<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25681
ILIFE.COM, INC.
(Exact name of registrant as specified in Its charter)
Florida 65-0423422
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 X No
--- ---
The number of outstanding shares of the issuer's common stock as of April 30,
2000, is as follows: 13,979,904 shares of Common Stock, $.01 par value.
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<PAGE>
ilife.com, Inc.
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2000
Index
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets at March 31, 2000 and
December 31, 1999 ............................................... 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999....................... 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 ..................... 5
Notes to Condensed Consolidated Financial Statements .............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 18
Item 2. Changes in Securities and Use of Proceeds ......................... 19
Item 3. Defaults Upon Senior Securities ................................... 19
Item 4. Submission of Matters to a Vote of Security Holders ............... 19
Item 5. Other Information ................................................. 19
Item 6. Exhibits and Reports on Form 8-K .................................. 19
Signatures ................................................................... 20
</TABLE>
2
<PAGE>
Item 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ilife.com, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 12,828,385 $ 22,503,540
Accounts receivable, net 1,717,942 1,480,904
Other current assets 267,444 383,292
------------ ------------
Total current assets 14,813,771 24,367,736
Furniture, fixtures and equipment, net 2,501,072 2,488,394
Intangible assets, net 4,602,145 5,051,373
Other assets 1,600,835 1,554,254
------------ ------------
Total assets $ 23,517,823 $ 33,461,757
============ ============
Liabilities and Stockholders' Equity (Deficit)
Liabilities:
Accounts payable $ 2,005,261 $ 2,758,166
Accrued stock compensation expense 2,032,489 1,159,309
Other accrued expenses 3,039,911 6,170,267
Deferred revenue 737,929 659,392
Current portion of obligations under capital leases 233,853 229,740
Other current liabilities 237,104 246,895
------------ ------------
Total current liabilities 8,286,547 11,223,769
10% convertible subordinated note payable 4,350,000 4,350,000
Other liabilities 494,194 442,543
------------ ------------
Total liabilities 13,130,741 16,016,312
------------ ------------
Stockholders' equity (deficit):
Preferred stock, 10,000,000 shares authorized and undesignated - -
Common stock, par value $.01 per share--100,000,000 shares authorized; 13,548,405
and 13,540,988 shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 135,484 135,410
Additional paid in capital 59,597,540 59,543,111
Accumulated deficit (49,345,942) (42,233,076)
------------ ------------
Total stockholders' equity (deficit) 10,387,082 17,445,445
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 23,517,823 $ 33,461,757
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ilife.com, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Revenue: 2000 1999
----------- -----------
<S> <C> <C>
Online publishing $ 3,014,399 $ 1,369,836
Print publishing and licensing 741,889 856,432
Other 175,016 -
----------- -----------
Total revenue 3,931,304 2,226,268
----------- -----------
Cost of operations:
Online publishing 2,276,325 672,161
Print publishing and licensing 534,738 582,556
Sales 845,236 511,410
Marketing 2,105,200 714,080
Product research 769,192 569,162
General and administrative expenses 2,978,601 576,598
Depreciation and amortization 284,989 67,990
Goodwill amortization 457,677 3,335
Noncash stock based compensation 918,040 1,907,782
----------- -----------
Total cost of operations 11,169,998 5,605,074
----------- -----------
Loss from operations (7,238,694) (3,378,806)
----------- -----------
Other income (expense):
Interest income 249,397 16,746
Interest expense (123,569) (15,396)
Noncash financing charge - (2,656,000)
Other - 6,132
----------- -----------
Other income (expense), net 125,828 (2,648,518)
----------- -----------
Loss before income taxes (7,112,866) (6,027,324)
Income taxes - -
----------- -----------
Net loss (7,112,866) (6,027,324)
Accretion of convertible Series A and
Series B preferred stock to redemption value - (1,852,000)
----------- -----------
Net loss applicable to common stock $(7,112,866) $(7,879,324)
=========== ===========
Basic and diluted net loss per share $ (0.53) $ (1.92)
=========== ===========
Weighted average shares outstanding used in
basic and diluted per-share calculation 13,543,678 4,099,458
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ilife.com, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,112,866) $ (6,027,324)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 742,666 71,325
Allowance for doubtful accounts 74,434 -
Noncash stock compensation 918,040 1,907,782
Noncash financing charge - 2,656,000
Changes in operating assets and liabilities:
Increase in accounts receivable (329,615) (118,331)
Increase in deferred initial public offering costs - (305,612)
Decrease in other assets 63,532 28,666
Increase (decrease) in accounts payable (752,905) 542,555
Increase (decrease) in accrued expenses (3,130,355) 285,011
Increase in other current liabilities 98,959 -
Increase (decrease) in deferred revenue 78,537 (132,967)
----------- -----------
Total adjustments (2,236,707) 4,934,429
----------- -----------
Net cash used in operating activities (9,349,573) (1,092,895)
----------- -----------
Cash flows used in investing activities:
Purchases of equipment (282,238) (92,481)
Acquisitions, net of cash acquired (86,192)
-----------
Net cash used in investing activities (282,238) (178,673)
----------- -----------
Cash flows from financing activities:
Loans from stockholders - 1,000,000
Principal payments on capital lease obligations (52,986) (93,452)
Proceeds from exercise of stock options 9,642 -
----------- -----------
Net cash provided by financing activities (43,344) 906,548
----------- -----------
Net increase (decrease) in cash and cash equivalents (9,675,155) (365,020)
Cash and equivalents, beginning of period 22,503,540 1,633,100
----------- -----------
Cash and equivalents, end of period $12,828,385 $ 1,268,080
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 14,819 $ 15,396
=========== ===========
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 consolidated financial statements.
5
<PAGE>
ILIFE.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Company
Ilife.com, Inc. (the "Company") creates, produces, broadcasts and
syndicates personal finance information for the online consumer public through a
broad portfolio of Web sites, print publications and television programs. The
Company's wholly-owned subsidiary, Professional Direct Agency, Inc. ("Pivot"),
is a virtual insurance agency and fulfillment/call center specializing in direct
insurance sales over the Internet and through other direct media. The Company's
personal finance portal, www.ilife.com, features original content that deals
with financial planning, taxes, insurance, investing and banking. The Company is
organized under the laws of the state of Florida.
On November 12, 1999, the Company changed its name from Intelligent Life
Corporation to ilife.com, Inc.
The Company has incurred net losses in each of its last four fiscal years.
The Company had an accumulated deficit of approximately $49 million as of March
31, 2000. The Company anticipates that it will incur operating losses and
negative cash flows in the foreseeable future due to high levels of planned
expenditures to enhance the Company's services, develop new content, build brand
awareness and hire personnel to support growth.
The Company is working to manage its cash by actively controlling expenses
and pursuing additional sources of revenue. For instance, the Company
substantially reduced marketing expenditures beginning January 2000 compared to
the second half of 1999, and has current plans to sell or curtail development of
certain non-core web sites, including CPNet.com. Based on these actions and the
Company's current plan, the Company believes its existing liquidity and capital
resources will be sufficient to satisfy its cash requirements into 2001. There
are no assurances that such actions will ensure cash sufficiency into 2001 or
that reducing marketing expenses would not potentially curtail revenue growth.
The Company is also committed to rationalizing its ownership of ancillary,
non-core business units that have historically had significant negative cash
contributions. This effort could include: changing these non-core business
units' strategy and/or focus; seeking out strategic or financial partners;
selling/divesting these assets; or closing these operations. The beginning of
these efforts is the Company's current plan to sell CPNet.com. These actions
should result in lower operating expenses, and may result in the Company
receiving additional capital and/or equity in other companies. In addition, some
of these actions, if taken, could result in material charges to operations and
could potentially result in lower than anticipated revenue growth.
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including a merger or sale of the
Company, or an acquisition; or raising new debt and/or equity capital. There can
be no assurance that we will be able to raise such funds or realize our
strategic alternatives on favorable terms or at all.
Further, due to the purported class-action lawsuit discussed in Note 3,
which the Company intends to vigorously defend, management could be required to
spend significant amounts of time and resources defending this matter which may
impact the operations of the Company.
6
<PAGE>
Basis of Presentation
The unaudited interim condensed consolidated financial statements for the
three months ended March 31, 2000 and 1999, included herein have been prepared
in accordance with the instructions for Form 10-Q under the Securities Exchange
Act of 1934, as amended, and Article 10 of Regulation S-X under the Securities
Act of 1933, as amended. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments, consisting only of normal, recurring
adjustments, necessary to present fairly the financial position of the Company
at March 31, 2000, and the results of its operations and its cash flows for the
three months ended March 31, 2000 and 1999, respectively. The results for the
three months ended March 31, 2000 are unaudited, are not necessarily indicative
of the expected results for the full year or any future period.
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 Annual Report on Form 10-K, as amended, for
the year ended December 31, 1999, 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 promissory note payable, have been excluded from the
computation of diluted earnings per share as their effect is anti-dilutive.
NOTE 2 - SEGMENT INFORMATION
The Company operates in three business divisions consisting of six
reportable segments. The three business divisions consist of online publishing,
print publishing and licensing and insurance sales. The online publishing
division is primarily engaged in the sale of advertising, sponsorships, and
hyperlinks in connection with our Internet web sites bankrate.com, theWhiz.com,
IntelligentTaxes.com, GreenMagazine.com, Consejero.com and CPNet.com.
Bankrate.com, theWhiz.com and Consejero.com constitute segments within this
division. The print publishing and licensing division and 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. The insurance division also constitutes a segment and operates
through a virtual insurance agency and fulfillment/call center specializing in
direct insurance sales on the Internet and through other direct media.
GreenMagazine.com has met the threshold for reportable segments and is expected
to continue to do so and therefore has been shown as a separate operating
segment as of March 31, 2000. For the year ended December 31, 1999 revenue,
direct cost of operations and segment losses were $1,572, $263,169 and
$(261,597), respectively. The Company evaluates the performance of its operating
segments based on contribution margin.
Although no one customer accounted for greater than 10% of total revenues
for the three months ended March 31, 2000 and 1999, the five largest customers
accounted for approximately 26% and 13%, respectively, of total revenues for
those periods.
7
<PAGE>
Summarized segment information as of March 31, 2000 and 1999, and for the
three months ended March 31, 2000 and 1999, is presented below.
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
Online Publishing
bankrate.com theWhiz.com Consejero.com GreenMagazine.com Other
------------ ----------- ------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $2,744,279 $ 76,863 $ 12,014 $ 47,946 $ 133,297
Direct cost of operations 1,748,477 339,239 361,988 685,252 667,006
Contribution margin 995,802 (262,378) (349,974) (837,306) (533,709)
Sales - - - - -
Product research - - - - -
General and administrative expenses - - - - -
Depreciation and amortization - - - - -
Noncash stock based compensation - - - - -
Other, net - - - - -
Segment profit (loss) 995,802 (262,378) (349,974) (837,306) (533,709)
Total assets - - - - -
Capital expenditures - - - 282,238
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 (continued)
Print
Publishing
and Licensing Pivot Other Total
------------ ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Revenue $741,889 $ 175,016 $ - $ 3,931,304
Direct cost of operations 534,738 1,317,501 - 5,654,201
Contribution margin 207,151 (1,142,485) - (1,722,897)
Sales - - 845,236 845,236
Product research - - 769,192 769,192
General and Administrative expenses - - 2,240,663 2,240,663
Depreciation and amortization - 445,822 296,844 742,666
Noncash stock based compensation - - 918,040 918,040
Other, net - 1,792 124,036 125,828
Segment profit (loss) 207,151 (1,586,515) (4,945,939) (7,112,866)
Total assets - 4,443,361 19,074,462 23,517,823
Capital expenditures - - - 282,238
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
Online Publishing
bankrate.com theWhiz.com Consejero.com GreenMagazine.com Other
------------ ----------- ----------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $1,286,672 $ 83,164 $ - $ - $ -
Direct cost of operations 718,835 419,090 171,955 - 45,635
Contribution margin 567,837 (335,926) (171,955) - (45,635)
Sales - - - - -
Product research - - - - -
General and administrative expenses - - - - -
Depreciation and amortization - - - - -
Noncash stock based compensation - - - - -
Noncash financing charge - - - - -
Other, net - - - - -
Segment profit (loss) 567,837 (335,926) (171,955) - (45,635)
Total assets - - - - -
Capital expenditures - - - - -
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 (continued)
Print
Publishing
and Licensing Pivot Other Total
------------ ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Revenue $856,432 - $ - $ 2,226,268
Direct cost of operations 582,556 - - 1,938,071
Contribution margin 273,876 - - 288,197
Sales - - 511,410 511,410
Product research - - 569,162 569,162
General and administrative expenses - - 609,668 609,668
Depreciation and amortization - - 68,981 68,981
Noncash stock based compensation - - 1,907,782 1,907,782
Noncash financing charge - - 2,656,000 2,656,000
Other, net - - 7,482 7,482
Segment profit (loss) 273,876 - (6,315,521) (6,027,324)
Total assets - - 3,484,060 3,484,060
Capital expenditures - - 92,481 92,481
</TABLE>
NOTE 3 - COMMITMENTS AND CONTINGENCIES
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 initial 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 $660,000 in the first
two years to $760,000. The Company also entered into an agreement to purchase an
adjoining tract of land for $609,000. A deposit of $60,000 was provided with the
agreement to close the transaction no later than June 30, 2000.
<PAGE>
On February 25, 2000 the Company announced that William P. Anderson resigned
as its President and Chief Executive Officer and as a director. Under the terms
of his Executive Employment Agreement entered into on March 10, 1999, Mr.
Anderson will receive cash compensation totaling approximately $150,000 and will
continue to vest in his stock options through November 15, 2000, which resulted
in a noncash charge of approximately $860,000. Both the cash charge ($150,000)
and the noncash charge ($860,000) were recorded in the quarter ended March 31,
2000. Further, in accordance with the terms of his agreement, if there is a
change in control of the Company prior to November 15, 2000, Mr. Anderson would
immediately vest in 100% of the remaining unvested shares and accordingly, an
additional noncash charge would be recorded at that time.
On March 28, 2000, a purported class-action lawsuit was filed against the
Company in the United States District Court for the Southern District of New
York. The suit alleges that the Company violated federal securities laws by,
among other things, misrepresenting and/or omitting material information
concerning the Company's results for the quarter ended March 31, 1999, in the
Company's registration statement filed with the Securities and Exchange
Commission in connection with the Company's initial public offering. The
complaint was filed by a single stockholder purportedly on behalf of all
stockholders who purchased shares of the Company's stock during the period from
May 13, 1999 through March 27, 2000. The Company intends to vigorously defend
against the lawsuit. In the opinion of management, the ultimate disposition of
this matter will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.
NOTE 4 - SUBSEQUENT EVENTS
On April 5, 2000, Jeffrey M. Cunningham was appointed to the Company's Board
of Directors as non-executive chairman. In accordance with the terms of a Stock
Purchase Plan and Subscription Agreement (the "Purchase Agreement") entered into
on that date, Mr. Cunningham subscribed to purchase 431,499 shares of the
Company's common stock for $997,841 in cash (or $2.313 per share). The purchase
price of the shares is equal to the closing price per share of the Company's
common stock on April 5, 2000, as reported by the Nasdaq National Market. The
Purchase Agreement provides that the Company must hold the purchase price in
escrow until the date and time the Company's stockholders vote on a proposal to
ratify and approve the issuance and sale of the shares under the Purchase
Agreement. The stockholders will be asked to vote on the proposal at the annual
meeting of the Company's stockholders to be held on June 8, 2000. In the event
the stockholders of the Company approve the issuance and sale of the shares
under the Purchase Agreement, the purchase price will be released from escrow to
the Company and the Company will deliver the shares to Mr. Cunningham. In the
event that the stockholders do not approve this proposal, the Company will
return the purchase price, with interest, to Mr. Cunningham and will cancel the
shares. In addition, on April 5, 2000, Mr. Cunningham was granted stock options
under the 1999 Equity Compensation Plan to purchase 141,905 shares of common
stock at $4.50 per share and 125,622 shares at $3.75 per share. One-half of the
options vest and become exercisable on March 31, 2001, and the balance vest and
become exercisable in equal monthly increments commencing on April 30, 2001 and
concluding on March 31, 2002. The Company will recognize compensation expense
of approximately $217,000 over the vesting period.
On April 27, 2000, Elisabeth DeMarse was appointed to the Company's Board of
Directors as well as elected President and Chief Executive Officer of the
Company. Ms. DeMarse entered into an employment agreement with the Company on
that date. Pursuant to the terms of her employment agreement, Ms. DeMarse is
entitled to receive an annual base salary of $300,000 and a bonus of $100,000
payable in quarterly installments. The Company has agreed to provide other
benefits, including $500,000 in term life insurance and participation in the
Company's benefit plans available to other executive officers. Under the terms
of the employment agreement, Ms. DeMarse agrees to assign to the Company all of
her copyrights, trade secrets and patent rights that relate to the business of
the Company. Additionally, during the term of her employment and for a period
of one year thereafter, Ms. DeMarse agrees not to compete with the Company and
not to recruit any of the Company's employees, unless the Company terminates her
without cause or she resigns for good reason.
9
<PAGE>
Upon Ms. DeMarse's termination of employment for certain reasons (i.e., without
cause, disability, resignation for good reason (as defined in the agreement), or
a change of control), the Company agrees to pay her a severance equal to 12
months' base salary, as well as reimburse her for health, dental and life
insurance coverage premiums for one year after such termination. The agreement
terminates on April 27, 2002, unless otherwise extended by the parties. Ms.
DeMarse was also granted options to purchase 541,936 shares of the Company's
common stock under the 1999 Equity Compensation Plan at $2.688 per share, the
fair market value on the date of grant. The options vest over a 24 month period.
The options vest as to 25% of the shares six months from the date of grant; and
as to the remaining 75%, in equal monthly installments over the next 18 months
thereafter, with 100% vesting on the second anniversary of the date of grant.
The option grant to Ms DeMarse exceeded the number of shares available for grant
under the Company's 1999 Equity Compensation Plan by 541,936 shares. The Board
of Directors of the Company approved an amendment to the 1999 Equity
Compensation Plan to increase the number of shares of common stock available for
grants under the plan from 1,500,000 shares to 3,500,000 shares and has
submitted such amendment for approval by the Company's stockholders at the 2000
annual meeting. Accordingly, the option grant to Ms. DeMarse provides that the
grant of options is subject to the stockholder approval of the amendment to the
plan to the extent the number of shares of common stock underlying the options
exceed the number of shares available for grant under the plan. As a result, in
the event the stockholders do not approve the amendment to the plan, Ms.
DeMarse's options for the purchase of 541,936 shares of common stock will be
forfeited and she will have grounds to terminate her employment agreement for
good reason.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Ilife.com, Inc. 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 the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements. Any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties. Important factors that could cause actual
results to differ materially from those in forward-looking statements are set
forth in the Company's Annual Report on Form 10-K and in this Quarterly Report
on Form 10-Q.
Overview
Ilife.com, Inc. creates, produces, broadcasts and syndicates personal finance
information for the consumer through a broad portfolio of Web sites, print
publications and television programs. The Company's wholly-owned subsidiary,
Professional Direct Agency, Inc. ("Pivot"), is a virtual insurance agency and
fulfillment/call center specializing in direct insurance sales over the Internet
and through other direct media. The Company's personal finance portal,
www.ilife.com, features original content that deals with financial planning,
taxes, insurance, investing and banking. The portal serves as a gateway to
ilife.com's family of Web sites and broadcast segments, including the award-
winning bankrate.com, Pivot.com, theWhiz.com, IntelligentTaxes.com,
Consejero.com, CPNet.com, GreenMagazine.com and the television version of "Cost
of Life". The Company has current plans to sell or curtail development of
certain non-core Web sites including CPNet.com. Content from ilife.com is
published on co-branded Internet sites through more than 90 relationships,
including Snap.com/NBC Internet, Inc. (NASDAQ: NBCI), Yahoo! (NASDAQ: YHOO),
CNN, America Online (NYSE: AOL) and Smart Money. The Company's original research
is also distributed through more than 100 national, regional and local print
publications. Ilife.com Web sites have approximately one million unique visitors
per month, according to Media Metrix.
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 1996, we started our online operations by displaying our editorially
unbiased research through our Web site, bankrate.com. By offering our
information online, we created new revenue opportunities through the sale of
graphical and hyperlink advertising associated with our rate and yield tables.
In 1997, we implemented a strategy to concentrate on building our online
operations. Since that time, we have significantly expanded the scope and depth
of bankrate.com and made investments in seven new online Internet Web sites:
theWhiz.com, Consejero.com, CPNet.com, GreenMagazine.com, IntelligentTaxes.com,
Pivot.com and our personal finance portal, ilife.com. Additionally, we formed a
Broadcast group to syndicate ilife.com branded television segments that reach an
estimated 2.5 million viewers per week, according to the November 1999 Nielson
ratings.
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 seeking to
build greater brand awareness of all of our Web sites and to reach a greater
number of online users.
11
<PAGE>
Recent Developments
On April 12, 1999, our Board of Directors approved changing our fiscal year-
end to December 31 from June 30.
On August 20, 1999, the Company acquired Pivot pursuant to a Stock Purchase
Agreement, dated August 20, 1999, by and between the Company, 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, the Company acquired a 100%
interest in Pivot and as a result of the acquisition, Pivot became a wholly-
owned subsidiary. The transaction was accounted for using the purchase method of
accounting. The net assets acquired were 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 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 our common
stock. The Company has the right to require conversion beginning any time after
the earlier of (1) August 20, 2000 or (2) the date that the Company files a
registration statement under the Securities Act of 1933, as amended (the "Act"),
registering the conversion shares for sale under the Act; provided that, within
the 55-day period immediately prior to the date the Company notifies Midland of
the required conversion, the closing price of our common stock has been at least
$10.00 per share for at least twenty consecutive trading days.
On August 27, 1999, the Company acquired certain assets and assumed certain
liabilities of Green Magazine, Inc. ("Green") pursuant to an Asset Purchase
Agreement, dated August 27, 1999, by and among the Company, Green, Kenneth A.
Kurson, John F. Packel and James Michaels (the "Agreement"), for approximately
$831,000 including acquisition costs. Pursuant to the Agreement, the Company
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 the Company. The total
consideration paid was approximately $784,000 consisting of $200,000 in cash and
100,000 unregistered shares of the Company's common stock valued at
approximately $584,000. The transaction was accounted for using the purchase
method of accounting. The net assets acquired were 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.
On November 12, 1999, we changed our name from "Intelligent Life Corporation"
to "ilife.com, Inc." to more accurately reflect the Company's major revenue
generating activities, which are derived from the Internet.
On February 25, 2000, the Company announced that William P. Anderson resigned
as its President and Chief Executive Officer and as a director. Under the terms
of his Executive Employment Agreement entered into on March 10, 1999, Mr.
Anderson will receive cash compensation totaling approximately $150,000 and will
continue to vest in his stock options through November 15, 2000, which will
result in a noncash charge of approximately $860,000. Both the cash charge
($150,000) and the noncash charge ($860,000) were recorded in the quarter ended
March 31, 2000. Further, in accordance with the terms of his agreement, if
there is a change in control of the Company prior to November 15, 2000, Mr.
Anderson would immediately vest in 100% of the remaining unvested shares and
accordingly, a additional noncash charge would be recorded at that time.
On April 5, 2000, Jeffrey M. Cunningham was appointed to the Company's Board
of Directors as non-executive chairman. In accordance with the terms of a Stock
Purchase Plan and Subscription Agreement (the "Purchase Agreement") entered into
on that date, Mr. Cunningham subscribed to purchase 431,499 shares of the
Company's common stock for $997,841 in cash (or $2.313 per share).
12
<PAGE>
The purchase price of the shares is equal to the closing price per share of the
Company's common stock on April 5, 2000, as reported by the Nasdaq National
Market. The Purchase Agreement provides that the Company must hold the purchase
price in escrow until the date and time the Company's stockholders vote on a
proposal to ratify and approve the issuance and sale of the shares under the
Purchase Agreement. The stockholders will be asked to vote on the proposal at
the annual meeting of the Company's stockholders to be held on June 8, 2000. In
the event the stockholders of the Company approve the issuance and sale of the
shares under the Purchase Agreement, the purchase price will be released from
escrow to the Company and the Company will deliver the shares to Mr. Cunningham.
In the event that the stockholders do not approve this proposal, the Company
will return the purchase price, with interest, to Mr. Cunningham and will cancel
the shares. In addition, on April 5, 2000, Mr. Cunningham was granted stock
options under the 1999 Equity Compensation Plan to purchase 141,905 shares of
common stock at $4.50 per share and 125,622 shares at $3.75 per share. One-half
of the options vest and become exercisable on March 31, 2001, and the balance
vest and become exercisable in equal monthly increments commencing on April 30,
2001 and concluding on March 31, 2002. The Company will recognize compensation
expense of approximately $217,000 over the vesting period.
On April 27, 2000, Elisabeth DeMarse was appointed to the Company's Board of
Directors as well as elected President and Chief Executive Officer of the
Company. Ms. DeMarse entered into an employment agreement with the Company on
that date. Pursuant to the terms of her employment agreement, Ms. DeMarse is
entitled to receive an annual base salary of $300,000 and a bonus of $100,000
payable in quarterly installments. The Company has agreed to provide other
benefits, including $500,000 in term life insurance and participation in the
Company's benefit plans available to other executive officers. Under the terms
of the employment agreement, Ms. DeMarse agrees to assign to the Company all of
her copyrights, trade secrets and patent rights that relate to the business of
the Company. Additionally, during the term of her employment and for a period
of one year thereafter, Ms. DeMarse agrees not to compete with the Company and
not to recruit any of the Company's employees, unless the Company terminates her
without cause or she resigns for good reason. Upon Ms. DeMarse's termination of
employment for certain reasons (i.e., without cause, disability, resignation for
good reason (as defined in the agreement), or a change of control), the Company
agrees to pay her a severance equal to 12 months' base salary, as well as
reimburse her for health, dental and life insurance coverage premiums for one
year after such termination. The agreement terminates on April 27, 2002, unless
otherwise extended by the parties. Ms. DeMarse was also granted options to
purchase 541,936 shares of the Company's common stock under the 1999 Equity
Compensation Plan at $2.688 per share, the fair market value on the date of
grant. The options vest over a 24 month period. The options vest as to 25% of
the shares six months from the date of grant; and as to the remaining 75%, in
equal monthly installments over the next 18 months thereafter, with 100% vesting
on the second anniversary of the date of grant. The option grant to Ms DeMarse
exceeded the number of shares available for grant under the Company's 1999
Equity Compensation Plan by 541,936 shares. The Board of Directors of the
Company approved an amendment to the 1999 Equity Compensation Plan to increase
the number of shares of common stock available for grants under the plan from
1,500,000 shares to 3,500,000 shares and has submitted such amendment for
approval by the Company's stockholders at the 2000 annual meeting. Accordingly,
the option grant to Ms. DeMarse provides that the grant of options is subject to
the stockholder approval of the amendment to the plan to the extent the number
of shares of common stock underlying the options exceed the number of shares
available for grant under the plan. As a result, in the event the stockholders
do not approve the amendment to the plan, Ms. DeMarse's options for the purchase
of 541,936 shares of common stock will be forfeited and she will have grounds to
terminate her employment agreement for good reason.
13
<PAGE>
Legal Proceedings
On March 28, 2000, a purported class-action lawsuit was filed against the
Company and certain of its directors and officers, its auditor and underwriters
in the United States District Court for the Southern District of New York (Civil
Action No. 00CIV.2337). The complaint, which seeks an unspecified amount of
money damages, was filed by Brian DeMaria, a single stockholder, purportedly on
behalf of all stockholders who purchased shares of our stock during the period
from May 13, 1999 through March 27, 2000. The plaintiff alleges that the Company
violated federal securities laws by, among other things, misrepresenting and/or
omitting material information concerning the Company's financial results for the
quarter ended March 31, 1999, in its registration statement and prospectus filed
with the Securities and Exchange Commission in connection with the Company's
initial public offering. More particularly, the plaintiff alleges, among other
things, that the Company failed to disclose in its registration statement and
prospectus the fact that the Company incurred a net loss of approximately $6
million in the quarter ended March 31, 1999. The plaintiff alleges that the
information was not made public until May 24, 1999, when the Company issued a
press release with respect to the results for that quarter. The Company contends
that the loss for the quarter ended March 31, 1999 was properly disclosed. The
Company intends to vigorously defend against the lawsuit.
Overview of Revenue and Expenses
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 received 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 Consumer Mortgage Guide rate tables, newsletter
subscriptions, and licensing of research information. We charge a commission for
placement of Consumer Mortgage Guide in a print publication. Advertising revenue
and commission income is recognized when 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.
14
<PAGE>
Sales costs represent direct selling expenses, principally for online
advertising, and include sales commissions, personnel costs and allocated
overhead.
Marketing costs represent expenses associated with expanding brand awareness
of our products and services to consumers and include advertising, including
banner advertising, marketing and promotion costs.
Product research costs represent expenses related to gathering data on banking
and credit products and include compensation and benefits, facilities costs,
telephone costs and computer systems expenses.
General and administrative costs represent compensation and benefits for
administration, advertising management, accounting and finance, facilities
expenses, professional fees and non-allocated overhead.
Depreciation and amortization represents the cost of capital asset
acquisitions spread over their expected useful lives. These expenses are spread
over three to seven years and are calculated on a straight-line basis.
Goodwill amortization represents the excess of the purchase price over the
fair market value of net assets acquired spread over the expected benefit
periods which is between three to five years.
Noncash stock based compensation represents expenses associated with stock
grants to our officers and employees as additional compensation for their
services.
Other income (expense) is comprised of interest income on invested cash and
interest expense. Also included is a noncash finance charge recorded upon the
conversion of a note payable to a stockholder into shares of convertible
preferred stock which, upon completion of our initial public offering in Mar
1999, was subsequently converted into common stock.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenue
Total revenue for the three months ended March 31, 2000 of $3,931,304
increased $1,705,036, or 77%, over the comparable period in 1999. Online
publishing revenue increased $1,644,563, or 120%, to $3,014,399 and represented
77% of total revenue compared to 62% in 1999. These increases were due to higher
levels of advertising sales and higher advertising rates facilitated by an
increase in advertising inventory. The increases resulted 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
marketing 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 and print media.
Print publishing and licensing revenue decreased $114,543 or 13%, to $741,889
due primarily to a $111,423, or 18%, decrease in Consumer Mortgage Guide
revenues. This decrease was a result of increasing interest rates which slowed
the refinance markets and caused other advertisers not to publish their higher
rates.
Other revenue of $175,016 represents insurance commissions earned by Pivot
which was acquired in August 1999.
15
<PAGE>
Online publishing costs increased 239% to $2,276,325 for the three months
ended March 31, 2000 from $672,161 in the comparable period in 1999. This
$1,604,164 increase was due primarily to a $567,000 increase in human resource
costs in bankrate.com, theWhiz.com, Consejero.com and CPNet.com supporting an
increase in headcount of 26 people. Additional costs of approximately $1,091,000
were incurred in the quarter ended March 31, 2000 for GreenMagazine.com,
ilife.com and IntelligentTaxes.com which were launched in the fourth quarter of
1999.
Sales costs for the three months ended March 31, 2000 were $333,826, or 65%,
higher than in the comparable period in 1999 due to higher human resource costs
($155,000) and sales commissions ($126,000) supporting the higher levels of
revenue.
Marketing expenses of $2,105,200 for the three months ended March 31, 2000
were $1,391,120 higher than in 1999 primarily due to online advertising monies
spent for bankrate.com, GreenMagazine.com, ilife.com and IntelligentTaxes.com
with the goal of sustaining brand awareness and driving traffic to our newly
launched web sites. Compared to the fourth quarter of 1999, marketing expenses
were $5,998,923 or 74% lower following the Company's plan to reduce its level of
spending on advertising and marketing.
Product research costs increased $200,030, or 35%, for the three months ended
March 31, 2000 compared to 1999 due primarily to higher personnel expenses to
support the growth in revenue and web sites launched during the fourth quarter
in 1999.
General and administrative expenses of $2,978,601 for the three months ended
March 31, 2000 were $2,402,003, or 417%, higher than the comparable period in
1999 due primarily to higher human resource costs, facilities and professional
services expenses supporting the growth in the business. Approximately
$1,037,000 of the increase is attributable to the expenses of Pivot which was
acquired in August 1999.
Depreciation and amortization of $284,989 for the three months ended March 31,
2000 was $216,999 or 319%, higher compared to 1999 due to purchases of software
and computer equipment. Goodwill amortization of $457,677 is a result of the
Pivot and Green acquisitions in the third quarter of 1999. Goodwill of
$4,609,015 and $883,117 was recorded for Pivot and GreenMagazine.com,
respectively, and is being amortized over a three-year period.
Noncash stock based compensation expense of $918,040 was recorded in the three
month period ended March 31, 2000 compared to $1,907,782 in the same period in
1999. In 2000, the Company recorded $860,000 of noncash charges upon the
resignation of the Company's former president and chief executive officer
related to the continued vesting of stock options under the terms of an
employment agreement. The remaining expense relates to stock options granted
under the 1997 and 1999 Equity Compensation Plans at less than fair market value
on the date of grant. In 1999, the Company recorded approximately $2,113,000 of
nancash charges when a note receivable for a restricted stock grant to our
former president and chief executive officer 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.
The Company recorded a noncash financing charge of $2,656,000 in March 1999
compared to none in 2000. In March 1999, one of the Company's Series B
convertible preferred stockholders loaned the Company $1,000,000, at 8% interest
due April 9, 1999. On April 9, 1999, the principal amount of the loan plus
accrued interest was converted, pursuant to its terms, into 6,784 shares of
Series B convertible preferred stock and, accordingly, the finance charge was
recorded.
Interest income of $249,397 for the three months ended March 31, 2000 was up
from $16,746 in the comparable 1999 period due to investing the proceeds from
the Company's initial public offering in short-term, interest bearing
instruments. Interest expense was up $108,173 over the comparable period in 1999
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.
16
<PAGE>
Liquidity and Capital Resources
Ilife.com, Inc. has funded its operations using capital raised from
shareholders, from the proceeds of its initial public offering in May 1999, and
from its operating revenue. As of March 31, 2000, we had working capital of
$6,527,224. Cash used in operating activities was $9,349,573 and was primarily
the result of funding operating losses due to the continued expansion of its
online publishing efforts and payments made in connection with the 1999
marketing campaigns.
Cash used in investing activities was primarily for the purchase of computer
and office equipment and furniture.
In connection with the acquisition of Pivot in August 1999, the Company
signed a $4,350,000 five-year convertible subordinated note payable to Pivot's
former owner. The note bears interest at 10% and is due in one payment on August
20, 2004. Interest is due beginning August 20, 2002 and thereafter every six
months until conversion or payment in full. The note is convertible at any time
by the holder into 625,000 shares of our common stock.
We have incurred net losses in each of our last four fiscal years. We had an
accumulated deficit of approximately $49 million as of March 31, 2000. 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 and hire personnel to
support our growth.
The Company is working to manage its cash by actively controlling expenses and
pursuing additional sources of revenue. For instance, the Company substantially
reduced marketing expenditures beginning January 2000 compared to the second
half of 1999, and has current plans to sell or curtail development of certain
non-core Web sites, including CPNet.com. Based on these actions and the
Company's current plan, we believe our existing liquidity and capital resources
will be sufficient to satisfy our cash requirements into 2001. There are no
assurances that such actions will ensure cash sufficiency into 2001 or that
reducing marketing expenses would not potentially curtail revenue growth.
The Company is also committed to rationalizing its ownership of ancillary,
non-core business units that have historically had significant negative cash
contributions. This effort could include: changing these non-core business
units' strategy and/or focus; seeking out strategic or financial partners;
selling/divesting these assets, or closing these operations. The beginning of
these efforts is our current plan to sell CPNet.com. These actions should
result in lower operating expenses, and may result in the Company receiving
additional capital and/or equity in other companies. In addition, some of these
actions, if taken, could result in material charges to operations and could
potentially result in lower than anticipated revenue growth.
The Company may consider additional options, which include, but are not
limited to, the following: forming strategic partnerships or alliances;
considering other strategic alternatives, including: a merger or sale of the
Company, or an acquisition, or raising new debt and/or equity capital. There
can be no assurance that we will be able to raise such funds or realize our
strategic alternatives on favorable terms or at all.
Further, due to the purported class-action lawsuit which the Company intends
to vigorously defend, management could be required to spend significant amounts
of time and resources defending this matter which may impact the operations of
the Company.
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
17
<PAGE>
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, we have been advised that 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.
We have experienced no material Year 2000 problems in the brief period since
January 1, 2000. We continue to monitor our systems for Year 2000 compliance.
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, 2000 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.
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On March 28, 2000, a purported class-action lawsuit was filed against the
Company and certain of its directors and officers, its auditor and underwriters
in the United States District Court for the Southern District of New York (Civil
Action No. 00CIV.2337). The complaint, which seeks an unspecified amount of
money damages, was filed by Brian DeMaria, a single stockholder, purportedly on
behalf of all stockholders who purchased shares of our stock during the period
from May 13, 1999 through March 27, 2000. The plaintiff alleges that the Company
violated federal securities laws by, among other things, misrepresenting and/or
omitting material information concerning the Company's financial results for the
quarter ended March 31, 1999, in its registration statement and prospectus filed
with the Securities and Exchange Commission in connection with the Company's
initial public offering. More particularly, the plaintiff alleges, among other
things, that the Company failed to disclose in its registration statement and
prospectus the fact that the Company incurred a net loss of approximately $6
million in the quarter ended
18
<PAGE>
March 31, 1999. The plaintiff alleges that the information was not made public
until May 24, 1999 when the Company issued a press release with respect to the
results for that quarter. The Company contends that the loss for the quarter
ended March 31, 1999 was properly disclosed. The Company intends to vigorously
defend against the lawsuit.
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 March 31, 2000
approximately $15,000,000 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. The offering has been completed.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
On April 25, 2000, William Martin was appointed to the Company's Board of
Directors. He is currently executive vice president of Novix Media, an
Internet-based media and entertainment company. In 1998 Mr. Martin was a
co-founder of Raging Bull, an investment-based Internet web site. He is
currently on deferment from the University of Virginia's McIntire School of
Commerce. In connection with his appointment to the Board of Directors, Mr.
Martin was granted options to purchase 75,000 shares of the Company's common
stock under the 1997 Equity Compensation Plan at $2.50 per share, the fair
market value on the date of grant. The options vest over a 24 month period. The
options vest as to 25% of the shares six months from the date of grant, and as
to the remaining 75% in equal monthly installments over the next 18 months.
On May 5, 2000, Peter W. Minford effectively resigned from his position as
Senior Vice President - Administration and Chief Financial Officer of the
Company. The Company will pay Mr. Minford cash compensation equal to
approximately 25% of his annual salary and will provide certain other noncash
benefits in connection with his separation from employment. Robert J. DeFranco,
Vice President - Finance and Chief Accounting Officer, will serve as interim
Chief Financial Officer until the Board of Directors makes a formal appointment.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
19
<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.
ilife.com, Inc.
Dated: May 15, 2000 By: /s/ Robert J. DeFranco
----------------------------
Robert J. DeFranco
Vice President-Finance
and Chief Accounting Officer
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-
Q OF ILIFE.COM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,828,385
<SECURITIES> 0
<RECEIVABLES> 1,943,003
<ALLOWANCES> (225,061)
<INVENTORY> 0
<CURRENT-ASSETS> 14,813,771
<PP&E> 3,655,282
<DEPRECIATION> (1,154,210)
<TOTAL-ASSETS> 23,517,823
<CURRENT-LIABILITIES> 8,286,547
<BONDS> 0
0
0
<COMMON> 135,484
<OTHER-SE> 15,095,792
<TOTAL-LIABILITY-AND-EQUITY> 23,517,823
<SALES> 3,931,304
<TOTAL-REVENUES> 3,931,304
<CGS> 0
<TOTAL-COSTS> 10,920,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,569
<INCOME-PRETAX> (7,112,866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,112,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,112,866)
<EPS-BASIC> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
