the Company should request financial assistance to fund its
operations, it will provide the necessary funds needed to meet the Company's
minimum working capital requirements for the twelve month period beginning from
the date of the transaction closing. The closing of the transaction is subject
to certain customary closing conditions.
F-72
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Online Psychological Services, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Online Psychological Services, Inc. (the
"Company"), at December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
July 16, 1999
F-73
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1998 1997 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................. $ 8,603 $ 22,643 $ 13,093
Accounts receivable................................................... 29,574 19,204 44,439
Due from stockholders................................................. 6,771 -- 6,771
--------- --------- ---------
Total current assets............................................... 44,948 41,847 64,303
--------- --------- ---------
Equipment............................................................... 22,797 19,622 22,797
Less: accumulated depreciation........................................ (8,475) (4,703) (9,536)
--------- --------- ---------
14,322 14,919 13,261
--------- --------- ---------
Total assets....................................................... $ 59,270 $ 56,766 $ 77,564
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses................................. $ 28,088 $ 8,820 $ 30,930
Deferred compensation................................................. 130,000 130,000 130,000
Line of credit........................................................ 17,066 15,098 15,569
Deferred revenue...................................................... 7,667 2,165 7,912
Stockholder loan...................................................... 12,260 -- 8,001
--------- --------- ---------
Total current liabilities.......................................... 195,081 156,083 192,412
--------- --------- ---------
Commitments (Note 5)
Stockholders' deficit:
Common stock, no par value, 1,500 shares authorized, issued and
outstanding........................................................ 244,598 13,323 245,170
Accumulated deficit................................................... (380,409) (112,640) (360,018)
--------- --------- ---------
Total stockholders' deficit........................................ (135,811) (99,317) (114,848)
--------- --------- ---------
Total liabilities and stockholders' deficit........................ $ 59,270 $ 56,766 $ 77,564
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- --------------------------
1998 1997 1999 1998
--------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
License revenue.......................................... $ 112,772 $235,652 $33,440 $ 31,046
Advertising revenue...................................... 56,964 17,310 35,070 4,670
Subscription and merchandising revenue................... 50,893 -- 15,097 5,768
--------- -------- ------- ---------
Total revenue......................................... 220,629 252,962 83,607 41,484
--------- -------- ------- ---------
Operating expenses:
Production, content and product costs.................... 65,812 33,456 9,359 14,040
Salary expense........................................... 387,861 181,392 38,396 43,541
Sales and marketing...................................... 4,208 5,809 6,477 5,111
General and administrative............................... 23,874 35,118 7,783 6,990
Depreciation............................................. 3,772 3,507 1,061 903
--------- -------- ------- ---------
Total operating expenses.............................. 485,527 259,282 63,076 70,585
--------- -------- ------- ---------
Income (loss) from operations.............................. (264,898) (6,320) 20,531 (29,101)
Interest expense, net.................................... 2,871 2,623 140 263
--------- -------- ------- ---------
Net income (loss).......................................... $(267,769) $ (8,943) $20,391 $ (29,364)
--------- -------- ------- ---------
--------- -------- ------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1996.................................... 1,500 $ 7,055 $(103,697) $ (96,642)
Transfer of common stock from stockholder................... -- 4,540 -- 4,540
Imputed rent expense contribution........................... -- 1,728 -- 1,728
Net loss.................................................... -- -- (8,943) (8,943)
------ -------- --------- ---------
Balance, December 31, 1997.................................... 1,500 $ 13,323 $(112,640) $ (99,317)
Transfer of common stock from stockholder................... -- 229,118 -- 229,118
Imputed rent expense contribution........................... -- 1,728 -- 1,728
Imputed interest on stockholder loan........................ -- 429 -- 429
Net loss.................................................... -- -- (267,769) (267,769)
------ -------- --------- ---------
Balance, December 31, 1998.................................... 1,500 $244,598 $(380,409) $(135,811)
Imputed rent expense contribution (unaudited)............... -- 432 -- 432
Imputed interest on stockholder loan (unaudited)............ -- 140 -- 140
Net income (unaudited)...................................... -- -- 20,391 20,391
------ -------- --------- ---------
Balance, March 31, 1999 (unaudited)........................... 1,500 $245,170 $(360,018) $(114,848)
------ -------- --------- ---------
------ -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- --------------------------
1998 1997 1999 1998
--------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:......................
Net income (loss)........................................ $(267,769) $ (8,943) $ 20,391 $ (29,364)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation............................................. 3,772 3,507 1,061 903
Compensation expense satisfied by issuance of common
stock................................................. 229,118 4,540 -- --
Imputed interest 429 -- 140 263
Imputed rent............................................. 1,728 1,728 432 432
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable............ (10,370) 2,506 (14,865) (2,441)
Increase (decrease) in accounts payable and accrued
expenses............................................ 19,268 6,142 2,842 (1,276)
Increase in deferred compensation..................... -- 10,000 -- --
Increase in deferred revenue.......................... 5,502 1,884 245 5,838
--------- -------- --------- ---------
Net cash (used in) provided by operating
activities.................................. (18,322) 21,364 10,246 (25,645)
--------- -------- --------- ---------
Cash flows from investing activities:
Equipment purchases...................................... (3,175) (6,830) -- --
Due from stockholders.................................... (6,771) -- -- (347)
--------- -------- --------- ---------
Net cash used in investing activities.......... (9,946) (6,830) -- (347)
--------- -------- --------- ---------
Cash flows from financing activities:
Proceeds from stockholder loan........................... 24,430 20,426 -- 15,026
Payments on stockholder loan............................. (12,170) (25,026) (4,259) --
Net borrowings on line of credit......................... 1,968 2,644 (1,497) 3,174
--------- -------- --------- ---------
Net cash provided by (used in) investing
activities.................................. 14,228 (1,956) (5,756) 18,200
--------- -------- --------- ---------
Net (decrease) increase in cash................ (14,040) 12,578 4,490 (7,792)
Cash, beginning of period.................................. 22,643 10,065 8,603 22,643
--------- -------- --------- ---------
Cash, end of period........................................ $ 8,603 $ 22,643 $ 13,093 $ 14,851
--------- -------- --------- ---------
--------- -------- --------- ---------
Supplemental disclosure of cash flow information: Cash paid
during the period for interest........................... $ 2,435 $ 2,567 $ -- $ --
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Online Psychological Services, Inc., (the "Company") is an interactive
media company specializing in the online development of content related to
mental health issues. The Company was incorporated in the state of Delaware on
January 29, 1996 to develop programming material for distribution through online
service providers and the Internet and is involved in the sale of products
through Internet commerce.
The Company and its stockholders entered into a definitive agreement with
iVillage Inc. ("iVillage") pursuant to which the Company was acquired by
iVillage effective June 30, 1999 (the "Acquisition"). All outstanding shares of
the Company were exchanged for cash and stock. These financial statements and
footnotes are those of the Company prior to the Acquisition and do not reflect
any purchase accounting adjustments or other transactions related to the
Acquisition (see Note 6).
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 or
advertisers, and the inability of the Company to maintain and increase the
levels of traffic on its online services. In the event the Company does not
successfully implement its business plan, certain assets may not be recoverable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash and cash
equivalents. The Company has no cash equivalents at December 31, 1998 or 1997.
Equipment
Equipment, which consists of office computers and peripherals, is stated at
cost. The cost of additions and improvements are capitalized, while maintenance
and repairs are charged to expense when incurred. Depreciation is computed using
the straight-line method based on the estimated useful life of three years. Upon
retirement or sale, the carrying amount of assets disposed of and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the related period of operations. Long-lived assets held
and utilized by the Company are reviewed for impairment whenever changes in
circumstances indicate the carrying value of such assets may not be recoverable.
Income Taxes
The Company has elected to be treated as an S Corporation for federal and
state income tax purposes and accordingly, any liabilities for income taxes are
the direct responsibility of the stockholders.
Stock Based Compensation
The Company accounts for stock based compensation in accordance with the
provisions of Accounting Principals Board Opinion ("APB") No. 25, Accounting for
Stock Issued to Employees, and complies with the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, for non employee compensation. Under SFAS No. 123,
compensation cost for an award of equity instruments to an employee shall be
recognized over
F-78
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the period(s) in which the related employee services were rendered and if the
award is for past services, the related compensation cost shall be recognized in
the period in which the equity instrument is granted.
Revenue Recognition
The Company's revenues are derived principally from licenses for the use,
marketing and distribution of its web site content; the sale of banner
advertisements; subscriptions and merchandise sales. Revenue from traffic-based
license fees is recognized upon notification from the third party of web site
traffic related to the Company's content. Revenue from fixed license fees is
recognized ratably over the term of the contracts. Advertising revenue is
recognized based on the placement of advertisements by a third party placement
agent. Such revenue is recognized once the advertisement has been placed and as
reported by the third-party placement agent. The Company recognizes the net
revenue received with respect to such content licenses and advertising
activities. Subscription revenue is recognized ratably over the term of the
contracts, which generally range from one month to a year. Revenue generated
from merchandise sales, net of any discounts, is generally recognized upon
shipment. Cash received in advance of revenues earned for subscription and
advertising contracts is recorded as deferred revenue.
Fair Value
The carrying amounts of cash, accounts receivable, accounts payable and
amounts included in other current assets and current liabilities that meet the
definition of a financial instrument, approximate fair value because of the
short-term nature of these amounts.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
Receivables are not collateralized and accordingly, the Company performs ongoing
credit evaluations of its customers to reduce the risk of loss.
The Company has a license agreement with an Internet service provider,
which generated revenue approximating 52% and 93% of total revenue for the years
ended December 31, 1998 and 1997, respectively. Primarily all the Company's
receivables at December 31, 1998 and 1997 are from well-established companies.
Substantially all subscribers pay for services with major credit cards for which
the Company receives timely remittances from the credit card carriers. The
Company has not experienced any losses in connection with the collectibility of
its accounts receivable, and accordingly, has made no provision for doubtful
accounts in its financial statements.
Use of Estimates
The financial statements are prepared on the accrual basis of accounting in
conformity with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. The most significant estimate
relates to the valuation of the Company's stock performed by an independent
appraiser. Actual results could differ from those estimates.
F-79
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Recent Pronouncements
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131") replaces the
industry segment approach under previously issued pronouncements with the
management approach. The management approach designates the internal
organization that is used by management for allocating resources and assessing
performance as the source of the Company's reportable segments. SFAS 131 also
requires disclosures about products and services, geographic areas and major
customers. Currently, the Company has only one reportable segment; the adoption
of SFAS 131 is not expected to significantly impact financial statement
disclosure of the Company.
In March 1998, the American Institute of Certified Public Accountants
issues Statement of Position 98-1 (SOP 98-1) entitled "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that both internal and external costs incurred to develop internal-use software
during the application development stage be capitalized and amortized over the
estimated useful life of the software. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998 and is not expected to have a material effect
on the Company's financial statements.
Interim Financial Information (unaudited)
Interim financial information for the three months ended March 31, 1999 and
1998 included herein is unaudited. However, the Company believes the interim
information includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results for interim
periods. The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1999.
3. REVOLVING LINE OF CREDIT AGREEMENT
Amounts outstanding under a revolving line of credit were $17,066 and
$15,098 at December 31, 1998 and 1997, respectively. The Company may borrow up
to $20,000 under this line of credit, which will expire October 26, 1999.
Advances on the credit line are payable upon demand and bear interest at prime
plus 6.9%. The line of credit is guaranteed by the Company's Chief Executive
Officer and stockholder. Interest expense for the years ending December 31, 1998
and 1997, was $2,442 and $2,623, respectively. There are no fees on the unused
line.
4. STOCKHOLDERS' EQUITY
During 1997, the Company's founder and Chief Executive Officer transferred
30 shares of his holdings in the Company's Common Stock to an employee at the
estimated fair value of the shares, as determined based upon an independent
valuation, in consideration for services rendered to the Company by the
employee. In connection with the issuance of the 30 shares of Common Stock, the
Company recorded compensation expense of $4,540 for the year ended December 31,
1997.
During 1998, the Company's founder and Chief Executive Officer transferred
757 shares of his holdings in the Company's Common Stock to two employees of the
Company. This transfer was recorded by the Company at the estimated fair value
of the shares, as determined based upon an independent valuation, in
consideration for services rendered to the Company by the employees. In
connection with the transfer of the 757 shares of Common Stock, the Company
recorded compensation expense of $229,118 for the year ended December 31, 1998.
At December 31, 1998, in connection with this transaction, $6,771 is due from
the stockholders as reimbursement for related payroll taxes paid by the Company
on their behalf. Such amount was repaid by the stockholders subsequent to
December 31, 1998.
F-80
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company leases web server space from a company that is wholly-owned by
one of its stockholders. This lease expires March 31, 2000. Lease expense was
$32,363 and $22,215 for the years ended December 31, 1998 and 1997,
respectively.
The Chief Executive Officer and stockholder provides corporate office space
to the Company for which he is not reimbursed. Rental expense was imputed, based
on the fair market value of the occupied property. Rental expense for the years
ended December 31, 1998 and 1997 was $1,728 and $1,728, respectively.
During 1998 and 1997, in the form of a note, the Company received cash
advances of $24,430 and $20,426, respectively, from its Chief Executive Officer
and stockholder for purposes of funding operations. The note is non-interest
bearing for which interest is imputed at 7% per annum, and is payable upon
demand. At December 31, 1998 and 1997, the Company's obligation under this note
was $12,260 and $0, respectively, and interest of $429 and $0, was charged to
expense during the years then ended.
6. SUBSEQUENT EVENT
Effective June 30, 1999, in accordance with the terms of a definitive
agreement (the "Acquisition Agreement"), the Company was acquired by iVillage
Inc. ("iVillage") for $24.8 million. All outstanding shares of the Company were
exchanged for $1.5 million in cash and a number of shares of iVillage common
stock equal to $23.3 million, as defined by the Acquisition Agreement.
Concurrent with the acquisition, the Company's tax status will change from an
S-Corporation to a C-Corporation.
In connection with the closing, the current stockholders of the Company
entered into a Release Agreement with iVillage waiving the payment of $130,000
of deferred compensation and $8,001 representing a stockholder loan.
No effect has been given to these financial statements for adjustments that
have or will take place as a result of the iVillage purchase of the Company.
F-81
<PAGE>
UNDERWRITING
iVillage, the selling stockholders and the underwriters for the offering
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., Credit Suisse First Boston Corporation and
Hambrecht & Quist LLC are the representatives of the Underwriters.
<TABLE>
<CAPTION>
Number
Underwriters of shares
- --------------------------------------- ----------
<S> <C>
Goldman, Sachs & Co....................
Credit Suisse First Boston Corporation.
Hambrecht & Quist LLC..................
----------
Total................................
----------
----------
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 450,000
shares from the selling stockholders to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the underwriters by iVillage and the selling
stockholders. Such amounts are shown assuming both no exercise and full exercise
of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by iVillage
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share................. $ $
Total..................... $ $
</TABLE>
<TABLE>
<CAPTION>
Paid by the Selling
Stockholders
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share................. $ $
Total..................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from
the initial price to public. If all the shares are not sold at the initial price
to public, the representatives may change the offering price and the other
selling terms.
iVillage, its directors and officers and the selling stockholders have
agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
90 days after the date of this prospectus, except with the prior written consent
of the representatives. This agreement does not apply to any existing employee
benefit plans. Please see "Shares Eligible for Future Sale" for a discussion of
certain transfer restrictions.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National
U-1
<PAGE>
Market, in the over-the-counter market or otherwise.
As permitted by Rule 103 under the Exchange Act, certain underwriters (and
selling group members, if any) that are market makers (passive market makers) in
the common stock may make bids for or purchases of common stock in the Nasdaq
National Market until a stabilizing bid has been made. Rule 103 generally
provides:
o a passive market maker's net daily purchases of the common stock may not
exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months, or any 60 consecutive days ending
within the 10 days, immediately preceding the filing date of the
registration statement of which this prospectus forms a part,
o a passive market maker may not effect transactions or display bids for
the common stock at a price that exceeds the highest independent bid for
the common stock by persons who are not passive market makers, and
o bids made by passive market makers must be identified as such.
iVillage and the selling stockholders estimate that their respective share
of the total expenses of this offering, excluding underwriting discounts and
commissions, will be approximately $700,000 and $ .
iVillage and the selling stockholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
U-2
<PAGE>
The back cover contains the following:
Two graphic wheels:
A graphic wheel entitled "Customer Offering: Highly Integrated
Problem Solving" with "problem solving" written in the center of the
wheel and arrows moving clockwise around the wheel listing the following
categories: "Information," "Experts," "Personalized Services,"
"Community," "Integrated Sponsors" and "Transactions."
The same graphic wheel applied to iVillage's MoneyLife Channel
including examples for each of the above categories.
<PAGE>
------------------------------------------------------
------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............................ 2
The Offering.................................. 4
Risk Factors.................................. 7
Forward-Looking Statements.................... 16
Use of Proceeds............................... 17
Dividend Policy............................... 17
Price Range of Common Stock................... 18
Capitalization................................ 18
Selected Consolidated Financial Data.......... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 22
Business...................................... 34
Management.................................... 50
Certain Transactions.......................... 58
Principal and Selling Stockholders............ 60
Description of Capital Stock.................. 63
Shares Eligible for Future Sale............... 65
Legal Matters................................. 66
Experts....................................... 66
Available Information......................... 66
Index to Financial Statements................. F-1
Underwriting.................................. U-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------
3,000,000 Shares
iVILLAGE INC.
Common Stock
------------------------------
------------------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC Registration Fee......................................... $ 32,370
NASD Filing Fee.............................................. 12,230
Nasdaq National Market Listing Fee........................... 17,500
Printing Costs............................................... 250,000
Legal Fees and Expenses...................................... 200,000
Accounting Fees and Expenses................................. 150,000
Blue Sky Fees and Expenses................................... 3,000
Transfer Agent and Registrar Fees............................ 3,000
Miscellaneous................................................ 31,900
--------
Total................................................... $700,000
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers, as well as other employees and
individuals, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by any such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Article XII of the Registrant's Amended and Restated Certificate of
Incorporation and Article VI of the Registrant's Bylaws provides for
indemnification by the Registrant of its directors and officers to the fullest
extent permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (I) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. The Registrant's Amended and Restated Certificate
of Incorporation provides for such limitation of liability.
The Registrant has obtained obtain directors' and officers' insurance
providing indemnification for certain of the Registrant's directors, officers
and employees for certain liabilities.
The Registrant has entered into indemnification agreements with each
director and officer which provide indemnification under certain circumstances
for acts and omissions which may not be covered by any directors' and officers'
liability insurance.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
1. In December 1996, in connection with an Agreement and Plan of
Reorganization, the Registrant issued 33,333 shares of common stock (on a
post-split basis) each to Jacqueline B. Needelman and David L. Cohen in
consideration for 1,500 shares of jointly owned common stock of
ParentsPlace.com, Inc.
2. In January 1997, Beth Polish exercised an option and received 8,333
shares of common stock at a price per share of $3.00 (on a post-split basis).
3. In January 1997, Elaine Rubin exercised an option and received 12,500
shares of common stock at a price per share of $3.00 (on a post-split basis).
4. In January 1997, Tina Neederlander exercised an option and received
12,500 shares of common stock at a price per share of $3.00 (on a post-split
basis).
5. In February 1997, the Registrant issued and sold stock subscription
warrants to purchase an aggregate of 111,771 shares of common stock at a price
per share of $5.86 (on a post-split basis) to AOL, Tribune, Kleiner and KPCB
Information in consideration for the cancellation of a note and cash.
6. In May 1997, the Registrant issued and sold an aggregate of 11,003,068
shares of Series C Preferred Stock at a price per share of $1.954 to the
following entities: AOL, Philip E Berney, CIBC Wood Gundy Ventures, Inc.
("CIBC"), Cox Interactive Media, Inc. ("Cox"), Convergence Ventures I, L.P.
("Convergence"), Stephen Friedman, Charles A. Davis, Growth Shares Ltd., Juergen
Habermeier, Kleiner, KPCB Information, Ralph Mack, Stephen M. Parish, Rho
Management Trust I ("Rho"), Sonem Partners ("Sonem"), Tenet Healthcare
Corporation ("Tenet"), Transatlantic Venture Partners C.V., Tribune, The
Trustees of the General Electric Pension Trust, Norman Tulchin, Stanley Tulchin
and one other corporate investor.
7. In May 1997, the Registrant issued warrants to Bear, Stearns & Co. Inc.
to purchase 30,194 shares of the Registrant's common stock at an exercise price
of $0.03 per share (on a post-split basis) in consideration for services
rendered.
8. In May 1997, in connection with a Plan of Reorganization and Merger,
among the Registrant, Health responsibility Systems, Inc. and other signatories
thereto, the Registrant issued 433,400 shares of common stock to Elin Silveous
and 203,000 shares of common stock to AOL (on a post-split basis).
9. In December 1997, the Registrant issued and sold an aggregate of
2,190,377 shares of Series C Convertible Preferred Stock at a price per share of
$1.954 per share to the following entities: AOL, Convergence, Convergence
Entrepreneurs Fund I ("Convergence Entrepreneurs"), Rho, Sonem and O'Sullivan
Graev & Karabell, L.L.P., Profit Sharing Plan F/B/O Martin H. Levenglick
("Levenglick").
10. In February 1998, the Registrant issued and sold an aggregate of
284,317 shares of common stock to Tenet at a price per share of $5.86 (on a
post-split basis).
11. In February 1998, the Registrant issued a certificate for an aggregate
of 76,800 shares of Series B Convertible Preferred Stock to Kleiner in exchange
for a certificate representing 76,800 shares of Series B Convertible Preferred
Stock issued to KPCB VII.
12. In February 1998, the Registrant issued and sold an aggregate of
1,333,334 shares of Series D Convertible Preferred Stock to Tenet at a price per
share of $2.50.
13. In March 1998, the Registrant issued and sold an aggregate of 4,480,000
shares of Series D Convertible Preferred Stock at a price per share of $2.50 to
the following entities: Convergence, Nexus Capital Partners I, L.P. ("Nexus"),
NIG-Village Ltd. ("NIG"), Porcelain Partners L.P., Rho, TCV II V.O.F.,
Technology Crossover Ventures II, L.P., TCV Strategic Partners, L.P., Technology
Crossover Partners II, C.V. and TCV II (Q), L.P.
II-2
<PAGE>
14. In April 1998, the Registrant issued and sold an aggregate of 6,434,000
shares of Series D Convertible Preferred Stock at a price per share of $2.50 to
the following entities: AOL, CIBC, Transatlantic Venture Partners, C.V.
("Transatlantic"), Leavitt Family Trust, Boston Millennia Partners Limited,
Boston Millennia Associates I Partnership, FIMA Finance Management, Inc., Josef
H. von Rickenbach, David Mahoney, Chestnut Investment Associates 1998, Chestnut
Partners, Inc., Allyn C. Woodward, Moore Global Investments, Ltd. ("Moore"),
Remington Investment Strategies, L.P. ("Remington"), Ralph Mack, Cox and one
other corporate investor.
15. In May 1998, the Registrant issued and sold an aggregate of 352,666
shares of Series D Convertible Preferred Stock at a price per share of $2.50 to
the following entities: Merrill Roth, Gannett International Communications, Inc.
and Pasquale Lavecchia.
16. In June 1998, the Registrant issued and sold an aggregate of 400,000
shares of Series D Convertible Preferred Stock to a corporate investor at a
price per share of $2.50.
17. In June 1998, Stephen Chao, Inc. exercised an option and received 8,333
shares of common stock at a price per share of $5.10 (on a post-split basis).
18. In December 1998, the Registrant issued and sold an aggregate of
11,730,948 shares of Series E Convertible Preferred Stock at a price per share
of $2.85 to the following entities: AOL, Boston Millennia Associates, Boston
Millennia Partners Limited, Lawrence Berk, CIBC, Convergence, Convergence
Entrepreneurs, Cox, Gannett, Leavitt, Steven Parish, Merrill Roth, Moore, Nexus,
NIG, Levenglick, Ralph Mack, Remington, Rho, Sonem, TCI, TCI Ventures Group,
LLC, TCV II (Q), L.P., TCV II V.O.F., TCV Strategic Partners, L.P., Technology
Crossover Ventures II, C.V., Technology Crossover Ventures II, L.P., Tenet,
Transatlantic, Tribune, William James Bell 1993 Trust, Seligman Communications &
Information Fund, Vantage Point Communications Partners, LP, Vantage Point
Venture Partners 1996, LP, Applewood Associates, Fred F. Nazem, Admirals, L.P.,
Fred Tanzer, and Van Wagoner Capital Management.
19. In December 1998, John Kiefer exercised an option and received 833
shares of common stock at a price per share of $5.10 (on a post-split basis).
20. In December 1998, Eileen O'Reilly exercised an option and received 83
shares of common stock at a price per share of $5.10 (on a post-split basis).
21. In December 1998, Laurie Peterson Wardell exercised an option and
received 83 shares of common stock at a price per share of $5.10 (on a
post-split basis).
22. In January 1999, Warren Cook exercised an option and received 1,000
shares of common stock at a price per share of $5.10 (on a post-split basis).
23. In January 1999, Maura Curtin exercised an option and received 83
shares of common stock at a price per share of $5.10 (on a post-split basis).
24. In January 1999, Lisa Gansky exercised an option and received 4,000
shares of common stock at a price per share of $7.50 (on a post-split basis).
25. In January 1999, Dermott McCormack exercised an option and received 83
shares of common stock at a price per share of $5.10 (on a post-split basis).
26. In January 1999, Christine Ohly exercised options and received 250 and
2,416 shares of common stock at prices per share of $3.00 and $5.10,
respectively (on a post-split basis).
27. In January 1999, Sarah Cabot Rockwell exercised options and received
833 shares of common stock at a price per share of $5.10 (on a post-split
basis).
28. In January 1999, Deanna Vincent exercised options and received 6,250
shares of common stock at a price per share of $5.10 (on a post-split basis).
29. In January 1999, Philip Vo exercised options and received 83 shares of
common stock at a price per share of $5.10 (on a post-split basis).
II-3
<PAGE>
30. In February 1999, in connection with the acquisition of KnowledgeWeb,
Inc. d/b/a Astrology.Net, the Registrant issued 802,125 shares of common stock
to Astrology.Net (on a post-split basis).
31. In February 1999, Ramsey Bierne exercised an option and received 8,882
shares of common stock at a price per share of $5.10 (on a post-split basis).
32. In March 1999, employees exercised options and received an aggregate
1,500 shares of common stock at a price per share of $5.10 (on a post-split
basis).
33. In March 1999, Michael Levy exercised options and received 16,666
shares of common stock at a price of $7.50 (on a post-split basis).
34. In March 1999, in connection with the NBC agreement, the Registrant
issued 4,889,030 shares of Series E Convertible Preferred Stock to NBC.
35. In April 1999, employees exercised options and received (i) an
aggregate 1,167 shares of common stock at a price per share of $5.10 and
(ii) an aggregate 334 shares of common stock at a price per share of $6.00.
36. In May 1999, employees exercised options and received an aggregate
39,750 shares of common stock at a price per share of $5.10.
37. In June 1999, employees exercised options and received an aggregate
2,121 shares of common stock at a price per share of $6.00.
38. In June 1999, in connection with the acquisitions of Online
Psychological Services, Inc. and Code Stone Technologies, the Registrant issued
571,709 shares of common stock.
39. 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.
40. 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.
41. In August 1999, in connection with the acquisition of Lamaze Publishing
Company, Inc., the Registrant issued 1,748,693 shares of common stock.
42. In August 1999, in connection with the acquisition of the domain name
Astrology.com, the Registrant issued 17,500 shares of common stock.
43. In August 1999, in connection with the acquisition of Family Point,
Inc., the Registrant issued 511,378 shares of common stock.
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 the Registrant that the shares
were being acquired for investment.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Reorganization and Merger dated as of January 31, 1997, as amended on March 31,
1997, as further amended as of May 15, 1997, as further amended as of May 16, 1997 and as further
amended as of May 23, 1997 among the Registrant, Health ResponseAbility Systems, Inc., and other
signatories thereto (incorporated by reference from the same exhibit number to Registration Statement
File No. 333-68749).
2.2 Letter of Intent dated January 4, 1999 between the Registrant and KnowledgeWeb, Inc. (incorporated by
reference from the same exhibit number to Registration Statement File No. 333-68749).
2.3 Agreement and Plan of Reorganization dated as of December 10, 1996 among the Registrant, PP
Acquisition Corporation, ParentsPlace.com, Inc. and the stockholders of ParentsPlace.com, Inc.
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
2.4 Letter Agreement dated February 10, 1999 by and among the Registrant and Kid's Warehouse, Inc., iBaby,
Inc., Our Baby, LLC, JBM Ventures, Inc. and Gavin Mandelbaum (incorporated by reference from the same
exhibit number to Registration Statement File No. 333-68749).
2.5 Agreement and Plan of Reorganization dated as of February 12, 1999 among the Registrant and
KnowledgeWeb Acquisition Corporation and KnowledgeWeb, Inc. and the Shareholders of KnowledgeWeb, Inc.
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
2.6 Agreement and Plan of Reorganization, dated as of June 30, 1999, by and among the Registrant, Online
Psych Acquisition Corporation, Online Psychological Services, Inc. and the stockholders of Online
Psychological Services, Inc. (incorporated by reference from Exhibit 2.1 to the Registrant's Form 8-K
Current Report dated as of June 30, 1999, File No. 000-25469).
2.7 Agreement and Plan of Reorganization, dated as of June 30, 1999, by and among the Registrant, Code
Stone Acquisition Corporation, Code Stone Technologies, Inc. and the sole stockholder of Code Stone
Technologies, Inc. (incorporated by reference from Exhibit 2.2 to the Registrant's Form 8-K Current
Report dated as of June 30, 1999, File No. 000-25469).
2.8 Agreement and Plan of Reorganization, dated as of July 13, 1999, by and among the Registrant, LPC
Acquisition Corporation, Lamaze Publishing Company, Inc. and the Shareholders and Stock Appreciation
Unit Holders of Lamaze Publishing Company, Inc. (incorporated by reference from Exhibit 2.3 to the
Registrant's Form 10-Q Quarterly Report for the period ended June 30, 1999, File No. 000-25469).
3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference from
the same exhibit number to Registration Statement File No. 333-85437).
3.2 Bylaws of the Registrant (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-85437)
4.1 Form of Registrant's common stock certificate (incorporated by reference from the same exhibit number
to Registration Statement File No. 333-68749).
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP.*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
9.1 Voting Trust Agreement dated as of September 19, 1995 between Candice Carpenter, Nancy Evans and
certain owners of common stock of the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-68749).
10.1 Form of Indemnification Agreement between the Registrant and each of its directors and officers
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.2 1995 Amended and Restated Employee Stock Option Plan of the Registrant (incorporated by reference from
the same exhibit number to Registration Statement File No. 333-68749).
10.3 1997 Amended and Restated Acquisition Stock Option Plan of the Registrant (incorporated by reference
from the same exhibit number to Registration Statement File No. 333-68749).
10.4 1999 Employee Stock Option Plan of the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-85437).
10.5 1999 Director Option Plan of the Registrant (incorporated by reference from the same exhibit number to
Registration Statement File No. 333-85437).
10.6 1999 Employee Stock Purchase Plan of the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-85437).
10.7 1999 Acquisition Stock Option Plan of the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-85437).
10.8 Interactive Services Agreement dated December 31, 1998, between the Registrant and America Online,
Inc. ("AOL") (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.9 Confidential Bankcard Marketing Agreement dated June 4, 1998, between the Registrant and First Credit
Card Services USA L.L.C. (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-68749).+
10.10 Promotion Distribution and License Agreement dated October 21, 1998 between AT&T Corp. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).+
10.11 Exclusive Sponsorship Agreement dated February 28, 1998 between Amazon.com, Inc. and the Registrant
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).+
10.12 Promotion Agreement dated November 6, 1998 between Snap LLC and the Registrant (incorporated by
reference from the same exhibit number to Registration Statement File No. 333-68749).+
10.13 Online Services Agreement dated December 19, 1997 between Charles Schwab & Co., Inc. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).+
10.14 Letter Agreement dated November 11, 1998 between the National Broadcasting Company, Inc. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.15 Joint Activities Agreement dated September 1997 between Intuit Inc. and the Registrant (incorporated
by reference from the same exhibit number to Registration Statement File No. 333-68749).+
10.16 Sponsorship Agreement dated as of December 18, 1998 by and between Ford Motor Media, a division of J.
Walter Thompson and the Registrant (incorporated by reference from the same exhibit number to
Registration Statement File No. 333-68749).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.17 Sponsorship Agreement dated as of October 30, 1998 between Ralston Purina Company and the Registrant
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.18 Form of Non-Competition, Non-Disclosure and Assignment of Inventions Agreement dated September 9,
1995, and Amendment dated May 6, 1996, between the Registrant and each of Candice Carpenter and Nancy
Evans (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.19 Employment Letter dated June 4, 1998 to Craig Monaghan (incorporated by reference from the same
exhibit number to Registration Statement File No. 333-68749).
10.20 Lease dated August 21, 1995, commencing on September 1, 1995, as amended on September 20, 1995, as
amended and supplemented April 5, 1996, as further amended and supplemented April 15, 1996, as further
amended and supplemented January 20, 1997, and as amended and supplemented May 8, 1997, between 170
Fifth Associates (the "Landlord") and the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-68749).
10.21 Lease dated March 19, 1998, commencing March 15, 1998 between 149 Fifth Avenue Corporation and the
Registrant, as supplemented on June 30, 1998 (incorporated by reference from the same exhibit number
to Registration Statement File No. 333-68749).
10.22 Note and Warrant Purchase Agreement dated as of February 27, 1997, as amended April 29, 1997, among
the Registrant, AOL, Tribune, KPCB VII and KPCB Zaibatsu II, including Form of Warrant (incorporated
by reference from the same exhibit number to Registration Statement File No. 333-68749).
10.23 Promissory Note dated June 5, 1998 in the amount of $500,000 between Candice Carpenter and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.24 Fourth Amended and Restated Stockholders' Agreement dated as of December 4, 1998, among the
Registrant, the Founders and each of the Investors identified therein (incorporated by reference from
the same exhibit number to Registration Statement File No. 333-68749).
10.25 Fourth Amended and Restated Registration Rights Agreement dated as of December 4, 1998, among the
Registrant, the Founders and each of the Investors identified therein, as amended as of July 26, 1999
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-85437).
10.26 Amended and Restated Stock Purchase Agreement dated as of March 9, 1999 among the Registrant, GE
Investments Subsidiary, Inc. and the National Broadcasting Company, Inc. (incorporated by reference
from the same exhibit number to Registration Statement File No. 333-68749).
10.27 Amended Letter Agreement dated as of March 9, 1999 between the Registrant and the National
Broadcasting Company, Inc. (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-68749).
10.28 Promissory Note dated March 9, 1999 in the amount of $15,497,558.48 between the Registrant and GE
Investments Subsidiary, Inc. (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-85437).
10.29 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 the same exhibit number to Registration Statement File No. 333-85437).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.30 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 the same exhibit number to Registration Statement File
No. 333-85437).
10.31 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 the same exhibit number to Registration
Statement File No. 333-85437).
10.32 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 the
same exhibit number to Registration Statement File No. 333-85437).
10.33 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 the same exhibit
number to Registration Statement File No. 333-85437).
10.34 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 the same exhibit number to
Registration Statement File No. 333-85437).
10.35 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 the same exhibit
number to Registration Statement File No. 333-85437).
10.36 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 the
same exhibit number to Registration Statement File No. 333-85437).
10.37 Statement of Terms concerning Child Development Newsletter dated August 20, 1993 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (incorporated by reference from the same
exhibit number to Registration Statement File No. 333-85437).
10.38 Agreement of Modification and Clarification dated January 1, 1996 between Lamaze International, Inc.
and Lamaze Publishing Company, Inc. (incorporated by reference from the same exhibit number to
Registration Statement File No. 333-85437).
10.39 License Agreement entered into on September 3, 1999 by and between PlanetRx.com, Inc. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-85437).
10.40 Sponsorship Agreement entered into on September 3, 1999 by and between PlanetRx.com, Inc. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-85437).
21 Subsidiaries of the Registrant (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-85437).
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 5.1).*
23.2 Consents of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on page II-10).
27.1 Financial Data Schedule.
</TABLE>
- ------------------
+ Confidential treatment has been granted for certain portions of these
exhibits. Omitted portions have been filed separately with the Securities and
Exchange Commission.
* To be filed by amendment.
II-8
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to the provisions
described in Item 15 above, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
B. The undersigned Registrant hereby undertakes to do the following, to the
extent that such actions are required by the rules and regulations of the
Securities and Exchange Commission:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
D. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on October 1, 1999.
iVILLAGE INC.
By: /s/ STEVEN A. ELKES
----------------------------------
Steven A. Elkes
Senior Vice President, Business
Affairs and Assistant Secretary
Each individual whose signature appears below hereby constitutes and
appoints Candice Carpenter and Steven A. Elkes, and each and either of them,
such individual's true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including pre-effective and post-effective amendments) to this registration
statement and to sign any registration statement (and any post-effective
amendments) relating to the same offering as this registration statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same with the Securities and Exchange Commission, with all
exhibits thereto and other documents in connection therewith, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intent and purposes as such person might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or any substitute therefor, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ ---------------------------------------- -------------------
<S> <C> <C>
/s/ CANDICE CARPENTER Co-Chairperson of the Board of Directors October 1, 1999
- ------------------------------------------ and Chief Executive Officer (Principal
Candice Carpenter Executive Officer)
/s/ NANCY EVANS Co-Chairperson of the Board of Directors October 1, 1999
- ------------------------------------------ and Editor-in-Chief
Nancy Evans
/s/ CRAIG T. MONAGHAN Chief Financial Officer October 1, 1999
- ------------------------------------------ (Principal Finanical Officer)
Craig T. Monaghan
/s/ SCOTT LEVINE Vice President, Controller and Chief October 1, 1999
- ------------------------------------------ Accounting Officer
Scott Levine (Principal Accounting Officer)
/s/ ALAN COLNER Director October 1, 1999
- ------------------------------------------
Alan Colner
/s/ JAY HOAG Director October 1, 1999
- ------------------------------------------
Jay Hoag
</TABLE>
II-10
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Lennert J. Leader Director October 1, 1999
- ------------------------------------------
Lennert J. Leader
/s/ Habib Kairouz Director October 1, 1999
- ------------------------------------------
Habib Kairouz
/s/ Michael Levy Director October 1, 1999
- ------------------------------------------
Michael Levy
Director
- ------------------------------------------
Douglas McCormick
Director
- ------------------------------------------
Martin Yudkovitz
/s/ Daniel Schulman Director October 1, 1999
- ------------------------------------------
Daniel Schulman
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Reorganization and Merger dated as of January 31, 1997, as amended on March 31,
1997, as further amended as of May 15, 1997, as further amended as of May 16, 1997 and as further
amended as of May 23, 1997 among the Registrant, Health ResponseAbility Systems, Inc., and other
signatories thereto (incorporated by reference from the same exhibit number to Registration Statement
File No. 333-68749).
2.2 Letter of Intent dated January 4, 1999 between the Registrant and KnowledgeWeb, Inc. (incorporated by
reference from the same exhibit number to Registration Statement File No. 333-68749).
2.3 Agreement and Plan of Reorganization dated as of December 10, 1996 among the Registrant, PP
Acquisition Corporation, ParentsPlace.com, Inc. and the stockholders of ParentsPlace.com, Inc.
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
2.4 Letter Agreement dated February 10, 1999 by and among the Registrant and Kid's Warehouse, Inc., iBaby,
Inc., Our Baby, LLC, JBM Ventures, Inc. and Gavin Mandelbaum (incorporated by reference from the same
exhibit number to Registration Statement File No. 333-68749).
2.5 Agreement and Plan of Reorganization dated as of February 12, 1999 among the Registrant and
KnowledgeWeb Acquisition Corporation and KnowledgeWeb, Inc. and the Shareholders of KnowledgeWeb, Inc.
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
2.6 Agreement and Plan of Reorganization, dated as of June 30, 1999, by and among the Registrant, Online
Psych Acquisition Corporation, Online Psychological Services, Inc. and the stockholders of Online
Psychological Services, Inc. (incorporated by reference from Exhibit 2.1 to the Registrant's Form 8-K
Current Report dated as of June 30, 1999, File No. 000-25469).
2.7 Agreement and Plan of Reorganization, dated as of June 30, 1999, by and among the Registrant, Code
Stone Acquisition Corporation, Code Stone Technologies, Inc. and the sole stockholder of Code Stone
Technologies, Inc. (incorporated by reference from Exhibit 2.2 to the Registrant's Form 8-K Current
Report dated as of June 30, 1999, File No. 000-25469).
2.8 Agreement and Plan of Reorganization, dated as of July 13, 1999, by and among the Registrant, LPC
Acquisition Corporation, Lamaze Publishing Company, Inc. and the Shareholders and Stock Appreciation
Unit Holders of Lamaze Publishing Company, Inc. (incorporated by reference from Exhibit 2.3 to the
Registrant's Form 10-Q Quarterly Report for the period ended June 30, 1999, File No. 000-25469).
3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference from
the same exhibit number to Registration Statement File No. 333-85437).
3.2 Bylaws of the Registrant (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-85437)
4.1 Form of Registrant's common stock certificate (incorporated by reference from the same exhibit number
to Registration Statement File No. 333-68749).
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP.*
9.1 Voting Trust Agreement dated as of September 19, 1995 between Candice Carpenter, Nancy Evans and
certain owners of common stock of the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-68749).
10.1 Form of Indemnification Agreement between the Registrant and each of its directors and officers
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.2 1995 Amended and Restated Employee Stock Option Plan of the Registrant (incorporated by reference from
the same exhibit number to Registration Statement File No. 333-68749).
10.3 1997 Amended and Restated Acquisition Stock Option Plan of the Registrant (incorporated by reference
from the same exhibit number to Registration Statement File No. 333-68749).
10.4 1999 Employee Stock Option Plan of the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-85437).
10.5 1999 Director Option Plan of the Registrant (incorporated by reference from the same exhibit number to
Registration Statement File No. 333-85437).
10.6 1999 Employee Stock Purchase Plan of the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-85437).
10.7 1999 Acquisition Stock Option Plan of the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-85437).
10.8 Interactive Services Agreement dated December 31, 1998, between the Registrant and America Online,
Inc. ("AOL") (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.9 Confidential Bankcard Marketing Agreement dated June 4, 1998, between the Registrant and First Credit
Card Services USA L.L.C. (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-68749).+
10.10 Promotion Distribution and License Agreement dated October 21, 1998 between AT&T Corp. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).+
10.11 Exclusive Sponsorship Agreement dated February 28, 1998 between Amazon.com, Inc. and the Registrant
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).+
10.12 Promotion Agreement dated November 6, 1998 between Snap LLC and the Registrant (incorporated by
reference from the same exhibit number to Registration Statement File No. 333-68749).+
10.13 Online Services Agreement dated December 19, 1997 between Charles Schwab & Co., Inc. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).+
10.14 Letter Agreement dated November 11, 1998 between the National Broadcasting Company, Inc. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.15 Joint Activities Agreement dated September 1997 between Intuit Inc. and the Registrant (incorporated
by reference from the same exhibit number to Registration Statement File No. 333-68749).+
10.16 Sponsorship Agreement dated as of December 18, 1998 by and between Ford Motor Media, a division of J.
Walter Thompson and the Registrant (incorporated by reference from the same exhibit number to
Registration Statement File No. 333-68749).
10.17 Sponsorship Agreement dated as of October 30, 1998 between Ralston Purina Company and the Registrant
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.18 Form of Non-Competition, Non-Disclosure and Assignment of Inventions Agreement dated September 9,
1995, and Amendment dated May 6, 1996, between the Registrant and each of Candice Carpenter and Nancy
Evans (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.19 Employment Letter dated June 4, 1998 to Craig Monaghan (incorporated by reference from the same
exhibit number to Registration Statement File No. 333-68749).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.20 Lease dated August 21, 1995, commencing on September 1, 1995, as amended on September 20, 1995, as
amended and supplemented April 5, 1996, as further amended and supplemented April 15, 1996, as further
amended and supplemented January 20, 1997, and as amended and supplemented May 8, 1997, between 170
Fifth Associates (the "Landlord") and the Registrant (incorporated by reference from the same exhibit
number to Registration Statement File No. 333-68749).
10.21 Lease dated March 19, 1998, commencing March 15, 1998 between 149 Fifth Avenue Corporation and the
Registrant, as supplemented on June 30, 1998 (incorporated by reference from the same exhibit number
to Registration Statement File No. 333-68749).
10.22 Note and Warrant Purchase Agreement dated as of February 27, 1997, as amended April 29, 1997, among
the Registrant, AOL, Tribune, KPCB VII and KPCB Zaibatsu II, including Form of Warrant (incorporated
by reference from the same exhibit number to Registration Statement File No. 333-68749).
10.23 Promissory Note dated June 5, 1998 in the amount of $500,000 between Candice Carpenter and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-68749).
10.24 Fourth Amended and Restated Stockholders' Agreement dated as of December 4, 1998, among the
Registrant, the Founders and each of the Investors identified therein (incorporated by reference from
the same exhibit number to Registration Statement File No. 333-68749).
10.25 Fourth Amended and Restated Registration Rights Agreement dated as of December 4, 1998, among the
Registrant, the Founders and each of the Investors identified therein, as amended as of July 26, 1999
(incorporated by reference from the same exhibit number to Registration Statement File
No. 333-85437).
10.26 Amended and Restated Stock Purchase Agreement dated as of March 9, 1999 among the Registrant, GE
Investments Subsidiary, Inc. and the National Broadcasting Company, Inc. (incorporated by reference
from the same exhibit number to Registration Statement File No. 333-68749).
10.27 Amended Letter Agreement dated as of March 9, 1999 between the Registrant and the National
Broadcasting Company, Inc. (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-68749).
10.28 Promissory Note dated March 9, 1999 in the amount of $15,497,558.48 between the Registrant and GE
Investments Subsidiary, Inc. (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-85437).
10.29 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 the same exhibit number to Registration Statement File No. 333-85437).
10.30 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 the same exhibit number to Registration Statement File
No. 333-85437).
10.31 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 the same exhibit number to Registration
Statement File No. 333-85437).
10.32 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 the
same exhibit number to Registration Statement File No. 333-85437).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.33 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 the same exhibit
number to Registration Statement File No. 333-85437).
10.34 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 the same exhibit number to
Registration Statement File No. 333-85437).
10.35 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 the same exhibit
number to Registration Statement File No. 333-85437).
10.36 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 the
same exhibit number to Registration Statement File No. 333-85437).
10.37 Statement of Terms concerning Child Development Newsletter dated August 20, 1993 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (incorporated by reference from the same
exhibit number to Registration Statement File No. 333-85437).
10.38 Agreement of Modification and Clarification dated January 1, 1996 between Lamaze International, Inc.
and Lamaze Publishing Company, Inc. (incorporated by reference from the same exhibit number to
Registration Statement File No. 333-85437).
10.39 License Agreement entered into on September 3, 1999 by and between PlanetRx.com, Inc. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-85437).
10.40 Sponsorship Agreement entered into on September 3, 1999 by and between PlanetRx.com, Inc. and the
Registrant (incorporated by reference from the same exhibit number to Registration Statement File
No. 333-85437).
21 Subsidiaries of the Registrant (incorporated by reference from the same exhibit number to Registration
Statement File No. 333-85437).
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 5.1).*
23.2 Consents of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on page II-10).
27.1 Financial Data Schedule.
</TABLE>
- ------------------
+ Confidential treatment has been granted for certain portions of these
exhibits. Omitted portions have been filed separately with the Securities and
Exchange Commission.
* To be filed by amendment.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated January 29, 1999 on our audits of the financial statements of
KnowledgeWeb, Inc. as of and for the years ended December 31, 1998 and 1997. We
also consent to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
New York, New York
October 1, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated December 23, 1999, on our audits of the financial statements of
Health ResponseAbility Systems, Inc. as of December 31, 1995 and 1996 for the
two years in the period ended December 31, 1996. We also consent to the
reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
New York, New York
October 1, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 4, 1999 on our audits of the consolidated financial
statements of iVillage Inc. and Subsidiaries as of December 31, 1998 and 1997
and for the three years in the period ended December 31, 1998. We also consent
to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
New York, New York
October 1, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated July 16, 1999 on our audits of the financial statements of Online
Psychological Services, Inc. as of and for the years ended December 31, 1998 and
1997. We also consent to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
October 1, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated June 14, 1999 except for note 10, as to which the date is July 13,
1999, on our audits of the financial statements of Lamaze Publishing Company,
Inc. as of and for the years ended December 31, 1998 and 1997. We also consent
to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
New York, New York
October 1, 1999
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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