UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 333-33194
STYLECLICK, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-4106745
------------------------------------- -------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3861 Sepulveda Blvd., Culver City, CA 90230
------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 751-2100
-----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods 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 registrant's common stock as of November
7, 2000, was:
Class A common stock 7,975,053
Class B common stock 23,039,706
----------
31,014,759
==========
Only Class A common stock is publicly traded.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Styleclick, Inc.
Condensed Consolidated Balance Sheet
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 27,275 $ 9
Accounts receivable, net of allowance
of $341 and $42, respectively 769 679
Inventories, net 8,346 11,319
Prepaid expenses and other current assets 12,078 913
--------------- ---------------
Total current assets 48,468 12,920
Property and equipment, net of
accumulated depreciation of $11,666
and $6,020, respectively 12,874 15,121
Goodwill, net of accumulated amortization
of $9,473 161,053 -
Other assets 438 80
--------------- ---------------
Total assets $ 222,833 $ 28,121
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,595 $ 2,876
Accrued liabilities 5,659 8,736
Deferred income 179 -
Related party payable 3,322 329
--------------- ---------------
Total current liabilities 10,755 11,941
Stockholders' equity:
Preferred stock--$0.01 par value;
authorized 25,000,000 shares, none
issued and outstanding - -
Class A common stock--$0.01 par value,
authorized 150,000,000 shares,
7,966,751 and 184,497 issued and
outstanding, respectively 80 2
Class B common stock--$0.01 par value,
authorized 112,500,000 shares,
23,039,706 and 20,346,103 issued
and outstanding, respectively 230 203
Additional paid in capital 336,457 103,213
Accumulated deficit (124,689) (87,238)
--------------- ---------------
Total stockholders' equity 212,078 16,180
=============== ===============
Total liabilities and stockholders' equity $ 222,833 $ 28,121
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
Styleclick, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Net revenues
Product sales $ 4,351 $ 6,660 $ 16,759 $ 21,489
Service revenues 796 - 796 -
----------- ----------- ----------- -----------
5,147 6,660 17,555 21,489
Cost of sales
Product sales 4,246 6,225 16,916 20,753
Service revenues 28 - 28 -
----------- ----------- ----------- -----------
4,274 6,225 16,944 20,753
Gross profit 873 435 611 736
Operating costs and expenses:
Selling and marketing 1,066 2,427 4,924 7,901
Product development costs 1,287 1,398 3,335 4,359
General and administrative 5,810 4,902 13,720 14,486
Write-off of capitalized
software costs - - 2,260 -
Depreciation and amortization 1,399 989 4,281 1,919
Amortization of goodwill 9,473 - 9,473 -
----------- ----------- ----------- -----------
Total operating costs
and expenses 19,035 9,716 37,993 28,665
----------- ----------- ----------- -----------
Operating loss (18,162) (9,281) (37,382) (27,929)
Other income (expense), net (70) 2 (69) -
=========== =========== =========== ===========
Net loss $ (18,232) $ (9,279) $ (37,451) $ (27,929)
=========== =========== =========== ===========
Basic and diluted
loss per share $ (0.65) $ (0.45) $ (1.63) $ (1.37)
=========== =========== =========== ===========
Basic and diluted weighted
average common shares
outstanding 27,892,127 20,460,110 22,964,672 20,460,110
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Styleclick, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(in thousands)
2000 1999
------------- -------------
<S> <C> <C>
Cash flow from operating activities
Net loss $ (37,451) $ (27,929)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,281 1,919
Amortization of goodwill 9,473 -
Write-off of capitalized software costs 2,260 -
Loss on disposition of fixed assets 374 -
Changes in operating assets and liabilities:
Accounts receivable 687 (161)
Inventories 2,975 (2,771)
Prepaid expenses and other current assets (78) -
Accounts payable (4,578) (44)
Accrued liabilities (3,427) 3,986
Deferred income (190) -
Related party payable 3,322 -
Other, net 52 (790)
------------- -------------
Net cash used in operating activities (22,300) (25,790)
Cash flow from investing activities
Capital expenditures (407) (10,145)
------------- -------------
Net cash used in investing activities (407) (10,145)
Cash flow from financing activities
Capital contributed by USANi LLC 59,976 35,936
Stock options exercised 232 -
Repayment of bridge loan to USANi LLC (10,235) -
------------- -------------
Net cash provided by financing activities 49,973 35,936
Net increase in cash and cash equivalents 27,266 1
------------- -------------
Cash and cash equivalents at beginning of period 9 3
============= =============
Cash and cash equivalents at end of period $ 27,275 $ 4
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Styleclick, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Supplemental disclosure of non-cash transactions
In connection with the merger on July 27, 2000, Styleclick, Inc. (the "Company")
issued 7,725,592 shares of its Class A common stock to the shareholders of
Styleclick.com Inc. ("Old Styleclick"). Each former Old Styleclick shareholder
received one share of the Company's Class A common stock for each Old Styleclick
common stock share owned on that date.
In connection with the merger on July 27, 2000, the Company issued 538,721
shares of its Class B common stock to USANi LLC in consideration of $10 million
in advertising and promotion services to be provided by USAi to the Company over
a three-year period.
During the first nine months ended September 30, 2000 and 1999, the Company paid
no income taxes or interest.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Styleclick, Inc.
Notes to Condensed Financial Statements
1. Organization and Basis of Presentation
Organization
Styleclick, Inc. (the "Company") was incorporated in the State of Delaware on
March 22, 2000 as a subsidiary of USANi LLC, which is a subsidiary of USA
Networks, Inc. ("USAi"). On July 27, 2000, USAi contributed Internet Shopping
Network LLC ("ISN") to the Company in conjunction with the acquisition of
Styleclick.com Inc. ("Old Styleclick") by the Company. The contribution and
acquisition was structured as a merger of ISN and Old Styleclick with separate,
wholly owned subsidiaries of the Company. The contribution of ISN by USAi was
accounted for in the accompanying financial statements in a manner similar to
the pooling-of-interests for business combinations due to the common ownership
of the Company and ISN. Accordingly, the assets and liabilities were transferred
to the Company at USANi LLC's historical cost for ISN's historical balances and
operations. See Note 2 for more information about the merger.
Basis of Presentation
The interim Condensed Consolidated Financial Statements and Notes thereto of the
Company as of and for the three and nine months ended September 30, 2000 reflect
the Company's acquisition of Old Styleclick on July 27, 2000. The results for
the three and nine months ended September 30, 1999 reflect only the consolidated
historical financial position and results of operations of ISN. Such Financial
Statements and Notes thereto are unaudited and should be read in conjunction
with the audited Internet Shopping Network LLC Financial Statements and Notes
thereto for the twelve months ended December 31, 1999 presented in the Company's
Registration Statement on Form S-4.
Weighted average basic and diluted shares outstanding and earnings per share
data for the three and nine months ended September 30, 1999 are presented as if
all shares issued to USAi and its subsidiaries in consideration of the
contribution of ISN were outstanding for these two periods.
In the opinion of the Company, all adjustments necessary for a fair presentation
of such Condensed Consolidated Financial Statements have been included. Such
adjustments consist of normal recurring items. Interim results are not
necessarily indicative of results for a full year. The interim Condensed
Consolidated Financial Statements and Notes thereto are presented as permitted
by the Securities and Exchange Commission and do not contain certain information
included in the Company's audited Consolidated Financial Statements and Notes
thereto.
5
<PAGE>
Styleclick, Inc.
Notes to Condensed Financial Statements
2. Merger of Old Styleclick and ISN
On July 27, 2000, USAi and its subsidiaries contributed ISN to the Company,
which contribution was structured as a merger of ISN with a wholly owned
subsidiary of the Company. USAi received 0.601 shares of the Company's Class B
common stock, and the other ISN unitholders received 0.601 shares of the
Company's Class A common stock, for each ISN unit owned on that date. In
addition, USAi invested approximately $40 million in cash and will contribute
$10 million in dedicated media. Following approval of Old Styleclick's
shareholders, Old Styleclick was merged with a wholly owned subsidiary of the
Company on July 27, 2000. Each former Old Styleclick shareholder received one
share of the Company's Class A common stock for each Old Styleclick share owned
on that date.
Holders of the Class A common stock are entitled to one vote per share and
holders of the Class B common stock are entitled to ten votes per share.
Subsequent to the acquisition of Old Styleclick, USAi and its subsidiaries
control approximately 96% of the outstanding total voting power and are
effectively able to control the outcome of nearly all matters submitted to vote
of the Company's shareholders.
Following the merger transactions, the Company owns and operates the combined
properties of Old Styleclick and ISN, which includes Old Styleclick's network of
branded e-commerce websites and ISN's First Auction.com and FirstJewelry.com
websites.
The acquisition of Old Styleclick was accounted for as a purchase transaction;
accordingly the value of the net assets acquired was based on their fair market
value. The excess of the acquisition cost over the net assets acquired was
allocated to goodwill. The results of operation of Old Styleclick were included
in the results of operations of the Company from the date of acquisition.
The following pro forma results of operations have been prepared to give effect,
with pro forma adjustments including amortization of goodwill at $14.2 million
per quarter, to the merger of ISN and Old Styleclick for the three and nine
months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 5,291 $ 7,447 $ 19,444 $ 26,641
Net loss $ (24,544) $ (28,156) $ (82,245) $ (80,542)
Basic and diluted
earnings per share $ (0.79) $ (0.91) $ (2.66) $ (2.60)
</TABLE>
6
<PAGE>
Styleclick, Inc.
Notes to Condensed Financial Statements
3. Goodwill
<TABLE>
<CAPTION>
The preliminary determination of the goodwill is set forth below:
<S> <C>
Value of portion of Old Styleclick acquired in the merger $121,781
Additional cash and promotional investment by USAi 50,000
Fair value of outstanding "in the money options"
and warrants of Old Styleclick 37,989
Transaction costs 2,144
--------
Total acquisition costs 211,914
Less: Net assets acquired 41,388
--------
Goodwill $170,526
========
</TABLE>
The fair value of Old Styleclick was based on the fair value of $15.78 per share
times approximately 7.7 million shares outstanding. Fair value of the shares was
determined by taking an average of the opening and closing price of Old
Styleclick common stock for the period just before and just after the terms of
the transaction were agreed to by the Company and Old Styleclick and announced
to the public.
$50 million contributed by USANi LLC included $40 million in cash and $10
million in advertising and promotion. USAi and its affiliates will provide
promotional time on its media properties over a three-year period from the
closing of the merger. Such promotion will be contributed to the Company at its
fair market value based on amounts charged to third parties.
Net assets acquired includes the net assets of Old Styleclick at the merger date
of $0.3 million, the $50 million of cash and promotion to be contributed by USAi
and USANi LLC, offset by a total of $8 million write-off of Old Styleclick's
assets and the $0.9 million that Old Styleclick paid to its investment advisors
upon the closing of the merger. The write-off of assets, including $4.7 million
deferred royalties ($0.6 million under other current assets and $4.1 million
under other assets), $1.1 million capitalized software and $2.2 million prepaid
advertising expense, was due to the fact that no revenues associated with these
two assets are expected after the merger based on the Company's business plan.
Goodwill is being amortized by the straight-line method over three years since
the merger date.
7
<PAGE>
Styleclick, Inc.
Notes to Condensed Financial Statements
4. Revenue Recognition
Product Sales
Product sales primarily consist of merchandise sales, software licenses,
software maintenance and shipping and handling revenues. Merchandise sales are
reduced by incentive discounts and sales returns to arrive at net revenue.
Revenues are recognized upon shipment. The Company's sales policy allows jewelry
sold over the FirstJewelry.com website to be returned at the customer's
discretion within 30 days of the date of receipt and merchandise sold on the
FirstAuction.com website to be returned if it is damaged or defective within 30
days of the date of receipt. Allowances for returned merchandise and other
adjustments are provided based upon past experience. The Company began to
classify amounts charged to customers for shipping and handling as revenue in
the third quarter of 2000. All periods presented reflect this presentation.
Revenue related to software licenses is recorded net of estimated allowances and
returns at the time the software is delivered. Software maintenance revenue
representing revenue generated from post contract customer support is recognized
on a straight-line basis over the term of the corresponding contract, which is
generally twelve months.
Service Revenues
Service revenues primarily consist of revenues generated from Internet website
development and maintenance and revenues generated from Internet application
services. Revenues generated from Internet website development and maintenance
are recognized based on the accomplishment of contractual milestones in a manner
that matches revenue with the related costs. Generally, the terms of contracts
are short term in nature (twelve months or less).
Revenues generated from Internet application services include product
fulfillment revenue and product referral revenue. Product fulfillment revenue
generated from the Company's fulfillment services to its on-line shopping
Internet website participant vendors is recognized based on a percentage of
gross revenues from the related transactions upon notification of shipment of
the vendors' products by the Company's fulfillment warehouse or the participant
vendors. Product referral revenue generated from referral of vendors' products
to Internet consumers through the Company's on-line shopping Internet web-sites
is recognized based on a percentage of gross revenues from the related
transactions based upon notification of the respective sales information by the
Company's vendors, the independent Internet traffic tracking companies or the
Company's on-line tracking reports.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-Q. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including,
but not limited to, those set forth below and elsewhere in this Form 10-Q.
General
On July 27, 2000, Internet Shopping Network ("ISN") and Styleclick.com Inc.
("Old Styleclick") merged into the Company. Following the merger, the Company
owns and operates the combined properties of Old Styleclick and ISN, which
include ISN's FirstAuction.com, FirstJewelry.com and Old Styleclick's network of
branded e-commerce web sites.
ISN is engaged in electronic commerce business transacted over the Internet
through its two websites, FirstAuction.com and FirstJewelry.com.
FirstAuction.com was launched in June of 1997 and is an online real time
diversified auction retailer. FirstJewelry.com was launched in October 1999 and
is an online retailer of jewelry.
Old Styleclick is in the business of developing, marketing, and supporting
electronic commerce Internet websites and Internet-enabled applications based on
its proprietary technology for content management, including modeling and
rendering technology.
Through ISN and Old Styleclick, the Company sells merchandise directly to
consumers over the Internet and develops and sells services that allow companies
to engage in electronic commerce over the Internet. For example, the Company
develops and manages Internet websites for its business clients and provides its
business clients with the technological platform to distribute products through
its syndication network. The Company also provides merchandise services,
fulfills customer orders and supplies customer services. Depending on its
ongoing evaluation of the prospects of its operations, including alternative
uses of capital and resources, as well as general economic and industry
conditions, the Company may decide to reduce the marketing costs associated
with, shift the focus of, dispose of or substantially reduce its interest in,
some or all of these operations. Any such actions may cause a decrease in the
Company's anticipated revenue or net income.
Results of Operations
The results of operations discussed below for the three and nine months ended
September 30, 2000 include Old Styleclick's results of operations from the date
of acquisition (July 27, 2000) and for the results of operations for the three
and nine months ended September 30, 1999 include only ISN's results of
operations
Comparison of Three Months Ended September 30, 2000 and 1999
Revenue and Gross Profit
For the three months ended September 30, 2000, net revenues decreased by $1.5
million, or 23%, compared to the three months ended September 30, 1999.
Merchandise sales decreased $2.3 million primarily due to the decrease in sales
in the computer and consumer electronic categories (less profitable categories
away from which the Company is shifting its focus) in the third quarter of 2000
as compared to the 1999 period. The Company continued to focus its sales upon
9
<PAGE>
more profitable home and accessories categories during the 3rd quarter of 2000.
As a result, the sales from the less profitable categories were not yet fully
replaced in the 2000 period. The decrease in merchandise sales was also
attributable to decreased advertising during the 2000 period as compared to the
1999 period. Such decrease was offset by a $0.8 million increase in service
revenues generated by Old Styleclick after the merger. Gross profit increased by
$0.4 million primarily due to the $0.7 million gross margin generated from
service revenues.
Operating Costs and Expenses
For the three months ended September 30, 2000, total operating costs and
expenses of $19 million increased by $9.3 million or 96% compared to the
corresponding period in 1999. The increase included a $9.5 million amortization
of goodwill expense recorded in the third quarter of 2000 due to the merger.
Excluding this amortization expense, the operating costs and expenses were $0.2
million less in the third quarter of 2000 as compared to the same quarter in
1999. The decrease in selling and marketing expense of $1.4 million reflecting
reduced spending on advertising spending on the First Auction site in
anticipation of a re-launch planned for late 2000. General and administrative
expenses were $0.9 million above those for the third quarter of 1999 due to an
increased headcount and greater recruiting expenses after the merger.
Depreciation and amortization expense is $0.4 million greater than the same
quarter in the prior year due to the acquisition of Old Styleclick in the third
quarter of 2000.
For the quarter ended September 30, 2000, net loss increased by $9 million
compared to the quarter ended September 30, 1999 due to increased operating
expenses (primarily amortization expense of goodwill) which offset higher gross
margins generated from service revenues.
As a limited liability company in 1999, ISN was not subject to federal or state
income taxes. Instead, the LLC members of ISN were responsible for taxes related
to earnings attributable to each member.
In conjunction with the merger, ISN became a wholly-owned subsidiary of the
Company. The Company is a "C" Corporation and consequently is now subject to tax
as a "C" Corporation. The change in tax status has no significant impact on the
results of the Company's operations. The Company recorded no provision for
income taxes in the third quarter of 2000 due to net operating losses in the
quarter.
Comparison of Nine Months Ended September 30, 2000 and 1999
Revenue and Gross Profit
For the nine months ended September 30, 2000, net revenues decreased by $3.9
million, or 18%, compared to the nine months ended September 30, 1999.
Merchandise sales decreased $4.7 million primarily due to the decrease in sales
in the computer and consumer electronic categories (less profitable categories)
in the 2000 period as compared to the 1999 period. The Company continued to
focus its sales upon more profitable home and accessories categories during the
2000 period. As a result, the sales from the less profitable categories were not
yet fully replaced in the 2000 period. The decrease was offset by a $0.8 million
increase in service revenues generated by Old Styleclick after the merger. Gross
profit decreased by $0.1 million primarily due to the $0.9 million inventory
expense which was recorded during the second quarter to reduce the value of the
inventory to be sold through alternative distribution channels. The $0.9 million
expense was offset by the $0.7 million gross margin generated from Old
Styleclick's service revenues after the merger.
10
<PAGE>
Operating Costs and Expenses
For the nine months ended September 30, 2000, total operating costs and expenses
of $38 million increased by $9.3 million or 33% compared to the corresponding
period in 1999. The increase included a $9.5 million amortization of goodwill
expense recorded in the third quarter of 2000 due to the merger. Excluding this
amortization expense, the operating costs and expenses were $0.1 million less in
the first nine months of 2000 as compared to the same period in 1999. The
decrease in selling and marketing expense of $3 million reflecting reduced
advertising spending on the First Auction site in anticipation of a re-launch
planned for late 2000. Product development costs decreased by $1 million due to
software development costs related to the First Jewelry website for the
preliminary project stage which were expensed in the first quarter of 1999.
General and administrative expenses were $0.8 million lower than those incurred
during the first nine months of 1999 due to a reduced average headcount and
lower recruiting expenses. The decreases were offset by the one-time write-off
during the second quarter of 2000 of capitalized software costs of $2.3 million
related to an accounting software package and electronic data interchange
software that management determined will not be implemented. The capitalized
software products were not in use and have no realizable value to the Company.
Depreciation and amortization expense was $2.4 million higher than during the
first nine months of 1999 due to greater capital spending for hardware, software
and software development primarily related to the First Jewelry.com website and
the acquisition of Old Styleclick. In addition to the $2.3 million write-off of
capitalized software costs, a $1 million expense related to restructuring costs
incurred in the first nine months of 2000 was also recorded as a one-time
charge.
For the nine months ended September 30, 2000, net loss increased $9.5 million
primarily due to increased operating expenses (primarily amortization expense of
goodwill and the write-off of capitalized software costs) and the write-off of
inventory.
As a limited liability company in 1999, ISN was not subject to federal or state
income taxes. Instead, the LLC members of ISN were responsible for taxes related
to earnings attributable to each member.
In conjunction with the merger, ISN became a wholly-owned subsidiary of the
Company. The Company is a "C" Corporation and consequently is now subject to tax
as a "C" Corporation. The change in tax status has no significant impact on the
results of the Company's operations. The Company recorded no provision for
income taxes in the first nine months of 2000 due to net operating losses in the
third quarter of 2000.
Liquidity and Capital Resources
Net cash used in operating activities was $22.3 million, which net use primarily
resulted from the $37.5 million operating loss and the $8 million payments made
by the Company on its accounts payable and accrued liabilities since December
31, 1999. Such operating loss and cash payments were offset by a decrease in
inventories ($3 million), an increase in related party payable ($3.3 million)
and three non-cash expense items: depreciation and amortization ($4.3 million),
amortization of goodwill ($9.5 million) and the write-off of the Company's
capitalized software costs ($2.3 million). Additionally, cash used in connection
with in investing activities for capital expenditures was $0.4 million during
the first nine months of 2000. Finally, USAi made capital contributions of $60
million in the first nine months of 2000, of which $40 million was contributed
related to the merger of ISN and Old Styleclick on July 27, 2000. Of $40
million, $10.2 million was repaid to USAi for the previously advanced to Old
Styleclick under a bridge loan.
11
<PAGE>
The Company's management anticipates that cash on hand should be sufficient to
fund the Company's operating activities through at least the second quarter of
2001. However, the Company does not currently anticipate that it will be
profitable nor generate positive cash flow through the second quarter of 2001.
Consequently, the Company may seek to obtain additional funding during 2001. The
Company's management anticipates that new funding, if any, could be generated by
either the sale of additional common stock, exercise of media warrants by USAi
or a combination of both. Should the Company be unable to obtain any required
funding, it may be necessary to reduce the level of its operations, including
reducing headcount, substantially reducing its product development initiatives
and cutting back on its sales and marketing efforts. The Company's management
believes that taking such actions would adversely affect the Company's ability
to carry out its business plan and achieve profitability.
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "believe," "expect," "anticipate," "intend," and
"project" and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. The statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be reviewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including changes in economic conditions in the
markets served by the Company, increasing competition, fluctuations in raw
materials and energy prices, and other unanticipated events and conditions. It
is not possible to foresee or identify all such factors. The Company makes no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement.
12
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk
There have been no material changes in reported market risks related
to the Company's financial instruments since the Company's filing if
its Form S-4 registration statement.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In February 1999, Internet Shopping Network LLC ("ISN") filed a demand
for arbitration against former ISN President Kirk Loevner under the
terms of the arbitration provision in his employment agreement. In
response, Loevner filed a complaint against ISN in Superior Court for
Santa Clara County, California. The Superior Court decided not to
enforce the arbitration provision of Mr. Loevner's employment
agreement, and the court's ruling is currently on appeal. Mr.
Loevner's employment with ISN ceased in August 1998. Mr. Loevner
alleges that ISN breached his employment agreement and its stock
option plan. He is seeking declaratory relief that he did not breach
his employment agreement by accepting employment with FreeShop
International, Inc. and, consequently, that his options for 250,000
shares of ISN's predecessor, Internet Shopping Network, Inc. (with an
exercise price of $1.75 per ISN class B unit) are entitled to vest.
Additionally, Mr. Loevner is seeking penalties and attorneys fees
under the California Labor Code.
In the ordinary course of business, the Company is engaged in various
other lawsuits. In the opinion of management, the ultimate outcome of
the various lawsuits should not have a material impact on the
liquidity, results of operations or financial condition of the
Company.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
During the third quarter the employment of the Company's president,
Bill Lane, terminated.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Facilities lease dated May 30, 2000 between W9/WLA Real
Estate Limited Partnership, as Landlord, and Registrant, as
lessee.1
27.1 Financial Data Schedule.1
(b) Reports on Form 8-K
On August 11, 2000, the Company filed a report on Form 8-K. The
items reported were Item 2 - "Acquisition or disposition of
Assets." Item 7(a) - "Financial Statements of Businesses."
On October 10, 2000, the Company filed an amendment to the report
on Form 8-K filed on August 11, 2000. The items reported were
Item 2 - "Acquisition or Disposition of Assets," Item 7(a) -
"Financial Statements of Business Acquired" and Item 7(c) -
"Exhibits."
On October 23, 2000, the Company filed a report on Form 8-K. The
item reported was Item 7 - "Financial Statements and Exhibits."
On October 25, 2000, the Company filed a report on Form 8-K. The
item reported was Item 9 - "Regulation FD Disclosure."
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1 This exhibit is being filed electronically in the electronic format
specified by EDGAR.
15
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Styleclick, Inc.
Date: November 7, 2000 By: /s/ MAURIZIO VECCHIONE
------------------------------------
Maurizio Vecchione
Chief Executive Officer
/s/ BARRY HALL
------------------------------------
Barry Hall
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
10.1 Facilities lease dated May 30, 2000 between W9/WLA Real Estate
Limited Partnership, as Landlord, and Registrant, as lessee.1
27.1 Financial Data Schedule.1
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1 This exhibit is being filed electronically in the electronic format
specified by EDGAR.
17
