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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 000-25469
iVILLAGE INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3845162
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
512 Seventh Avenue, New York, New York 10018
(Address of Principal Executive Offices) (Zip Code)
(212) 206-3100
(Registrant's telephone number, including area code)
212 Fifth Avenue, New York, New York 10010
------------------------------------------
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
29,704,333 shares of common stock as of August 8, 2000.
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iVillage Inc.
Form 10-Q
For the Quarter ended June 30, 2000
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page(s)
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2000 (Unaudited)
and December 31, 1999....................................................................... 1
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 2000 (Unaudited) and 1999 (Unaudited)................................. 2
Condensed Consolidated Statements of Cash Flows for the three and six
months ended June 30, 2000 (Unaudited) and 1999 (Unaudited)................................. 3
Notes to Condensed Consolidated Financial Statements (Unaudited)............................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 21
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
Item 1. Legal Proceedings............................................................. 21
Item 2. Changes in Securities and Use of Proceeds..................................... 21
Item 3. Defaults Upon Senior Securities............................................... 21
Item 4. Submission of Matters to a Vote of Security Holders........................... 22
Item 5. Other Information............................................................. 22
Item 6. Exhibits and Reports on Form 8-K.............................................. 22
Signatures.................................................................................. 23
Exhibit Index............................................................................... 24
</TABLE>
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
iVillage Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ....................................... $ 68,506 $ 106,010
Restricted cash ................................................. -- 1,495
Accounts receivable, net ........................................ 5,890 6,620
Inventory ....................................................... -- 2,332
Other current assets ............................................ 5,330 3,193
Current assets of discontinued operations, net .................. 1,464 --
--------- ------------
Total current assets .................................... 81,190 119,650
--------- ------------
Restricted cash ................................................. 9,250 --
Fixed assets, net ............................................... 11,386 10,017
Goodwill and other intangible assets, net ....................... 146,886 175,143
Other assets .................................................... 972 7,938
Non-current assets of discontinued operations ................... 7,503 --
--------- ------------
Total assets ............................................ $ 257,187 $ 312,748
========= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ........................... $ 12,714 $ 16,216
Liabilities for disposal of iBaby, Inc. ......................... 6,770 --
Deferred revenue ................................................ 11,437 12,682
--------- ------------
Total liabilities ....................................... 30,921 28,898
--------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - par value $.01, 5,000,000 shares
authorized, 0 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively ............. -- --
Common stock - par value $.01, 65,000,000 shares
authorized, 29,702,431 and 29,591,778 issued and
outstanding at June 30, 2000 and December 31,
1999, respectively ............................................ 297 296
Additional paid-in capital ...................................... 495,573 494,899
Accumulated deficit ............................................. (255,314) (192,888)
Stockholders' notes receivable .................................. (9,565) (12,188)
Unearned compensation and deferred advertising .................. (4,725) (6,269)
--------- ------------
Total stockholders' equity .............................. 226,266 283,850
--------- ------------
Total liabilities and stockholders' equity .............. $ 257,187 $ 312,748
========= ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
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iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
-------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 19,392 $ 6,416 $ 37,496 $ 11,208
Cost of revenues ................................. 6,992 2,885 13,611 6,606
-------- -------- -------- --------
Gross margin ..................................... 12,400 3,531 23,885 4,602
-------- -------- -------- --------
Operating expenses:
Product development and technology ........... 2,059 1,195 3,558 2,603
Sales and marketing .......................... 10,991 7,347 23,611 14,794
Sales and marketing - NBC expenses ........... 2,815 4,466 6,107 7,572
General and administrative ................... 6,456 3,012 13,064 6,257
Depreciation and amortization ................ 11,291 3,651 22,759 6,040
-------- -------- -------- --------
Total operating expenses ................. 33,612 19,671 69,099 37,266
-------- -------- -------- --------
Loss from operations ............................. (21,212) (16,140) (45,214) (32,664)
Interest income, net ............................. 1,322 1,182 2,880 1,514
Other expense, net ............................... (8,117) -- (7,956) --
-------- -------- -------- --------
Loss from continuing operations .................. (28,007) (14,958) (50,290) (31,150)
-------- -------- -------- --------
Preferred stock deemed dividend .................. -- -- -- (23,612)
Loss attributable to common
stockholders from continuing
operations ................................... (28,007) (14,958) (50,290) (54,762)
-------- -------- -------- --------
Discontinued operations:
Loss from operation of iBaby, Inc. ........... (1,978) (2,145) (4,863) (3,512)
Loss on disposal of iBaby, Inc.,
including provision for losses during
phase-out period, $3,075, and
estimated loss on sale of assets, $4,198 ... (7,273) -- (7,273) --
-------- -------- -------- --------
Loss from discontinued operations ................ (9,251) (2,145) (12,136) (3,512)
-------- -------- -------- --------
Net loss attributable to common
stockholders ................................. $(37,258) $(17,103) (62,426) $(58,274)
======== ======== ======== ========
Basic and diluted net loss per share
attributable to common stockholders .......... $ (1.25) $ (0.72) $ (2.10) $ (3.98)
======== ======== ======== ========
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share
attributable to common stockholders .......... 29,691 23,728 29,691 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
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iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ....................................... $ (37,258) $(17,103) $(62,426) $ (34,662)
Adjustments to reconcile net loss to
net cash used in operating
activities of continuing
operations:
Loss from discontinued operations .............. 1,978 2,145 4,863 3,512
Loss on disposal of iBaby, Inc. ................ 7,273 -- 7,273 --
Expense recognized in connection
with issuance of warrants and
stock options ................................ 1,187 1,102 1,957 2,979
Write-down of marketable investments ........... 8,079 -- 8,079 --
Depreciation and amortization .................. 11,291 3,651 22,759 6,040
Bad debt expense ............................... -- -- -- 500
Changes in operating assets and liabilities:
Accounts receivable ............................ (2,274) (746) 730 (797)
Restricted cash and other assets ............... (119) 956 (10,708) (108)
Accounts payable and accrued
expenses ..................................... (973) (1,577) (1,837) (1,233)
Deferred revenue ............................... (823) (521) (1,245) 278
Other liabilities .............................. -- -- -- 36
--------- --------- --------- ---------
Net cash used in operating activities
of continuing operations: ...................... (11,639) (12,093) (30,555) (23,455)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of fixed assets ....................... (3,519) (626) (5,300) (1,274)
Acquisitions of Web sites ...................... -- (1,609) -- (10,831)
Investment in non-marketable securities ........ -- -- (1,000) --
--------- --------- --------- ---------
Cash used in investing activities of
continuing operations: ......................... (3,519) (2,235) (6,300) (12,105)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net ................................... -- (226) (451) 91,392
Proceeds from exercise of stock
options ...................................... 352 241 712 505
Principal payments on capital leases ........... -- -- -- (63)
Principal payments on stockholders'
note receivable .............................. 1,292 1,382 2,623 1,382
--------- --------- --------- ---------
Net cash provided by financing
activities of continuing operations: ........... 1,644 1,397 2,884 93,216
--------- --------- --------- ---------
Cash used in discontinued operations ............. (996) (2,314) (3,533) (3,201)
Net increase (decrease) in cash for
the period .................................... (14,510) (15,245) (37,504) 54,454
Cash and cash equivalents, beginning
of period ..................................... 83,016 100,524 106,010 30,825
--------- --------- --------- ---------
Cash and cash equivalents, end of
period ........................................ $ 68,506 $ 85,279 $ 68,506 $ 85,279
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
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iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - The Company
Basis of Presentation
iVillage Inc. was incorporated in the State of Delaware on June 8, 1995 and
commenced operations on July 1, 1995. iVillage Inc. and its subsidiaries
("iVillage" or the "Company") are primarily engaged in the development of
programming material for distribution through online service providers and the
Internet.
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 and 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 condensed consolidated financial statements of the Company
for the three and six months ended June 30, 2000 and 1999, respectively,
included herein have been prepared in accordance with the instructions for Form
10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of
Regulation S-X under the Securities Act of 1933, as amended. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements. These financial statements should be read in conjunction with
iVillage's Annual Report on Form 10-K for the year ended December 31, 1999.
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments and appropriate inter-company elimination
adjustments, necessary to present fairly the financial position of the Company
at June 30, 2000, and the results of its operations and its cash flows for the
three and six months ended June 30, 2000 and 1999, respectively. The results for
the three and six months ended June 30, 2000 are not necessarily indicative of
the expected results for the full fiscal year or any future period.
Reclassifications
Within the condensed consolidated statements of operations, certain
reclassifications have been made to prior year's expense amounts to conform to
the 2000 presentation. None of the reclassifications impacted our net loss or
net loss per share attributable to common stockholders in any period. The
reclassifications include the allocation of facility expenses from general and
administrative expense to cost of revenues, product development and technology
and sales and marketing, and to present the operating results of iBaby, Inc. as
a discontinued operation.
Restricted Cash
Restricted cash includes money held in an escrow account for advertising
expenses and a letter of credit securing a real estate lease for new office
space.
Net Loss Per Share
Basic loss per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted loss per share is computed using
the weighted-average number of common and common stock equivalents outstanding
during the period. Common stock equivalent shares are excluded from the
computation if 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.
4
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Investments
The Company enters into certain equity investments for the promotion of business
and strategic purposes. Management determines the appropriate classification of
its investments in marketable securities at the time of purchase and evaluates
such investments at each balance sheet date. These investments are included in
other assets in the condensed consolidated balance sheets.
The Company's marketable investments are classified as available-for-sale as of
the balance sheet date and are carried at fair value, with the unrealized gains
and losses, net of tax, reported as a separate component of stockholders' equity
until realized.
Non-marketable investments are recorded at the lower of cost or market.
For all investment securities, unrealized losses that are other than temporary
are recognized in calculating net income or loss.
Included in Other Expense, Net in the condensed consolidated statements of
operations are $8.1 million of losses recognized for the write-down of the
Company's marketable and non-marketable investments whose decline in value was
deemed to be other than temporary.
Note 2 - Discontinued Operations
In June 2000, the Company decided to discontinue the operations of its iBaby,
Inc. subsidiary. The Company recorded a loss on disposal of approximately $7.3
million, which includes an estimated loss on sale of assets of $4.2 million and
loss from operations during the phase-out period of $3.1 million. Results of
these operations have been classified as discontinued operations and all prior
period results have been restated. For business segment reporting purposes,
iBaby, Inc. was previously classified as part of "Commerce". As a result, the
Company now operates as one business segment (See Note 4).
The Company received a convertible promissory note of approximately $9.9
million, subject to post closing adjustments, as consideration for the sale of
certain iBaby, Inc. assets. In calculating the loss on sale of assets, the
Company valued the note at $5.1 million, due to uncertainties surrounding the
recoverability of the convertible note. The loss on sale of assets was
calculated as follows (in thousands):
Estimated value of convertible promissory note $ 5,100
Inventory (1,854)
Fixed assets, net (1,213)
Goodwill, net (6,231)
-------
Loss on sale of iBaby, Inc. assets $(4,198)
=======
Net revenue and loss from discontinued operations are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue $ 2,055 $ 1,693 $ 4,714 $ 3,364
======== ======== ========= ========
Loss from discontinued operations,
including loss on disposal $ (9,251) $ (2,145) $ (12,136) $ (3,512)
======== ======== ========= ========
</TABLE>
5
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Net current assets of discontinued operations as of June 30, 2000 are as follows
(in thousands):
Inventory $ 1,854
Other current assets 362
Accounts payable and accrued expenses (752)
-------
Net current assets of discontinued operations $ 1,464
=======
Non-current assets of discontinued operations as of June 30, 2000 are as follows
(in thousands):
Fixed assets, net $1,213
Goodwill, net 6,231
Other assets 59
------
Non-current assets of discontinued operations $7,503
======
Note 3 - Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 is not a rule or interpretation of the SEC, however, it represents
interpretations and practices followed by the Division of Corporation Finance
and the Office of the Chief Accountant in administering the disclosure
requirements of the Federal securities laws. The Company does not believe that
the interpretations outlined in SAB 101 will have an impact on the Company's
revenue recognition policies.
Note 4 - Subsequent Event
In July 2000, the Company sold certain assets of iBaby, Inc. to Babygear.com,
Inc. Under the Asset Purchase Agreement dated July 6, 2000, the Company received
a convertible promissory note of approximately $9.9 million, subject to post
closing adjustments. The note matures on January 6, 2003 and the conversion
rate, conversion timing, and the method of repayment are contingent upon
Babygear.com consummating additional financing. The percentage of cash, note and
equity in Babygear.com, into which the note shall be converted, is determined by
the timing and amount of financing received by Babygear.com.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements in this Quarterly Report on Form 10-Q, including
certain statements contained in this Item 2 constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). The words or phrases "can be,"
"expects," "may affect," "may depend," "believes," "estimate," "project," and
similar words and phrases are intended to identify such forward-looking
statements. Such forward-looking statements are subject to various known and
unknown risks and uncertainties and iVillage cautions you that any
forward-looking information provided by or on behalf of iVillage is not a
guarantee of future performance. iVillage's actual results could differ
materially from those anticipated by such forward-looking statements due to a
number of factors, some of which are beyond iVillage's control, in addition to
those risks discussed below and in iVillage's other public filings, press
releases and statements by iVillage's management, including (i) the volatile and
competitive nature of the Internet industry, (ii) changes in domestic and
foreign economic and market conditions, (iii) the effect of federal, state and
foreign regulation on iVillage's business, and (iv) the impact of recent and
future acquisitions on iVillage's business and financial condition. All such
forward-looking statements are current only as of the date on which such
statements were made. iVillage does not undertake any obligation to publicly
update any forward-looking statement to reflect events or circumstances after
the date on which any such statement is made or to reflect the occurrence of
unanticipated events.
Overview
The iVillage network, iVillage.com, provides an easy-to use,
comprehensive online network of sites
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tailored to the interests and needs of women using the Internet. iVillage.com
consists of 16 content specific channels organized by subject matter and online
access to experts and tailored shopping opportunities. 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.
In June 2000, iVillage decided to discontinue the operations of its
iBaby, Inc. subsidiary. As such, all discussion and analysis below represents
solely the continuing operations of iVillage.
To date our revenues from continuing operations have been derived
primarily from the sale of sponsorship and advertising contracts. Sponsorship
and advertising revenues constituted 91% and 92% of total revenues from
continuing operations for the three and six months ended June 30, 2000,
respectively. This compares to 93% and 95% for the comparable periods during the
prior year, 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 and
online research. Sponsorship agreements typically include the delivery of
impressions on our Web sites and occasionally 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.
Sponsorship revenues are recognized ratably in the period in which the
advertisement is displayed, provided that none of our significant obligations
remain and the collection of the receivable is reasonably assured, 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.
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 not been significant.
Advertising revenues are derived principally from short-term
advertising contracts in which we typically guarantee a minimum number of
impressions or pages to be delivered to users over 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 none of our significant
obligations remain and the collection of the receivable is probable, 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, we defer recognition of the
corresponding revenues until the guaranteed impressions are achieved.
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 advertisements are run on iVillage.com.
Barter expenses are included as part of sales and marketing expenses. We do not
receive cash for the 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 5% and 15% of total revenues for the six months ended
June 30, 2000 and 1999, respectively. We anticipate that barter revenues will
continue to increase in the future although they generally will remain constant
as a percentage of total revenues.
With the acquisition of Lamaze Publishing Company, Inc. ("Lamaze
Publishing"), we generate additional revenues through advertising placements in
its publications, videos, Newborn Channel satellite broadcasts and e-commerce
opportunities. In addition, revenues are generated through a sampling and coupon
program, which offers advertisers the ability to distribute samples, coupons and
promotional literature to new and expectant mothers.
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Commerce revenues are derived principally from sales through
Astrology.com where we are the direct retailer. Revenues from Astrology.com
consist of the sale of astrological charts and other related products to
visitors to the Astrology.com Web site. We recognize revenues from Astrology.com
product sales, net of any discounts, when products are shipped to customers and
the collection of the receivable is reasonably assured.
We received fees from the licensing of portions of our content in
connection with the PlanetRx.com relationship. Such fees are recognized on a
straight-line basis over the life of the contract.
Results of Operations
Revenues
Revenues from continuing operations were $19.4 million and $37.5
million for the three and six months ended June 30, 2000, respectively, which
represents an increase of 202% and 235%, respectively, when compared with the
corresponding periods in 1999. The increase in revenues was primarily due to our
ability to generate significantly higher sponsorship and advertising revenues
during the 2000 period and the acquisition of Lamaze Publishing in the third
quarter of 1999. Sponsorship, advertising and other revenues were $17.7 million
and $34.3 million for the three and six months ended June 30, 2000,
respectively, compared to $6.0 million and $10.7 million for the corresponding
periods in 1999. The increase in sponsorship, advertising and other revenues was
primarily due to an increase in the number of impressions sold, an increase in
the number of sponsors advertising on our Web sites during the 2000 period, and
from the acquisition of Lamaze Publishing. Sponsorship, advertising and other
revenues accounted for approximately 91% and 92% of total revenues for the three
and six months ended June 30, 2000, respectively. Commerce revenues from
continuing operations accounted for $.6 million, or 3% of total revenues, for
the three months ended June 30, 2000, and $1.1 million, or 3% of total revenues,
for the six months ended June 30, 2000, compared to $.4 million and $.5 million,
or 7% and 5% of total revenues for the comparable three and six month periods in
1999, respectively.
Although no one advertiser accounted for greater than 10% of our total
revenues for the three or six months ended June 30, 2000, our five largest
advertisers accounted for 26% and 23% of total revenues, respectively. The five
largest advertisers accounted for 35% and 29% of total revenues for the three
and six months ended June 30, 1999, respectively.
Included in sponsorship and advertising revenues are barter
transactions which accounted for approximately 5% of total revenues for the
three and six months ended June 30, 2000, respectively, compared to 13% and 15%
for the comparable periods in 1999, respectively.
Included in revenues are fees received from the licensing of portions
of our content, which accounted for approximately 6% of total revenues for the
three and six months ended June 30, 2000, respectively. iVillage did not
recognize any licensing fee revenue for the comparable periods in 1999.
Cost of Revenues
The principal elements of cost of revenues for our Internet operations
are content costs, payroll and related expenses for the editorial staff, Web
site design and production staff, the cost of communications and related
expenses necessary to support our Web sites, and an allocation of facility
expenses, which is based on the number of personnel. Cost of revenues were $7.0
million and $13.6 million, or 36% of revenues, for the three and six months
ended June 30, 2000, respectively. Cost of revenues were $2.9 million and $6.6
million, or 45% and 59% of advertising, sponsorship and other revenues, for the
comparable periods in 1999. Cost of revenues, as a percentage of these revenues,
decreased during the three and six months ended June 30, 2000 due to significant
growth in advertising, sponsorship and licensing revenues over the prior period.
8
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ended June 30, 2000 primarily from an increased number of affiliates, who
receive commissions.
Operating Expenses
Product Development and Technology
Product development and technology expenses consist primarily of
salaries, payroll taxes and benefits, related expenditures for support,
technology, software development and operations personnel, and an allocation of
facility expenses, which is based on the number of personnel. Product
development and technology expenses for the three months and six months ended
June 30, 2000 were approximately $2.1 million and $3.6 million, or 11% and 9% of
total revenues, respectively. Product development and technology expenses were
approximately $1.2 million, or 19% of total revenues, and $2.6 million, or 23%
of total revenues, for the corresponding periods in 1999. The increase was
primarily attributable to additional personnel costs related to creating and
testing new channel concepts and tools 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 an allocation of facility expenses, which is based on the number
of personnel. Sales and marketing expenses for the three and six months ended
June 30, 2000 were approximately $13.8 million, or 71% of total revenues, and
$29.7 million, or 79% of total revenues, respectively. Sales and marketing
expenses were approximately $11.8 million, or 184% of total revenues, and $22.4
million, or 200% of total revenues, for the comparable periods in 1999. The
dollar increase in sales and marketing expenses was primarily attributable to
our marketing campaign and our advertising campaign on the Internet and
television, including pursuant to our agreement with the National Broadcasting
Company, Inc. ("NBC"). Sales and marketing expenses as a percentage of revenues
decreased as a result of the growth in revenues.
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 5% of total revenues during the three and six months
ended June 30, 2000, respectively, compared to 13% and 15% of total revenues for
the comparable periods in 1999.
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, allocated facilities, and legal and
other professional fees. General and administrative expenses for the three and
six months ended June 30, 2000 were $6.5 million, or 33% of total revenues, and
$13.1 million, or 35% of total revenues, respectively. For the comparable
periods in 1999, general and administrative expenses were $3.0 million, or 47%
of total revenues, and $6.3 million, or 56% of total revenues, respectively. The
increase in general and administrative expenses was primarily due to an increase
in salaries and benefits, recruiting costs, expenses incurred for international
endeavors, allocation of costs associated with the Company's new office space,
and the acquisition of Lamaze Publishing in August 1999. General and
administrative expenses decreased as a percentage of total revenues as a result
of the growth in revenues for the three and six months ended June 30, 2000
compared to the same periods in 1999.
Depreciation and Amortization
Depreciation and amortization expenses for the three and six months
ended June 30, 2000 were approximately $11.3 million, or 58% of total revenues,
and $22.8 million, or 61% of total revenues, respectively. For the comparable
periods in 1999, depreciation and amortization expenses were $3.7 million, or
57% of total revenues, and $6.0 million, or 54% of total revenues, respectively.
The dollar increase between 1999 and 2000 was primarily attributable to
increased amortization expense resulting from our acquisitions of Astrology.Net,
and OnLine Psychological Services, Inc., Lamaze Publishing and Family Point Inc.
in the second half of 1999, as well as depreciation on a greater base of fixed
assets owned by us during 2000 periods.
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Interest Income, Net
Interest income, net includes interest income from our cash balances.
Interest income, net for the three and six months ended June 30, 2000 was $1.3
million, or 7% of total revenues, and $2.9 million, or 8% of total revenues,
respectively. For the comparable periods in 1999, interest income, net was $1.2
million, or 18% of total revenues, and $1.5 million, or 13% of total revenues,
respectively. The increase between 1999 and 2000 was primarily due to higher
average net cash and cash equivalents balances resulting primarily from the cash
received from our initial public offering of common stock in March 1999, and
secondary offering of common stock in October 1999.
Net Loss
We recorded net losses of $37.3 million and $62.4 million, or $1.25 and
$2.10 per share, for the three and six months ended June 30, 2000, respectively.
For the three and six months ended June 30, 1999, we recorded net losses of
$17.1 million and $58.3 million, or $0.72 and $3.98 per share, respectively. The
net loss for the six months ended June 30, 2000 includes the write-down of
marketable and non-marketable investments of approximately $8.1 million, whose
decline was considered other than temporary, and an estimated loss on the sale
of iBaby, Inc. assets of $4.2 million. The net loss 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.
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. On November 3, 1999, we
consummated a secondary offering of 2,700,000 shares of common stock and
received net proceeds of $70.8 million. As of June 30, 2000, we had
approximately $77.8 million in cash, cash equivalents and restricted cash.
Management believes our existing cash balances are sufficient to enable us to
meet our obligations for at least the next twelve months.
Net cash used in operating activities from continuing operations
decreased to $11.6 million for the three months ended June 30, 2000, from $12.1
million for the three months ended June 30, 1999. Net cash used in operating
activities from continuing operations increased to $30.6 million for the six
months ended June 30, 2000 from $23.5 million for the comparable period in 1999.
The overall increase in net cash used in operating activities from continuing
operations resulted primarily from increases in losses from continuing
operations, restricted cash and other assets, offset by a decrease in accounts
receivable and an increase in depreciation and amortization expenses. The
increased loss from continuing operations was primarily due to the increased
amortization of goodwill related to our acquisitions in the second half of 1999
and the write-down of the Company's marketable and non-marketable investments.
Cash used in investing activities from continuing operations was $3.5
million and $6.3 million for the three and six months ended June 30, 2000,
respectively. This compares to cash used in investing activities from continuing
operations of $2.2 million and $12.1 million for the three and six months ended
June 30, 1999, respectively. The overall decrease in cash used in investing
activities from continuing operations from the six months ended June 30, 1999 to
June 30, 2000 resulted primarily from the acquisition of iBaby and Astrology.Net
in the first quarter of 1999, offset by our investment in non-marketable
securities in February 2000, and higher fixed asset purchases for the build-out
of our new New York City office in the second quarter 2000. At June 30, 2000,
our investment in non-marketable securities was written down approximately $0.9
million to its estimated fair market value due to a decline in value deemed to
be other than temporary.
Net cash provided by financing activities from continuing operations
amounted to $1.6 million and $2.9 million for the three and six months ended
June 30, 2000, respectively, compared to $1.4 million and $93.2 million for the
three and six months ended June 30, 1999, respectively. The overall decrease in
net cash provided by financing activities from continuing operations was
primarily due to the receipt of $91.4 million of net proceeds from our initial
public offering in March 1999.
On August 2, 1999, we announced a $40.0 million marketing campaign,
$28.5 million of which was
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incremental to our existing plan, which commenced in the third quarter of 1999.
In addition, on September 3, 1999, we paid approximately $7.5 million to
PlanetRx.com for 371,103 shares of series D preferred stock of PlanetRx.com. At
June 30, 2000, the investment in PlanetRx.com was written down approximately
$7.1 million to its estimated fair market value due to a decline in value deemed
to be other than temporary.
In addition, in September 1999 we entered into a content license
agreement with PlanetRx.com for $7.5 million and a multi-year sponsorship
agreement for $15.0 million. In June 2000, our sponsorship agreement with
PlanetRx.com was amended to reduce the aggregate value of the agreement to
approximately $9.3 million, as well as reduce iVillage's obligations thereunder.
As of September 28, 1999, we entered into a financial advisory
agreement with Allen & Company Incorporated pursuant to which Allen & Company
will act as our financial advisor with respect to various matters from time to
time. We paid Allen & Company $0.3 million upon execution of the agreement. In
February 2000, we executed an amendment to the agreement that extended its term
to September 28, 2000 and set forth additional fees payable to Allen & Company
upon their provision of certain services to us.
On February 15, 2000, iVillage and Unilever announced the formation of
an independently managed company to provide women with a highly focused
community, an array of interactive, customized online services, beauty and
personal care products and personalized product recommendations. Unilever and
iVillage plan to provide an aggregate $200.0 million in cash, intellectual
property, marketing and other resources. Unilever will provide capital as well
as sponsorship and promotional initiatives. iVillage will provide its Beauty
channel, capital, intellectual property and promotion.
In March 2000, we entered into a fifteen-year lease for approximately
105,000 square feet at 500-512 Seventh Avenue in which we plan to consolidate
our New York City operations by the end of 2000. The financial commitment for
rent at this office space is approximately $4.7 million for the next 12 months.
In July 2000, the Company sold certain assets of its iBaby, Inc.
subsidiary. Under the Asset Purchase Agreement dated July 6, 2000, the Company
received a convertible promissory note of approximately $9.9 million, subject to
post closing adjustments. The note matures on January 6, 2003 and the conversion
rate, conversion timing, and the method of repayment are contingent upon
Babygear.com consummating additional financing. The percentage of cash, note and
equity in Babygear.com, into which the note shall be converted, is determined by
the timing and amount of financing received by Babygear.com. In connection with
the sale, the Company recorded a loss on disposal of approximately $7.3 million,
which includes an estimated loss on sale of assets of $4.2 million and loss from
operations during the phase-out period of $3.1 million. Results of these
operations have been classified as discontinued operations and all prior period
results have been restated.
On July 19, 2000, iVillage, Tesco PLC, and Tesco.com announced the
formation of an international joint venture, iVillage UK, to serve the women's
online market in the United Kingdom and the Republic of Ireland. iVillage UK
will function as an independently managed entity and provide women in the UK and
the Republic of Ireland with a highly focused community and an array of
interactive, customized online solutions and services including content
channels, tools, planners, quizzes, message boards, chats and newsletters. Tesco
and iVillage plan to provide a combined total of approximately $70.0 million in
marketing, branding, cash, intellectual property, and other resources. Tesco
will provide capital and promotional initiatives, and iVillage will provide its
brand, intellectual property, content and consulting services.
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 the 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 that we will continue to evaluate
possible investments in businesses, products and technologies, and continue to
expand our sales and marketing programs, any of which could reduce our
liquidity.
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Risk Factors That May Affect Results of Operations and Financial Condition.
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.
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 $62.4
million for the six months ended June 30, 2000, $93.0 million for the year ended
December 31, 1999 and $43.7 million for the year ended December 31, 1998. As of
June 30, 2000 and December 31, 1999, our accumulated deficit was $255.3 million
and $192.9 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.
We may not be able to integrate the operations from our recent and future
acquisitions and joint ventures
As part of our business strategy, we have completed and may enter into
additional business combinations, acquisitions and joint ventures. Acquisition
and joint venture 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 and joint venture entities;
o the difficulty of establishing a new joint venture including,
without limitation, attracting qualified personnel, potential
adverse financial and accounting consequences, high initial
expenses, attracting customers and advertisers, and
integrating resources from previously unaffiliated entities;
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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 or shared 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 and joint venture entities.
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 Web
site, and iVillage Integrated Properties, Inc.'s Newborn
Channel;
o our ability to commercialize and protect the Lamaze mark; and
o our ability to build and market Lamaze.com.
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.
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,
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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.
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, as demand and
market acceptance for Internet advertising 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 use barter transactions which do not generate cash revenue
Revenues from barter transactions represented approximately 5% and 9%
of total revenues for the six months ended June 30, 2000 and the year ended
December 31, 1999, respectively. 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.
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 quarters 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 Astrology.com, 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.
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.
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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 America Online, Inc. ("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 six months ended June 30, 2000 or the year ended December
31, 1999, our five largest advertisers accounted for 23% and 20% of total
revenues, respectively. At June 30, 2000 and December 31, 1999, no one
advertiser accounted for 10% or more 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.
We may not find sufficient acquisition candidates and/or joint venture partners
to implement our business strategy
As part of our business strategy, we have completed and expect to enter
into additional business combinations, acquisitions and joint ventures. We
compete for acquisition candidates and joint venture partners with other
entities, some of which have greater financial resources than we have. Increased
competition for acquisition candidates and joint venture partners may make fewer
acquisition and/or joint venture opportunities available to us and may cause
acquisitions and joint ventures to be made on less attractive terms, such as
higher purchase prices. Acquisition and joint venture 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 or potential partners. Since the market price
of our common stock has declined 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 sites. These
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types of claims 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 sold prior to our recent
sale of assets related to our iBaby site, or prior to our divestiture of our
iMaternity and PlusBoutique sites, were 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 Astrology.com and 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 iVillage.com, Lamaze Publishing and iVillage
Integrated Properties, Inc., we distribute publications and broadcast over our
Web sites and the Newborn Channel information and instructions regarding
healthcare, childbirth, infant care and financial and tax issues. 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, liability 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 Astronet.com; 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 delays over
which we have little or no control, including:
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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. 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.
Our business is dependent on our chairman of the board, 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, Chairman of the Board of Directors, Nancy Evans, Editor-in-Chief and
Douglas McCormick, Chief Executive Officer. We currently have no employment
agreements with either Ms. Evans or Mr. McCormick and we do not maintain "key
person" life insurance for any of our personnel. The loss of the services of
Mdmes. Carpenter or Evans, Mr. McCormick 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. Our Chief Financial Officer, Chief Operating
Officer and several key members of our sales staff each recently resigned in
order to join other companies. In addition, there is significant competition for
qualified employees in the Internet industry. As a result, we incurred increased
salaries, benefits and recruiting expenses for the six months ended June 30,
2000 and the year ended December 31, 1999. If we do not succeed in attracting
new personnel or retaining and motivating our current personnel, our business
will be adversely affected.
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;
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o consumers returning to traditional or alternative sources for
information, shopping and services; and
o privacy concerns, including those related to the ability of
Web sites to gather information about users without their
knowledge or consent.
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.
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 is
investigating 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.
We may face potential liability for our privacy practices
Growing public concern about privacy and the collection, distribution
and use of information about individuals may subject us to increased regulatory
scrutiny and/or litigation. If we are accused of violating the stated terms of
our privacy policy we may be forced to expend significant amounts of monetary
and human resources to defend against any such accusations. We may also be
required to make changes to our present and planned products or services. These
consequences together with any resulting liability for our privacy practices
could have a material
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adverse effect on our business, financial condition and results of operations.
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, such as those recently experienced by several leading Web sites, 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. 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 space 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 iVillage Integrated Properties, Inc., we operate the Newborn
Channel, a satellite television network broadcast in over 900 hospitals in the
United States. There is a risk that the satellite from which the transmission is
sent may
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malfunction, interrupting iVillage Integrated Properties' broadcasts. In the
event this occurs, there may be a period of time before iVillage Integrated
Properties can transmit to and from another satellite. Any interruption in
iVillage Integrated Properties' 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 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 that 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 1999 and 2000 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.
International operations are subject to additional risks.
Our business strategy involves expanding our operations to numerous
foreign jurisdictions and as a result
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of a recent joint venture a portion of our operations are conducted and located
abroad. We have had no prior experience with operations abroad and we have
limited information available to evaluate our prospects abroad. International
operations and business expansion plans are subject to numerous additional
risks, including the impact of foreign government regulations, currency
fluctuations, political uncertainties, social instability, differences in
business practices or other developments not typical of investments in the
United States. There can be no assurance that foreign governments will not adopt
regulations or take other actions that would have a direct or indirect adverse
impact on our business or market opportunities within such governments'
countries. Furthermore, there can be no assurance that the political, cultural
and economic climate outside the United States will be favorable to our
operations and business strategy.
We currently do not have political risk insurance in the foreign
countries in which we conduct business. While we carefully consider these risks
when evaluating investment opportunities, there is no assurance that we will not
be materially adversely affected as a result of such risks. A number of the
agreements we have entered into with non-United States partners are governed by
the laws of, and are subject to dispute resolution in the courts of, or through
arbitration proceedings in, the country or region in which the operation is
located. We cannot accurately predict whether such forum will provide us with an
effective and efficient means of resolving disputes that may arise in the
future. Even if we are able to obtain a satisfactory decision through
arbitration or a court proceeding, we could have difficulty enforcing any award
or judgment on a timely basis. Our ability to obtain or enforce relief in the
United States is uncertain. In addition, as a United States corporation, we are
subject to the regulations imposed by the Foreign Corrupt Practices Act (the
"FCPA"), which generally prohibits United States companies and their
intermediaries from making improper payments to foreign officials for the
purpose of obtaining or keeping business. Any determination that we have
violated the FCPA could have a material adverse effect on us.
As a result of our recent joint venture, our operations have been
exposed to foreign competition. Many of these competitors have substantially
greater financial resources than we do. In addition, many of such competitors
have a significant operating history in the jurisdictions in which we are
seeking to establish ourselves. There can be no assurance that we will be able
to successfully compete in any foreign jurisdiction or against such competitors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to the impact of changes in the market values of our investments.
We invest in equity instruments of privately-held, information technology
companies for business and strategic purposes. The investments are included in
other assets on the condensed consolidated balance sheets. These investments are
accounted for under the cost method of accounting. For these non-quoted
investments, our policy is to regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the carrying values.
We identify and record impairment losses on long-lived assets when events and
circumstances indicate that such assets might be impaired. In 1999, one of the
privately held investments became a marketable equity security when the investee
completed an initial public offering. Such investments in the Internet industry
are subject to significant fluctuations in fair market value due to the
volatility of the stock market, and are recorded as available-for-sale under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
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Item 4. Submission of Matters to a Vote of Security Holders.
Our 2000 Annual Meeting of Stockholders was held on May 17, 2000. In
the election of directors, the three director nominees were elected with the
following votes:
Number of Votes
----------------------------------
Nominee For Withheld
------- --- --------
Jay C. Hoag................... 25,829,172 49,291
Douglas McCormick............. 25,831,072 47,391
Daniel H. Schulman............ 25,828,433 50,030
The stockholders voted in favor of the ratification of the appointment
of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year
ended December 31, 2000 as follows:
Number of Votes
----------------------------------
For Against Abstain
--- ------- -------
Ratification of Appointment of
Auditors........................ 25,825,050 43,261 10,152
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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 By-Laws of the Registrant, as amended.
10.1 iVillage Inc. Amended and Restated 1999 Non-Qualified Stock
Option Plan, effective as of April 19, 2000.
10.2 First Amendment to Sponsorship Agreement dated as of June 19,
2000 between PlanetRx.com, Inc. and iVillage, Inc.
11 Statement re: computation of earnings per share.
27 Financial Data Schedule.
(b) Reports on Form 8-K were filed on April 21, 2000 and April 27, 2000, each
reporting under Item 5.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
iVILLAGE INC.
(Registrant)
Dated: August 14, 2000 By: /s/ Douglas McCormick
---------------------
Douglas McCormick
Chief Executive Officer
Dated: August 14, 2000 By: /s/ Scott Levine
----------------
Scott Levine
Vice President, Controller and
Chief Accounting Officer (Interim
Chief Financial Officer)
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EXHIBIT INDEX
Exhibits
--------
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 By-Laws of the Registrant, as amended.
10.1 iVillage Inc. Amended and Restated 1999 Non-Qualified Stock
Option Plan, effective as of April 19, 2000.
10.2 First Amendment to Sponsorship Agreement dated as of June 19,
2000 between PlanetRx.com, Inc. and iVillage, Inc.
11 Statement re: computation of earnings per share.
27 Financial Data Schedule
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