<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 18, 1999
iVillage Inc.
-----------------------------------------------------------------
(Exact name of Registrant as Specified in Charter)
Delaware 000-25469 13-3845162
- -------------------------- ----------------------- --------------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
organization)
170 Fifth Avenue, New York, New York 10010
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 604-0963
Not Applicable
- -----------------------------------------------------------
(Former Name or Former Address if Changed Since Last Report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) KnowledgeWeb, Inc. Financial Statements For the Two Years Ended
December 31, 1998
<PAGE>
Report of Independent Accountants
January 29, 1999
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
<PAGE>
KnowledgeWeb, Inc.
Balance Sheets
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1998 1997
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 103,852 $ 9,718
Accounts receivable, net of allowance of $12,538 and $0 as of 113,855 19,139
December 31, 1998 and 1997, respectively
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 511 497
as of December 31, 1998 and 1997, respectively
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.
-2-
<PAGE>
KnowledgeWeb, Inc.
Statements of Operations
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
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
========== ==========
The accompanying notes are an integral part of these financial statements.
-3-
<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.
-4-
<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.
-5-
<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.
-6-
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
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.
-7-
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
2. Property and Equipment
December 31, December 31,
1998 1997
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
========== ==========
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.
-8-
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
4. Internal Use Software
December 31, December 31,
1998 1997
Internal use software $ 180,781 $ 96,024
Less accumulated amortization (108,827) (51,914)
----------- ----------
$ 71,954 $ 44,110
=========== ==========
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.
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:
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
==========
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.
-9-
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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:
December 31, December 31,
1998 1997
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)
--------- ---------
$ - $ -
========= =========
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.
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.
-10-
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
-11-
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
A summary of the Plan's activity is as follows:
Weighted
Average
Available Options Price Per
for Grant Outstanding Share
--------- ----------- ---------
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
========= ====== ======
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.
-12-
<PAGE>
(b) Previously reported in the Registrant's registration statement on Form
S-1 (File No.: 333-68749).
(c) Exhibits
--------
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
iVillage Inc.
(Registrant)
Date: May 4, 1999 By: /s/ Craig T. Monaghan
------------------------------
Craig T. Monaghan
Chief Financial Officer
