<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-15586
dreamlife, inc.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1373960
----------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
425 WEST 15TH STREET, 3RD FLOOR, NEW YORK, NEW YORK 10011
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 313-9400
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ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE
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(FORMER NAME, FORMER ADDRESS AND FORMAL FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
---- ----
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY AS OF NOVEMBER 14, 2000 WAS AS FOLLOWS: 40,368,351 SHARES OF
COMMON STOCK.
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PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
<PAGE>
dreamlife, inc.
(A Development Stage Enterprise)
Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- --------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,048 $ 10,459
Prepaid expenses and other current assets 224 579
Cash held in escrow -- 100
-------- --------
Total current assets 1,272 11,138
Property and equipment, net of accumulated depreciation of $426 and $83, respectively 1,103 1,013
Deferred costs 100 --
Intangible assets, net of accumulated amortization of $3,169 and $1,386, respectively -- 5,744
Security deposits 277 277
-------- --------
Total assets $ 2,752 $ 18,172
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 523 $ 745
Accrued expenses 987 310
Obligations under capital lease, current portion 95 93
-------- --------
Total current liabilities 1,605 1,148
Obligations under capital lease, net of current portion 12 73
Stockholders' equity:
Common stock - $0.01 par value. Authorized 100,000,000 shares;
40,368,351 shares issued and outstanding at September 30, 2000
and December 31, 1999 403 403
Additional paid-in capital 34,399 37,042
Deferred compensation and other charges (1,345) (5,790)
Deficit accumulated during the development stage (32,322) (14,704)
-------- --------
Total stockholders' equity 1,135 16,951
-------- --------
Total liabilities and stockholders' equity $ 2,752 $ 18,172
======== ========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
dreamlife, inc.
(A Development Stage Enterprise)
Statements of Operations
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended
September 30, 2000 September 30, 1999 September 30, 2000
------------------ ------------------ -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenues:
Interactive services revenue $ 12 $ -- $ 39
Commerce -- -- 1
------------ ------------ ------------
Total Revenue 12 -- 40
Cost of revenues 20 -- 38
------------ ------------ ------------
(8) -- 2
Expenses:
Noncash compensation expense 168 907 1,802
Write-down and amortization of intangible assets 4,556 594 5,744
Advertising and marketing 1,057 -- 2,511
General and administrative 2,261 1,887 7,806
------------ ------------ ------------
Total operating expenses 8,042 3,388 17,863
------------ ------------ ------------
Operating Loss (8,050) (3,388) (17,861)
Interest income 41 155 243
------------ ------------ ------------
Net loss (8,009) (3,233) (17,618)
Beneficial conversion attributable to preferred stock -- -- --
------------ ------------ ------------
Net loss attributable to common stockholders $ (8,009) $ (3,233) $ (17,618)
============ ============ ============
Basic and diluted net loss per common share $ (0.20) $ (0.41) $ (0.44)
============ ============ ============
Shares used in basic and diluted net loss per common share calculation 40,368,351 7,877,032 40,368,351
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Period from April 21, 1999 Period from April 21, 1999
(date of inception) (date of inception)
to September 30, 1999 to September 30, 2000
-------------------------- --------------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Interactive services revenue $ -- $ 39
Commerce -- 1
------------ ------------
Total Revenue -- 40
Cost of revenues -- 38
------------ ------------
-- 2
Expenses:
Noncash compensation expense 4,889 10,374
Write-down and amortization of intangible assets 792 7,130
Advertising and marketing -- 2,511
General and administrative 2,408 12,925
------------ ------------
Total operating expenses 8,089 32,940
------------ ------------
Operating Loss (8,089) (32,938)
Interest income 218 616
------------ ------------
Net loss (7,871) (32,322)
Beneficial conversion attributable to preferred stock -- 13,617
------------ ------------
Net loss attributable to common stockholders $ (7,871) $ (45,939)
============ ============
Basic and diluted net loss per common share $ (1.03) $ (1.62)
============ ============
Shares used in basic and diluted net loss per common share calculation 7,634,907 28,347,701
============ ============
</TABLE>
See accompanying notes to financial statements.
3
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dreamlife, inc.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
Period from April 21, 1999 (date of inception)
to September 30, 2000
(in thousands, except share amounts)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK CONVERTIBLE PREFERRED STOCK
COMMON STOCK SERIES A PAR VALUE $.01 SERIES B PAR VALUE $.01
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares pursuant to
merger of dreamlife, inc. and
CYL 7,047,828 $ 70 -- $ -- -- $ --
Issuance of shares to members
of CYL pursuant to merger -- -- 99,059 1 -- --
Issuance of shares in private
placement, net of expenses -- -- -- -- 178,582 2
Issuance of shares to acquire
Concept Development, Inc. -- -- -- -- -- --
Issuance of shares pursuant to
exclusive license agreement -- -- -- -- -- --
Exercise of stock options 268,857 3 -- -- -- --
Issuance of common stock
options -- -- -- -- -- --
Deferred compensation expense -- -- -- -- -- --
Conversion of Convertible
Preferred Stock Series B 1,785,820 18 -- -- (178,582) (2)
Conversion of Convertible
Preferred Stock Series C 557,450 5 -- -- -- --
Distribution of discontinued
operations -- -- -- -- -- --
Conversion of Convertible
Preferred Stock Series A 30,708,396 307 (99,059) (1) -- --
Net loss for the period from
April 21, 1999 (date of
inception) to
December 31, 1999 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 40,368,351 403 -- -- -- --
Cancellation of stock options* -- -- -- -- -- --
Deferred compensation expense* -- -- -- -- -- --
Issuance of warrants* -- -- -- -- -- --
Net loss for the nine months*
ended September 30, 2000 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000* 40,368,351 $ 403 -- $ -- -- $ --
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF
DISCONTINUED DEFERRED
CONVERTIBLE PREFERRED STOCK ADDITIONAL OPERATION TO COMPENSATION
SERIES C PAR VALUE $.01 PAID-IN COMMON AND OTHER ACCUMULATED
SHARES AMOUNT CAPITAL STOCKHOLDERS CHARGES DEFICIT TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares pursuant to
merger of dreamlife, inc. and
CYL -- $ -- $ 4,169 $ (1,239) $ -- $ -- $ 3,000
Issuance of shares to members
of CYL pursuant to merger -- -- (1) -- -- -- --
Issuance of shares in private
placement, net of expenses -- -- 15,064 -- -- -- 15,066
Issuance of shares to acquire
Concept Development, Inc. 50,000 1 4,499 -- -- -- 4,500
Issuance of shares pursuant to
exclusive license agreement 5,745 -- 517 -- -- -- 517
Exercise of stock options -- -- (3) -- -- -- --
Issuance of common stock
options -- -- 14,362 -- (14,362) -- --
Deferred compensation expense -- -- -- -- 8,572 -- 8,572
Conversion of Convertible
Preferred Stock Series B -- -- (16) -- -- -- --
Conversion of Convertible
Preferred Stock Series C (55,745) (1) (4) -- -- -- --
Distribution of discontinued
operations -- -- (1,239) 1,239 -- -- --
Conversion of Convertible
Preferred Stock Series A -- -- (306) -- -- -- --
Net loss for the period from
April 21, 1999 (date of
inception) to
December 31, 1999 -- -- -- -- -- (14,704) (14,704)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 -- -- 37,042 -- (5,790) (14,704) 16,951
Cancellation of stock options* -- -- (3,476) -- 3,476 -- --
Deferred compensation expense* -- -- -- -- 1,802 -- 1,802
Issuance of warrants* -- -- 833 -- (833) -- --
Net loss for the nine months*
ended September 30, 2000 -- -- -- -- -- (17,618) (17,618)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000* -- $ -- $ 34,399 $ -- $ (1,345) $ (32,322) $ 1,135
========== ========== ========== ========== ========== ========== ==========
</TABLE>
4
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dreamlife, inc.
(A Development Stage Enterprise)
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Period from Period from
April 21, 1999 April 21, 1999
Nine Months Ended (date of inception) (date of inception)
September 30, 2000 to September 30, 1999 to September 30, 2000
--------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(17,618) $ (7,871) $(32,322)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash compensation expense 1,802 4,889 10,374
Depreciation and amortization 2,125 801 3,594
Write-down of intangible assets 3,961 -- 3,961
Changes in:
Accounts receivable -- -- --
Prepaid expenses and other 355 (158) (224)
Cash held in escrow 100 (100) --
Accounts payable and accrued expenses 455 783 1,510
-------- -------- --------
Net cash used in operating activities (8,820) (1,656) (13,108)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment (415) (515) (1,320)
Deferred costs (100) -- (100)
Acquisition of Concept Development, Inc. -- (2,113) (2,113)
Payment of security deposits -- (349) (277)
-------- -------- --------
Net cash used in investing activities (515) (2,977) (3,810)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from sale of Series B
Convertible Preferred Stock -- 15,066 15,066
Cash acquired pursuant to merger of dreamlife, inc
and Change Your Life.com -- 3,000 3,000
Payments under capital lease obligations (76) (7) (101)
-------- -------- --------
Net cash (used in) provided by financing activities (76) 18,059 17,965
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (9,411) 13,426 1,048
Cash and cash equivalents at beginning of period 10,459 -- --
-------- -------- --------
Cash and cash equivalents at end of period $ 1,048 $ 13,426 $ 1,048
======== ======== ========
Supplemental information of noncash investing and
financing activities:
Common stock dividend to effect USN Spin-Off $ -- $ 1,239 $ 1,239
======== ======== ========
Computer equipment acquired under capital lease $ 17 $ 100 $ 208
======== ======== ========
Issuance of Series C Convertible Preferred Stock in
acquisition of Concept Development, Inc. $ -- $ 4,500 $ 4,500
======== ======== ========
Stock issued for exclusive license agreement $ -- $ 517 $ 517
======== ======== ========
</TABLE>
5
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dreamlife, inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF PRESENTATION
dreamlife, inc. (a development stage enterprise) (the "Company" or
"Dreamlife") commenced development stage activities in April 1999
that included plans for an online network to focus on personal and
professional improvement. The Company launched its website
WWW.DREAMLIFE.COM on February 12, 2000.
The interim financial statements of the Company as of and for the
nine months ended September 30, 2000, are unaudited. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
the rules and regulations of the SEC relating to interim financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the financial position and the results of
operations and cash flows have been included in such unaudited
financial statements. The results of operations for the nine
months ended September 30, 2000, are not necessarily indicative of
the results to be expected for any future interim period or for
the year ending December 31, 2000.
(b) USE OF ESTIMATES
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) RECOGNITION OF REVENUE
Revenue derived from interactive services, such as online courses,
is recognized when the service is provided.
Revenue derived from electronic commerce is recognized when the
products are delivered.
Advertising revenues are recognized as the advertisement is
displayed, provided that no significant company obligations
remain.
(2) COMMITMENTS
In December 1999, the Company entered into a Content License Agreement
with Yahoo! Inc. whereby the Company's content will be placed within
Yahoo!'s web site for one year. As of September 30,
6
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dreamlife, inc.
(A Development Stage Enterprise)
Notes to Financial Statements
2000, under the terms of the Content License Agreement and a media
insertion order, the Company is obligated to pay Yahoo! an additional
$500,000 through December 2000.
In April 2000, the Company entered into a one-year engagement letter with
Wit SoundView Corporation whereby Wit SoundView Corporation and Wit
Capital Corporation will act as the Company's exclusive financial
advisors. In connection with this engagement letter, the Company has
agreed to pay a monthly retainer fee and to compensate Wit SoundView in
connection with specified business and financing transactions involving
Dreamlife. The Company has also agreed to issue to Wit SoundView a
five-year warrant to purchase 400,000 shares of common stock at $7.00 per
share. The fair value of the warrants, amounting to $833,000, has been
recorded as a deferred charge, reflected as a reduction to stockholder's
equity in the balance sheet, pending the consummation of the related
transaction.
In July 2000, the Company entered into a content and distribution
agreement with America Online, Inc. whereby the Company will provide
content aimed at small business users to AOL and Netscape Netcenter for
eighteen (18) months, in addition to receiving promotion across several
AOL properties. As of September 30, 2000, the Company is obligated to pay
America Online $0.7 million through December 2001.
(3) LOSS PER SHARE
Basic loss per share excludes dilution and is computed by dividing the
loss available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted loss per share reflects
the potential dilution that could occur if potentially dilutive
securities such as convertible preferred stock, stock options and
warrants were exercised or converted into common stock. Basic and diluted
loss per share were the same for the period April 21, 1999 (date of
inception) through September 30, 2000 since the effect of all potential
dilutive common stock equivalents was antidilutive. As of September 30,
2000 and December 31, 1999, there were options and warrants exercisable
into 6,568,830 and 4,503,750 shares of common stock, respectively.
(4) SEVERANCE COSTS
In May 2000, the Company entered into a Retention and Severance Agreement
with Beth Polish, Dreamlife's then President and Chief Operating Officer,
whereby, in addition to adjustments in stock option compensation,
Dreamlife paid to Ms. Polish a bonus of $50,000 and agreed to pay to Ms.
Polish severance in the amount of $300,000 in semi-monthly installments
through April 2001. As of September 30, 2000, unpaid severance costs of
$200,000 are included in accrued liabilities.
7
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dreamlife, inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(5) EMPLOYMENT AGREEMENT
In July 2000, the Company entered into a compensation arrangement with
Peter A. Lund, Dreamlife's new Chief Executive Officer. Under the
agreement between Mr. Lund and Dreamlife, Mr. Lund will receive an annual
base salary of $300,000, subject to change at the discretion of the Board
of Directors. The agreement also provides for a discretionary bonus that
may be granted as determined by the Board of Director's and a guaranteed
deferred bonus of up to $3,000,000 payable in a lump sum on May 22, 2003.
The deferred bonus is subject to vesting requirements, based on continued
employment and is therefore being expensed over the vesting period. Mr.
Lund also received stock option grants under the Company's 1999 Stock
Option Plan and from a principal shareholder.
(6) WRITE-DOWN OF INTANGIBLE ASSETS
On September 1, 2000, Dreamlife decided not to make scheduled payments
necessary to continue its relationship with The Learning Annex under the
parties' License and Marketing Agreement and Option Agreement. As
anticipated, The Learning Annex sent a notice to Dreamlife that it is in
breach of the terms of such agreements. On October 12, 2000, Dreamlife
officially discontinued its current relationship with The Learning Annex
and does not believe that the loss of such relationship will have a
material adverse effect on its business, as no revenues have been derived
from that relationship. As a result of Dreamlife's decision to
discontinue its relationship with the Learning Annex due to the absence
of benefits realized to date, the Company wrote-down the remaining value
of the intangible assets related to The Learning Annex transaction in the
quarter ended September 30, 2000. In addition, the Company also
wrote-down the remaining value of the intangible assets related to the
Concept Development transaction, as the value to be derived from this
relationship was dependent on the Company's continued relationship with
The Learning Annex. These write-downs are included in write-down and
amortization of intangible assets on the statement of operations and
amounted to $4.0 million.
(7) STOCK OPTIONS
On June 29, 2000, the shareholders approved an increase in the number of
shares available for issuance under the 1999 Employee Stock Option Plan
to 6,500,000.
(8) SUBSEQUENT EVENT
On October 19, 2000, Dreamlife received a written commitment from CYL
Development Holdings, LLC ("CYL"), a 19.1% stockholder of Dreamlife, to
provide, or arrange for, a $1.5 million 30-day loan to Dreamlife by
October 25, 2000. On October 24, 2000, Dreamlife signed a Grid Time
Promissory Note to the order of The Chase Manhattan Bank for $1.5
million. The interest on the note is at the bank's prime rate and the
note is due on November 30, 2000. An affiliate of CYL provides credit
support for the line of credit. Dreamlife anticipates that its cash and
cash equivalents will be adequate
8
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dreamlife, inc.
(A Development Stage Enterprise)
Notes to Financial Statements
to fund its operations at least through November 30, 2000. There can be
no assurance, however, that Dreamlife will have sufficient funds to repay
the loan when due. Dreamlife is working with Wit Soundview Group to
explore alternatives for additional financing and strategic transactions.
In the event that the loan is not refinanced or Dreamlife is unable to
secure additional financing or complete a strategic transaction, it may
be forced to cease operations.
9
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PLAN OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). The words or phrases "can be,"
"expects," "may affect," "may depend," "believes," "estimate," "project," and
similar words and phrases are intended to identify such forward-looking
statements. Such forward-looking statements are subject to various known and
unknown risks and uncertainties and dreamlife, inc. ("Dreamlife") cautions you
that any forward-looking information provided by or on our behalf is not a
guarantee of future performance. Our actual results could differ materially from
those anticipated by such forward-looking statements due to a number of factors,
some of which are beyond our control, including those discussed under "Risk
Factors" in our Annual Report on Form 10-K for the year ended December 31, 1999
(filed with the Securities and Exchange Commission on March 30, 2000), including
without limitation, (i) our ability to secure additional financing or complete a
strategic transaction, (ii) the volatile and competitive nature of the Internet
industry, (iii) changes in domestic and foreign economic and market conditions,
(iv) the effect of federal, state and foreign regulation on our business, (v)
our ability to attract and maintain relationships with content providers, (vi)
intellectual property and other claims, (vii) our ability to successfully
implement and execute our e-commerce or advertising sales and sponsorship
strategy, and (viii) our ability to maintain our relationships with our
customers in addition to the risks described below, as well as those discussed
in our other public filings. All such forward-looking statements are current
only as of the date on which such statements were made. We do not undertake any
obligation to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.
"Dreamlife," the Dreamlife logo and "Quick Coach" are service marks of
dreamlife, inc. Other marks are the property of their respective owners.
OVERVIEW
We officially launched our web site, WWW.DREAMLIFE.COM, in February
2000. We believe our web site will enable our members to reach personal and
professional goals by assessing, defining and pursuing their aspirations through
the use of technology, coaching, communities, courses, education tools and an
interface with experts and peer support. Our site is undergoing continuing
development and we have not yet fully implemented our marketing plan.
On October 25, 2000, we secured a $1.5 million line of credit from The
Chase Manhattan Bank that expires on November 30, 2000. We anticipate that our
cash and cash equivalents will now be adequate to fund our operations at their
current level at least through November 30, 2000. There can be
10
<PAGE>
no assurance, however, that we will have sufficient funds to repay the loan when
due. We are working with Wit Soundview Group to explore alternatives for
additional financing and strategic transactions. If we are unable to secure
additional financing or complete a strategic transaction, we may be forced to
cease operations.
In light of our current cash position, we have not increased our
marketing activities to their formerly projected levels. As a result, during the
nine months ended September 30, 2000, we generated an immaterial amount of
revenues through the sale of online courses to our users and through the sale of
related products, such as books and tapes, through our affiliate program with
Amazon.com, Inc. and we have not generated any advertising or sponsorship
revenues to date.
If we successfully secure additional financing or complete a strategic
transaction that enables us to continue to execute our current business plan and
increase our marketing activities accordingly, then we would expect to generate
advertising and sponsorship revenues by the middle of 2001. In any event, we do
not expect to generate significant revenues before the second half of 2001. Our
ability to continue to develop our web site and related functionalities and
significantly increase our marketing and promotional expenditures will directly
affect the timing of future revenues. As with any development stage enterprise,
unforeseen difficulties may arise.
RESULTS OF OPERATIONS
No comparison of prior periods is presented for the nine months ended
September 30, 2000, as the Company did not conduct operations prior to May 27,
1999, and such comparison would therefore not be meaningful.
REVENUES AND COSTS OF REVENUES
We began to generate an immaterial amount of revenue during the first
nine months of 2000. Revenues for the nine months ended September 30, 2000 and
the three months ended September 30, 2000 were $40,000 and $12,000,
respectively, and were primarily a result of the sale of online courses to our
users. As we launched our web site in February 2000, we did not generate any
revenue in 1999. Costs of revenues were $38,000 for the nine months ended
September 30, 2000 and $20,000 for the three months ended September 30, 2000,
and is comprised of revenue share amounts due to our content providers and
service fees due to our digital commerce service provider.
INTEREST INCOME
We earned interest of approximately $243,000 on our cash balances for
the nine months ended September 30, 2000. For the three months ended September
30, 2000, interest income on our cash balances declined to $39,000 from $155,000
for the same period last year. This decrease is primarily a result of the
significant decline in our cash balances.
EXPENSES
Our operating expenses for the nine months ended September 30, 2000
totaled $17.9 million, of which $7.5 million related to non-cash items including
$1.8 million of compensation expense for compensatory stock options granted to
our employees and directors and $5.7 million related to the write-down and
amortization of intangible assets acquired in the Concept Development and The
Learning Annex transactions (see Note 4 to Dreamlife's audited financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999). On September 1, 2000, Dreamlife decided not to make
scheduled payments necessary to continue its relationship with The Learning
Annex under the parties' License and Marketing Agreement and Option Agreement.
As anticipated, The Learning
11
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Annex sent a notice to Dreamlife that it is in breach of the terms of such
agreements. On October 12, 2000, Dreamlife officially discontinued its
current relationship with The Learning Annex and does not believe that the
loss of such relationship will have a material adverse effect on its
business, as no revenues have been derived from that relationship. As a
result of Dreamlife's decision to discontinue its relationship with the
Learning Annex due to the absence of benefits realized to date, the Company
wrote-down the remaining value of the intangible assets related to The
Learning Annex transaction in the quarter ended September 30, 2000. In
addition, the Company also wrote-down the remaining value of the intangible
assets related to the Concept Development transaction, as the value to be
derived from this relationship was dependent on the Company's continued
relationship with The Learning Annex. These write-downs amounted to $4.0
million and are included in write-down and amortization of intangible assets
on the statement of operations. The remaining $10.4 million of expenses
primarily consisted of expenses relating to internal salaries, continuing
development of our web site, advertising and promotional expenses, and
expenses related to the acquisition and development of content.
For the three months ended September 30, 2000, our operating expenses
totaled $8.0 million as compared to $3.4 million for same period last year. The
increase was primarily driven by the write-down of intangible assets acquired in
the Concept Development and The Learning Annex transactions, the addition of
promotional and marketing activities and increased staffing levels, partially
offset by a decline in expenses for compensatory stock options. For the three
months ended September 30, 2000, operating expenses were comprised of $4.7
million related to non-cash items including $0.2 million of compensation expense
for compensatory stock options granted to our employees and directors and $4.5
million related to the write-down and amortization of intangible assets as
described above. The remaining $3.3 million of expenses represented internal
salaries, advertising and promotional expenses, continuing development of our
web site, and expenses related to the acquisition and development of content. If
we are successful in raising additional financing or completing a strategic
transaction that enables us to continue to execute our current business plan and
increase our marketing activities accordingly, then we believe that the general
and administrative and advertising and marketing expenses will significantly
increase as we continue to acquire staff and equipment. In addition, the
amortization of intangibles may increase depending on the amount and nature of
future content acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
We had $1.0 million in cash and cash equivalents at September 30, 2000,
compared to $10.5 million at December 31, 1999.
For the nine months ended September 30, 2000, cash used in operating
activities was $8.8 million, of which internal salaries and benefits expenses
totaled approximately $3.4 million, advertising and promotional expenses totaled
$2.5 million, web site development and content development expenses totaled $1.1
million and other operating expenses totaled $1.8 million.
For the nine months ended September 30, 2000, cash used in investing
activities was $515,000 primarily for the acquisition of property and equipment.
Cash used in financing activities was approximately $76,000 for
payments under capital lease obligations.
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We believe that we will continue to incur significant operating losses
through at least 2001. On October 25, 2000, we secured a $1.5 million line of
credit from The Chase Manhattan Bank that expires on November 30, 2000. We
anticipate that our cash and cash equivalents will now be adequate to fund our
operations at their current level at least through November 30, 2000. There can
be no assurance, however, that we will have sufficient funds to repay the loan
when due. To the extent that our costs increase from their current levels and
the acquisition or development of content and/or marketing requires significant
cash consideration, we anticipate the need to obtain additional financing before
November 30, 2000. We cannot assure you that we will be able to secure
additional financing or that such financing, if any, will be available on
favorable terms.
In December 1999, we entered into an agreement with Yahoo! Inc. whereby
our content will be placed within Yahoo!'s web site for one year. As of
September 30, 2000, under the terms of such agreement and a media insertion
order, we are obligated to pay Yahoo! an additional $0.5 million through
December 2000.
In April 2000, we entered into a one-year engagement letter with Wit
SoundView Corporation whereby Wit SoundView Corporation and Wit Capital
Corporation will act as our exclusive financial advisors. In connection with
this engagement letter we have agreed to pay a monthly retainer fee and to
compensate Wit SoundView in connection with specified business and financing
transactions involving Dreamlife. We have also agreed to issue to Wit SoundView
a five-year warrant to purchase 400,000 shares of our common stock at $7.00 per
share.
In May 2000, we entered into a Retention and Severance Agreement with
Beth Polish, Dreamlife's then President and Chief Operating Officer, whereby, in
addition to adjustments in stock option compensation, Dreamlife paid to Ms.
Polish a bonus of $50,000 and agreed to pay to Ms. Polish severance in the
amount of $300,000 in semi-monthly installments through April 2001.
In July 2000, we entered into an agreement with America Online, Inc.
whereby we will provide content aimed at small business users to AOL and
Netscape Netcenter for eighteen (18) months, in addition to receiving promotion
across several AOL properties. As of September 30, 2000, we are obligated to pay
America Online $0.7 million through December 2001.
In July 2000, we entered into a compensation arrangement with Peter A.
Lund, our new Chief Executive Officer. Under an agreement between Mr. Lund and
Dreamlife, Mr. Lund will receive an annual base salary of $300,000, subject to
change at the discretion of the Board of Directors. The agreement also provides
for a discretionary bonus that may be granted as determined by the Board of
Directors and a guaranteed deferred bonus of up to $3,000,000 payable in a lump
sum on May 22, 2003. The deferred bonus is subject to vesting requirements based
on continued employment and is therefore being expensed over the vesting period.
Mr. Lund also received stock option grants under our 1999 Stock Option Plan and
from a principal shareholder.
SUBSEQUENT EVENTS
On September 1, 2000, Dreamlife decided not to make scheduled payments
necessary to continue its relationship with The Learning Annex under the
parties' License and Marketing Agreement and Option Agreement. As anticipated,
The Learning Annex sent a notice to Dreamlife that it is in breach of the terms
of such agreements. On October 12, 2000, Dreamlife discontinued its current
relationship with The Learning Annex and does not believe that the loss of such
relationship will have a material adverse effect on its business, as no revenues
have been derived from that relationship.
On October 19, 2000, Dreamlife received a written commitment from CYL
Development Holdings, LLC ("CYL"), a 19.1% stockholder of Dreamlife, to provide,
or arrange for, a $1.5 million 30-day loan to Dreamlife by October 25, 2000. On
October 24, 2000, Dreamlife signed a Grid Time
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Promissory Note to the order of The Chase Manhattan Bank for $1.5 million. The
interest on the note is at the bank's prime rate and the note is due on November
30, 2000. An affiliate of CYL provides credit support for the line of credit.
Dreamlife anticipates that its cash and cash equivalents will be adequate to
fund its operations at least through November 30, 2000. There can be no
assurance, however, that Dreamlife will have sufficient funds to repay the loan
when due. Dreamlife is working with Wit Soundview Group to explore alternatives
for additional financing and strategic transactions. In the event that the loan
is not refinanced or Dreamlife is unable to secure additional financing or
complete a strategic transaction, it may be forced to cease operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133," which deferred the
effective date of SFAS No. 133. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. We are analyzing the
impact of SFAS No. 133 on our financial statements.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. On March 24, 2000,
the SEC issued SAB 101A which amends the transition guidance for SAB 101. Under
the revised guidance, the staff will not object if registrants that have not
applied the accounting requirements in SAB 101 do not restate prior financial
statements provided they report a change in accounting principle in accordance
with APB Opinion No. 20, "Accounting Changes". The staff believes that the
change must be reported no later than the first fiscal quarter of the fiscal
year beginning after December 15, 1999, except that registrants with fiscal
years that begin between December 16, 1999 and March 15, 2000 may report a
change in accounting principle no later than their fourth fiscal quarter of the
fiscal year beginning after December 15, 1999. If a registrant with a fiscal
year beginning between December 16, 1999 and March 15, 2000 elects to avail
itself of this delay, the change must be reported in accordance with FASB
Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements".
We believe the adoption of SAB 101 will not have a significant effect on our
financial statements.
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PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description and Method of Filing
--------- ----------------------------------------
3(i).1 Restated Certificate of Incorporation (1)
3(i).2 Certificate of Amendment to Certificate of
Incorporation dated June 18, 1987 (2)
3(i).3 Certificate of Amendment to Certificate of
Incorporation dated November 17, 1989 (3)
3(i).4 Certificate of Amendment to Certificate of
Incorporation filed November 3, 1999 (4)
3(i).5 Certificate of Amendment to Certificate of
Incorporation filed December 13, 1999 (5)
3(ii) Amended and Restated By-Laws (6)
10.1 Grid Time Promissory Note to The Chase
Manhattan Bank for $1,500,000 dated October
24, 2000.
27 Financial Data Schedule
99.1 Press Release dated October 20, 2000 (7)
99.2 Press Release dated October 26, 2000 (8)
---------------------------------------------------------------
(1) Incorporated by reference from Exhibit 3.1 to the
registrant's Registration Statement No. 33-4532-W on
Form S-18.
(2) Incorporated by reference from Exhibit 3(b) to the
registrant's 1987 Annual Report on Form 10-K.
(3) Incorporated by reference to Exhibit 3(c) to the
registrant's 1988 Annual Report on Form 10-K.
(4) Incorporated by reference to the registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
(5) Incorporated by reference to the registrant's Annual
Report on Form 10-K for the year ended December 31,
1999.
(6) Incorporated by reference to the registrant's Form
8-K/A dated May 27, 1999 and filed with the
Securities and Exchange Commission as of June 11,
1999.
(7) Incorporated by reference to the registrant's Form
8-K dated October 20, 2000 and filed with the
Securities and Exchange Commission as of October 23,
2000.
(8) Incorporated by reference to the registrant's Form
8-K dated October 26, 2000 and filed with the
Securities and Exchange Commission as of October 27,
2000.
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(b) Reports on Form 8-K
(1) On October 23, 2000, Dreamlife filed a report on Form 8-K
dated October 20, 2000 under Item 5 (Other Events) regarding the
receipt of commitment for short-term financing.
(2) On October 27, 2000, Dreamlife filed a report on Form 8-K
dated October 26, 2000 under Item 5 (Other Events) regarding the
receipt of $1.5 million short-term financing.
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SIGNATURES
In accordance with 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.
dreamlife, inc.
Dated: NOVEMBER 14, 2000 By: /s/ PETER A. LUND
-------------------- --------------------------------------
Peter A. Lund
Chief Executive Officer
By: /s/ PHILICIA G. LEVINSON
--------------------------------------
Philicia G. Levinson
Senior Vice President,
Chief Financial Officer, Secretary and
Treasurer
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EXHIBIT INDEX
Number Description and Method of Filing
--------- ----------------------------------------
3(i).1 Restated Certificate of Incorporation (1)
3(i).2 Certificate of Amendment to Certificate of
Incorporation dated June 18, 1987 (2)
3(i).3 Certificate of Amendment to Certificate of
Incorporation dated November 17, 1989 (3)
3(i).4 Certificate of Amendment to Certificate of
Incorporation filed November 3, 1999 (4)
3(i).5 Certificate of Amendment to Certificate of
Incorporation filed December 13, 1999 (5)
3(ii) Amended and Restated By-Laws (6)
10.1 Grid Time Promissory Note to The Chase
Manhattan Bank for $1,500,000 dated October
24, 2000.
27 Financial Data Schedule
99.1 Press Release dated October 20, 2000 (7)
99.2 Press Release dated October 26, 2000 (8)
-----------------------------------------------------
(1) Incorporated by reference from Exhibit 3.1 to the registrant's
Registration Statement No. 33-4532-W on Form S-18.
(2) Incorporated by reference from Exhibit 3(b) to the registrant's 1987
Annual Report on Form 10-K.
(3) Incorporated by reference to Exhibit 3(c) to the registrant's 1988
Annual Report on Form 10-K.
(4) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
(5) Incorporated by reference to the registrant's Annual Report on Form
10-K for the year ended December 31, 1999.
(6) Incorporated by reference to the registrant's Form 8-K/A dated May 27,
1999 and filed with the Securities and Exchange Commission as of June
11, 1999.
(7) Incorporated by reference to the registrant's Form 8-K dated October
20, 2000 and filed with the Securities and Exchange Commission as of
October 23, 2000.
(8) Incorporated by reference to the registrant's Form 8-K dated October
26, 2000 and filed with the Securities and Exchange Commission as of
October 27, 2000.
