<PAGE>
================================================================================
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 September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25681
INTELLIGENT LIFE CORPORATION
(Exact name of registrant as specified in Its charter)
Florida 65-0423422
(State or other Jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
11811 U.S. Highway One, Suite 101
North Palm Beach, Florida 33408
(Address of principal executive offices) (Zip Code)
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 X No
The number of shares of the issuer's class of capital stock as of October 31,
1999, the latest practicable date, is as follows: 13,540,988 shares of Common
Stock, $.01 par value.
================================================================================
<PAGE>
Intelligent Life Corporation
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1999
Index
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets at September 30, 1999 and
December 31, 1998 ......................................................................
Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 1999 and 1998 ......................................................
Condensed Consolidated Statements of Redeemable Stock and
Stockholders' Equity (Deficit) .........................................................
Condensed Consolidated Statements of Cash Flows for the three and nine months
ended September 30, 1999 and 1998 ......................................................
Notes to Condensed Consolidated 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>
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Intelligent Life Corporation and Subsidiary
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
------------ ----
<S> <C> <C>
Assets
Cash and cash equivalents $ 33,385,568 $ 1,633,100
Accounts receivable, net of allowance for doubtful accounts
of $75,000 and $24,847 at September 30, 1998 and December 31, 1998, respectively 1,573,244 538,536
Other current assets 594,872 109,488
------------ ------------
Total current assets 35,553,684 2,281,124
Furniture, fixtures and equipment, net 2,265,363 813,659
Intangible assets, net of accumulated amortization of $368,636 and $152,976
at September 30, 1999 and December 31, 1998, respectively 5,470,166 4,569
Other assets 1,330,623 --
------------ ------------
Total assets $ 44,619,836 $ 3,099,352
============ ============
Liabilities, Redeemable Stock and Stockholders' Equity (Deficit)
Liabilities:
Accounts payable $ 3,513,015 $ 308,667
Accrued stock compensation expense 824,224 --
Other accrued expenses 3,878,694 588,212
Deferred revenue 700,360 612,660
Current portion of obligations under capital leases 221,653 113,405
Other current liabilities 255,372 --
------------ ------------
Total current liabilities 9,393,318 1,622,944
10% Convertible subordinated note payable 4,350,000 --
Other liabilities 394,562 263,009
------------ ------------
Total liabilities 14,137,880 1,885,953
------------ ------------
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; no
shares issued or outstanding at September 30, 1999 and 89,612 shares issued and outstanding at
December 31, 1998 -- 10,215,768
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;
no shares issued or outstanding at September 30, 1999 and 17,575 shares issued and outstanding at
December 31, 1998 -- 1,982,535
Redeemable Common Stock:
Redeemable common stock, par value $.01 per share, redemption value $0.52 per share --
no shares issued or outstanding at September 30, 1999 and 454,170 shares issued and outstanding
at December 31, 1998 -- 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; 13,540,988 and
4,053,200 shares issued and outstanding at September 30, 1999 and December 31, 1998,
respectively 135,410 40,532
Additional paid in capital 59,543,111 --
Unamortized stock compensation expense -- (280,690)
Accumulated deficit (29,196,565) (10,744,746)
------------ ------------
Total stockholders' equity (deficit) 30,481,956 (10,984,904)
------------ ------------
Total liabilities stockholders' equity (deficit) $ 44,619,836 $ 3,099,352
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Intelligent Life Corporation and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Online publishing $ 2,416,785 $ 816,813 $ 5,712,470 $ 1,590,380
Print publishing and licensing 880,052 765,900 2,622,588 2,144,670
Other 36,433 -- 36,433 --
------------ ----------- ------------ ------------
Total revenue 3,333,270 1,582,713 8,371,491 3,735,050
Cost of operations:
Online publishing 1,235,266 458,241 2,852,264 999,589
Print publishing and licensing 584,720 495,130 1,775,690 1,499,397
Sales 748,537 441,516 2,031,929 988,735
Marketing 6,273,795 48,871 8,974,550 174,978
Product research 810,058 434,644 2,038,036 1,157,374
General and administrative expenses 1,858,071 426,309 3,596,178 1,394,610
Depreciation and amortization 177,122 42,653 353,657 85,481
Goodwill amortization 197,988 -- 197,988 --
Noncash stock based compensation 351,152 408,277 2,970,019 496,840
------------ ----------- ------------ ------------
12,236,709 2,755,641 24,790,311 6,797,004
------------ ----------- ------------ ------------
Loss from operations (8,903,439) (1,172,928) (16,418,820) (3,061,954)
------------ ----------- ------------ ------------
Other income (expense):
Interest income 465,626 8,464 715,076 25,545
Interest expense (67,041) (3,480) (107,064) (9,696)
Noncash financing charge -- -- (2,656,000) --
Other 4,532 2 14,989 2
------------ ----------- ------------ ------------
Other income (expense), net 403,117 4,986 (2,032,999) 15,851
------------ ----------- ------------ ------------
Loss before income taxes (8,500,322) (1,167,942) (18,451,819) (3,046,103)
Income taxes -- -- -- --
------------ ----------- ------------ ------------
Net loss (8,500,322) (1,167,942) (18,451,819) (3,046,103)
Accretion of Convertible Series A and
Series B preferred stock to redemption value -- -- (2,281,000) --
------------ ----------- ------------ ------------
Net loss applicable to common stock $ (8,500,322) $(1,167,942) $(20,732,819) $ (3,046,103)
============ =========== ============ ============
Basic and diluted net loss per share $ (0.63) $ (0.30) $ (2.31) $ (0.78)
============ =========== ============ ============
Weighted average shares outstanding used in
basic and diluted per-share calculation 13,477,945 3,954,200 8,959,022 3,882,596
============ =========== ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
Intelligent Life Corporation and Subsidiary
Condensed Consolidated 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, June 30, 1998 -- $ -- -- $ --
Issuance of common stock -- -- -- --
Compensation expense related to common stock grants -- -- -- --
Issuance of preferred stock, net of issuance costs -- -- 17,575 1,982,535
Conversion of nonredeemable convertible Series A
preferred stock to redeemable 89,612 10,215,768 -- --
Net loss for the period -- -- -- --
------- ------------ ------ -----------
Balances, December 31, 1998 89,612 10,215,768 17,575 1,982,535
Accretion of Series A and Series B preferred stock
to redemption value -- 1,908,000 -- 373,000
Conversion of Series A and Series B preferred
stock to common stock (89,612) (12,123,768) (17,575) (2,355,535)
Issuance and conversion of promissory note to
Series B preferred stock and conversion of Series B
preferred stock to common stock including finance
charge for beneficial conversion feature on the
promissory note of $2,656,000 -- -- -- --
Forgiveness 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, including associated
compensation charge -- -- -- --
Initial public offering of common stock -- -- -- --
Compensation relating to stock grants -- -- -- --
Common stock issued for the acquisition of
Green Magazine, Inc. -- -- -- --
Net loss for the period -- -- -- --
------- ------------ ------- -----------
Balances, September 30, 1999 -- $ -- -- $ --
======= ============ ====== ===========
<CAPTION>
Redeemable Common Stock Convertible Series A
Note Preferred Stock
Shares Amount Receivable Shares Amount
------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1998 454,170 $ 236,168 $(236,168) 89,612 $ 5,777,627
Issuance of common stock -- -- -- -- --
Compensation expense related to common stock grants -- -- -- -- --
Issuance of preferred stock, net of issuance costs -- -- -- -- --
Conversion of nonredeemable convertible Series A
preferred stock to redeemable -- -- -- (89,612) (5,777,627)
Net loss for the period -- -- -- -- --
-------- --------- --------- ------ -----------
Balances, December 31, 1998 454,170 236,168 (236,168) -- --
Accretion of Series A and Series B preferred stock
to redemption value -- -- -- -- --
Conversion of Series A and Series B preferred
stock to common stock -- -- -- -- --
Issuance and conversion of promissory note to
Series B preferred stock and conversion of Series B
preferred stock to common stock including finance
charge for beneficial conversion feature on the
promissory note of $2,656,000 -- -- -- -- --
Forgiveness 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, including
associated compensation charge (454,170) (236,168) 236,168 -- --
Initial public offering of common stock -- -- -- -- --
Compensation relating to stock grants -- -- -- -- --
Common stock issued for the acquisition of
Green Magazine, Inc. -- -- -- -- --
Net loss for the period -- -- -- -- --
-------- --------- --------- ------ -----------
Balances, September 30, 1999 -- $ -- $ -- -- $ --
======== ========= ========= ====== ===========
<CAPTION>
Additional
Common Stock Paid in
Shares Amount Capital
<S> <C> <C> <C>
Balances, June 30, 1998 3,846,200 $ 38,462 $ 354,253
Issuance of common stock 207,000 2,070 266,930
Compensation expense related to common stock grants -- -- 415,000
Issuance of preferred stock, net of issuance costs -- -- --
Conversion of nonredeemable convertible Series A
preferred stock to redeemable -- -- (1,036,183)
Net loss for the period -- -- --
---------- -------- -----------
Balances, December 31, 1998 4,053,200 40,532 --
Accretion of Series A and Series B preferred stock
to redemption value -- -- (2,281,000)
Conversion of Series A and Series B preferred
stock to common stock 5,359,350 53,593 14,425,710
Issuance and conversion of promissory note to
Series B preferred stock and conversion of Series B
preferred stock to common stock including finance
charge for beneficial conversion feature on the
promissory note of $2,656,000 339,200 3,392 3,659,608
Forgiveness 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, including associated
compensation charge 189,238 1,893 1,890,417
Initial public offering of common stock 3,500,000 35,000 41,265,596
Compensation relating to stock grants -- -- --
Common stock issued for the acquisition of
Green Magazine, Inc. 100,000 1,000 582,780
Net loss for the period -- -- --
---------- -------- -----------
Balances, September 30, 1999 13,540,988 $135,410 $59,543,111
========== ======== ===========
<CAPTION>
Unamortized Total
Stock Stockholders'
Compensation Accumulated Equity
Expense Deficit (Deficit)
------------ ----------- -------------
<S> <C> <C> <C>
Balances, June 30, 1998 $(265,690) $ (5,247,570) $ 657,082
Issuance of common stock (269,000) -- --
Compensation expense related to common stock grants 254,000 -- 669,000
Issuance of preferred stock, net of issuance costs -- -- --
Conversion of nonredeemable convertible Series A
preferred stock to redeemable -- (3,401,958) (10,215,768)
Net loss for the period -- (2,095,218) (2,095,218)
--------- ------------ ------------
Balances, December 31, 1998 (280,690) (10,744,746) (10,984,904)
Accretion of Series A and Series B preferred stock
to redemption value -- -- (2,281,000)
Conversion of Series A and Series B preferred
stock to common stock -- -- 14,479,303
Issuance and conversion of promissory note to
Series B preferred stock and conversion of Series B
preferred stock to common stock including finance
charge for beneficial conversion feature on the
promissory note of $2,656,000 -- -- 3,663,000
Forgiveness 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, including associated
compensation charge 220,690 -- 2,113,000
Initial public offering of common stock -- -- 41,300,596
Compensation relating to stock grants 60,000 -- 60,000
Common stock issued for the acquisition of
Green Magazine, Inc. -- -- 583,780
Net loss for the period -- (18,451,819) (18,451,819)
--------- ------------ ------------
Balances, September 30, 1999 $ -- $(29,196,565) $ 30,481,956
========= ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
Intelligent Life Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,500,322) $(1,167,942) $(18,451,819) $ (3,046,103)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 375,110 42,653 551,645 85,481
Noncash stock compensation 351,152 408,277 2,970,019 496,840
Noncash financing charge -- -- 2,656,000 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (549,364) (169,137) (1,051,716) (206,361)
(Increase) decrease in deferred initial public
offering costs -- -- (1,014,369) --
(Increase) decrease in other assets (791,899) (18,890) (1,454,197) (44,133)
Increase (decrease) in accounts payable and
accrued expenses 4,369,085 299,540 6,018,884 456,259
Increase (decrease) in other current liabilities 194,842 -- 304,486 --
Increase (decrease) in deferred revenue 94,251 183,218 35,794 284,002
------------ ----------- ------------ ------------
Total adjustments 4,043,177 745,661 9,016,546 1,072,088
------------ ----------- ------------ ------------
Net cash used in operating activities (4,457,145) (422,281) (9,435,273) (1,974,015)
------------ ----------- ------------ ------------
Cash flows used in investing activities:
Purchases of equipment (688,127) (46,995) (1,058,346) (171,834)
Acquisitions, net of cash acquired (836,739) -- (903,439) --
------------ ----------- ------------ ------------
Net cash used in investing activities (1,524,866) (46,995) (1,961,785) (171,834)
------------ ----------- ------------ ------------
Cash flows from financing activities:
Loans from stockholders -- -- 1,000,000 484,257
Principal payments on capital lease obligations (30,307) (3,011) (165,474) (6,459)
Proceeds from issuance of preferred stock, net -- -- -- 992,854
Proceeds from issuance of common stock, net -- -- 42,315,000 --
------------ ----------- ------------ ------------
Net cash provided by financing activities (30,307) (3,011) 43,149,526 1,470,652
------------ ----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents (6,012,318) (472,287) 31,752,468 (675,197)
Cash and equivalents, beginning of period 39,397,886 910,427 1,633,100 1,113,337
------------ ----------- ------------ ------------
Cash and equivalents, end of period $ 33,385,568 $ 438,140 $ 33,385,568 $ 438,140
============ =========== ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 17,928 $ 3,480 $ 57,951 $ 9,696
============ =========== ============ ============
Supplemental schedule of noncash investing and
finance activities:
Equipment acquired under capital leases $ -- $ 173,209 $ 314,000 $ 191,209
============ =========== ============ ============
Stockholder loans contributed to capital for
preferred stock $ -- $ -- $ -- $ 500,000
============ =========== ============ ============
Accretion of Series A and Series B preferred stock
to redemption value $ -- $ -- $ 2,281,000 --
============ =========== ============ ============
Issuance of common stock for business acquired $ 584,000 $ -- $ 584,000 --
============ =========== ============ ============
Convertible subordinated note issued in connection
with business acquired $ 4,350,000 $ -- $ 4,350,000 --
============ =========== ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
INTELLIGENT LIFE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Company
Intelligent Life Corporation and its subsidiary, Professional Direct
Agency, Inc. ("ILIF" or the "Company") is an industry leader in creating,
producing and syndicating personal finance information for the online consumer
public through a broad portfolio of web sites, print publications and broadcast
segments. The Company's personal finance portal, ilife.com (www.ilife.com)
features original content that deals with financial planning, taxes, insurance,
investing and banking. The portal serves as a gateway to the Company's family of
web sites, including the award-winning bankrate.com, go2pivot.com, theWhiz.com,
Consejero.com, CPNet.com, greenmagazine.com and the newly launched
IntelligentTaxes.com. Content from ilife.com is published on co-branded Internet
sites through more than 70 distributors, including Yahoo!, CNN, America Online
and Smart Money. The Company's original research is also distributed through
more than 70 national and state publications. The Company is organized under the
laws of the state of Florida.
Basis of Presentation
The unaudited interim condensed consolidated financial statements for the
three and nine months ended September 30, 1999 and 1998, respectively, included
herein have been prepared in accordance with the instructions for Form 10-Q
under the Securities Exchange Act of 1934, as amended, and Article 10 of
Regulation S-X under the Securities Act of 1933, as amended. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements. In the opinion of management, the accompanying unaudited interim
condensed consolidated financial statements reflect all adjustments, consisting
only of normal, recurring adjustments, necessary to present fairly the financial
position of the Company at September 30, 1999, and the results of its operations
and its cash flows for the three and nine months ended September 30, 1999 and
1998, respectively. The results for the three and nine months ended
September 30, 1999 are not necessarily indicative of the expected results
for the full 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
consolidated financial statements has been retroactively 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 $41.3 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.
<PAGE>
The unaudited condensed consolidated 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, as well as the audited financial statements included in the
Company's transition report on Form 10-K for the six months ended December 31,
1998 filed with the Securities and Exchange Commission.
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 consisting of stock options and a
convertible subordinated note payable have been excluded from the computation of
diluted earnings per share as their effect is anti-dilutive.
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 is recognizing compensation expense of
approximately $1,620,000 ratably over the vesting period. Since March 1999, the
Company granted 532,641 (excluding the 80,000 director options discussed below)
options under the 1997 Plan to purchase common stock at fair market value on the
date of grant which vest over periods ranging from 12 to 48 months.
On April 12, 1999, the Board approved an option plan for outside directors
of the Company. Under this plan, 80,000 options were granted on May 13, 1999 to
purchase common stock at $13.00 per share. The options vest over 48 months and
expire 10 years from date of grant, unless prohibited by the 1997 Plan.
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 purchase shares of common stock
at $2.97 which vest over a 36 month period. The Company is recognizing
compensation expense of approximately $2,807,000 ratably over the vesting
period. In May 1999, the Company granted 400,000 options to purchase shares of
common stock at fair market value on the date of grant which vest over a 48
month period.
<PAGE>
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 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 $2,113,000 was recorded.
NOTE 5 -- ACQUISITIONS
CPNet.com
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.
Professional Direct Agency, Inc. ("Pivot")
On August 20, 1999, ILIF acquired Pivot pursuant to a Stock Purchase
Agreement, dated as of August 20, 1999, by and between ILIF, the shareholders of
Pivot and The Midland Life Insurance Company ("Midland"), a note and warrant
holder of Pivot (the "Agreement"), for approximately $4,744,000 including
acquisition costs. Pursuant to the Agreement, ILIF acquired a 100% interest in
Pivot and as a result of the acquisition, Pivot became a wholly-owned subsidiary
of ILIF. The transaction was accounted for using the purchase method of
accounting. The net assets acquired are estimated to be at fair market value.
The excess of the purchase price over the fair value of the net assets acquired
(approximately $4,609,000) was recorded as goodwill and is being amortized over
three years, the expected benefit period.
The total consideration paid by ILIF in connection with the acquisition
consisted of $290,000 in cash paid to the Pivot shareholders and a $4,350,000
five-year convertible subordinated note to Midland. The note bears interest at
10% and is due in one payment on August 20, 2004. Interest is due beginning on
August 20, 2002 and thereafter every six months until conversion or payment in
full. The note is convertible at any time by Midland into 625,000 shares of ILIF
common stock. ILIF has the right to require conversion beginning any time after
the earlier of (1) August 20, 2000 or (2) the date that ILIF files a
registration statement under the Securities Act of 1933, as amended (the "Act"),
registering the conversion
<PAGE>
shares for sale under the Act; provided that, within the 55-day period
immediately prior to the date ILIF notifies Midland of the required conversion,
the closing price of ILIF's common stock has been at least $10.00 per share for
at least twenty consecutive trading days.
Pivot is an Internet and direct agency for term life and other insurance
products through its interactive web site www.go2pivot.com.
Green Magazine, Inc. ("Green")
On August 27, 1999, ILIF acquired certain assets and assumed certain
liabilities of Green pursuant to an Asset Purchase Agreement, dated as of August
27, 1999, by and among ILIF, Green, Kenneth A. Kurson, John F. Packel and James
Michaels (the "Agreement"), for approximately $831,000 including acquisition
costs. Pursuant to the Agreement, ILIF acquired the rights to all agreements,
contracts, commitments, licenses, copyrights, trademarks and the
subscriber/customer list of Green. Kenneth A. Kurson and John F. Packel were
also employed by ILIF.The total consideration paid by ILIF in connection with
the acquisition was approximately $784,000 consisting of $200,000 in cash and
100,000 unregistered shares of ILIF common stock valued at approximately
$584,000. The transaction was accounted for using the purchase method of
accounting. The net assets acquired are estimated to be at fair market value.
The excess of the purchase price over the fair value of the net assets acquired
(approximately $883,000) was recorded as goodwill and is being amortized over
three years, the expected benefit period.
Green delivers personal finance and investment advice through its magazine
publication, through Kenneth A. Kurson's appearances on national broadcast media
and through its interactive web site www.greenmagazine.com.
Supplemental Pro Forma Information
The following unaudited pro forma condensed consolidated results of
operations for ILIF, Pivot and Green are presented as if the acquisitions had
occurred at the beginning of each period presented. These results are not
necessarily indicative of the actual results that would have occurred if these
acquisitions had taken place at the beginning of each period presented.
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Revenue $ 8,429,096 $ 5,682,357
Cost of operations 28,558,997 14,518,454
Loss from operations (20,129,901) (8,836,097)
Net loss (24,788,334) (13,510,694)
Basic and diluted net loss per share $ (2.74) $ (3.36)
Weighted average shares 9,059,022 4,025,597
</TABLE>
<PAGE>
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, theWhiz.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.
Although no one customer accounted for greater than 10% of total revenues
for the three and nine months ended September 30, 1999 and 1998, the five
largest customers accounted for approximately 16% and 15%, and 26% and 11%,
respectively, of total revenues for the three and nine months ended
September 30, 1999 and 1998.
Summarized segment information as of September 30, 1999 and 1998, and for
the three and nine months ended September 30, 1999 and 1998 is presented below.
<TABLE>
<CAPTION>
Print
Online Publishing
Publishing and Licensing Other Total
---------- ------------- ----- -----
<S> <C> <C> <C> <C>
Nine Months Ended September 30,1999:
Revenue $ 5,712,470 $2,622,588 $ 36,433 $ 8,371,491
Direct costs of operations 2,852,264 1,775,690 -- 4,627,954
Sales and marketing 10,317,422 -- 689,057 11,006,479
Product research 1,511,381 526,655 -- 2,038,036
General and administrative expenses 2,301,662 1,056,690 237,825 3,596,178
Depreciation and amortization 235,634 100,986 215,025 551,645
Noncash stock based compensation -- -- 2,970,019 2,970,019
Noncash financing charge -- -- 2,656,000 2,656,000
Other income (expense), net -- -- 623,001 623,001
Net loss (11,505,893) (837,434) (6,108,492) (18,451,819)
Total assets 4,254,477 1,526,039 38,839,320 44,619,836
Nine Months Ended September 30,1998:
Revenue $ 1,590,380 $2,144,670 $ -- $ 3,735,050
Direct costs of operations 999,589 1,499,397 -- 2,498,986
Sales and marketing 1,116,576 -- 47,137 1,163,713
Product research 492,809 664,565 -- 1,157,374
General and administrative expenses 593,823 800,787 -- 1,394,610
Depreciation and amortization 59,837 25,644 -- 85,481
Noncash stock based compensation -- -- 496,840 496,840
Noncash financing charge -- -- -- --
Other income (expense), net -- -- 15,851 15,851
Net loss (1,672,254) (845,723) (528,126) (3,046,103)
Total assets 1,187,628 431,777 -- 1,619,405
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Print
Online Publishing
Publishing and Licensing Other Total
---------- ------------- ------ -----
<S> <C> <C> <C> <C>
Three Months Ended September 30,1999:
Revenue $ 2,416,785 $ 880,052 $ 36,433 $ 3,333,270
Direct costs of operations 1,235,266 584,720 -- 1,819,986
Sales and marketing 6,421,906 -- 600,426 7,022,332
Product research 587,750 222,308 -- 810,058
General and administrative expenses 1,164,702 455,543 237,826 1,858,071
Depreciation and amortization 112,059 48,026 215,025 375,110
Noncash stock based compensation -- -- 351,152 351,152
Noncash financing charge -- -- -- --
Other income (expense), net -- -- 403,117 403,117
Net loss (7,104,899) (430,544) (964,879) (8,500,322)
Total assets 4,254,477 1,526,039 38,839,320 44,619,836
Three Months Ended September 30,1998:
Revenue $ 816,813 $ 765,900 $ -- $ 1,582,713
Direct costs of operations 458,241 495,130 -- 953,371
Sales and marketing 461,400 (1,742) 30,729 490,387
Product research 233,054 201,590 -- 434,644
General and administrative expenses 245,808 180,501 -- 426,309
Depreciation and amortization 29,857 12,796 -- 42,653
Noncash stock based compensation -- -- 408,277 408,277
Noncash financing charge -- -- -- --
Other income (expense), net -- -- 4,986 4,986
Net loss (611,547) (122,375) (434,020) (1,167,942)
Total assets 1,187,628 431,777 -- 1,619,405
</TABLE>
Note 7-- Commitments
In September 1999, the Company entered into a lease agreement for new
office facilities. A $300,000 letter of credit was provided to the lessor as a
security deposit. The lease term is ten years from the date of occupancy
(estimated to be September 15, 2000) with two five year renewal options. Annual
base rent during the initial lease term will range from approximately $660,000
in the first year to $760,000. The Company also entered into an agreement to
purchase an adjoining tract of land for approximately $609,000. A deposit of
$60,000 was provided with the agreement to close the transaction no later than
June 30, 2000.
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", "could" , "should", "would" 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.
Intelligent Life Corporation and its subsidiary, Professional Direct
Agency, Inc. ("ILIF" or the "Company"), is an industry leader in creating,
producing and syndicating personal finance information for the online consumer
public through a broad portfolio of web sites, print publications and broadcast
segments. The Company's personal finance portal, ilife.com (www.ilife.com)
features original content that deals with financial planning, taxes, insurance,
investing and banking. The portal serves as a gateway to the Company's family of
web sites, including the award-winning bankrate.com, go2pivot.com, theWhiz.com,
Consejero.com, CPNet.com, greenmagazine.com and the newly launched
<PAGE>
IntelligentTaxes.com. Content from ilife.com is published on co-branded Internet
sites through more than 70 distributors, including Yahoo!, CNN, America Online
and Smart Money. The Company's original research is also distributed through
more than 70 national and state publications.
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 a number of new online Internet
web sites: theWhiz.com, Consejero.com, CPNet.com, go2pivot.com,
greenmagazine.com and IntelligentTaxes.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 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, or 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.
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
<PAGE>
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 nine months ended September 30, 1999 of approximately
$18,452,000. We had an accumulated deficit of approximately $29,197,000 as of
September 30, 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
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenue
Total revenue for the nine months ended September 30, 1999 of $8,371,491
increased $4,636,441, or 124%, over the comparable period in 1998. Online
publishing revenue increased $4,122,090, or 259%, to $5,712,470 and represented
68% of total revenue compared to 43% in 1998. These increases were due to higher
levels of advertising sales and higher advertising rates facilitated by an
increase in advertising inventory resulting from an increase in the number of
distribution partners and higher overall site traffic. Additionally, in July
1999, the Company launched a multi-media integrated communications program to
establish brand awareness and build site traffic. This program included a print
advertising campaign with insertions in news, business, computer and personal
finance publications; an online banner and sponsorship program; a comprehensive
public relations program; and various media delivery systems including
television.
Print publishing and licensing revenue increased $477,918, or 22%, to
$2,622,588 due primarily to a $620,000, or 46%, 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.
Cost of Operations
Online publishing costs increased 185% to $2,852,264 for the nine months
ended September 30, 1999 from $999,589 in the comparable period in 1998. This
$1,852,675 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 18% to $1,775,690 during the
nine months ended September 30, 1999 from $1,499,397 in 1998, due primarily to
higher revenue sharing payments to newspapers based on higher levels of revenue.
Sales costs for the nine months ended September 30, 1999 were $2,031,929,
or 106%, higher than 1998 due to higher human resource costs as a result of a
doubling of the sales force staff, lead generators and telemarketers, and the
opening of the Northern California and Chicago sales offices.
Marketing expenses of $8,974,550 for the nine months ended September 30,
1999 were $8,799,572 higher than in 1998 primarily due to online advertising
monies spent for bankrate.com, theWhiz.com and Consejero.com with the goal of
driving more online traffic to our web sites. In July 1999, the Company launched
a multi-media integrated communications program to establish brand awareness and
build site traffic. This program included a print advertising campaign with
insertions in news, business, computer and personal finance publications; an
online banner and sponsorship program; a comprehensive public relations program;
and various media delivery systems including television.
Product research costs increased $880,662, or 76%, for the nine months
ended September 30, 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 $3,596,178 for the nine months ended
September 30, 1999 were $2,201,568, or 158%, 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 $353,657 for the nine months ended
September 30, 1999 was $268,176, or 314%, higher compared to 1998 due to
purchases of software, computer equipment and components. Goodwill amortization
of $197,988 is a result of the Pivot and Green acquisitions during the quarter.
Goodwill of $4,609,015 and $883,117 was recorded for Pivot and Green,
respectively, and is being amortized over a three-year period.
Noncash stock based compensation expense of $2,970,019 was recorded in the
nine month period ended September 30, 1999 compared to $496,840 in the same
period in 1998. In 1999, approximately $2,113,000 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 reacquired by us, the associated
put right was cancelled and 189,238 shares of redeemable common stock were
reclassified to common stock. Approximately $782,000 was recorded for options
granted under the 1997 and 1999 Equity Compensation Plans during the nine months
ended September 30, 1999 and in prior years. In 1998, compensation expense was
recorded in connection with certain restricted stock grants.
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.
Interest income of $715,076 for the nine months ended September 30, 1999
was up from $25,545 in the comparable 1998 period due to investing the proceeds
from our initial public offering in short-term, interest bearing instruments.
Interest expense was up $97,368 over the comparable period in 1998 due to the
increase in debt associated with equipment under capital leases and the 10%
convertible subordinated note payable issued in connection with the Pivot
acquisition.
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Total revenue for the three months ended September 30, 1999 of $3,333,270
increased $1,714,124, or 108%, over the comparable period in 1998. Online
publishing revenue increased $1,599,972, or 196%, to $2,416,785 and represented
73% of total revenue compared to 52% in 1998. These increases were due to
higher levels of advertising sales and higher advertising rates resulting from
the continuing increases in advertising inventory facilitated by an increase in
the number of distribution partners and higher overall site traffic.
Additionally, in July 1999, the Company launched a multi-media integrated
communications program to establish brand awareness and build site traffic. This
program included a print advertising campaign with insertions in news, business,
computer and personal finance publications; an online banner and sponsorship
program; a comprehensive public relations program; and various media delivery
systems including television.
Print publishing and licensing revenue increased $114,152, or 15%, to
$880,052 due primarily to a $165,938 or 35%, 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.
Cost of Operations
Online publishing costs increased 170% to $1,235,266 for the three months
ended September 30, 1999 from $458,241 in the comparable period in 1998. This
$777,025 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 18% to $584,720 during the
three months ended September 30, 1999 from $495,130 in 1998, due primarily to
higher revenue sharing payments to newspapers based on higher levels of revenue.
Sales costs for the three months ended September 30, 1999 were $748,537, or
70%, 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 $6,273,795 for the three months ended September 30,
1999 were $6,224,924 higher than in 1998 primarily due to online advertising
monies spent for bankrate.com, theWhiz.com and Consejero.com with the goal of
driving more online traffic to our web sites. Additionally, in July 1999, the
Company launched a multi-media integrated communications program to establish
brand awareness and build site traffic. This program included a print
advertising campaign with insertions in news, business, computer and personal
finance publications; an online banner and sponsorship program; a comprehensive
public relations program; and various media delivery systems including
television.
Product research costs increased $375,414, or 86%, for the three months
ended September 30, 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 $1,858,071 for the three months
ended September 30, 1999 were $1,431,762, or 336%, 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 $177,122 for the three months ended
September 30, 1999 was $134,469, or 315%, higher compared to 1998 due to
purchases of software, computer equipment and components. Goodwill amortization
of $197,988 is a result of the Pivot and Green acquisitions during the quarter.
Goodwill of $4,609,015 and $883,117 was recorded for Pivot and Green,
respectively, and is being amortized over a three-year period.
Noncash stock based compensation expense of $351,152 was recorded in the
three month period ended September 30, 1999 compared to $408,277 in the same
period in 1998. In 1999, approximately $336,000 was recorded for options granted
under the 1997 and 1999 Equity Compensation Plans during the nine months ended
September 30, 1999 and in prior years. In 1998, compensation expense was
recorded in connection with certain restricted stock grants.
Interest income of $465,626 for the three months ended September 30, 1999
compared to $8,464 in the comparable 1998 period due to investing the proceeds
from our initial public offering in short-term, interest bearing instruments.
Interest expense was up $63,561 over the comparable period in 1998 due to the
increase in debt associated with equipment under capital leases and the 10%
convertible subordinated note payable issued in connection with the Pivot
acquisition.
Liquidity and Capital Resources
Intelligent Life Corporation has been funded using capital raised from
shareholders, and most recently, from the proceeds of our initial public
offering in May 1999. As of September 30, 1999, we had working capital of
$26,160,366. Cash used in operating activities of $9,435,273 for the nine months
ended September 30, 1999 was $7,461,258 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 personnel acquisitions and
marketing expenditures. Additionally, we funded approximately $1,014,000 of
costs related to our initial public offering of common stock during the nine
months ended September 30, 1999.
Cash used in investing activities was primarily for the purchase of
computer and office equipment and furniture. Additionally, during the nine
months ended September 30, 1999, cash was used to acquire CPNet.com,
Professional Direct Agency, Inc. and certain assets and liabilities of Green
Magazine, Inc. as well as 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, as well as the
net cash proceeds from our initial public offering of $42,315,000. Other
financing activities included cash used for payments on capital lease
liabilities.
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
<PAGE>
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 generally licensed from third parties rather than being internally
developed. Our research and subscription systems are two of the major
information technology systems that have been internally developed. No
non-information technology systems have been internally developed. We have
received written certifications from all manufacturers of third-party systems
that they are Year 2000 compliant. 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 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 $500,000 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.
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 and additional
expenditures.
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 September 30, 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
The effective date of the Company's registration statement, filed on Form
S-1 under the Securities Act of 1933 (File No. 333-74291) relating to the
Company's initial public offering of its common stock, was May 13, 1999. A total
of 3,500,000 shares of the Company's common stock were sold to an underwriting
syndicate at $13.00 per share. The managing underwriters were ING Baring Furman
Selz LLC and Warburg Dillon Read LLC. The initial public offering resulted in
gross proceeds of $45,500,000, $3,185,000 of which was applied to the
underwriting discount and approximately $1,014,000 of which was applied to
related expenses. As a result, the net proceeds of the offering to the Company
were approximately $41,301,000. From the date of receipt through September 30,
1999 approximately $ 3,000,000 of the net proceeds was used for marketing,
advertising and promotional expenditures, and the remainder was used for working
capital or invested on short-term interest bearing investments. None of the net
proceeds of the offering were paid directly or indirectly to any director or
officer of the Company or any of their associates, or to any persons owning ten
percent or more of the Company's common stock, or to any affiliates of the
Company.
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) Reports on Form 8-K:
(1) A Form 8-K Report was filed on August 27, 1999, reporting under
Item 2. announcing that the Company had acquired Professional
Direct Agency, Inc.
(2) A Form 8-K Report was filed on September 10, 1999, reporting
under Item 2. announcing that the Company had acquired certain
assets and assumed certain liabilities of Green Magazine, Inc.
<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: November 15, 1999 By: /s/ Peter W. Minford
-------------------------------------
Peter W. Minford
Senior Vice President-Administration
and Chief Financial Officer
Dated: November 15, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 33,385,568
<SECURITIES> 0
<RECEIVABLES> 1,648,244
<ALLOWANCES> (75,000)
<INVENTORY> 0
<CURRENT-ASSETS> 35,553,684
<PP&E> 3,087,872
<DEPRECIATION> (822,509)
<TOTAL-ASSETS> 44,619,836
<CURRENT-LIABILITIES> 9,393,318
<BONDS> 0
0
0
<COMMON> 135,410
<OTHER-SE> 30,346,546
<TOTAL-LIABILITY-AND-EQUITY> 44,619,836
<SALES> 8,371,491
<TOTAL-REVENUES> 8,371,491
<CGS> 0
<TOTAL-COSTS> 24,790,311
<OTHER-EXPENSES> 4,206,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,064
<INCOME-PRETAX> (20,732,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,732,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,732,819)
<EPS-BASIC> (2.31)
<EPS-DILUTED> (2.31)
</TABLE>
