<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[_] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from January 1, 1999 To March 31, 1999
Commission File No. 0-25681
INTELLIGENT LIFE CORPORATION
(Exact name of registrant as specified in Its charter)
<TABLE>
<S> <C>
FLORIDA 65-0423422
(State or other Jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
11811 U.S. HIGHWAY ONE, SUITE 101 33408
North Palm Beach, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (561) 627-7330
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 [_] No [X]
The number of shares of the issuer's class of capital stock as of May 31, 1999,
the latest practicable date, is as follows: 13,440,988 shares of Common Stock,
$.01 par value.
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<PAGE>
Intelligent Life Corporation
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1999
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED):
Condensed Balance Sheets at December 31, 1998, March 31, 1999 and
March 31, 1999 pro forma..................................................
Condensed Statements of Operations for the three months ended March 31, 1999
and 1998..................................................................
Condensed Statements of Redeemable Stock and Stockholders' Equity (Deficit).
Condensed Statements of Cash Flows for the three months ended March 31,
1999 and 1998.............................................................
Notes to Condensed Financial Statements.....................................
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................
Item 2. Changes in Securities and Use of Proceeds...................................
Item 3. Defaults Upon Senior Securities.............................................
Item 4. Submission of Matters to a Vote of Security Holders.........................
Item 5. Other Information...........................................................
Item 6. Exhibits and Reports on Form 8-K............................................
Signatures............................................................................
</TABLE>
<PAGE>
Intelligent Life Corporation
Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1999
December 31, March 31, (Unaudited)
1998 1999 (pro forma)
(Unaudited) (Unaudited) (Note 1)
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 1,633,100 $ 1,268,080 $ 42,715,080
Accounts receivable, net of allowance for doubtful accounts
of $24,847 and $25,297 at December 31, 1998 and March 31, 1999, respectively 538,536 656,867 656,867
Deferred initial public offering costs - 305,612 -
Other current assets 109,488 80,822 80,822
------------ ------------ ------------
Total current assets 2,281,124 2,311,381 43,452,769
Furniture, fixtures and equipment, net 813,659 1,086,118 1,086,118
Intangible assets, net of accumulated amortization of $152,976 and $157,177
at December 31, 1998 and March 31, 1999, respectively 4,569 86,561 86,561
------------ ------------ ------------
Total assets $ 3,099,352 $ 3,484,060 $ 44,625,448
============ ============ ============
Liabilities, Redeemable Stock and Stockholders' Equity (Deficit)
Liabilities:
Accounts payable $ 308,667 $ 851,222 $ 851,222
Accrued expenses 588,212 895,613 895,613
Deferred revenue 612,660 479,693 479,693
Loan from stockholder - 1,000,000 -
Current portion of obligations under capital leases 113,405 157,530 157,530
Other current liabilities - 102,244 102,244
------------ ------------ ------------
Total current liabilities 1,622,944 3,486,302 2,486,302
Obligations under capital leases, long-term 263,009 373,683 373,683
------------ ------------ ------------
Total liabilities 1,885,953 3,859,985 2,859,985
------------ ------------ ------------
Commitments and contingencies
Redeemable Convertible Series A preferred stock, noncumulative, par
value $.01 per share, liquidation value $65 per share, stated at
redemption value -- 90,000 shares authorized; 89,612 issued and
outstanding at December 31, 1998 and March 31, 1999; no shares issued
or outstanding, pro forma March 31, 1999 10,215,768 11,763,768 -
Redeemable Convertible Series B preferred stock, noncumulative, par
value $.01 per share, liquidation value $114 per share, stated at
redemption value -- 30,000 shares authorized; 17,575 shares issued
and outstanding at December 31, 1998 and March 31, 1999; no shares issued
or outstanding, pro forma March 31, 1999 1,982,535 2,286,535 -
Redeemable Common Stock:
Redeemable common stock, par value $.01 per share, redemption
value $0.52 per share -- 454,170 shares issued and outstanding at
December 31, 1998; no shares issued or outstanding at March 31, 1999
or pro forma March 31, 1999 236,168 - -
Loan receivable for redeemable common stock (236,168) - -
Stockholders' equity (deficit):
Preferred stock, 10,000,000 shares authorized and undesignated - - -
Common stock, par value $.01 per share-- 100,000,000 shares authorized;
4,053,200, 4,242,438 and 13,440,988 shares issued and outstanding
at December 31, 1998, March 31, 1999 and March 31, 1999 pro forma,
respectively 40,532 42,425 134,410
Additional paid in capital - 2,363,417 58,463,123
Unamortized stock compensation expense (280,690) (60,000) (60,000)
Accumulated deficit (10,744,746) (16,772,070) (16,772,070)
------------ ------------ ------------
Total stockholders' equity (deficit) (10,984,904) (14,426,228) 41,765,463
------------ ------------ ------------
Total liabilities stockholders' equity (deficit) $ 3,099,352 $ 3,484,060 $ 44,625,448
============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
Intelligent Life Corporation
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Revenue: 1999 1998
---- ----
<S> <C> <C>
Online publishing $ 1,369,836 $ 328,208
Print publishing and licensing 856,432 621,448
----------- ----------
Total revenue 2,226,268 949,656
----------- ----------
Cost of operations:
Online publishing 672,161 209,976
Print publishing and licensing 582,556 536,014
Sales 511,410 137,974
Marketing 714,080 46,571
Product research 569,162 286,209
General and administrative expenses 576,598 421,918
Depreciation and amortization 71,325 21,789
Noncash stock based compensation 1,907,782 -
----------- ----------
5,605,074 1,660,451
----------- ----------
Loss from operations (3,378,806) (710,795)
----------- ----------
Other income (expense):
Interest income 16,746 8,142
Interest expense (15,396) (62)
Noncash financing charge (2,656,000) -
Other 6,132 -
----------- ----------
Other income (expense), net (2,648,518) 8,080
----------- ----------
Loss before income taxes (6,027,324) (702,715)
Income taxes - -
----------- ----------
Net loss $(6,027,324) $ (702,715)
Accretion of Convertible Series A and Series B
preferred stock to redemption value (1,852,000) -
----------- ----------
Net loss applicable to common stock $(7,879,324) $ (702,715)
=========== ==========
Basic and diluted net loss per share $ (1.92) $ (0.18)
=========== ==========
Weighted average shares outstanding used in
basic and diluted per-share calculation 4,099,458 3,846,200
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
Intelligent Life Corporation
Condensed Statements of Redeemable Stock and Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Redeemable Redeemable
Convertible Series A Convertible Series B
Preferred Stock Preferred Stock
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balances, December 31, 1998 89,612 $ 10,215,768 17,575 $ 1,982,535
Foregiveness of note receivable for redeemable
common stock, reclassification of redeemable
common stock to common stock, cancellation of the
put right associated with such shares and
reacquisition of forfeited shares - - - -
Finance charge for beneficial conversion feature on
promissory note - - - -
Accretion of Series A and Series B preferred stock
to redemption value - 1,548,000 - 304,000
Net loss for the period - - - -
------ ------------ ------ -----------
Balances, March 31, 1999 89,612 11,763,768 17,575 2,286,535
Conversion of Series A and Series B preferred stock
to common stock (Note 1-Unaudited) (89,612) (11,763,768) (17,575) (2,286,535)
Conversion of promissory note to Series B preferred
stock and conversion of Series B preferred stock to
common stock (Note 1-Unaudited) - - - -
Initial public offering of common stock (Note 1-Unaudited) - -
------ ------------ ------ -----------
Balances, March 31, 1999 (pro forma) (Note 1-Unaudited) - $ - - $ -
====== ============ ====== ===========
<CAPTION>
Redeemable Common Stock
Note
Shares Amount Receivable
------ ------ ----------
<S> <C> <C> <C>
Balances, December 31, 1998 454,170 $ 236,168 $(236,168)
Foregiveness of note receivable for redeemable
common stock, reclassification of redeemable
common stock to common stock, cancellation of the
put right associated with such shares and
reacquisition of forfeited shares (454,170) (236,168) 236,168
Finance charge for beneficial conversion feature on
promissory note - - -
Accretion of Series A and Series B preferred stock
to redemption value - - -
Net loss for the period - - -
-------- --------- ---------
Balances, March 31, 1999 - - -
Conversion of Series A and Series B preferred stock
to common stock (Note 1-Unaudited) - - -
Conversion of promissory note to Series B preferred
stock and conversion of Series B preferred stock to
common stock (Note 1-Unaudited) - - -
Initial public offering of common stock (Note 1-Unaudited) - - -
-------- --------- ---------
Balances, March 31, 1999 (pro forma) (Note 1-Unaudited) - $ - $ -
======== ========= =========
<CAPTION>
Additional
Common Stock Paid In
Shares Amount Capital
------ ------ -------
<S> <C> <C> <C>
Balances, December 31, 1998 4,053,200 $ 40,532 $ -
Foregiveness of note receivable for redeemable
common stock, reclassification of redeemable
common stock to common stock, cancellation of the
put right associated with such shares and
reacquisition of forfeited shares 189,238 1,893 1,559,417
Finance charge for beneficial conversion feature on
promissory note - - 2,656,000
Accretion of Series A and Series B preferred stock
to redemption value - - (1,852,000)
Net loss for the period - - -
----------- -------- -------------
Balances, March 31, 1999 4,242,438 42,425 2,363,417
Conversion of Series A and Series B preferred stock
to common stock (Note 1-Unaudited) 5,359,350 53,593 13,996,710
Conversion of promissory note to Series B preferred
stock and conversion of Series B preferred stock to
common stock (Note 1-Unaudited) 339,200 3,392 996,608
Initial public offering of common stock (Note 1-Unaudited) 3,500,000 35,000 41,106,388
----------- -------- -------------
Balances, March 31, 1999 (pro forma) (Note 1-Unaudited) 13,440,988 $134,410 $ 58,463,123
========== ======== =============
<CAPTION>
Unamortized Total
Stock Stockholders'
Compensation Accumulated Equity
Expense Deficit (Deficit)
------- ------- ---------
<S> <C> <C> <C>
Balances, December 31, 1998 $ (280,690) $ (10,744,746) $(10,984,904)
Foregiveness of note receivable for redeemable
common stock, reclassification of redeemable
common stock to common stock, cancellation of the
put right associated with such shares and
reacquisition of forfeited shares 220,690 - 1,782,000
Finance charge for beneficial conversion feature on
promissory note - - 2,656,000
Accretion of Series A and Series B preferred stock
to redemption value - - (1,852,000)
Net loss for the period - (6,027,324) (6,027,324)
---------- -------------- ------------
Balances, March 31, 1999 (60,000) (16,772,070) (14,426,228)
Conversion of Series A and Series B preferred stock
to common stock (Note 1-Unaudited) - - 14,050,303
Conversion of promissory note to Series B preferred
stock and conversion of Series B preferred stock to
common stock (Note 1-Unaudited) - - 1,000,000
Initial public offering of common stock (Note 1-Unaudited) - - 41,141,388
---------- -------------- ------------
Balances, March 31, 1999 (pro forma) (Note 1-Unaudited) $ (60,000) $ (16,772,070) $ 41,765,463
========== ============== ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
Intelligent Life Corporation
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,027,324) $ (702,715)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 71,325 21,789
Noncash stock compensation 1,907,782 -
Noncash financing charge 2,656,000 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (118,331) 79,799
Increase in deferred initial public offering costs (305,612) -
(Increase) decrease in other current assets 28,666 (1,845)
Increase in accounts payable and accrued expenses 827,566 40,662
Increase (decrease) in deferred revenue (132,967) 6,512
----------- ----------
Total adjustments 4,934,429 146,917
----------- ----------
Net cash used in operating activities (1,092,895) (555,798)
----------- ----------
Cash flows used in investing activities:
Purchases of equipment (92,481) (147,028)
Acquisitions, net of cash acquired (86,192) -
----------- ----------
Net cash used in investing activities (178,673) (147,028)
Cash flows from financing activities:
Loans from stockholders 1,000,000 -
Principal payments on capital lease obligations (93,452) (2,729)
----------- ----------
Net cash provided by (used in) financing activities 906,548 (2,729)
----------- ----------
Net decrease in cash and cash equivalents (365,020) (705,555)
Cash and equivalents, beginning of period 1,633,100 1,113,337
----------- ----------
Cash and equivalents, end of period $ 1,268,080 $ 407,782
=========== ==========
Supplemental schedule of noncash investing and finance activities:
Equipment acquired under capital leases $ 248,000 $ -
=========== ==========
Accretion of Series A and Series B preferred stock to redemption
value $ 1,852,000 $ -
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Company
Intelligent Life Corporation (the "Company") is one of the leading publishers
of personal finance content on the Internet. The Company's six web sites include
bankrate.com, the web's most complete source for banking, credit and interest
rate information, the Whiz.com which provides personal financial content for
those new to the topic and Consejero.com, a Spanish-language site focusing on
personal finance and investing topics. The Company is organized under the laws
of the state of Florida.
Basis of Presentation
The unaudited interim condensed financial statements for the three months
ended March 31, 1999 and 1998, respectively, included herein have been prepared
in accordance with the instructions for Form 10-Q under the Securities Exchange
Act of 1934, as amended, and Article 10 of Regulation S-X under the Securities
Act of 1933, as amended. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim condensed financial statements
reflect all adjustments, consisting only of normal, recurring adjustments,
necessary to present fairly the financial position of the Company at March 31,
1999, and the results of its operations and its cash flows for the three months
ended March 31, 1999 and 1998, respectively. The results for the three months
ended March 31, 1999 are not necessarily indicative of the expected results for
the full year or any future period.
In April 1999, the Company amended and restated its articles of incorporation
to authorize 100,000,000 shares of $.01 par value common stock, 90,000 shares of
$.01 par value Series A convertible preferred stock and 30,000 shares of $.01
par value Series B convertible preferred stock.
On April 9, 1999, the Company authorized and executed a five to one stock
split, effected as a stock dividend, of each issued and outstanding share of
common stock. The information in the accompanying unaudited condensed financial
statements has been retoactively restated to reflect the effect of this stock
dividend.
On April 12, 1999, the Company's Board of Directors approved changing the
Company's fiscal year-end from June 30 to December 31.
On May 13, 1999 the Company completed an initial public offering ("IPO") of
3,500,000 shares of the Company's common stock resulting in net proceeds of
approximately $41.1 million. Upon closing of the IPO, both classes of
outstanding redeemable convertible preferred stock converted to common stock at
50 shares of common stock for each share of redeemable convertible preferred
stock. Additionally, upon the effective date of the IPO, the Company's articles
of incorporation were further amended and restated to among other matters,
designate 10 million shares of preferred stock with respect to which the Board
will have the authority to designate rights and privileges.
The unuaudited condensed financial statements included herein should be read
in conjunction with the financial statements and related footnotes included in
the Company's Form S-1 registration statement, as amended, filed with the
Securities and Exchange Commission in connection with the Company's IPO.
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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 also
computed using the weighted average number of common shares outstanding during
the period. Common stock equivalents have been excluded from the computation as
their effect is anti-dilutive.
March 31, 1999 Pro Forma Balance Sheet Presentation
The unaudited condensed pro forma balance sheet as of March 31, 1999 gives
effect to the following:
. Conversion of 89,612 and 17,575 shares of redeemable convertible Series
A and Series B preferred stock, respectively, into 5,359,350 shares of
common stock.
. Conversion of $1,000,000 note payable plus accrued interest to a
stockholder to 6,784 shares of Series B convertible preferred stock and
subsequent conversion of the Series B convertible preferred stock to
339,200 shares of common stock.
. Issuance of 3,500,000 shares of common stock in the Company's IPO with
net proceeds to the Company of approximately $41.1 million.
NOTE 2 - STOCK OPTION PLANS
1997 Equity Compensation Plan
In January 1999, the Company amended the 1997 Equity Compensation Plan (the
"1997 Plan") to increase the number of shares of common stock authorized for
issuance under the plan to 1,500,000 shares. On March 2 and March 12, 1999 the
Company granted 201,720 and 5,000 options, respectively, under the 1997 Plan to
purchase common stock at $2.97 per share. The options vest over a 48 month
period and, accordingly, the Company will recognize compensation expense of
approximately $1,620,000 ratably over the vesting period. Effective with the
IPO, the Company granted 472,500 options and the Board has authorized the grant
of another 25,000 options under the 1997 Plan to purchase common stock at the
IPO price which vest over a 48 month period.
1999 Equity Compensation Plan
In March 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"), to provide designated employees of the
Company, certain consultants and non-employee members of the Board of Directors
with the opportunity to receive grants of incentive stock options, nonqualified
stock options and restricted stock. The 1999 Plan is authorized to grant options
for up to 1,500,000 shares. In March 1999, the Company granted 358,500 options
to an officer (the "Officer") of the Company to
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
purchase shares of common stock at $2.97 which vest over a 36 month period. The
Company will recognize compensation expense of approximately $2,807,000 ratably
over the vesting period.
NOTE 3 - LOAN FROM STOCKHOLDER
On March 9, 1999, one of the Series B convertible preferred stockholders
loaned the Company $1,000,000 bearing interest at 8%, due April 9, 1999. If
unpaid on the due date, the note was to convert into fully paid Series B
convertible preferred stock at a conversion price of $2.97 per share. On April
9, 1999, the principal amount of the loan plus accrued interest was converted
into 6,784 shares of Series B convertible preferred stock. The Company recorded
a finance charge of $2,656,000 representing the difference between the estimated
fair market value of the common stock as of the date of the transaction (as if
the 6,784 shares were converted) and the $2.97 conversion price.
NOTE 4 - REDEEMABLE COMMON STOCK
In March 1998, the Company entered into a restricted stock grant agreement
with the Officer that provided for the issuance of restricted stock to the
Officer in accordance with the 1997 Equity Compensation Plan. Under the terms
of this agreement 454,170 shares of common stock were issued to the Officer for
$236,168 which was paid by an interest-bearing promissory note from the Officer.
Restriction on such shares lapsed as follows: 113,450 shares on July 1, 1998,
and 9,460 shares on the first day of each month starting August 1, 1998 and
ending July 1, 2001. The Officer had a put right which required the Company to
repurchase shares at the same price paid for the shares including interest. In
accordance with Emerging Issues Task Force 95-16, this arrangement is being
accounted for as a variable plan which requires increases or decreases in stock
based compensation expense based on increases or decreases in the Company's fair
market value. On March 10, 1999 the note receivable was forgiven, the unvested
shares (264,932) were reacquired by the Company, the Officer's put right was
cancelled and the remaining 189,238 shares of redeemable common stock were
reclassified to common stock and vested immediately. Accordingly, fixed option
accounting treatment was established on this date and a compensation charge of
approximately $1,782,000 was recorded.
NOTE 5 - ACQUISITION
In January 1999, the Company acquired all of the assets of CPNet.com,
excluding cash and real or personal property leases, for $25,000 in cash. The
sellers were employed by the Company and were granted 30,000 options under the
1997 Equity Compensation Plan with an exercise price of $1.30 which vest over a
48 month period. The Company will incur total compensation expense of
approximately $45,000 over the vesting period. CPNet.com's historical statements
of operations are not material to the Company.
NOTE 6 - SEGMENT INFORMATION
The Company operates in two reportable business segments: online publishing
and print publishing and licensing. The online publishing segment is primarily
engaged in the sale of advertising, sponsorships and hyperlinks in connection
with our internet web sites bankrate.com, the Whiz.com, Consejero.com and
CPNet.com. The print publishing and licensing segment is primarily engaged in
the sale of advertising in the Consumer Mortgage Guide rate tables, newsletter
subscriptions and licensing of research information. We also charge a commission
for the placement of the Consumer Mortgage Guide in a print publication.
<PAGE>
Although no one customer accounted for greater than 10% of total revenues for
the three month periods ended March 31, 1999 and 1998, the five largest
customers accounted for approximately 13% and 9%, respectively, of total
revenues for the three month periods ended March 31, 1999 and 1998.
Summarized segment information as of and for the three months ended March 31,
1999 and 1998 is presented below.
<TABLE>
<CAPTION>
Print
Online Publishing
Publishing and Licensing Other Total
---------------- ---------------- ---------------- ---------------
Three Months Ended March 31, 1999:
<S> <C> <C> <C> <C>
Revenue $ 1,369,836 $ 856,432 $ - $ 2,226,268
Direct costs of operations 672,161 582,556 - 1,254,717
Sales and marketing 1,194,761 - 30,729 1,225,490
Product research 425,608 143,554 - 569,162
General and administrative expenses 354,784 221,814 - 576,598
Depreciation and amortization 64,193 7,132 - 71,325
Noncash stock based compensation - - 1,907,782 1,907,782
Noncash financing charge - - 2,656,000 2,656,000
Other income (expense), net - - 7,482 7,482
Net loss (1,327,406) (112,889) (4,587,029) (6,027,324)
Total assets $ 2,243,765 $ 934,683 $ 305,612 $ 3,484,060
Three Months Ended March 31, 1998:
Revenue $ 328,208 $ 621,448 $ - $ 949,656
Direct costs of operations 209,976 536,014 - 745,990
Sales and marketing 174,384 1,742 8,419 184,545
Product research 98,916 187,293 - 286,209
General and administrative expenses 145,818 276,100 - 421,918
Depreciation and amortization 15,252 6,537 - 21,789
Noncash stock based compensation - - - -
Noncash financing charge - - - -
Other income (expense), net - - 8,080 8,080
Net loss (316,138) (386,238) (339) (702,715)
Total assets $ 514,470 $ 612,008 $ - $ 1,126,478
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Intelligent Life Corporation has included in this filing certain "forward-
looking statements" within the meaning of Section 27a of the Securities Act of
1933 and Section 21e of the Securities Exchange Act of 1934, including, without
limitation, statements regarding our expectations, beliefs, intentions or future
strategies that are signified by words such as "expects", "anticipates",
"intends", "believes", or similar language. All forward-looking statements
included in this document are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements.
<PAGE>
In evaluating our business, prospective investors should carefully consider
the information set forth below under the caption "Risk Factors That Could
Impact Future Operating Results" in addition to the other information set forth
herein. We caution investors that its business and financial performance are
subject to substantial risks and uncertainties.
Overview
Intelligent Life Corporation is one of the leading publishers of personal
finance content on the Internet. Our six web sites include bankrate.com, the
web's most complete source for banking, credit and interest rate information,
the Whiz.com, which provides personal financial content for those new to the
topic and Consejero.com, a Spanish-language site focusing on personal finance
and investing topics. Our online operations are the principal focus of our
activities today. Prior to 1995, our principal businesses were the publication
of print newsletters and syndication of bank and credit product research to
newspapers and magazines. In 1995, we introduced the Consumer Mortgage Guide,
which is an advertisement for newspapers consisting of product and rate
information in tabular form from local mortgage companies that pay a weekly fee
for inclusion in the table.
In fiscal 1996, we commenced our online operations by displaying our research
through an Internet site, bankrate.com. By putting our information online, we
were able to create new revenue opportunities through the sale of graphical and
hyperlink advertising associated with our rate and yield tables. In fiscal 1997,
we determined that we would concentrate principally on our online operations.
Since that time, we have significantly expanded the scope and depth of
bankrate.com and made investments in four new online Internet web sites:
theWhiz.com, Bankrate.com en Espanol, Consejero.com and CPNet.com.
In order to focus on our online activities, we have reduced the number of
print newsletters we publish from five to three and eliminated active marketing
of our print publications. We have also ceased marketing Consumer Mortgage Guide
as a separate product. We now provide this product to newspapers as a part of a
broader relationship that is primarily directed toward online activities.
We believe that the recognition of our research as a leading source of
independent, objective information on banking and credit products is essential
to our success. As a result, we have sought to maximize distribution of our
research to gain brand recognition as a research authority. We are currently
seeking to build greater brand awareness at all of our web sites and reach a
grater number of online users.
The following are descriptions of the revenue and expense components of our
online and print publishing operations:
Online publishing revenue represents the sale of advertising, sponsorships and
hyperlinks in connection with our web sites. Such advertising is sold to
advertisers according to the cost per thousand impressions ("CPM"), the
advertiser receives. The amount of advertising we sell is a function of (1) the
number of advertisements we have per page, (2) the number of visitors viewing
our pages, and (3) the capacity of our sales force. Revenue from advertising
sales is invoiced monthly based on the expected number of advertisement
impressions, or number of times that an advertisement is viewed. Revenue is
recognized monthly based on the percentage of impressions delivered to the total
number of impressions purchased. Revenue for impressions that have been invoiced
but not delivered is deferred. Hyperlinks to various third-party web sites are
sold for a fixed monthly fee, which is recognized as revenue in the month
earned. For our revenue sharing distribution arrangements with web site
operators, revenue is recorded on a gross basis, with payments for our
distribution arrangements being included in online publishing costs.
<PAGE>
Print publishing and licensing revenue represents advertising revenue from the
sale of advertising in the Consumer Mortgage Guide rate tables, newsletter
subscriptions, and licensing of research information. We charge a commission for
placement of the Consumer Mortgage Guide in a print publication. Advertising
revenue and commission income is recognized when the Consumer Mortgage Guide
runs in the publication. Revenue from our newsletters is recognized ratably over
the period of the subscription, which is generally up to one year. Revenue from
the sale of research information is recognized ratably over the contract period.
Online publishing costs represent expenses directly associated with the
creation of online publishing revenue. These costs include contractual revenue
sharing obligations resulting from our distribution arrangements (distribution
payments), editorial costs, and allocated overhead. Distribution payments are
made to web site operators for visitors directed to our web sites. These costs
increase with gains in traffic to our sites. Editorial costs relate to writers
and editors who create original content for our online publications and
associates who build web pages. These costs have increased as we have added
online publications and co-branded versions of our sites under distribution
arrangements. These sites must be maintained on a daily basis.
Print publishing and licensing costs represent expenses directly associated
with print publishing revenue. These costs include contractual revenue sharing
obligations with newspapers related to Consumer Mortgage Guide, personnel costs,
printing and allocated overhead.
We have incurred net losses in each of our last three fiscal years and had a
net loss for the three month period ended March 31, 1999 of approximately
$6,027,000. We had an accumulated deficit of approximately $16,772,000 as of
March 31, 1999. We also have a limited history of operations in the rapidly
evolving online business environment and have little experience forecasting our
revenues. Therefore, we believe that period-to-period comparisons of our
financial results should not be relied on as an indication of our future
performance. We anticipate that we will incur operating losses and negative
cash flows in the foreseeable future due to high levels of planned expenditures
to enhance our services, develop new content, build brand awareness through
marketing campaigns and hire personnel to support our growth. We may also incur
significant additional costs related to the acquisition of businesses or
technologies to respond to the constant change in our industry. These costs
could have an adverse impact on our future financial condition and results of
operations.
Results of Operations
Revenue
Total revenue for the three months ended March 31, 1999 of $2,226,268
increased $1,276,612, or 134%, over the comparable period in 1998. Online
publishing revenue increased $1,041,628, or 317%, to $1,369,836 due to higher
levels of advertising sales and higher advertising rates. These increases were
facilitated by an increase in advertising inventory resulting from an increase
in the number of distribution partners and higher overall site traffic. Print
publishing and licensing revenue increased $234,984, or 38%, to $856,432 due
primarily to a $268,135, or 77%, increase in Consumer Mortgage Guide revenues.
This increase was a result of an increased sales effort, higher rates charged
per unit sale and an increase in the number of advertisers.
In June 1999, we were advised by Quicken.com that it would not be renewing its
distribution agreement with us. Quicken.com accounted for approximately 6% of
our total site traffic during the three months ended March 31, 1999. Management
does not believe that the loss of this distribution partner will have a material
adverse impact on future results of operations.
<PAGE>
Cost of Operations
Online publishing costs increased 220% to $672,161 for the three months ended
March 31, 1999 from $209,976 in the comparable period in 1998. This $462,185
increase was due to higher advertising costs, expenses incurred in promoting and
staffing theWhiz.com and Consejero.com, increases in revenue sharing obligations
and higher personnel costs.
Print publishing and licensing costs increased 9% to $582,556 during the three
month ended March 1999 from $536,014 in 1998 due primarily to higher revenue
sharing payments to newspapers based on higher levels of revenue.
Sales costs for the three months ended March 31, 1999 were $373,436, or 271%
higher than 1998 due to higher human resource costs as a result of a doubling of
the sales force for sales staff, lead generators and telemarketers, and the
opening of the Northern California and Chicago sales offices.
Marketing expenses of $714,080 for the three months ended March 31, 1999 were
$667,509 higher than in 1998 primarily due to online advertising monies spent
for bankrate.com, theWhiz.com and Cosejero.com with the goal of driving more
online traffic to our web sites.
Product research costs increased $282,953, or 99%, for the three months ended
March 31, 1999 compared to 1998 due to higher personnel expenses to support the
growth in hyperlinked advertisers, Consumer Mortgage Guide advertisers, new
editorial newspaper tables and an expanded number of markets to support
additional advertisements and co-branding. Additionally, quality control
personnel have been added to lend support to this growth.
General and administrative expenses of $576,598 for the three months ended
March 31, 1999 were $154,680, or 37%, higher than the comparable period in 1998
due primarily to higher human resource costs, facilities and professional
services expenses supporting the growth in the business.
Depreciation and amortization of $71,325 for the three months ended March 31,
1999 more than doubled compared to 1998 due to purchases of software, computer
equipment and components.
Noncash stock based compensation expense of $1,907,782 was recorded in the
three month period ended March 31, 1999 compared to none in the same period in
1998. Approximately $1,782,000 was recorded when a note receivable for a
restricted stock grant to our President was forgiven, the unvested shares under
the grant (264,932) were reaquired by us, the associated put right was cancelled
and 189,238 shares of redeemable common stock were reclassified to common stock
and vested immediately. Approximately $126,000 was recorded for options granted
under the 1997 Equity Compensation Plan in March 1999 and prior years.
A noncash financing charge of $2,656,000 was recorded in March 1999 compared
to none in 1998. In March 1999 one of the Series B convertible preferred
stockholders loaned us $1,000,000, at 8% interest due April 9, 1999. If unpaid
on April 9, 1999 the loan, plus accrued interest, converted to fully paid Series
B convertible preferred stock at a conversion price of $2.97 per share. On April
9, 1999 the principal amount of the loan plus accrued interest was converted
into 6,784 shares of Series B convertible preferred stock and, accordingly, the
finance charge was recorded.
Liquidity and Capital Resources
Intelligent Life Corporation has been funded using capital raised from
shareholders. As of March 31, 1999, we had a working capital deficit of
$1,174,921. Cash used in operating activities of $1,092,895 for the three months
ended March 31, 1999 was 97% higher than in the comparable period in 1998 and
was primarily for funding operating losses due to the continued expansion of our
online publishing efforts through the hiring of additional employees,
acquisitions and marketing expenditures.
<PAGE>
Additionally, approximately $306,000 of costs related to our initial public
offering of common stock were funded during the quarter.
Cash used in investing activities was primarily for the purchase of computer
and office equipment and furniture. Additionally, during the three months ended
March 31, 1999, cash was used to acquire CPNet.com and certain other
intellectual property rights.
Net cash provided from financing activities consisted of a $1,000,000
convertible promissory note to one of the Series B preferred stockholders which
was subsequently converted to shares of Series B preferred stock and ultimately
into common stock in connection with the initial public offering. Other
financing activities included cash used for payments on capital lease
obligations.
We have experienced significant increases in our capital expenditures which is
consistent with our overall business strategy. We anticipate that expenditures
will continue to increase in the foreseeable future as we continue to evaluate
potential investments in our business, technology and products. We believe that
our existing liquidity and capital resources supplemented with the proceeds from
the sale of our common stock in our initial public offering will be sufficient
to satisfy our cash requirements for the foreseeable future. To the extent that
such amounts are insufficient, we will be required to raise additional funds
through equity or debt financing. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our planned expansion, take
advantage of unanticipated opportunities or otherwise respond to competitive
pressures would be significantly limited. There can be no assurance that we will
be able to raise such funds on favorable terms or, at all.
Year 2000 Compliance
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure causing disruptions to our operations.
Our internal information technology and non-information technology systems are
licensed from third parties rather than being internally developed. We have
received written certifications from all manufacturers of third-party systems
that they are Year 2000 compliant and we have performed independent testing of
our mission critical hardware systems, including the routers and servers by
which we provide services to our customers and advertisers.
Additionally, all of our mission critical operating software has been tested
by the manufacturers as well as internally tested. All of the mission critical
hardware and software passed our predetermined Year 2000 criteria for
compliance.
Our business is also dependent upon the computer-controlled systems of third
parties such as suppliers, customers and service providers. A systemic failure
outside of our control, such as a prolonged loss of internet,
telecommunications, electrical or telephone services could prevent users from
accessing our web sites, which could have a material adverse effect on our
business.
To date, we have spent approximately $350,000 on Year 2000 compliance issues,
including the purchase of hardware and the cost of a third-party consultant.
Based on our current assessment, we do not anticipate that additional costs
associated with the Year 2000 issue will have a material adverse effect on our
business. We do not currently anticipate having to develop a contingency plan
for handling a Year 2000 problem that is not detected and corrected prior to its
occurrence.
<PAGE>
There is general uncertainty inherent in the Year 2000 computer problem. The
consequences of Year 2000 failures could have a material adverse effect on our
business. In particular, unforeseen Year 2000 computer problems could require
substantial time and effort on the part of management.
Risk Factors that Could Impact Future Operating Results
We have a history of losses
We have incurred net losses in each of our last three fiscal years and had a
net loss for the three-month period ended March 31, 1999 of approximately
$6,027,000. We had an accumulated deficit of approximately $16,772,000 as of
March 31, 1999. We also have a limited history of operations in the rapidly
evolving online business environment and have little experience forecasting our
revenues. Therefore, we believe that period-to-period comparisons of our
financial results should not be relied on as an indication of our future
performance. We anticipate that we will incur operating losses and negative cash
flows in the foreseeable future due to high levels of planned expenditures to
enhance our services, develop new content, build brand awareness through
aggressive marketing campaigns and hire personnel to support our growth. We may
also incur significant additional costs related to the acquisition of businesses
or technologies to respond to the constant change in our industry. These costs
could have an adverse impact on our future financial condition and results of
operations.
Our success depends upon Internet advertising revenue
We expect to derive more approximately 75% of our revenues for the foreseeable
future through the sale of advertising space on our Internet web pages. Any
factors that limit the amount advertisers are willing to spend on advertising on
our web sites could have a material adverse effect on our business. These
factors may include: (1) lack of standards for measuring web site traffic or
effectiveness of web site advertising: (2) lack of established pricing models
for internet advertising: (3) failure of traditional media advertisers to adopt
internet advertising; introduction of alternative advertising sources: and (4) a
lack of significant growth in web site traffic.
The Internet is a new medium for advertising and its effectiveness is
unproven. Demonstrating the effectiveness of advertising on our web sites is
critical to our ability to generate advertising revenue. Currently, there are no
widely accepted standards to measure the effectiveness of internet advertising,
and we cannot be certain that such standards will develop sufficiently to
support our growth through internet advertising.
Currently, a number of different pricing models are used to sell advertising
on the internet. Pricing models are typically either CPM-based (cost per
thousand) or performance-based. We predominantly utilize the CPM-based model,
which is based upon the number of advertisement impressions. The performance-
based, or per click, model is payable on each individual click even though It
may take multiple advertisement impressions to generate one click. We cannot
predict which pricing model, if any, will emerge as the industry standard.
Therefore, it is difficult for us to project our future advertising rates and
revenues. For instance, banner advertising, which is currently our primary
source of online revenue, may not be an effective advertising method in the
future. If we are unable to adapt to new forms of internet advertising and
pricing models, our business could be adversely affected.
Financial services companies account for a majority of our advertising
revenues. We will need to sell advertising to customers outside of the financial
services industry in order to significantly increase our revenues. To date,
relatively few advertisers from industries other than the technology and
financial services industries have devoted a significant portion of their
advertising budgets to internet advertising. If we do not attract advertisers
from other industries, our business could be adversely affected.
<PAGE>
Our success depends upon interest rate activity and mortgage refinancing
Approximately 84% and 81% of our advertisement views and page views,
respectively, are attributable to the Bankrate.com site. Given that this site
provides interest rate information for mortgages and other loans, credit cards
and savings accounts, visitor traffic to this site increases with interest rate
movements and decreases with interest rate stability. Factors that have caused
significant visitor fluctuations in the past have been Federal Reserve actions
and general market conditions affecting home mortgage interest rates.
Approximately 18% of visits to Bankrate.com are to its mortgage pages.
Accordingly, the level of traffic to Bankrate.com is heavily dependent on
interest rates and mortgage refinancing activity. A slowdown in mortgage
refinancings could have a material adverse effect on our business.
We believe that as we continue to develop web sites of broader interest, the
percentage of overall site traffic seeking mortgage information will decline. To
accelerate the growth of traffic to our other sites, we are working with our
syndication partners to program web sites other than Bankrate.com more
intensively, and we are promoting these sites aggressively. We cannot assure you
that we will be successful in these efforts.
Our success depends upon establishing and maintaining distribution arrangements
Our business strategy includes the distribution of our content through the
establishment of co-branded web pages with high-traffic business and personal
finance sections of online services and web sites. A co-branded site is
typically a custom version of our web sites with the graphical look and feel,
and navigation, of the other web site. Providing access to these co-branded web
pages is a significant part of the value we offer to our advertisers. We compete
with other Internet content providers to maintain our current relationships with
other web site operators and establish new relationships. In addition, as we
expand our personal finance content, some of these web site operators may
perceive us as a competitor. As a result, they may be unwilling to promote
distribution of our banking and credit content. For example, in June 1999, we
learned that Quicken.com, which accounted for approximately 6% of our total site
traffic during the three months ended March 31, 1999, would not be renewing its
distribution agreement with us. We cannot assure you that our distribution
arrangements will attract a sufficient number of users to support our current
advertising model. In May 1999, 55% of the traffic to our web sites originated
from the web sites of operators we have distribution arrangements with. Our
business could be adversely affected if we do not establish and maintain
distribution arrangements on favorable economic terms.
Our success depends upon increasing brand awareness of our web sites
Although Intelligent Life Corporation and its predecessors have been in
business since 1976, we commenced our internet operations by introducing
Bankrate.com in 1995. Due to the limited operating history of our internet
operations, it is important that we develop brand awareness of our web sites in
order for them to be attractive to advertisers. The importance of our brand
recognition will increase as competition in the internet advertising market
increases. As a result, developing and maintaining awareness of our web sites by
promoting our brand names is critical to maintaining our growth. As competing
web sites become established on the internet, the cost of developing brand
awareness increases significantly.
Successfully promoting and positioning our web sites and brand names will
depend largely on the effectiveness of our marketing efforts and our ability to
develop favorable traffic patterns to our web sites. Therefore, we may need to
increase our financial commitment to creating and maintaining brand awareness
among users. We intend to use a portion of the proceeds of this offering to
increase our marketing efforts and promote our brand awareness. If we fail to
successfully promote our web sites and brand names or if we incur significant
expense in doing so, it could have a material adverse effect on our business.
<PAGE>
Our markets are highly competitive
We compete for internet advertising revenues with a number of finance-related
web sites, such as MarketWatch.com, CNNfn.com and Quicken.com, and traditional
publishers and distributors of personal finance content such as MSNBC, CNN,
Money Magazine and USA Today. In addition, new competitors may easily enter this
market as there are few barriers to entry. Many of our existing competitors, as
well as a number of potential new competitors, have longer operating histories,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than us. Many competitors also have
complementary products or services that drive traffic to their web sites.
Increased competition could result in lower web site traffic, advertising rate
reductions, reduced margins or loss of market share, any of which would
adversely affect our business. We cannot be certain that we will be able to
compete successfully against current or future competitors.
Our web sites may encounter technical problems and service interruptions
In the past, our web sites have experienced significant increases in traffic
in response to interest rate movements and other business or financial news
events. The number of our users has continued to increase over time, and we are
seeking to further increase our user base. As a result, our internet servers
must accommodate spikes in demand for our web pages in addition to potential
significant growth in traffic. Our web sites have in the past and may in the
future experience slower response times or interruptions as a result of
increased traffic or other reasons. These delays and interruptions resulting
from failure to maintain internet service connections to our site could
frustrate users and reduce our future web site traffic, which could have a
material adverse effect on our business.
All of our communications and network equipment is located at our corporate
headquarters in North Palm Beach, Florida. Any system failure at this location
could lead to interruptions or delays in service for our web sites, which could
have a material adverse effect on our business. Our operations are dependent
upon our ability to protect our systems against damage from fires, hurricanes,
earthquakes, power losses, telecommunications failures, break-ins, computer
viruses, hacker attacks and other events beyond our control. Although we
maintain business interruption insurance, it may not adequately compensate us
for losses that may occur due to failures of our systems.
We rely on the protection of our intellectual property
Our intellectual property consists of the content of our web sites and print
publications. We rely on a combination of copyrights, trademarks, trade secret
laws and our user policy and restrictions on disclosure to protect our
intellectual property. We may also enter into confidentiality agreements with
our employees and consultants and seek to control access to and distribution of
our proprietary information. Despite these precautions, it may be possible for
other parties to copy or otherwise obtain and use the content of our web sites
or print publications without authorization. A failure to protect our
intellectual property in a meaningful manner could have a material adverse
effect on our business.
Because we license some of our data and content from other parties, we maybe
exposed to infringement actions if such parties do not possess the necessary
proprietary rights. Generally, we obtain representations as to the origin and
ownership of licensed content and obtain indemnification to cover any breach of
any such representations. However, such representations may not be accurate and
such indemnification may not be sufficient to provide adequate compensation for
any breach of such representations.
Any future infringement or other claims or prosecutions related to our
intellectual property could have a material adverse effect on our business. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to
introduce new content or trademarks, develop new technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.
<PAGE>
We may face liability for information on our web sites
Much of the information published on our web sites relates to the
competitiveness of financial institutions' rates, products and services. We may
be subjected to claims for defamation, negligence, copyright or trademark
infringement or other theories relating to the information we publish on our web
sites. These types of claims have been brought, sometimes successfully, against
online services as well as print publications. Our insurance may not adequately
protect us against these types of claims.
Future government regulation of the Internet is uncertain and subject to change
As Internet commerce continues to evolve, increasing regulation by federal or
state agencies or foreign governments may occur. Such regulation is likely in
the areas of user privacy, pricing, content and quality of products and
services. Additionally, taxation of Internet use or electronic commerce
transactions may be imposed. Any regulation imposing fees for Internet use or
electronic commerce transactions could result in a decline in the use of the
internet and the viability of internet commerce, which could have a material
adverse effect on our business.
Our ownership is heavily concentrated in our management
Our officers and directors beneficially own approximately 67% of Intelligent
Life's outstanding common stock. Peter C. Morse, our largest shareholder,
beneficially owns approximately 41% of Intelligent Life's outstanding common
stock. As a result, our officers and directors will be able to exercise control
over all matters requiring shareholder approval. In particular, these
controlling shareholders will have the ability to elect all of our directors and
approve or disapprove significant corporate transactions. This control could be
used to prevent or significantly delay another company or person from acquiring
or merging with us.
Our rapid growth may strain our operations
Since we began our Internet operations in 1995, we have expanded our
operations significantly, and we intend to continue to do so. Our future
expansion may place a significant strain on our management. To manage the
expected growth of our operations and personnel, we must expand and improve our
existing management, operational and financial systems. If we fail to expand and
improve these systems in a timely manner, this failure could have a material
adverse effect on our business.
Our new managers must work together effectively as a team
We have recently added key managerial, technical and operations personnel. For
example, our President and Chief Executive Officer was hired in 1997, our Senior
Vice President--Administration was hired in 1998, our Senior Vice President--
Marketing was hired in 1999, and our Executive Vice President-Strategy and
Acquisitions was hired in 1999. We are also significantly increasing our
employee base. These new personnel must integrate themselves into our daily
operations and work effectively as a team in order for us to be successful. We
cannot be certain that this will occur in all instances.
Our success depends upon management and key employees
Our success depends largely upon retaining the continued services of our
executive officers and other key management and developing personnel as well as
hiring and training additional employees. We have a number of key employees on
whom we depend and who may be difficult to replace. Specifically, we rely on
William P. Anderson, III, our President and Chief Executive Officer, and our key
employees, Sara Campbell Taylor, Edward V. Blanchard, Jr., Peter W. Minford, G.
Cotter Cunningham and Robert J. DeFranco. All of our employees are employed by
the Vincam Group under an employee leasing contract. This contract has a one-
year term which expires on December 31, 1999. Beginning January 1, 2000, all of
our personnel will become employees of Intelligent Life Corporation. A failure
to retain our current key employees or to hire enough qualified employees to
sustain our growth could have a material adverse effect on our business.
<PAGE>
Our Articles of Incorporation and Bylaws, as well as Florida law, may prevent or
delay a future takeover
Our Articles of Incorporation and Bylaws may have the effect of delaying or
preventing a merger or acquisition, or making such a transaction less desirable
to a potential acquirer, even when shareholders may consider the acquisition or
merger favorable. For example, our Articles of Incorporation and Bylaws provide
that: (1) the board of directors has the authority, without shareholder
approval, to issue up to 10,000,000 shares of preferred stock and to determine
the rights (including voting rights) associated with such preferred stock (which
issuance may adversely affect the market price of the common stock and the
voting rights of the holders of common stock): (2) the board of directors is
classified and directors have three-year terms: (3) cumulative voting for the
election of directors is prohibited; approval by 66 2/3% of the shareholders is
required for material amendments to the Articles of Incorporation or Bylaws: and
(4) certain procedures must be followed before matters can be proposed by
shareholders for consideration at shareholder meetings. Florida law also
contains "control share acquisition" and "affiliate transaction" provisions that
may also delay, prevent, or discourage an acquisition of or merger with
Intelligent Life Corporation.
We have broad discretion in the use of proceeds from our recent initial public
offering
The net proceeds from the sale of common stock in our recent initial public
offering will become part of our general working capital and we may use these
funds in a variety of ways, including increasing our sales and marketing
activities, increasing our content development activities and pursuing strategic
acquisitions and partnerships. We will have considerable discretion in the
application of the net proceeds to these uses. In addition, the timing of our
use of the net proceeds will depend on a number of factors, including the amount
of our future revenues.
We may encounter difficulties with future acquisitions
A part of our business strategy is to acquire web sites and other content
providers that will be complementary to our current activities. Any acquisitions
may present a number of potential risks that could result in a material adverse
effect on our business. These risks include the following; failure to integrate
the technical operations and personnel in a timely and cost-effective manner;
failure to retain key personnel of the acquired company; and assumption of
unexpected material liabilities. In addition, we cannot assure you that we will
be able to identify suitable acquisition candidates that are available for sale
at reasonable prices. We may finance future acquisitions using the proceeds from
our initial public offering.
We may also finance future acquisitions with debt financing, which would
increase our debt service requirements, or through the issuance of additional
common or preferred stock, which could result in dilution to our shareholders.
We cannot assure you that we will be able to arrange adequate financing on
acceptable terms.
Our results of operations may fluctuate significantly
Our results of operations may fluctuate significantly in the future as a
result of several factors, many of which are beyond our control. These factors
include: (1) changes in fees paid by advertisers: (2) traffic levels on our web
sites, which can fluctuate significantly as a result of financial news events:
(3) changes in the demand for internet products and services: (4) changes in fee
or revenue-sharing arrangements with our distribution partners: (5) our ability
to enter into or renew key distribution agreements: (6) the introduction of new
Internet advertising services by us or our competitors: (7) changes in our
capital or operating expenses as we expand our operations: and (8) general
economic conditions.
Our future revenues and results of operations may be difficult to forecast due
to these factors. As a result, we believe that period-to-period comparisons of
our results of operations may not be meaningful, and you should not rely on past
periods as indicators of future performance.
<PAGE>
In future periods, our results of operations may fall below the expectations of
securities analysts and investors, which could adversely affect the trading
price of the common stock.
Our stock price may be volatile in the future
We cannot predict whether a trading market for our common stock will develop
or how liquid that market might become. The initial public offering price of our
common stock was determined by negotiations with our underwriters and may not be
indicative of prices that will prevail in the trading market. The stock prices
and trading volume of Internet-related companies have been extremely volatile of
late. Accordingly, our stock prices may be volatile as well. In addition,
following periods of downward volatility in the market price of a company's
securities, class action litigation is often brought against the company.
Downward volatility of our stock prices could lead to class action litigation,
resulting in substantial costs and a diversion of our management's attention and
resources.
We may experience year 2000 problems
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in system failure, causing disruptions to our operations.
We may be affected by Year 2000 issues related to non-compliant internal
systems developed by us or by third-party vendors. We have received written
certifications from all manufacturers of our third-party systems that they are
Year 2000 compliant. We are not currently aware of any material systems that
contain embedded chips that are not Year 2000 compliant, or that we will not be
able to bring into compliance in a timely fashion. We have completed the
inventory and testing of our mission critical hardware systems, including the
routers and servers by which we provide services to our customers. Additionally,
all of our mission critical operating software has been tested based upon the
representations provided by the manufacturers as well as our own internal
testing. All of the mission critical hardware and software passed our
predetermined Year 2000 criteria for compliance. Failure of our systems to be
Year 2000 compliant could result in an inability of users to view our sites,
which would have a material adverse effect on our business. Such failures could
also require substantial time and effort on the part of management.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The primary objective of our investment strategy is to preserve principal
while maximizing the income we receive from investments without significantly
increasing risk. To minimize this risk, to date we have maintained our portfolio
of cash equivalents in short-term and overnight investments which are not
subject to market risk as the interest paid on such investments fluctuates with
the prevailing interest rates. As of March 31, 1999 all of our cash equivalents
mature in less than one year.
Exchange Rate Sensitivity
Our exposure to foreign currency exchange rate fluctuations is minimal to none
as we do not have any revenues denominated in foreign currencies. Additionally,
we have not engaged in any derivative or hedging transactions to date.
<PAGE>
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Intelligent Life Corporation is not a party to any material legal proceeding.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3.1 Form of Amended and Restated Articles of Incorporation of
Intelligent Life Corporation (incorporated by reference to
Amendment No. 1 to Form S-1 Registration Statement filed on April
15, 1999)
3.2 Form of Amended and Restated Bylaws of Intelligent Life Corporation
(incorporated by reference to Amendment No. 1 to Form S-1
Registration Statement filed on April 15, 1999)
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Intelligent Life Corporation
Dated: June 28, 1999 By: /s/ Peter W. Minford
-------------------------------
Peter W. Minford
Senior Vice President-Administration
And Chief Financial Officer
Dated: June 28, 1999 By: /s/ Robert J. DeFranco
-------------------------------
Robert J. DeFranco
Vice President-Finance
And Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,268,080
<SECURITIES> 0
<RECEIVABLES> 682,164
<ALLOWANCES> (25,297)
<INVENTORY> 0
<CURRENT-ASSETS> 2,311,381
<PP&E> 1,493,864
<DEPRECIATION> (407,746)
<TOTAL-ASSETS> 3,484,060
<CURRENT-LIABILITIES> 3,486,302
<BONDS> 0
14,050,303
0
<COMMON> 42,425
<OTHER-SE> (14,468,653)
<TOTAL-LIABILITY-AND-EQUITY> 3,484,060
<SALES> 2,226,268
<TOTAL-REVENUES> 2,226,268
<CGS> 0
<TOTAL-COSTS> 5,605,074
<OTHER-EXPENSES> 2,633,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,396
<INCOME-PRETAX> (6,027,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,027,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,027,324)
<EPS-BASIC> (1.92)
<EPS-DILUTED> (1.92)
</TABLE>
