Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM 10-K
-----------------------
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended December 31, 1999
|_| 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 specified in its charter)
Florida 65-0423422
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11811 U.S. Highway One, Suite 101
North Palm Beach, Florida 33408
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (561) 630-2400
-----------------------
Securities registered pursuant to Section 12(b) of the Act:
None
-----------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the average of the closing bid and ask quotations for the
Common Stock on March 31, 2000 as reported by the Nasdaq National Market, was
approximately $9,822,138. The shares of Common Stock held by each officer and
director and by each person known to the Company who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of March 31, 2000, Registrant
had outstanding 13,548,405 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders are incorporated by reference into Parts I and III of this report.
ITEM 1. BUSINESS
EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DESCRIPTION OF THE COMPANY'S
BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING
STATEMENTS IS SUBJECT TO RISKS AND ACTUAL RESULTS COULD DIFFER MATERIALLY. THE
SECTIONS ENTITLED "ITEM 1. BUSINESS - RISK FACTORS THAT COULD IMPACT FUTURE
OPERATING RESULTS", "ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN
THIS ANNUAL REPORT CONTAIN A DISCUSSION OF SOME OF THE FACTORS THAT COULD
CONTRIBUTE TO THESE DIFFERENCES.
Overview
Based in North Palm Beach, Florida, ilife.com, Inc. (NASDAQ: ILIF) is an
industry leader in creating, producing, broadcasting and syndicating personal
finance information for the consumer through a broad portfolio of Web sites,
print publications and television segments that have a potential to reach an
estimated 36.5 million visitors, viewers and readers, as determined by Media
Metrix, Nielson and Editor & Publisher International Year Book. 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". 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.
ilife.com, Inc.
Internet Advertising Views and Page Views
(in millions)
Six Months Ending
- --------------------------------------------------------------------
6/30/98 12/31/98 6/30/99 12/31/99
- --------------------------------------------------------------------
Ad Views (1) 29 75 128 160
- --------------------------------------------------------------------
Page Views (2) 14 26 40 49
- --------------------------------------------------------------------
- ----------------
Source of Data: ilife.com, Inc. server reports
(1) Ad Views - served from the Company's ad servers. Includes ads served in
the CPNet.com college advertising network in which we serve into
externally hosted college newspaper web pages.
(2) Page Views - does not include externally hosted pages served in the
CPNet.com college network (non-Company produced content pages).
Prior to 1996, and dating back to 1976, our principal business was the
publication of print newsletters, the syndication of unbiased editorial bank and
credit product research to newspapers and magazines, and advertising sales of
the Consumer Mortgage Guide. We currently syndicate editorial research to 85
newspapers that have combined single day circulation in excess of 27 million
copies and three national magazines with combined monthly circulation in excess
of 2.5 million copies. The Consumer Mortgage Guide is a weekly newspaper
advertising table consisting of product and rate information from local mortgage
companies and financial institutions. The Consumer Mortgage Guide appears weekly
in approximately 12 U.S. metropolitan newspapers with combined single day
circulation in excess of 3.5 million copies. Together,
these bankrate.com branded print activities have the potential of reaching 33
million readers, according to Editor & Publisher International 1998 Year Book.
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 fiscal 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 Division which syndicates ilife.com branded television segments that
reach an estimated 2.5 million viewers per week, according to Nielson the
November 1999 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.
We publish our editorial and research data online through our principal Web
site, bankrate.com, and through distribution (or syndication) arrangements with
more than 90 third party Web sites. Information is available covering over 100
financial products within 126 geographic markets. The information includes data
regarding mortgage and home equity loans, credit cards, automobile loans,
checking accounts, ATM fees, and yields on savings instruments. Our unique
information, which is compiled by 45 researchers, is accompanied by extensive
editorial content designed to assist consumers with their decision-making
process. Due to the average per capita income, level of education and
professional status of bankrate.com's visitors, we believe this audience
represents a desirable group of target customers for our advertisers.
We have used the resources of bankrate.com to create new online publications
which provide personal finance information to additional targeted audiences.
These publications include: theWhiz.com, which targets the financial novice;
Consejero.com, which targets the Spanish-speaking audience; CPNet.com, which
targets the college market; GreenMagazine.com for the novice investor;
IntelligentTaxes.com for those interested in personal income tax issues; and
Pivot.com, which sells insurance and annuity products. Our goal is to develop a
broad base of loyal users of our family of Web sites.
Effective 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.
Our Opportunity
Many financial services customers are relatively uninformed with respect to
financial products and services and often rely upon personal relationships when
choosing such products and services. Many of these products and services are not
well explained and viable, equivalent alternatives typically are not presented
when marketed to consumers through traditional media. As the sale of many of
these products and services moves to the Internet, where there is little
personal contact, we believe that consumers will seek sources of independent
objective information such as bankrate.com to facilitate and support their
buying decisions. Because of the interactive nature of the Internet, where Web
technology allows us to display extensive research on financial products and
services that was previously unavailable to consumers, we believe we are able to
provide a superior vehicle to educate consumers in the selection and purchase
process.
We believe the majority of financial information available on the Web is
oriented toward investment advice and providing business news and financial
market information, rather than personal and consumer
finance data. Our publications are targeted to fulfill the market need for
personal and consumer finance information.
By expanding our comparative data regarding financial products and related
editorial content, we are creating a unique Web-based service designed to enable
our audience to keep abreast of personal finance trends and to better manage
their financial affairs. As a result, we believe we can assemble a loyal base of
users comprised of targeted audiences that are attractive to advertisers.
We believe that advertising spending by financial producers and services
components is growing relatively rapidly as compared to advertising spending in
other categories. According to Advertising Age, advertising spending by
financial products and services companies grew at an annual rate of 15.1% from
1997 to 1998.
We believe ilife.com, Inc. will benefit significantly from the anticipated
growth in Internet usage and spending on Internet advertising, direct marketing
and electronic comments. The following table highlights anticipated growth in
these areas.
Internet Growth In the United States
(in millions)
- --------------------------------------------------------------------------------
1998 2000 2003
Estimate Estimate
- --------------------------------------------------------------------------------
Number of Internet users 83.4 115.6 157.0
- --------------------------------------------------------------------------------
Spending by advertisers $2,100 $4,700 $11,500
online
- --------------------------------------------------------------------------------
E-commerce spending $7,800 $23,100 $78,000
- --------------------------------------------------------------------------------
- ------------------------
Source: Jupiter Communications, LLC
Strategy
Our objective is to create a series of online publications that are trusted
sources of editorial content and e-commerce for consumers in the area of
personal finance. Elements of our strategy include:
. Increase awareness of our publications. We intend to promote our online
publications and move toward more uniformed branding for the family of
ilife.com Web sites while significantly reducing the level of marketing
expenses in 2000. Developing greater awareness of our brand names should
increase traffic and increase the value of our Web sites to potential
advertisers and Web sites with which we may enter into distribution
arrangements. During the last two quarters of fiscal 1999, we significantly
increased our marketing efforts in order to create brand awareness of our Web
sites.
. Expanding existing online publications. We plan to expand and improve our
existing online publications by including additional editorial and research
content. Recent additions to bankrate.com include information regarding 30
year jumbo mortgages, VA mortgages, money market accounts, credit unions, and
bank ratings. The IntelligentTaxes.com Web site has been added to provide
personal income tax advice and planning and GreenMagazine.com was purchased
to provide investment editorial content.
. Continue to develop new distribution relationships. We intend to pursue new
and expand existing distribution relationships in order to increase site
traffic and raise the profile of our brand names.
. Provide high value added selections to advertisers. Delivering audiences to
our advertisers on a targeted demographic basis, segmented by geographic
region and product of interest, provides high value added marketing solutions
to advertisers. With expanded breadth and depth of our online publications
which
added to our advertising inventory, we believe we have expanded the scope
of our services, thereby increasing sales to existing advertisers and
attracting new advertisers.
bankrate.com
Bankrate.com provides consumers with financial data, research and editorial
information on non-investment financial products. A large research team surveys
approximately 4,800 financial institutions every week in order to provide
objective rate information on banking products including mortgages, credit cards
and auto loans. Bankrate.com is unique in its approach to offering objective
rate information on 120 markets in all 50 states and Puerto Rico. We gather and
present this information by metropolitan area, which provides more valuable
information to consumers than aggregated national information and allows
advertisers to target prospective customers geographically.
Bankrate.com also distributes electronic newsletters weekly to approximately
107,000 subscribers covering topics such as mortgages, credit cards, banking,
small businesses, certificate of deposit rates, and Federal Funds rates. We also
maintain message boards where visitors can post questions for members of the
bankrate.com community. Topics parallel the channels offered by bankrate.com.
Distribution Arrangements
A significant portion of the traffic to bankrate.com, as well as our other
Web sites, is attributable to the distribution (or syndication) arrangements we
have with other Web site operators. Our distribution arrangements fall into two
categories: (1) co-branding in which we establish a "co-branded" site with
another Web site operator, and (2) licensing in which we provide content to the
other operator's Web site together with a hyperlink to our own site. We have
found co-branding to be more effective in driving traffic to our sites.
Co-branded sites are created pursuant to agreements with other Web site
operators. Generally, agreements relating to co-branded sites provide for us to
host the co-branded Web pages, sell and serve the graphical advertising, and
collect advertising revenues which are split with the third party Web site.
Under licensing arrangements we provide content to other Web sites in
exchange for a fee. The content identifies bankrate.com as its source and
typically includes a hyperlink to the bankrate.com Web site.
The table below lists parties with which we have distribution agreements as
of December 31, 1999:
Access Atlanta Edmunds On Money
America Online Family Money Oxygen
AT&T Worldnet Fiera Providence Online
Austin 360 Go Carolinas RealTimes
AutoByInternet Go Hampton Roads Realtor.com
Auto Connect Go PBI San Antonio Express
Auto Site Hispanic Online San Diego Insider
Black Families HomeStore ScarsdaleNet.com
Bloomberg Housenet.com SecureTax.com
Business Today Houston Chronicle Sign on San Diego
CarBuyer.com Inman News Features Sign on San Diego en
CarPrices.com INPHO Inc. Espanol
Classified Ventures Intellichoice Smart Money Magazine
CNNfn.com Kiplinger's Snap.com
Columbus Dispatch MarketWatch.com SoFla.com
Compuserve Microsoft Network Sybercuse.com
Cosmos.com Milwaukee Journal Tegris
Sentinel The Money Maven
Credit Info MindSpring US News & World Report
Cyberhomes Money Magazine USA Today
Dallas Morning News Moneywise Magazine Yahoo!
Digital Cities Motley Fool Your New House
Discover Omaha My Simon YUPI Internet
Dollar Stretcher NandoNet ZDTV.com
Financial Product Research
Our research staff is made up of 45 people who track comparative information
on over 100 financial products and services, including checking accounts,
consumer loans, lines of credit, mortgages, certificates of deposit, savings
accounts, credit cards, money market accounts, and online accounts. We cover
both personal and small business accounts offered through branch offices and on
the Internet by banks, thrifts, credit unions, credit card issuers, mortgage
bankers and mortgage brokers. We estimate that over 350,000 items of data are
gathered each week for over 126 markets across the United States and Puerto Rico
from over 4,800 financial institutions. The information obtained includes not
only interest rates and yields, but related data such as lock periods, fees,
points, and loan sizes for mortgages and grace periods, late penalties, cash
advance fees, cash advance APRs, APYs, minimum payments, and terms and
conditions for credit cards.
We adhere to a strict methodology in developing our markets and our
institutional survey group. The market survey includes the 100 largest U.S.
markets, as defined by the U.S. Census Bureau's Metropolitan Statistical Area
categories, along with the largest market in each state that does not include
one of the largest 100 markets. We provide a comparative analysis of data by
market as well as on a national basis.
Institutions in the survey group include the largest banks and thrifts
within each market area based on total deposits. The number of institutions
tracked within a given market is based on product availability and number of
institutions in the market area. In each of the largest 50 markets, at least 10
institutions are tracked. In each of the smaller markets we track four or more
institutions. The institutions included in the survey group are verified, and
adjusted if necessary, on an annual basis using FDIC deposit data from year-end
call reports. Credit unions are not included in the market survey group since
product availability is based upon membership. The 50 largest U.S. credit unions
along with the five largest credit unions in each state, based on share
deposits, are tracked as a separate survey group for comparison purposes.
All products included in our database have closely defined criteria so that
information provided by institutions is truly comparative in nature. Collected
data undergoes three levels of quality control prior to being accepted for
inclusion in the database. The first level is automatically performed by our
editing software, which identifies unusual changes. The second level is visual
proofing, which is performed by the researcher who gathers rates from
institutions. The researcher reviews the surveys to determine whether there have
been any changes in the data on a weekly basis. If there has been a change that
is outside of a specified range, the researcher verifies that the data is
correct by calling the institution. Once the data is verified, it is forwarded
to a senior researcher for review and approval. The third level is a dedicated
quality control staff consisting of senior researchers who verify that the
information has been correctly updated and entered into our databank. Our
quality control staff reviews each listing in relation to regional and national
trends and for overall accuracy and consistency fees and related information
prior to disclosure of the information to consumers. The staff also reviews the
comparability of products, institutional accuracy and survey accuracy. In
addition, the quality control team performs anonymous shopping on a weekly
basis, in which we place calls to institutions in order to obtain rate
information without identifying ourselves as bankrate.com. Such anonymous
shopping allows us to validate the data in a consumer setting. Institutions
providing invalid data are contacted by our quality control staff to ensure that
future information will be accurate. Institutions listed in our bankrate.com
online tables who purchase hyperlinks to their own sites or purchase other
advertising must comply with the same criteria for product listings that apply
to other institutions or they will be removed.
The criteria for product listings consists of specific attributes, such as loan
size and term, that are used to define each type of financial instrument in
order to ensure uniformity in the products that are compared. With the exception
of the "Internet Banking Deals" table, no special offers are listed on our
Internet sites. All of our new research employees are provided with a four-week
program of classroom and on-the-job training to ensure consistency of
data-gathering and validation techniques. Follow-up refresher training is
provided to our research employees on an ongoing basis to ensure that skill
levels are maintained.
At the end of each weekly survey, data is archived as part of our 16-year
old cumulative historical data file. This file provides a unique resource for
our financial analysts and editorial team in developing trend graphs, charts and
narrative analysis that is used by national and local media.
We are aware of the potential conflict of interest resulting from the sale
of advertising to financial institutions while providing independent and
objective research. However, no conflicts of interests have compromised or are
expected to compromise our ability to provide independent and objective
research.
Editorial Content
In addition to our research department, we maintain an editorial staff of 18
senior editors and 17 full-time reporters for our family of Web sites. We also
have relationships with over 50 freelance writers. Most of our editorial staff
are experienced journalists with newspaper or broadcast experience. For example,
the reporters and editors of bankrate.com have professional journalistic work
experience ranging from one to 21 years, with an average of ten years of
experience. We believe the quality of our original content plays a critical role
in attracting visitors to our sites and co-branded partners to the ilife.com Web
sites.
While the majority of the content within our Web sites is original and
produced internally, we also include third-party content. This content is
acquired under advertising revenue-sharing agreements and licenses which allow
us to incorporate relevant information on our Web site that would otherwise
require additional resources for us to produce. An example of this type of
arrangement is the incorporation in bankrate.com of financial calculators
created and owned by SmartMoney as well as stock quotes on the GreenMagazine.com
site which are provided by Stockpoint.com.
Print Publications
We continue to produce traditional print publications to absorb part of the
cost of producing research and original editorial content. Additionally, we
believe that print publishing activities contribute to greater exposure and
branding opportunities for our Internet Web sites. These publications are as
follows:
Consumer Mortgage Guide. We generate revenue through the sale of mortgage
rate and product listings in 12 metropolitan newspapers across the United States
with combined Sunday circulation of 3.5 million copies. We enter into agreements
with the newspapers for blocks of print space which is in turn sold to local
mortgage lenders and we split the revenue with the newspapers on a percentage
basis.
Syndication of Editorial Content and Research. We syndicate editorial
research to 85 newspapers which have combined Sunday circulation in excess of 27
million copies and three national magazines with combined monthly circulation in
excess of 2.5 million copies.
Newsletters. We publish three newsletters: 100 Highest Yields and Jumbo
Flash Report, which target individual consumers, and Bank Rate Monitor, which
targets an institutional audience. These newsletters provide bank deposit
interest rate information with minimal editorial content.
Green Magazine. A compliment to our GreenMagazine.com Web site, the Green
Magazine print edition shares the common mission of simplifying money matters
with special emphasis on those strategies important
to young investors. Green Magazine provides content and tools to make sound
investment decisions and is published quarterly and sold by subscription.
Ilife.com
In addition to serving as the Company name, we launched the ilife.com Web site
as a vertical personal finance portal that makes our family of Web sites more
accessible to consumers. The site not only links ilife.com's sites together, but
also provides consumers a free and easy way to get useful financial tips, tools,
news and original editorial content. Ilife.com features content areas for
banking, financial planning, investing, insurance and taxes.
theWhiz.com
TheWhiz.com Web site presents conventional money issues in an unconventional
way. Through original editorial content and community activities - chats and
message boards - the financial novice can learn how to establish credit, get out
of debt, develop a budget, invest in the stock market and have fun without
spending a lot. As with bankrate.com, theWhiz.com is divided into channels, each
of which includes original editorial content.
Consejero.com
Consejero.com is a Spanish-language personal finance Web site geared toward
Spanish-speakers in the United States, Latin America and Spain. Editorial
content on finance issues in Spanish is complemented by opportunities for users
to interact with the site, and with each other, through chat rooms and message
boards. Consejero.com features country-specific personal content for the United
States as well as Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, El
Salvador, Mexico, Nicaragua, Panama, Peru, Puerto Rico, Spain, and Venezuela.
Spanish is the second most common language found on the Internet, yet we believe
that little useful content on financial topics in Spanish currently exists on
the Internet. Our goal is to satisfy the need for such data and capitalize on
the anticipated rapid growth of Internet use by people who speak Spanish.
Consejero.com provides twice-daily updated news as well as feature articles
written by established journalists working from major cities in Latin America
and Spain. The topics are picked from day-to-day issues consumers face in their
particular countries. The site also provides general and entertainment news
acquired through arrangements with traditional media.
Consejero.com also includes information translated from the bankrate.com
site, specifically, certain editorial stories and a full translation of the
financial product interest rate data base. This translation provides the same
information and many of the services of bankrate.com, but with supplementary
articles and tables to facilitate understanding for those who may not be
familiar with U.S. financial products and terms.
CPNet.com
Through CPNet.com, our online advertising network, we provide content and
advertising management to over 50 college newspaper Web sites across the
country. CPNet.com provides news and feature articles to these Web sites
covering events and issues of interest to college students. Topics include
current events, lifestyle and entertainment. In addition to creating advertising
relationships that allow us to offer an integrated outlet for advertisers
seeking to reach the college market, we have the opportunity to develop user
relationships that allow us to cross-promote our publications to these
consumers. We believe that college students use the Internet more than many
other segments of the population. We also believe that this network can be
highly attractive to advertisers since very few online publications offer a
mechanism for national advertisements to reach college students with one
advertisement purchase.
GreenMagazine.com
An extension of Green Magazine's print edition, the GreenMagazine.com Web
site shares the print publication's central mission of demystifying money
matters, with special emphasis on those strategies important to young investors.
GreenMagazine.com provides content and tools to make sound investment decisions,
including professional quality investment tools, such as free real-time quotes,
multiple portfolio tracking, interactive stock charting and advanced stock and
mutual fund finders through a license relationship with Stockpoint.com.
IntelligentTaxes.com
IntelligentTaxes.com offers a substantial array of information taxpayers
need to negotiate the bewildering maze of tax planning and preparation. It is a
one-stop tax preparation tool for individual taxpayers - from beginners to pros.
IntelligentTaxes.com offers information on federal and state taxes along with
hyperlinks to online tax forms. Other features include basics focused on
life-stage issues, planning calendars, a unique column called Tax Watch, as well
as personalized custom email alerts to remind users of approaching deadlines.
Free downloadable software is available on the site.
Pivot.com (Professional Direct Agency, Inc.)
Pivot, a subsidiary of ilife.com, Inc. and headquartered in Columbus, Ohio,
is a virtual insurance agency and fulfillment/call center specializing in direct
insurance sales over the Internet and other direct media. Pivot.com has teamed
up with industry-leading insurance companies to engineer a means of providing
national turnkey insurance solutions to businesses. Pivot offers insurance
companies, banks, large agencies and affinity groups a means of increasing their
revenues through a variety of partnership possibilities. Pivot's fulfillment
services utilize the Internet and telephone as a means of generating leads and
managing current business opportunities while eliminating channel conflict.
Pivot's efficient marketing capabilities have enabled the agency to be selected
as the fulfillment arm for various third party marketing arrangements.
Because the agency is licensed nationally, Pivot's insurance services are
also available to consumers and businesses nationwide. Pivot.com allows
consumers to search for annuities, term life insurance and auto insurance.
Broadcast Operations
Our broadcast program called "Cost of Life" is a unique personal finance
video segment distributed to 33 television stations for bi-weekly news
programming. It is estimated that the weekly exposure is 24.4 million TV
households within which an estimated 2.6 million viewers may see the segments,
according to Nielsen's November 1999 Ratings. These segments are aimed at
helping viewers take action with their personal finances. Featured topics
include ways to save money tax-free for a college education, what financial
documents are needed in the event of a natural disaster, how to boost a credit
rating using the Internet and ways to trim down family medical bills.
Each television segment refers viewers to ilife.com Web sites and has a
complementary online column that runs simultaneously on bankrate.com or
theWhiz.com.
Garzarelli.com
In October 1998, we launched a new electronic subscription site for Wall
Street investment advisor Elaine Garzarelli called Garzarelli.com. We are
responsible for the site's design, electronic subscription fulfillment, partner
linking, site management, and advertising sales. Ms. Garzarelli owns the
Internet site address, selects
the content of the site and has the sole authority to determine whether the
content can be distributed to other Websites. The subscription revenues
generated from Garzarelli.com are divided between us and Ms. Garzarelli. We
receive 17% of subscription revenues, and she receives the remainder. We also
receive 50% of all advertising revenues from Garzarelli.com. Our agreement with
Ms. Garzarelli extends until August 2000.
Consumer Marketing
Prior to December 31, 1998, our expenditures on marketing and promotion were
limited to a distribution or syndication strategy in which we relied on our
co-branded distribution network to increase traffic to our Web sites. This
approach was supplemented with public relations activities and limited
direct-response expenditures. In addition, the Company's history of providing
editorial content to newspapers and broadcasters has earned bankrate.com a high
level of awareness among journalists. As a result, bankrate.com is often cited
as an authority on banking and credit products in an editorial context.
Beginning in January 1999, we initiated a direct-response marketing campaign
which consisted of placing banner advertising on third party Web sites. Our
strategy is to purchase advertising at either a fixed cost per clickthrough or
at a low CPM. We believe that the advertising proceeds from one of our visitors
generally allow us to immediately recover much of the per visitor cost of
placing our advertising. If the majority of this cost can be recovered on an
initial visit, we may build a substantial base of repeat users at a low cost.
In addition to our Web-based efforts, we developed an award winning
traditional campaign, utilizing print and television advertising. This
integrated marketing effort resulted in our becoming a top personal finance
destination.
After spending substantially on our marketing to establish the bankrate.com
brand in 1999, we plan to reduce marketing expenditures in 2000 to a maintenance
level. We anticipate the majority of our future marketing efforts will be
Web-based.
Advertising Sales
Our advertising sales staff consists of salespeople and support staff. Most
of our salespersons are located in our North Palm Beach corporate headquarters
and we maintain two smaller satellite offices in New York and Los Angeles. Each
salesperson is responsible for a designated geographic area covering the
Southeast, Mid-Atlantic, New England, Great Lakes, Midwest, Great Plains,
Northwest or Southwest regions of the United States. Salespeople sell
advertising related to all of our internet Web sites and the Consumer Mortgage
Guide. We believe our sales force is highly effective.
Our salespeople present advertising solutions to potential advertisers using
inventory created by our own Web sites, co-branded Web sites and through the
CPNet college network. We believe this combined network of sites enhances value
for advertisers and direct marketers by (1) alleviating the need to purchase a
series of advertising campaigns from numerous Web sites, (2) providing
advertisers and direct marketers with advertising opportunities on a wide
variety Web pages containing business and personal finance content, and (3)
providing targeted access to Internet users with desirable demographics.
Advertisers and direct marketers can enhance the effectiveness of their
campaigns by customizing advertising delivery on our networks within a
particular content channel or across an entire network.
Advertising Alternatives
Our advertisers can target prospective customers using three different
approaches:
. targeting specific geographic and product areas, for example, mortgage
rates in Atlanta, Georgia;
. targeting specific product channels, for example, all borrowers
interested in the home equity channel; or
. general rotation throughout a particular site, such as bankrate.com or
across our entire family of ilife.com Web sites.
Our most common graphical advertisement sizes are banners, which are
prominently displayed at the top of a page (486 x 60 pixels) and badges, which
are smaller than banners and less visible (125 x 125 pixels). Banners and badges
are offered for general rotation or specific sites. List prices may vary
depending upon the quantity of advertisements purchased by an advertiser and the
length of time an advertiser runs an advertisement on our sites. List prices for
banner and badge advertisements with premium placement may be as low as $30 CPM
and as high as $90 CPM. Discounts and commissions are available based upon the
volume of advertisements purchased.
We also sell posters, which are oversize advertisements that contain more
information than traditional advertisements. We position posters on certain
pages so that they dominate the page. The actual price ranges from $120 to $135
CPM. Advertisers may also purchase sponsorship positions on the bankrate.com
home page and the main page for each product channel. The cost of the
sponsorship is based on banner rates for impressions received and ranges from
$20 to $30 CPM. Advertisers can also sponsor an entire channel. In addition, we
offer a reference bar above all rate tables. A reference bar is an advertising
feature that contains tab references for consumers on such topics as insurance,
credit reports, credit problems and moving rates. Users who click on the tabs
are taken to an advertiser's Web site for answers to their particular questions
or needs. The cost of these tab advertisements is approximately $20 CPM.
Providing effective tools for managing advertising campaigns is essential to
maintaining advertising relationships. We use a state-of-the-art program under
license that allows our advertisers to monitor their spending on our Web sites
in real-time for impressions received and clickthrough ratios generated.
Hyperlinks
Financial institutions that are listed in our rate tables have the
opportunity to hyperlink their listings. By clicking on the hyperlink, users are
taken to the institution's Web site. A substantial benefit to advertisers with
the hyperlink rate listing is that the hyperlinks are in fixed placement on the
rate pages and are shown every time a user accesses a page. In contrast, banner
advertisements are rotated based on the number of impressions purchased.
Hyperlink fees are sold for three-month periods. The number of hyperlinked rate
listings that can be added to a rate page is limited only by the number of
institutions listed, while banner positions are limited by available space. The
actual rates for hyperlinks range from $35 to $45 CPM.
Rate Alert E-Mail Sponsorships
We issue weekly updates on mortgage rates via e-mail to customers who
subscribe to this free service. Rate alerts are issued for credit card and
savings account updates on a less-frequent basis. Advertisers can sponsor the
e-mails with text listings that are hyperlinked to their Web site. The cost for
sponsoring a rate alert is $0.25 per subscriber.
Chat Room Sponsorships
We offer advertisers chat rooms in bankrate.com and theWhiz.com in which
they may promote their spokespeople or products and acquire valuable real-time
feedback from consumers. In these chat rooms, a moderator from theWhiz.com's
staff screens questions from visitors. The advertiser or host then answers
questions and receives "virtual focus group" feedback from users.
Advertisers
We market to local advertisers targeting a specific audience in a city or
state and also to national advertisers targeting the entire country. No
advertiser accounts for more than 10% of our revenues. As of December 31, 1999,
we had approximately 260 graphical advertisers and 400 hyperlink advertisers. A
representative sample of our national and regional advertisers includes:
Abba Funding Mortgagebot.com
American Express Mortgage.com
American Home Loans Mackinac Savings
Ameritrade MasterCard
BankDirect Microsoft
Bank of America Mortgage Expo
Capital One Bank NetBank
Crestar Mortgage NextCard
Downey Savings Next Direct
First Union Pacific Shore Funding
GMAC PNC Bank
H. D. Vest Providian Financial
Household Finance Superior Bank
Loansurf.com Wells Fargo
All of the listed advertisers have been our customers for at least six
months and are representative of the types of industries, as well as national
and regional scope of our advertising base.
Competition
We compete for advertising revenues across the broad category of personal
finance information provided in traditional media such as newspapers, magazines,
radio, and television and in the developing market for online financial
publications. There are many competitors that have substantially greater
resources than ilife.com. Our online competition includes the following:
. personal finance sections of general interest sites such as Yahoo! and
America Online;
. personal finance destination sites such as MoneyCentral, Forbes, Business
Week, Fortune, Smart Money, Kiplinger's and Money.com; and
. e-commerce sites that provide bank and credit product information such as
e-Loan and GetSmart.
Competition in the online segment is generally directed at growing users and
revenue using marketing and promotion to increase traffic to Web sites. We
believe that original content and objective product information differentiate us
from our competitors.
As a direct seller of insurance products, Pivot.com competes with other
insurance sales sites, as well as insurance aggregators.
Operations
We host our proprietary Web sites and control all of our network operation
from our principal office in North Palm Beach, Florida. Internet access is
maintained through a fiber optic data circuit with AT&T. The
computer equipment used to operate our Web sites is powered by uninterruptible
power supply units and a generator.
Proprietary Rights
Our proprietary intellectual property consists of our unique research and
editorial content. We rely primarily on a combination of copyrights, trademarks,
trade secret laws, our user policy and restrictions on disclosure to protect
this content.
Employees
As of December 31, 1999, we had 237 full-time employees, of which 78 were in
Web site operations, 34 in advertising sales and marketing, 29 in insurance
agency operations, 45 in content research, 11 in advertising operations, 15 in
information technology, 20 in administration and five in broadcast. We have
never had a work stoppage and none of our employees are represented under
collective bargaining agreements. We consider our employee relations to be good.
All employees, with the exception of our subsidiary, Professional Direct Agency,
Inc. (Pivot.com), are legally employed by Vincam Human Resources, Inc., and work
for us under an employee leasing arrangement. See "Management - Employee
Leasing."
Government Regulation of Insurance Business
In most states, there are two broad categories of insurance agency
licenses, one for property and casualty insurance and the other for life and
health insurance. Ilife.com's wholly-owned subsidiary, Pivot an Ohio
corporation, is licensed as a resident insurance agency for life and health and
property and casualty insurance by the state of Ohio.
Pivot has nonresident corporate life and health insurance licenses in 13
states. At least one employee of Pivot is individually licensed as a
nonresident insurance agent in all 50 states for life and health insurance.
Pivot is licensed as a nonresident corporate insurance agency for property and
casualty insurance business in two states, it is applying for such licenses in
an additional 38 states. One of Pivot's employee agents is currently
individually licensed as a nonresident insurance agent for property and casualty
insurance in 39 states and is in the process of applying for individual
insurance agent licenses for property and casualty insurance in the remaining 11
states.
Because of the lack of uniformity in state insurance agency licensing laws,
a corporate insurance agency cannot obtain an insurance agency license in all 50
states. Some states do not issue insurance agency licenses to corporations but
only issue insurance agent licenses to individuals. Other states issue corporate
insurance agency licenses only if the state of residence of the applicant for a
corporate insurance agency license applicant reciprocates by issuing corporate
insurance agency licenses to insurance agencies resident in the foreign state.
In some states where Pivot does not have a nonresident corporate insurance
agency license, a Pivot agent is individually licensed in those states as a
nonresident insurance agent and the Pivot employee agent transacts the business
of Pivot where permitted. If any Pivot employee agent's employment with Pivot is
terminated, Pivot may not be able to transact its business unless and until it
has another employee who is individually licensed as a nonresident insurance
agent in the states where Pivot does not hold a nonresident corporate insurance
agency license. If a state in which Pivot does not hold a nonresident corporate
insurance agency license determines that Pivot is transacting business in such
state as an unlicensed insurance agency, Pivot could be subject to fines and
prohibited from engaging in its insurance agency business in that state.
It is not guaranteed that a state in which Pivot does not hold a
nonresident corporate insurance agency license will not assert that Pivot is
transacting business in such state as an unlicensed insurance agency.
Generally, commissions payable for the sale of insurance products in a given
state cannot be paid to, or received by, a person or entity that is not licensed
as an insurance agent or agency in such state, as applicable. There is no
guarantee that a state in which Pivot does not hold a nonresident corporate
insurance agency license will not assert that commissions assigned by Pivot
employee agent to Pivot are an assignment of insurance commissions occurring in
such state to an unlicensed corporate insurance agency. In the states in which
Pivot does not hold a nonresident corporate insurance agency license, the
insurance companies that have contracted with Pivot pay commissions to the Pivot
employee agent, who then assigns such commissions to Pivot. If a state in which
Pivot does not hold a nonresident corporate insurance agency license determines
that Pivot is wrongfully receiving an assignment of insurance commissions in, or
with respect to insurance policies sold in, that state as an unlicensed
insurance agency, both Pivot and the subject Pivot employee agent could be
subject to fines and prohibited from doing business in that state.
Both the U.S. Congress and state insurance regulators have taken steps
towards the adoption of uniform state insurance agent licensing laws. Under the
Gramm-Leach-Bliley Act of 1999 ("GLBA), if a majority of the states have not
adopted laws providing for a uniform state insurance agent licensing within
three years of the passage of GLBA, then such a system, known as the National
Association of Registered Agents and Brokers, would be implemented under GLBA.
The National Association of Insurance Commissioner, an national association of
the state insurance regulators which develops model insurance laws and
regulations for adoption by state legislatures, has also promulgated a model law
providing for uniform state insurance agent licensing.
Risk Factors that Could Impact Future Operating Results
We have a history of losses
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 CPNet.com by mid 2000. 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 them. 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 that 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 12 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
our ability to manage the Company.
We have incurred net losses in each of our last four fiscal years. We had an
accumulated deficit of approximately $42 million as of December 31, 1999.
Therefore, we believe that period-to-period comparisons of our financial results
should not be relied on as an indication of our future performance. We
anticipate that we will incur operating losses and negative cash flows in the
foreseeable future due to high levels of planned expenditures to enhance our
services, develop new content, build brand awareness and hire personnel to
support our growth. We may also incur significant additional costs related to
the acquisition of or technologies to respond to the constant change in our
industry. These costs could have an adverse impact on our future financial
condition and results of operations.
Our success depends upon Internet advertising revenue
We expect to derive approximately 70% of our revenues for the foreseeable
future through the sale of advertising space on our Internet Web pages. Any
factors that limit the amount advertisers are willing to spend on advertising on
our Web sites could have a material adverse effect on our business. These
factors may include: (1) lack of standards for measuring Web site traffic or
effectiveness of Web site advertising; (2) lack of established pricing models
for Internet advertising; (3) failure of traditional media advertisers to adopt
Internet advertising; (4) introduction of alternative advertising sources; and
(5) a lack of significant growth in Web site traffic.
The Internet is a relatively new medium for advertising and its
effectiveness is unproven. Demonstrating the effectiveness of advertising on our
Web sites is critical to our ability to generate advertising revenue. Currently,
there are no widely accepted standards to measure the effectiveness of Internet
advertising, and we cannot be certain that such standards will develop
sufficiently to support our growth through Internet advertising.
Currently, a number of different pricing models are used to sell advertising
on the Internet. Pricing models are typically either CPM-based (cost per
thousand) or performance-based (cost per-click). We predominantly utilize the
CPM-based model, which is based upon the number of advertisement impressions.
The
performance based, or per click, model is payable on each individual click even
though it may take multiple advertisement impressions to generate one
clickthrough. We cannot predict which pricing model, if any, will emerge as the
industry standard. Therefore, it is difficult for us to project our future
advertising rates and revenues. For instance, banner advertising, which is
currently our primary source of online revenue, may not be an effective
advertising method in the future. If we are unable to adapt to new forms of
Internet advertising and pricing models, our business could be adversely
affected.
Financial services companies account for a majority of our advertising
revenues. We will need to sell advertising to customers outside of the financial
services industry in order to significantly increase our revenues. To date,
relatively few advertisers from industries other than the technology and
financial services industries have devoted a significant portion of their
advertising budgets to Internet advertising. If we do not attract advertisers
from other industries, our business could be adversely affected.
Our success depends upon interest rate activity and mortgage refinancing
During 1999, approximately 83% and 74% of our advertisement views and page
views, respectively, were attributable to the bankrate.com site. Given that this
site provides interest rate information for mortgages and other loans, credit
cards and savings accounts, visitor traffic to this site may increase with
interest rate movements and decrease with interest rate stability. Factors that
have caused significant visitor fluctuations in the past have been Federal
Reserve Board actions and general market conditions affecting home mortgage
interest rates. During 1999, approximately 26% of advertisement views on
bankrate.com were on its mortgage pages. Accordingly, the level of traffic to
bankrate.com is can be dependent on the general level of interest rates as well
as mortgage refinancing activity. A slowdown in mortgage production volumes
could have a material adverse effect on our business.
We believe that as we continue to develop Web site channels with broader
personal finance topics, the percentage of overall ilife.com network traffic
seeking mortgage information will remain stabilize at current levels. To
accelerate the growth of traffic to sites other than bankrate.com, we are
working with our syndication partners to program more intensively, and we are
promoting these sites aggressively. We cannot assure you that we will be
successful in these efforts.
Our success depends upon establishing and maintaining distribution
arrangements
Our business strategy includes the distribution of our content through the
establishment of co-branded Web pages with high-traffic business and personal
finance sections of online services and Web sites. A co-branded site is
typically a custom version of our Web sites with the graphical look, feel, and
navigation, of the other Web site. Providing access to these co-branded Web
pages is a significant part of the value we offer to our advertisers. We compete
with other Internet content providers to maintain our current relationships with
other Web site operators and establish new relationships. In addition, as we
expand our personal finance content, some of these Web site operators may
perceive us as a competitor. As a result, they may be unwilling to promote
distribution of our banking and credit content. For example, in June 1999, we
learned that Quicken.com, which accounted for approximately 6% of our total site
traffic during the three months ended March 31, 1999, would not be renewing its
distribution agreement with us. We cannot guarantee you that our distribution
arrangements will attract a sufficient number of users to support our current
advertising model. During 1999, 36% of the traffic to our Web sites originated
from the Web sites of operators with which we have distribution arrangements .
In addition, our business could be adversely affected if we do not establish and
maintain distribution arrangements on favorable economic terms.
Our success depends upon increasing brand awareness of our Web sites
Although ilife.com and its predecessors have been in business since 1976, we
commenced our Internet operations by introducing bankrate.com in 1996. Due to
the limited operating history of our Internet
operations, it is important that we develop brand awareness of our Web sites in
order for them to be attractive to advertisers. The importance of our brand
recognition will increase as competition in the Internet advertising market
increases. As a result, developing and maintaining awareness of our Web sites by
promoting our brand names is critical to maintaining our growth. As competing
Web sites become established on the Internet, the cost of developing brand
awareness increases significantly.
Successfully promoting and positioning our Web sites and brand names will
depend largely on the effectiveness of our marketing efforts and our ability to
develop favorable traffic patterns to our Web sites.
Therefore, we may need to modify our financial commitment to creating and
maintaining brand awareness among users. If we fail to successfully promote our
Web sites and brand names or if we incur significant expense in doing so, it
could have a material adverse effect on our business.
Our markets are highly competitive
We compete for Internet advertising revenues with a number of
finance-related Web sites, such as MarketWatch.com, CNNfn.com, MoneyCentral, and
Money.com and traditional publishers and distributors of personal finance
content such as MSNBC, CNN, Money Magazine and USA Today. In addition, new
competitors may easily enter this market as there are few barriers to entry.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than us. Many competitors have complementary products or services that
drive traffic to their Web sites. Increased competition could result in lower
Web site traffic, advertising rate reductions, reduced margins or loss of market
share, any of which would adversely affect our business. We cannot be certain
that we will be able to compete successfully against current or future
competitors.
Our Web sites may encounter technical problems and service interruptions
In the past, our Web sites have experienced significant increases in traffic
in response to interest rate movements and other business or financial news
events. The number of our users has continued to increase over time, and we are
seeking to further increase our user base. As a result, our Internet servers
must accommodate spikes in demand for our Web pages in addition to potential
significant growth in traffic.
Our Web sites have in the past and may in the future experience slower
response times or interruptions as a result of increased traffic or other
reasons. These delays and interruptions resulting from failure to maintain
Internet service connections to our site could frustrate users and reduce our
future Web site traffic, which could have a material adverse effect on our
business.
All of our communications and network equipment is located at our corporate
headquarters in North Palm Beach, Florida. Any system failure at this location
could lead to interruptions or delays in service for our Web sites, which could
have a material adverse effect on our business. Our operations are dependent
upon our ability to protect our systems against damage from fires, hurricanes,
earthquakes, power losses, telecommunications failures, break-ins, computer
viruses, hacker attacks and other events beyond our control. Although we
maintain business interruption insurance, it may not adequately compensate us
for losses that may occur due to failures of our systems.
We rely on the protection of our intellectual property
Our intellectual property consists of the content of our Web sites and print
publications. We rely on a combination of copyrights, trademarks, trade secret
laws and our user policy and restrictions on disclosure to protect our
intellectual property. We may also enter into confidentiality agreements with
our employees and consultants and seek to control access to and distribution of
our proprietary information. Despite these
precautions, it may be possible for other parties to copy or otherwise obtain
and use the content of our Web sites or print publications without
authorization. A failure to protect our intellectual property in a meaningful
manner could have a material adverse effect on our business.
Because we license some of our data and content from other parties, we may
be exposed to infringement actions if such parties do not possess the necessary
proprietary rights. Generally, we obtain representations as to the origin and
ownership of licensed content and obtain indemnification to cover any breach of
any such representations. However, such representations may not be accurate and
such indemnification may not be sufficient to provide adequate compensation for
any breach of such representations.
Any future infringement or other claims or prosecutions related to our
intellectual property could have a material adverse effect on our business. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to
introduce new content or trademarks, develop new technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.
We may face liability for information on our Web sites
Much of the information published on our Web sites relates to the
competitiveness of financial institutions' rates, products and services. We may
be subjected to claims for defamation, negligence, copyright or trademark
infringement or other theories relating to the information we publish on our Web
sites. These types of claims have been brought, sometimes successfully, against
online services as well as print publications. Our insurance may not adequately
protect us against these types of claims.
Future government regulation of the Internet is uncertain and subject to change
As Internet commerce continues to evolve, increasing regulation by federal
or state agencies or foreign governments may occur. Such regulation is likely in
the areas of user privacy, pricing, content and quality of products and
services. Additionally, taxation of Internet use or electronic commerce
transactions may be imposed. Any regulation imposing fees for Internet use or
electronic commerce transactions could result in a decline in the use of the
Internet and the viability of Internet commerce, which could have a material
adverse effect on our business.
Our ownership is heavily concentrated in our management
Our officers and directors beneficially own approximately 71% of ilife.com's
outstanding common stock. Peter C. Morse, our largest shareholder, beneficially
owns approximately 41% of ilife.com's outstanding common stock. As a result, our
officers and directors will be able to exercise control over all matters
requiring shareholder approval. In particular, these controlling shareholders
will have the ability to elect all of our directors and approve or disapprove
significant corporate transactions. This control could be used to prevent or
significantly delay another company or person from acquiring or merging with us.
Our rapid growth may strain our operations
Since we began our Internet operations in 1996, we have expanded our
operations significantly, and we may continue to do so. Our future expansion may
place a significant strain on our management. To manage the expected growth of
our operations and personnel, we may need to expand and improve our existing
management, operational and financial systems. If we fail to expand and improve
these systems in a timely manner, this failure could have a material adverse
effect on our business.
Our new managers must work together effectively as a team
We have recently added key managerial, technical and operations personnel.
For example, our interim President and Chief Executive Officer was hired in
1999, our Senior Vice President-Administration was hired in 1998, and our
Executive Vice President-Strategy and Acquisitions was hired in 1999. During
this time, we also significantly increased our employee base. These new
personnel must integrate themselves into our daily operations and work
effectively as a team in order for us to be successful. We cannot be certain
that this will occur in all instances.
Our success depends upon management and key employees
Our success depends largely upon retaining the continued services of our
executive officers and other key management and developing personnel as well as
hiring and training additional employees. We have a number of key employees on
whom we depend and who may be difficult to replace. Specifically, William P.
Anderson, III, resigned as our President and Chief Executive Officer, in
February 2000, and G. Cotter Cunningham was elected as interim President and
Chief Executive Officer. We currently are conducting a search for a replacement
for Mr. Anderson. Key employees include Edward V. Blanchard, Jr., Peter W.
Minford and Robert J. DeFranco. All of our employees with the exception of our
subsidiary, Professional Direct Agency, Inc. (Pivot.com) are employed by the
Vincam Human Resources, Inc. under an employee leasing contract. This contract
has a one-year term which expires on June 1, 2000. Beginning June 1, 2000, we
plan to convert all leased employees into direct employees of ilife.com. A
failure to retain our current key employees or to hire enough qualified
employees to sustain our growth could have a material adverse effect on our
business.
Our Articles of Incorporation and Bylaws, as well as Florida law, may prevent
or delay a future takeover
Our Articles of Incorporation and Bylaws may have the effect of delaying or
preventing a merger or acquisition, or making such a transaction less desirable
to a potential acquirer, even when shareholders may consider the acquisition or
merger favorable. For example, our Articles of Incorporation and Bylaws provide
that: (1) the board of directors has the authority, without shareholder
approval, to issue up to 10,000,000 shares of preferred stock and to determine
the rights (including voting rights) associated with such preferred stock (which
issuance may adversely affect the market price of the common stock and the
voting rights of the holders of common stock); (2) the board of directors is
classified and directors have three-year terms; (3) cumulative voting for the
election of directors is prohibited; (4) approval by 66 2/3% of the shareholders
is required for material amendments to the Articles of Incorporation or Bylaws:
and (5) certain procedures must be followed before matters can be proposed by
shareholders for consideration at shareholder meetings. Florida law also
contains "control share acquisition" and "affiliate transaction" provisions that
may also delay, prevent, or discourage an acquisition of or merger with
ilife.com.
We may encounter difficulties with future acquisitions
We may acquire complementary Web sites and other content providers as a part
of our business strategy. Any acquisitions may present a number of potential
risks that could result in a material adverse effect on our business. These
risks include the following: failure to integrate the technical operations and
personnel in a timely and cost-effective manner; failure to retain key personnel
of the acquired company; and assumption of unexpected material liabilities. In
addition, we cannot assure you that we will be able to identify suitable
acquisition candidates that are available for sale at reasonable prices.
We may finance future acquisitions with debt financing, which would increase
our debt service requirements, or through the issuance of additional common or
preferred stock, which could result in dilution to our shareholders. We cannot
assure you that we will be able to arrange adequate financing on acceptable
terms.
Our results of operations may fluctuate significantly
Our results of operations may fluctuate significantly in the future as a
result of several factors, many of which are beyond our control. These factors
include: (1) changes in fees paid by advertisers; (2) traffic levels on our Web
sites, which can fluctuate significantly; (3) changes in the demand for Internet
products and services; (4) changes in fee or revenue-sharing arrangements with
our distribution partners; (5) our ability to enter into or renew key
distribution agreements; (6) the introduction of new Internet advertising
services by us or our competitors; (7) changes in our capital or operating
expenses as we expand our operations; and (8) general economic conditions.
Our future revenues and results of operations may be difficult to forecast
due to these factors. As a result, we believe that period-to-period comparisons
of our results of operations may not be meaningful, and you should not rely on
past periods as indicators of future performance.
In future periods, our results of operations may fall below the expectations
of securities analysts and investors, which could adversely affect the trading
price of the common stock.
Our stock price may be volatile in the future
The stock prices and trading volume of Internet-related companies have been
extremely volatile. Accordingly, our stock price can be volatile as well. In
addition, following periods of downward volatility in the market price of a
company's securities, class action litigation is often brought against the
Company. Downward volatility of our stock prices could lead to class action
litigation, resulting in substantial costs and a diversion of our management's
attention and resources.
ITEM 2. PROPERTIES
Our principal administrative, sales, Web operations, marketing and research
functions are located in two buildings in North Palm Beach, Florida. One lease
is for approximately 14,500 square feet which expires September 2000. The
second lease is for 5,200 square feet which expires in September 2000 and has
two four month renewal options. We currently plan to vacate the existing North
Palm Beach properties at the expiration of their terms and we have signed a ten
year lease to move into a 40,000 square foot facility. The Company also leases
5,600 square feet in Miami, Florida which is used for CPNet.com and
Consejero.com Web operations. The Miami lease expires in December 2001. We
also maintain an office in New York City which is principally used for
administration, sales and the GreenMagazine.com editorial staff. The New York
office lease expires in September 2006. Pivot leases 6,700 square feet in
Columbus, Ohio which expires in September 2001.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The names, ages at December 31, 1999, and current positions of ilife.com's
current executive officers are listed below in accordance with General
Instruction G(3) of Form 10-K and Instruction 3 of Item 401(b) of Regulation
S-K. Unless otherwise stated, each executive officer has held their position for
at least the last five years. All officers are elected for one year terms or
until their respective successors are chosen. There are no family relationships
among the executive officers nor is there any agreement or understanding between
any officer and any other person pursuant to which the officer was elected.
G. Cotter Cunningham, 37, has served as interim President and Chief
Executive Office of ilife.com, Inc. since February 25, 2000. Prior to that time,
he served as Senior Vice President-Marketing and Sales of the Company since
February 1999. From August 1997 to January 1999, Mr. Cunningham was Vice
President and General Manager of Valentine McCormick Ligibel, Inc., an
advertising agency specializing in new media. From August 1992 to July 1997, Mr.
Cunningham was Vice President of Block Financial Corporation, where he created,
launched and directed the CompuServe Visa and WebCard Visa credit card programs.
Mr. Cunningham holds a B.S. in Economics from the University of Memphis and an
M.B.A. from Vanderbilt University's Owen Graduate School of Management.
Edward V. "Monty" Blanchard, Jr., 48, has served as Executive Vice President
of ilife.com, Inc. since May 1999. Mr. Blanchard is responsible for identifying
and consummating acquisitions and other strategic ventures for the Company. From
1986 to 1999, Mr. Blanchard was a member of the Financial Institutions Mergers &
Acquisitions Group at Merrill Lynch & Co., Inc., serving as a Managing Director
since 1990 and as Co-Head of the group from 1995-1997. From 1994, Mr. Blanchard
also acted as a senior internal M&A Advisor and negotiator for a number of
Merrill Lynch's major acquisitions. Mr. Blanchard has worked as an investment
banker since 1979. He has a BA from Harvard College and an MBA from the
University of North Carolina at Chapel Hill.
Peter W. Minford, 42, has served as Chief Financial Officer, Senior Vice
President-Administration and Corporate Secretary of ilife.com since February
1998. Mr. Minford is responsible for the areas of research, information
systems, finance, administration and human resources. From August 1992 to
February 1998, Mr. Minford served as Senior Vice President-Administration at
The Bank of Tampa. Mr. Minford has held various senior management positions
in commercial banking for over 19 years including roles in credit
administration, commercial lending, general administration, compliance,
operations and technology. Mr. Minford holds a B.S. in Finance from Florida
State University and an M.B.A. from the University of South Florida.
Robert J. DeFranco, 43, has served as Vice President - Finance and Chief
Accounting Officer since March 1999. Mr. DeFranco is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants. From 1978 to 1986 he was part of the commercial audit division of
Arthur Andersen & Co., Miami, Florida, where he last served as senior audit
manager for a variety of publicly held and privately held companies in
industries including banking and other financial institutions, manufacturing,
distribution and real estate development. From 1986 to 1999 he has held various
positions in corporate accounting and finance for companies including Ocwen
Financial Corporation from January 1998 through March 1999, SunTrust Banks, Inc.
from February 1995 through December 1997, Ryder System, Inc. and Southeast
Banking Corporation. His experience includes all aspects of corporate accounting
and finance, internal and external financial reporting (including SEC
reporting), mergers and acquisitions (analysis, integration and accounting),
corporate reengineering, budgeting and forecasting and investor relations. Mr.
DeFranco received a B.S. degree with a major in accounting from Florida State
University in 1978.
William P. Anderson, III, 50, served as President, Chief Executive Officer
and director of ilife.com, Inc. from July 1997 until his departure in February
2000. Mr. Anderson was previously President and CEO of Block Financial
Corporation, a subsidiary of H&R Block, Inc. engaged in consumer lending,
software and online financial service delivery. He joined H&R Block as Vice
President of Corporate Development. Anderson later served as Chief Financial
Officer of the parent company. Prior to his tenure at H&R Block, he spent 19
years at KPMG Peat Marwick, beginning as an auditor and reaching the role of
partner-in-charge of the national corporate finance practice within the
management consulting department. Mr. Anderson holds a BS in mechanical
engineering from Auburn University and an MBA from Emory University in Atlanta.
Sara Campbell Taylor, 42, served as Sr. Vice President - Sales and
Syndication until her departure from the Company in January 2000. She has worked
for such firms as Chase Manhattan Bank, Dial Corporation, Ocwen Financial
Corporation and most recently ABN AMRO Securities. Ms. Taylor holds a BS in
Finance from Pennsylvania State University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) ilife.com's Common Stock has been traded on the Nasdaq National Market
under the symbol "ILIF" since May 13, 1999. Prior to that time there was no
established market for the shares.
The price per share reflected in the table below represents the range of
low and high closing sale prices for the Company's Common Stock as reported by
the Nasdaq National Market for the periods indicated:
Fiscal 1999
High Low
---- ---
Second Quarter $13.00 $6.13
Third Quarter $7.81 $3.81
Fourth Quarter $7.31 $3.38
The closing sale price of the Company's Common Stock as reported by the
Nasdaq National Market on March 31, 2000 was U.S. $2.625 per share.
The number of shareholders of record of the Company's Common Stock as of
March 31, 2000, was approximately 2,000.
As of March 31, 2000, options to purchase 2,009,676 shares of our common
stock were outstanding of which 246,567 were exercisable.
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in the business and does not
anticipate paying any cash dividends in the foreseeable future.
On March 9, 1999, ilife.com issued a note to Antares Capital Fund II Limited
Partnership for aggregate cash consideration of $1,000,000 that was converted
into 6,784 shares of Series B Preferred Stock on April 9, 1999.
On May 13, 1999, immediately prior to the closing of ilife.com's initial
public offering of Common Stock, the holders of all of ilife.com's outstanding
Series A Preferred Stock and Series B Preferred Stock were converted into an
aggregate of 5,698,550 shares of Common Stock.
The issuance of the securities in the transactions described above were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder as transactions by an issuer not involving any public
offering.
Ilife.com issued stock options to purchase an aggregate of 236,720 shares to
Julio Fernandez and Sherry Fernandez on January 7, 1999; Sara Campbell, Roberto
Casin, G. Cotter Cunningham, Robert J. DeFranco, Sharon Giannotti, Linda Green,
Joseph Jones, Peter Minford, Gilbert Morejon and Brian O'Connor on March 2,
1999; and Monica Lewman on March 12, 1999. No shares of common stock have been
issued pursuant to the exercise of such options.
The issuance of securities in the transaction described above was deemed to
be exempt from registration under the Securities Act in reliance on Rule 701 of
the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements and notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K. The consolidated statement of
operations data for the year ended December 31, 1999, the six months ended
December 31, 1998 and the years ended June 30, 1998 and 1997, and the
consolidated balance sheet data as of December 31, 1999 and 1998, are derived
from, and are qualified by reference to, the audited consolidated financial
statements of ilife.com, Inc. included elsewhere in this Form 10-K. The
consolidated statement of operations data for the year ended June 30, 1996, and
the consolidated balance sheet data as of June 30, 1997 and 1996 have been
derived from audited consolidated financial statements not included in this
Form 10-K. The statement of operations data for the year ended June 30, 1995 and
the balance sheet data as of June 30, 1995 are derived from unaudited
consolidated financial statements not included in this Form 10-K. The unaudited
consolidated financial statements have been prepared on substantially the same
basis as the consolidated audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of the financial position and results of
operations for the period. Historical results are not necessarily indicative of
results to be expected in the future.
Year Six Months Year Year Year Year
Ended Ended Ended Ended Ended Ended
December 3 December 31, June 30, June 30, June 30, June 30,
1999 1998 1998 1997 1996 1995
---------- --------- --------- --------- --------- ---------
Consolidated Statement of Operations Data:
(In thousands, except share and per share amounts)
Revenue:
Online publishing $ 8,497 $ 1,809 $ 1,282 $ 485 $ 70 $ --
Print publishing and licensing 3,473 1,660 2,559 2,058 1,558 1,109
Other 148 -- -- -- -- --
---------- --------- --------- --------- --------- ---------
Total revenue 12,118 3,469 3,841 2,543 1,628 1,109
---------- --------- --------- --------- --------- ---------
Cost of operations:
Online publishing 4,786 979 862 582 18
Print publishing and licensing 2,387 1,101 1,962 1,186 971
Sales 2,851 817 665 90 96
Marketing 17,079 305 145 1 34
Product research 2,984 916 1,216 721 508
General and administrative expenses 7,206 871 1,663 768 522
Depreciation and amortization 574 98 67 74 98
Goodwill amortization 655 -- -- -- --
Noncash stock based compensation 3,305 669 89 -- --
------------ ------------ ------------ ------------ ------------
Total cost of operations 41,827 5,756 6,669 3,422 2,247
------------ ------------ ------------ ------------ ------------
Loss from operations (29,709) (2,287) (2,828) (879) (619)
------------ ------------ ------------ ------------ ------------
Other income (expense) 877 192 46 (77) (53)
Noncash financing charge (2,656) -- -- -- --
------------ ------------ ------------ ------------ ------------
Loss before income taxes (31,488) (2,095) (2,782) (956) (672)
Income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss (31,488) (2,095) (2,782) (956) (672)
Accretion of Convertible Series A and
Series B preferred stock to redemption value (2,281) -- -- -- --
Charge for conversion of nonredeemable convertible
Series A preferred stock to redeemable -- (4,438) -- -- --
------------ ------------ ------------ ------------ ------------
Net loss applicable to common stock $ (33,769) $ (6,533) $ (2,782) $ (956) $ (672)
============ ============ ============ ============ ============
Basic and diluted net loss per share $ (3.34) $ (1.63) $ (0.72) $ (0.20) $ (0.13)
============ ============ ============ ============ ============
Weighted average shares outstanding used in
basic and diluted per-share calculation 10,113,928 4,018,700 3,846,200 4,743,590 5,000,000
============ ============ ============ ============ ============
As of As of
December 31, June 30,
1999 1998 1998 1997 1996
---------- --------- --------- --------- ---------
Consolidated Balance Sheet Data:
(In thousands)
Cash and cash equivalents $ 22,504 $ 1,633 $ 910 $ 1,783 $ --
Working capital 13,144 658 164 887 (1,649)
Total assets 33,462 3,099 1,768 2,193 311
Subordinated note payable 4,350 -- -- -- --
Redeemable preferred stock -- 12,198 -- -- --
Total stockholders' equity (deficit) 17,445 (10,985) 657 1,035 (1,508)
Online publishing --
Print publishing and licensing 884
Sales --
Marketing 23
Product research 274
General and administrative expenses 404
Depreciation and amortization 69
Goodwill amortization --
Noncash stock based compensation --
------------
Total cost of operations 1,654
------------
Loss from operations (545)
------------
Other income (expense) (410)
Noncash financing charge --
------------
Loss before income taxes (955)
Income taxes --
------------
Net loss (955)
Accretion of Convertible Series A and
Series B preferred stock to redemption value --
Charge for conversion of nonredeemable convertible
Series A preferred stock to redeemable --
------------
Net loss applicable to common stock $ (955)
============
Basic and diluted net loss per share $ (0.19)
============
Weighted average shares outstanding used in
basic and diluted per-share calculation 5,000,000
============
As of
June 30,
1995
----------
Consolidated Balance Sheet Data:
(In thousands)
Cash and cash equivalents $ (4)
Working capital (997)
Total assets 273
Subordinated note payable 700
Redeemable preferred stock --
Total stockholders' equity (deficit) (1,906)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes contained in this Form 10-K. The
following discussion contains forward-looking statements that involve risks and
uncertainties. In some cases, you can identify forward-looking statements by
terms such as "may," "will," "should," "expect," "plan," "anticipate,""believe,"
"estimate," "predict," "potential,"or "continue," or the negative of these terms
or other comparable terminology. The forward-looking statements contained in
this Form 10-K involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's actual results, level of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
statements. These factors include those listed under Item 1. Business "Risk
Factors That Could Impact Future Operating Results" and elsewhere in this Form
10-K. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements.
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 decided to sell 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 Division which syndicates 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.
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 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 April 5, 2000 Jeff 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 entered into as of that date, Mr.
Cunningham subscribed to purchase 431,499 shares of the Company's common stock
for $997,841 in cash, or $2.3125 per share which was the closing price per share
of the Company's common stock on April 5, 2000. In addition, on April 5, 2000
Mr. Cunningham was granted stock options under the 1999 Equity Compensation Plan
to purchase 141,905 at $4.50 per share and 125,622 shares at $3.75 per share.
The options vest over a 24 month period. The company will recognize compensation
expense of approximately $217,000 over the vesting 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.
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. The Company intends to
vigorously defend against the lawsuit.
The following are descriptions of the revenue and expense components of our
statement of 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.
In June 1999, we were advised by Quicken.com that it would not be renewing
its distribution agreement with us. Quicken.com accounted for approximately 6%
of our total site traffic during the three months ended March 31, 1999.
Management does not believe that the loss of this distribution partner will have
a material adverse impact on future results of operations.
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.
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 IPO, was subsequently converted
into common stock.
We have compared our results of operations for the years ended December 31,
1999 and 1998, and the years ended June 30, 1998 and 1997.
The following table displays our results for the respective periods expressed
as a percentage of total revenues.
Year Six Months Year Year
Ended Ended Ended Ended
December 31, December 31, June 30, June 30,
1999 1998 1998 1997
------- ------ ------ ------
Revenue:
Online publishing 70.1% 52.1% 33.4% 19.1%
Print publishing and licensing 28.7% 47.9% 66.6% 80.9%
Other 1.2% 0.0% 0.0% 0.0%
------- ------ ------ ------
Total revenue 100.0% 28.6% 31.7% 21.0%
------- ------ ------ ------
Cost of operations:
Online publishing 39.5% 28.2% 22.4% 22.9%
Print publishing and licensing 19.7% 31.7% 51.1% 46.6%
Sales 23.5% 23.6% 17.3% 3.5%
Marketing 140.9% 8.8% 3.8% 0.1%
Product research 24.6% 26.4% 31.7% 28.3%
General and administrative expenses 59.5% 25.1% 43.3% 30.2%
Depreciation and amortization 4.7% 2.8% 1.7% 2.9%
Goodwill amortization 5.4% 0.0% 0.0% 0.0%
Noncash stock based compensation 27.3% 19.3% 2.3% 0.0%
------- ------ ------ ------
Total cost of operations 345.2% 165.9% 173.7% 134.6%
------- ------ ------ ------
Loss from operations (245.2%) (65.9%) (73.7%) (34.6%)
------- ------ ------ ------
Other income (expense):
Interest income 9.0% 0.5% 1.4% 0.1%
Interest expense (1.9%) (0.4%) (0.2%) (3.4%)
Noncash financing charge (21.9%) 0.0% 0.0% 0.3%
Other 0.2% 5.3% 0.0% 0.0%
Other income (expense), net (14.7%) 5.5% 1.2% (3.0%)
------- ------ ------ ------
Loss before income taxes (259.9%) (60.4%) (72.4%) (37.6%)
Income taxes
Net loss (259.9%) (60.4%) (72.4%) (37.6%)
------- ------ ------ ------
Accretion of Convertible Series A and
Series B preferred stock to redemption value (18.8%) 0.0% 0.0% 0.0%
Charge for conversion of nonredeemable convertible
Series A preferred stock to redeemable 0.0% (127.9%) 0.0% 0.0%
------- ------ ------ ------
Net loss applicable to common stock (278.7%) (188.3%) (72.4%) (37.6%)
======= ====== ====== ======
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The following table displays selected financial data for the year ended
December 31, 1999 and unaudited selected financial data for the years ended
December 31, 1998 and 1997 for comparison and analysis purposes.
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
(Unaudited) (Unaudited)
Consolidated Statement of Operations Data:
(In thousands, except share and per share amounts)
Revenue:
Online publishing $ 8,497 $ 2,582 $ 847
Print publishing and licensing 3,473 3,039 2,260
Other 148 -- --
------------ ------------ ------------
Total revenue 12,118 5,621 3,107
------------ ------------ ------------
Cost of operations:
Online publishing 4,786 1,520 671
Print publishing and licensing 2,387 2,105 1,578
Sales 2,851 1,365 159
Marketing 17,079 432 19
Product research 2,984 1,639 855
General and administrative expenses 7,206 1,840 1,278
Depreciation and amortization 574 140 67
Goodwill amortization 655 -- --
Noncash stock based compensation 3,305 757 --
------------ ------------ ------------
Total cost of operations 41,827 9,798 4,627
------------ ------------ ------------
Loss from operations (29,709) (4,177) (1,520)
------------ ------------ ------------
Other income (expense) 877 203 (10)
Noncash financing charge (2,656) -- --
------------ ------------ ------------
Loss before income taxes (31,488) (3,974) (1,530)
------------ ------------ ------------
Income taxes -- -- --
Net loss (31,488) (3,974) (1,530)
Accretion of Convertible Series A and
Series B preferred stock to redemption value (2,281) -- --
Charge for conversion of nonredeemable
convertible Series A preferred stock to
redeemable -- (4,438) --
Net loss applicable to common stock $ (33,769) $ (8,412) $ (1,530)
============ ============ ============
Basic and diluted net loss per share $ (3.34) $ (2.14) $ (0.35)
============ ============ ============
Weighted average shares o