UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended
February 28, 1998 Commission File Number: 291525-NY
- ----------------- ----------------------------------
MARKET GUIDE INC.
New York 11-2646081
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 Marcus Avenue, Suite South 200, Lake Success, New York 11042-1011
(Address of Principal Executive Offices)
(516) 327-2400
(Registrant's Telephone Number, Including Area Code)
None
(Securities Registered Pursuant to Section 12(b) of the Act)
Common Shares - $.001 Par Value
(Securities Registered Pursuant to Section 12(g) of the Act)
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 _______
As of May 15, 1998, the aggregate market value of the voting stock held by
non-affiliates, 2,555,899 shares of Common Stock, $.001 par value, was
$24,281,041 based on the closing price of $9.50 for one share of Common Stock on
such date.
The number of shares outstanding of the issuer's Common Stock, as of May 15,
1998 was 4,748,594.
PART I
Item 1: Business
Business
Market Guide Inc. was incorporated in the State of New York on March 23, 1983 as
"The Unlisted Market Service Corporation." On September 3, 1986 the current
corporate name was adopted. In 1996, the Company formed a new division,
CreditRisk Monitor, to develop services for the corporate credit manager.
The Company acquires, integrates, condenses and publishes accurate, timely, and
objective financial and other information on publicly traded corporations, and
markets this information to the financial, investment and credit communities, as
well as to independent investors through the Internet (www.marketguide.com) and
other distribution channels in a cost effective manner.
The Market Guide Database covers over 9,200 companies traded on the New York
Stock Exchange, American Stock Exchange, Nasdaq and Over-the-Counter Stock
Markets, including foreign companies trading in the U.S. as ADRs and ADSs. The
content created by Market Guide is derived from information filed by the subject
company with the Securities and Exchange Commission, issued in press releases or
carried in other media reports. Each company's information is updated at least
four and often more than eight times a year, as soon as relevant information
becomes available. Pricing and trading volume information incorporated into the
database are updated daily, and short interest statistics are updated monthly.
Market Guide adds value, distinguishes itself from the competition, and serves
its clients through its:
Flexible database design which gives users important insights not
available in competitive databases, thereby enabling them to make
better informed investment decisions;
Inclusion of auxiliary information such as earnings estimates, price
performance, relative price performance, summary insider and
institutional ownership statistics, bond ratings, and short interest
statistics giving users a complete perspective on each company;
Calculation of over 500 popular financial ratios, growth rates, and
averages computed for the user's convenience; and
Carefully planned, market tested display formats, including company to
industry comparisons, that allow users to quickly and efficiently make
carefully considered investment and credit decisions.
Developing efficient, timely, cost-effective and easy to use software
delivery systems such as Market Guide for Windows, our Internet site
(www.marketguide.com) and the CreditRisk Monitor site
(www.creditriskmonitor.com).
The targeted markets for Market Guide's data and related products include
investment managers, investment research departments, financial planners,
investment counselors, investment bankers, banks, stockbrokers and brokerage
firms, traders, libraries, publications, corporations, law firms and individual
investors. The Company sells its information through four channels: information
vendors, the Internet, Market Guide for Windows (its proprietary analytic
software) and a print publication. The CreditRisk Monitor division serves the
need of corporate credit managers through an Internet based service.
Vendors
Market Guide works in partnership with financial information service vendors.
The financial information service vendors combine data from various real-time
and historical information sources with their own analytic software and data
delivery capability. Their sales forces sell the product and they also provide
customer training and support services. Market Guide focuses on developing the
highest quality information content and leveraging off the information vendor's
sales force, software, information dissemination infrastructure and customer
base. The amount of data presented, its display format, and the software's
analytic capabilities vary depending upon the way each information provider
defines its customers' needs, software capabilities, distribution technologies
and preferred pricing strategies.
Information service vendors that currently distribute the Market Guide Database
include: Accutrade; America Online; American Association of Individual
Investors; Ameritrade; Argus Research; Automatic Data Processing; AIQ Systems,
Inc.; Bridge Information Systems Inc.; Business Wire, Inc.; Charles Schwab and
Company; Charter Media; Data Broadcasting Corporation; Dow Jones Markets; First
Call Corporation; Global Market Information; Holt Value Associates; Horsesmouth
LLC; ILX Systems Inc.; Individual Investor Group; InfoSpace Inc.; Instinet
Analytics; Interactive Data Corporation; Internet Securities, LLC; Lycos; News
Alert, Inc; OneSource Information Services, Inc.; P.C. Quote, Inc.; Pointcast;
Prodigy Services Company; Quotes Plus; Quotron Systems, Inc.; Real Time Quotes,
Inc.; Reality Online; Reuters PLC; Securities Data Corporation; Shark
Information Services, Inc.; Siebel Systems, Inc.; Telemet America, Inc.;
Telescan, Inc.; Track Data Corporation; Vickers Stock Research Corporation;
Waterhouse Securities, Inc.; Windows on Wall Street; and Yahoo!.
In April 1998, Market Guide's information was introduced on America Online, and
in May 1998, on Alta Vista.
Business Developments
In August 1995, the Company announced an agreement with the American Association
of Individual Investors (AAII) whereby AAII will incorporate Market Guide's
information in their existing screening software known as Stock Investor. AAII
is an educational not for profit corporation with over 100,000 members, a small
percentage of whom subscribe to Stock Investor. Market Guide's information first
appeared with Stock Investor's regular quarterly update in November 1995.
Market Guide's analytic software package, Market Guide for Windows (MGW), was
introduced in fiscal year 1996. This product permits users to search the
database, develop user defined reports and download information to popular
spreadsheet software packages. The software is not patented or trademarked, but
a copyright is claimed by the Company. Market Guide for Windows is delivered on
a CD/ROM with weekly or monthly updates.
In June 1996, the Company announced a multi-year contract with Reuters Limited
which grants Reuters' worldwide use of Market Guide's financial database. To
date, this agreement represents the largest single contract in Market Guide's
history.
The Company has an Internet site that has been in operation since the second
quarter of fiscal 1997. It is anticipated that this site will broaden the
Company's ability to sell and service its products directly to end users. The
address to our site is http://www.marketguide.com. The Company also uses its
Internet infrastructure to host co-branded sites and to work in partnership with
various vendors. In addition to distributing the information through many
Internet based services, Market Guide also hosts co-branded sites for brokerage
firms such as Ameritrade and Charles Schwab, as well as search engines including
Yahoo!.
The same Market Guide for Windows software with a smaller information set is
sold over the Internet to individual investors under the name StockQuest.
StockQuest was introduced in August 1996.
Also in August 1996, the Company formed a new division, CreditRisk Monitor
("CRM"). CRM is an Internet-based financial information and real-time news
service targeted towards the corporate credit function. After seven months of
development work, the CreditRisk Monitor service was successfully introduced in
April 1997.
Publications
The Company's quarterly print product, The Market Guide - Select Over the
Counter Stock Edition, is a single volume of 800 one-page reports on fast
growing, profitable over-the-counter companies. Each quarterly book features a
somewhat different set of 800 companies. The book also has a detailed company
index listing 15 key statistics on each company in a tabular format. This index
is very useful to investors searching for attractive investment opportunities.
Market Guide attempts to provide continuity of coverage so that subscribers to
the book can keep following companies in which they have an interest. However,
from time-to-time the companies covered do change. The most common reasons for
deletion of coverage are:
The company has been acquired in a merger or a leveraged buyout;
The company has not filed a financial statement with the Securities and
Exchange Commission for two or more reporting periods;
The company has exhibited significant deterioration in its financial
condition;
The company has been deleted from the National Association of Security
Dealers Automatic Quotation System (Nasdaq) and has fewer than three
Market Makers;
The company now trades on the New York or American Stock Exchange, and
no longer qualifies for the OTC edition.
Companies dropped from the book are replaced by companies which are selected by
using proprietary Market Guide selection criteria. The companies in the book
have regularly outperformed the Nasdaq composite.
Database Enhancements
The Company continuously expands, enhances and improves the Market Guide
Database and related software capabilities based in part upon customer
suggestions and employee feedback. In 1988, the Company added the New York and
American Stock Exchange companies to its then current universe of Nasdaq and
"pink sheet" companies.
In 1990, Market Guide decided to expand the database to include complete
detailed quarterly financial statements. The Company engaged in a series of
dialogues with current or potential vendors and customers to determine the
market potential, to identify the Company's perceived strengths and weaknesses,
and to research market needs and the appropriateness of the Company's
methodologies and objectives. The results of this analysis were the commitment
of resources to more than double the amount of information collected and
maintained on each subject company. In fiscal years 1990, 1991 and 1992 the
Company added the Annual Statement of Cash Flows and complete Quarterly Income
Statements, Balance Sheets and Statements of Cash Flows on all the companies in
the database. This has allowed Market Guide to serve new markets and to bid on
services for which Market Guide did not previously qualify.
In late 1993 the Company began to track short interest information published
monthly by U.S. stock exchanges and markets.
In early 1994 the Company began subscribing to and processing the Securities and
Exchange Commission's (SEC's) Electronic Data Gathering Analysis and Reporting
(EDGAR) service. This permitted access to source documents (10-Ks, 10-Qs, etc.)
ten days to two weeks earlier than in previous years. Record levels of
timeliness for the Market Guide Database have subsequently been attained.
In the fall of 1994, Market Guide introduced completely new industry and sector
classifications that reflect the current economy and are being incorporated into
all of Market Guide's products.
These industry and sector classifications will help investors:
Identify which industries and sectors are outperforming the market or have
fallen from favor; o Compare companies to a well-defined peer group;
Analyze and review industry and sector financial and investment
characteristics;
Properly construct portfolios to ensure adequate diversification; and
Make well reasoned asset allocation decisions.
In the fall of 1995, the Company completed development of a historical pricing
database to complement the financial information it has compiled. The pricing
database contains both historical and current information for all issues trading
on the New York and American Stock Exchanges, the Nasdaq Stock Market, and
selected OTC Bulletin Board and Pink Sheet Companies. The Market Guide pricing
database contains Open, High, Low, Close and Volume information on a daily basis
beginning in 1983, with daily updates occurring each trading day.
In order to satisfy institutional investors' needs for extensive historical
financial information, Market Guide increased the number of years of historical
annual financial statements in the Market Guide database. With the culmination
of the "Big Ten" project, Market Guide now has annual financial statement data
going back to 1983 for most companies on its database. As a result of the "Big
Ten" project, Market Guide is now able to compete for other business where at
least ten years of historical data is required. This information is currently
being distributed within the OneSource US Equities product, the Market Guide for
Windows product, and through selected vendors.
In fiscal year 1997, the Company began collecting information on Dividend
Reinvestment Plans (DRIPs). The DRIP information Market Guide collects includes
restrictions, fees, discounts and company contacts on over 900 plans. The
Company will continue to expand its DRIP database as more companies sponsor such
plans.
In fiscal year 1997, the Company incorporated Senior Debt Ratings into its
database. The debt ratings offered on the Market Guide Database are provided by
Fitch Investors Service, LP; Moody's Investors Service; and Standard & Poor's
Rating Group. Ratings data includes current ratings, prior ratings, and the
accompanying dates. Using these ratings, Market Guide has constructed average
company and industry ratings information.
Internet
The Company has created a dynamic, comprehensive and extremely useful Internet
site. The site contains both advertising supported and added cost content.
Advertising supported content is free to the user and Market Guide expects to
cover its costs and generate profits from the sale of advertising. As of
February 1998, the advertising supported content included:
Real time price quotes;
News (in partnership with News Alert);
Market Guide's Company Snapshot Reports;
Market Guide's What's Hot/What's Not service that identifies the price
performing leaders and laggards by sector, industry and company over
various time periods; and
Price charts (in partnership with Neural Applications Corp.)
For users who wish to have more comprehensive information, added cost content is
available for nominal per report or subscription based fees. The added cost
content includes:
The Market Guide Quick Facts Report;
The Market Guide Company Profile Report;
The Market Guide Ratio Comparison Report;
The Market Guide Detailed Financials;
The Market Guide ProVestor Report;
The Market Guide ProVestor Plus Report;
The Earnings Estimate Report (in partnership with First Call); and
Market Guide StockQuest Screening Software and Reporting applications.
In addition to our own site, Market Guide's information is available on more
than 30 other web sites. Most of these web partners also offer their users added
cost services from Market Guide. These added cost services are delivered mostly
through co-branded sites hosted by Market Guide.
CreditRisk Monitor
Market Guide's newest division, CreditRisk Monitor (CRM), is a new online
information and news service that follows more than 375 U.S. publicly held
domestic retail chains and wholesalers. This online service is accessible
through the Internet (www.creditriskmonitor.com) and has been designed to
provide corporate credit managers with the analytical tools necessary to analyze
and follow, on a daily basis, all the public companies they do business with.
CRM was formed specifically to leverage Market Guide's comprehensive database
and state-of-the-art technology through sales to a new market. CRM provides the
credit community with a cost efficient, online credit and financial information
service.
The CRM information service consists of: CRM Company Reports, the CRM Alert
Notification Service and the CRM Real-Time News Service. The CRM web site became
operational in April 1997.
Business Facilities
In October 1994, the Company relocated its principal place of business to new
headquarters in Lake Success, New York. Lake Success is located on the Queens
(New York City) - Nassau County (Long Island) border. The Company currently
maintains two office suites in this complex, Suite South 200 which totals 13,500
square feet, and Suite West 290 which totals 5,500 square feet.
In June 1996, the Company leased a sales office in Chicago, Illinois. This space
totals 572 square feet and is staffed by a full time sales representative. This
office will be closed in May, 1998.
Reverse Stock Split
The Company instituted a one-for-four reverse stock split on October 16, 1995.
Competition
The investment and financial information industry is highly competitive with
many different firms serving the industry's needs. There are numerous print and
electronic publishers of information for the investment community, most of whom
have been in business longer, are better known and whose financial resources
exceed those of the Company. Among the better known competitors are: Standard &
Poor's, Moody's, Value Line and Disclosure.
The Company believes that it is distinguished from much of the competition as it
compiles, maintains, and publishes one of the largest databases of investment
quality information. Market Guide also competes by providing database structure
and content that help users make better informed decisions and through the
effective use of technology that enables the Company to be a price leader.
One of the most significant distinctions is that Market Guide stores and
displays company financials in the same "company specific line item description"
format used by the subject company in its SEC filings. "Company specific line
item description" means that the line item terminology assigned to Income
Statement, Balance Sheet or Statement of Cash Flow values is the same as that
used by the company in its official report. For example, "Aircraft Fuel" and
"Landing Fees" may be shown for an airline company; "Newsprint" and "Postage"
for a newspaper publisher. This allows users to project the impact of external
events such as changes in the price of oil, paper or postage on the
profitability of a company. Competitive databases might consolidate these items
under general headings such as "Costs of Goods Sold."
The principal methods of competition between the companies engaged in the
historical financial information business are: accuracy of data; timeliness of
database updating; size of the universe presented; depth of coverage of each
company in the universe; number of years of coverage; methods of delivery to the
end user; the inclusion of analysis or opinion; customer/vendor support; and
price.
Personnel
The Company currently has a staff of 86 full-time employees, down from 87 full
time personnel at the same time one year ago.
Year 2000 Compliance
The Company is currently conducting a comprehensive review of its computer
systems and software to assess its exposure to Year 2000 issues. Based upon a
preliminary assessment, management believes the Company's systems are compliant
or will be compliant by the end of 1998. All maintenance and modification costs
are being expensed as incurred. The costs associated with Year 2000 compliance
have not been, nor are they anticipated to be, material to the Company's
financial position or results of operations.
Item 2: Properties
In October 1994, the Company moved its entire data collection operation and
management offices to 2001 Marcus Avenue, Suite South 200, Lake Success, New
York 11042-1011. The new space is approximately 13,500 square feet.
In November 1996, the Company leased an additional 5,500 square feet in the same
office complex. This space is being used primarily for Market Guide's new
division, CreditRisk Monitor, and the programming department.
In management's opinion the layout, design, construction and furnishing of the
facility will support the growth of the Company. The telephone, data network,
lighting and electrical support systems designed into the facility create a
pleasant, professional and comfortable environment in which our employees can
efficiently perform their tasks effectively.
The productive capacity of the facility allows for the expansion of the
Company's data collection capacities in a more rapid and efficient manner, as
well as to increase the number of companies in the database and the amount of
information collected on each subject company.
The facility has permitted the Company to acquire the services of several
additional sales and marketing personnel with space designated and furnishings
in place for additional persons in the fields of marketing, sales and customer
support.
The facility contains specifically constructed spaces for the Company's
extensive computer and programming activities. Space exists for the expansion
and support of current and anticipated on-line services, vendor delivery, and
Internet services.
In June 1996, the Company leased 572 square feet in Chicago, Illinois. The space
is being used as a sales office from which one dedicated sales professional is
managing selected existing vendors and generating new business. This office will
be closed in May, 1998.
Item 3: Legal Proceedings
In December 1996, the Company commenced litigation in the United States District
Court for the Eastern District of New York against Information Clearinghouse,
Inc. d/b/a F&D Reports (ICI) and Lawrence Sarf. The Company's complaint alleges
claims of trademark infringement, unfair competition, deceptive trade practices
and conversion in connection with the defendant's theft and use of the Company's
proprietary slogan, "On-Line, On-Time, On-Target," developed for use with its
Internet based credit reporting service, CreditRisk Monitor. Market Guide seeks
damages in an amount exceeding $5 million, plus injunctive and declaratory
relief. ICI has filed an Answer responding to the Complaint and denying all
material allegations. Discovery has been completed and ICI has indicated an
intention to file a pre-trial motion on or before June 9, 1998. Pending the
determination of any such motion, litigation counsel to the Company cannot give
assurance as to the relative likelihood of any particular outcome in this
proceeding, and declines to do so.
ICI has commenced a separate action in state court against three former ICI
employees, Market Guide and individual Market Guide employees arising from use
of alleged trade secret information. ICI has asserted claims under New York
common law seeking injunctive relief and monetary damages in the estimated
amount of $4.3 million. The Company has denied all material allegations from the
outset of this suit, and the Company intends to continue its vigorous defense of
ICI's claims. At the outset of the case, ICI moved for injunctive relief and
Market Guide moved to dismiss all claims. The Court denied ICI's request for
injunctive relief and the Company's motion. Deposition discovery is underway,
and is scheduled to be completed by July 7, 1998. In view of the fact that
discovery is ongoing, outside litigation counsel to the Company cannot give
assurance as to the relative likelihood of any particular outcome in the
proceeding and declines to do so.
Item 4: Submission of Matters for a Vote of Security Holders
None.
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock was previously traded on the OTC Bulletin Board under
the symbol MARG for the 1997 fiscal year. Effective March 5, 1997, the Company's
stock commenced trading on the Nasdaq SmallCap Market under the symbol MARG. The
table below sets forth, for the fiscal periods shown, the high and low closing
prices for the Common Stock as reported by a brokerage firm active in the shares
of the Company's Common Stock (as adjusted for the one-for-four reverse stock
split in October 1995). On February 27, 1998, the last reported sale price of
the Common Stock as reported on the Nasdaq SmallCap Market was 2 5/8 per share.
Fiscal 1998 High Low
First Quarter 4 3/8 2 1/4
Second Quarter 3 3/4 2 3/8
Third Quarter 3 1/2 1 3/4
Fourth Quarter 3 1/8 2 1/4
Fiscal 1997 High Low
First Quarter 5 3/32 3 1/4
Second Quarter 5 1/4 3 1/4
Third Quarter 4 1/8 2 3/4
Fourth Quarter 4 3/4 2 7/8
On February 28, 1998 there were 450 holders of record of the Common Stock of the
Company. The Company estimates the number of beneficial owners of the Company's
Common Stock on February 28, 1998 to be approximately 800.
The Company has never paid a cash dividend on its Common Stock. The Board of
Directors currently intends to retain all earnings to finance the expansion of
the Company's business and does not anticipate paying cash dividends in the
foreseeable future.
Item 6: Selected Financial Data
The following is selected financial data only, and is qualified by the Financial
Statements, in their entirety, which are set forth elsewhere in this Form 10-K.
SUMMARY OPERATING DATA
Fiscal Year February 28, February 28, February 29, February 28, February 28,
Ended 1998 1997 1996 1995 1994
--------------- --------------- ---------------- -------------- ---------------
Total $ 6,899,977 $ 4,776,418 $ 3,999,759 $ 2,687,950 $ 2,001,118
Revenues (1)
Net Income 6,637 258,329 507,179 338,438 248,202
Diluted .00 .06
Earnings Per .12 .08 .07
Share (2)
Weighted
Average 4,755,905 4,408,378 3,630,819
Number of 4,401,135 4,256,999
Shares
Outstanding
SUMMARY BALANCE SHEET DATA
Fiscal Year February 28, February 28, February 29, February 28, February 28,
Ended 1998 1997 1996 1995 1994
--------------- --------------- ---------------- -------------- ---------------
(restated)
Working $ 479,454 $ 1,447,754 $ 974,102 $ 766,951 $ (93,593)
Capital (1)
Total Assets 6,359,534 5,228,647 3,471,704 2,603,097 1,230,797
Long Term
Debt and
Obligations 761,981 564,262 291,202 182,737 14,092
Under
Capital
Leases, Less
Current
Maturities
Stockholders' 4,104,955 4,060,201 2,448,230 1,843,471 590,819
Equity
(1) CreditRisk Monitor, print product and Market Guide for Windows revenue are
deferred at the time of sale and recognized ratably over the terms of the
subscriptions. Costs connected with the procurement of subscriptions and
memberships are expensed as incurred.
(2) Diluted earnings per share are computed based on the weighted average number
of shares of common stock outstanding in each fiscal year.
PART II
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the fiscal years ended February 28,
1998, February 28, 1997, and February 29, 1996 should be read in conjunction
with the Consolidated Financial Statements and Notes thereto.
Results of Operations
For the fiscal year ended February 28, 1998 compared to February 28, 1997
Total revenues for the fiscal year ended February 28, 1998 increased 44% to
$6,899,977. The growth in revenues reflects increases of 22% in database vendor
sales to $5,079,380 and 214% in Market Guide product sales to $1,769,605. The
revenue growth is attributable to continued sales to our traditional core of
vendors that sell to the institutional, retail and individual investor
marketplaces, new revenue from the addition of more than thirty Internet related
vendors, growth in sales at the Company's web site (www.marketguide.com),
incremental sales of Market Guide for Windows products, and the introduction of
CreditRisk Monitor's Internet-based service (www.creditriskmonitor.com) in the
first quarter of this fiscal year. Print product revenues, consisting mainly of
the Market Guide - Select OTC Stock Edition, decreased 18% to $50,992. Market
Guide continues to concentrate on marketing electronic products and services.
Total operating expenses for the fiscal year ended February 28, 1998 increased
52% to $6,821,362. The largest component of this increase is attributable to
salaries and operating expenses related to the CreditRisk Monitor division. Also
contributing to the increase in operating expenses were costs associated with
increased staffing levels in other departments, higher depreciation and
amortization expenses, and increased sales and marketing activities. For
financial reporting purposes, CreditRisk Monitor sales are recognized over a
defined period of time and expenses are recorded as incurred. The result is that
CreditRisk Monitor expenses continue to substantially exceed recognized sales.
Income from operations for the fiscal year ended February 28, 1998 decreased 74%
to $78,615. The sharp decline in operating income is attributable to operating
costs associated with the start-up of the CreditRisk Monitor division.
Interest income for the fiscal year ended February 28, 1998 decreased 32% to
$21,173. The decrease reflects lower cash balances throughout the year.
Interest expense for the fiscal year ended February 28, 1998 increased 14% to
$85,877. The increase in interest expense reflects the interest expense incurred
on borrowings under a line of credit provided by Fleet Bank.
Net income for the fiscal year ended February 28, 1998 decreased from $258,329
to $6,637. The decline in net income is primarily attributable to increased
expenses relating to the CreditRisk Monitor division.
For the fiscal year ended February 28, 1997 compared to February 29, 1996
Total revenues for the fiscal year ended February 28, 1997 increased 19% to
$4,776,418 from $3,999,759 in fiscal year 1996. The increase in revenues
reflects a 13% increase in database vendor sales to $4,150,777 and Market Guide
product sales growth of 119% to $563,788. Revenue growth was attributable to
continued sales gains in the Company's traditional core of vendors, new revenue
from the addition of more than a dozen new Internet related vendors, the
introduction of our own web site (www.marketguide.com), and incremental sales of
Market Guide for Windows products. Revenue growth was restrained by a permanent
reduction in revenue from an existing vendor beginning in the second quarter of
fiscal 1997. Print product revenues, consisting mainly of the Market Guide
Select OTC Stock Edition, decreased 9% to $61,853 from $67,928 in fiscal year
1996. The decline in sales continues to reflect lower sales to public libraries
due to Market Guide's decision to concentrate on marketing electronic products
and services.
Total operating expenses for the fiscal year ended February 28, 1997 increased
30% to $4,475,976 from $3,455,120 in fiscal year 1996. Higher operating expenses
principally reflected increased costs associated with hiring additional
personnel in all departments to support faster anticipated growth, increased
depreciation and amortization and rental expenses, and several one-time
non-recurring expenses in the fourth quarter. The non-recurring expenses
included filing and accounting fees related to the commencement of the Company's
stock trading on the Nasdaq SmallCap market in March 1997.
Income from operations for the fiscal year ended February 28, 1997 decreased 45%
to $300,442 from $544,639 in fiscal year 1996. The decline in operating income
primarily resulted from a permanent reduction in revenue from an existing vendor
and higher operating expenses.
Interest income for the fiscal year ended February 28, 1997 increased 26% to
$31,128 from $24,641 in fiscal year 1996. The increase reflects increased
earnings on higher cash balances throughout the fiscal year.
Interest expense for the fiscal year ended February 28, 1997 increased 24% to
$75,592 from $60,974 in fiscal year 1996. Higher interest expenses included
additional capital lease service requirements to fund equipment acquisitions in
fiscal year 1997.
Income tax provision for the fiscal year ended February 28, 1997 totaled
($2,351) compared with income tax expense of $1,127 in fiscal year 1996.
Net income for the fiscal year ended February 28, 1997 declined 49% to $258,329
from $507,179 in fiscal year 1996. The decrease in net income was principally
due to the previously discussed increases in expenses and the permanent
reduction in revenue from an existing vendor relationship.
Liquidity and Capital Resources
As of February 28, 1998, the Company's working capital (current assets less
current liabilities) decreased 67% to $479,454 when compared to the amounts at
February 28, 1997. The $968,300 working capital reduction resulted principally
from operating losses attributable to CreditRisk Monitor. The Company's cash and
cash equivalents decreased 34% to $809,618 when compared to the balance at
February 28, 1997. Cash resources were used to fund CreditRisk Monitor and fund
development of computer software and database expansion.
For the fiscal year ended February 28, 1998, net cash provided by operating
activities increased 52% to $1,258,766 when compared to February 28, 1997. The
increase reflects a sharp increase in unearned revenues reflecting CreditRisk
Monitor sales which are annual subscriptions paid in advance, advance payments
from certain customers and higher non-cash expenses (depreciation and
amortization), partially offset by a higher accounts receivable balance related
to CreditRisk Monitor sales and a sharp reduction in net income.
For the fiscal year ended February 28, 1998, net cash used in investing
activities increased 5% to $2,013,897 when compared to the fiscal year ended
February 28, 1997. The increase reflects the Company's continued investment in
product and database enhancements and in Market Guide's Internet site.
For the fiscal year ended February 28, 1998, net cash from financing activities
decreased 80% to $333,856 when compared to the fiscal year ended February 28,
1997. The decrease reflects a private placement sale of common stock in January
1997 which generated proceeds of $1,201,771.
The Company believes its current liquidity is sufficient to meet its obligations
during the next twelve months.
Item 8: Financial Statements and Supplementary Data
This information required by Item 8, and an index thereto, appears at pages F-4
through F-18 (inclusive) of this Report, which pages follow page 19.
Item 9: Disagreements on Accounting Financial Disclosure
None.
PART III
Item 10: Directors and Executive Officers of the Registrant
(a) Identification of Directors
The names, ages and principal occupations of the Company's Directors as
of the end of the reporting period, and the data on which their term of
office commenced and expires, are as follows:
FIRST BECAME PRINCIPAL
NAME AGE TERM OF OFFICE DIRECTOR OCCUPATION
========================== =========== ==================== =================== ==========================================
John D. Case 53 1 1984 Chairman of the Board of Directors,
General Counsel and Secretary of the
Company
Homi M. Byramji 45 1 1988 President, Chief Executive Officer,
Treasurer and Director of the Company
Raymond B. Dooley 51 1 1989 Banker, specializing in structuring
government backed loans and Director of
the Company
Mark B. Burka 48 1 1995 Portfolio Manager, Manager Pension and
Deferred Benefit Investments, Aon
Advisors, Inc. and Director of the
Company
Steven A. Hirsh 58 1 1997 Portfolio Manager, William Harris & Co.
and Director of the Company
Thomas A. Prendergast 64 1 1997 Management Consultant, Certified Public
Accountant, Entrepreneur and Director of
the Company
========================== =========== ==================== =================== ==========================================
(1) Directors are elected at the annual meeting of stockholders and hold
office until the following annual meeting.
(2) Time, Inc. has the right to name a Director to the Board as long as it
retains at least a 3.5% ownership in the Company. Time, Inc. currently
owns 3.3% of the shares outstanding and has not exercised its right to
name a Director since 1987.
(3) Changes since end of reported period: Yes. Added two new directors,
Steven A. Hirsh and Thomas A. Prendergast.
(b) Business Experience
John D. Case, age 53, is a graduate of Hofstra University (B.A. 1968)
and Suffolk University Law School (J.D. 1971). He is admitted to
the practice of law in New York State and Federal jurisdictions.
Prior to assuming the Company's Presidency and Chairmanship in
February 1989, he was a Director of the Company (elected 1984) and
was engaged in the practice of law. Mr. Case served as President
and CEO of the Company from February 1989 to February 1992. Mr.
Case is currently compensated in the form of cash and qualifies for the
Key Employee Incentive Plan.
Homi M. Byramji, age 45, a Director since 1988, had previously consulted in
computerized equity research for nine years. He holds a Masters Degree in
Business Administration, Rutgers University (1975) and became Secretary and
Treasurer of the Company on February 23, 1989. Mr. Byramji remained Treasurer
and assumed the duties of President and CEO on March 1, 1992. He is compensated
in the form of cash and qualifies for the Key Employee Incentive Plan.
Raymond B. Dooley, age 51, joined the Board of Directors in
March 1989. He is a banker specializing in structuring government
backed corporate loans. Mr. Dooley holds a Masters Degree in Business
Administration from St. John's University.
Mark B. Burka, C.F.A., age 48, joined the Board of Directors in August 1995. He
is a Chartered Financial Analyst and Manager of Pension and Deferred Benefit
Investments with Aon Advisors, Inc. Mr. Burka hold a Masters Degree in Business
Administration from the University of Chicago, Graduate School of Business, and
a Bachelor of Arts from the University of Wisconsin in Madison, Wisconsin.
He has been employed with Aon Advisors, Inc. and its predecessors since 1977.
Steven A. Hirsh, age 58, joined the Board of Directors in November 1997. He is a
portfolio manager for William Harris & Company, a financial services company,
located in Chicago, Illinois. Since 1994 he has been the Chairman, President and
CEO of Astro Communications, Inc. (OTCBB: ASTO). He currently serves as a
director of Complete Management, Inc. (NYSE: CMI) and the Reliance Standard Life
Insurance Company and First Reliance subsidiaries of Delphi Financial Group
(NYSE: DFG). Mr. Hirsh earned a B.S. degree at the University of Colorado and
holds an MBA from the University of Chicago.
Thomas A. Prendergast, age 64, joined the Board of Directors in November 1997.
He is an El Paso, Texas based management consultant, entrepreneur, and private
investor who has previously served on the boards of sixteen public companies. In
five instances he was Chairman of their respective boards. A Certified Public
Accountant, Mr. Prendergast holds a B.S. degree from Fordham University and has
engaged in post-graduate studies at the University of Texas, El Paso. He was a
founding member of the El Paso Community College and served as the President of
its Board of Trustees from 1969 to 1982.
All Directors of the Company will serve in such capacity until the next annual
meeting of the Company's stockholders and until their successors have been duly
qualified and elected.
Item 11: Executive Compensation
Summary of Executive Compensation
The following table sets forth the total compensation paid or accrued by the
Company to executive officers of the Company who served in such capacities
during fiscal year 1998 (the "Named Officers") for services rendered during each
of the last three fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
--------------------------------------------- ----------------------------------
Securities Underlying
Name and Principal Position Fiscal Year Salary Bonus Options Granted (#)
Homi M. Byramji................. 1998 $200,000 -0- -0-
President, Chief Executive 1997 200,000 -0- -0-
Officer and Treasurer 1996 170,000 -0- -0-
John D. Case....................... 1998 $125,000 -0- -0-
Chairman, General Counsel 1997 125,000 -0- -0-
and Secretary 1996 75,000 -0- -0-
Employment Agreements
None of the Company's Executive Officers currently have employment contracts
with the Company.
Employee Stock Purchase Plan
At the August 31, 1995 annual shareholders' meeting, the Board of Directors
approved an Employee Stock Purchase Plan. The Plan enables employees to purchase
common stock of the Company through payroll deductions and/or cash payments at a
15% discount based on the lower of the average closing price during the quarter,
or the average closing price for the last five days of the quarter.
Key Employee Incentive Plan
At the August 31, 1995 annual shareholders' meeting, the shareholders approved a
plan that creates the ability to grant stock and/or options to purchase stock of
the Company to key corporate employees.
Outside Directors' Plan
At the August 31, 1995 annual shareholders' meeting, the shareholders approved a
plan that creates the ability to grant stock and/or non-qualified options to
purchase stock of the Company to outside directors.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 15, 1998 by all persons known
to the Company to be beneficial owners of more than 5% of its Common Stock and
all Officers and Directors, both individually and as a Group. For purposes of
calculating the amount of beneficial ownership and the respective percentages,
the number of shares of Common Stock which may be acquired by a person upon the
exercise of outstanding warrants, options or upon conversion of outstanding
promissory notes, are considered outstanding, but shall not be deemed to be
outstanding for the purpose of computing the percentage of Common Stock owned by
any other person.
NAME AND ADDRESS OF AMOUNT AND NATURE OF APPROXIMATE
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
Mark B. Burka (3) (4) 806,00016 .9%
618 Washington Avenue
Wilmette, IL 60091
Homi M. Byramji (5) 549,06411 .5%
One Sheep Hill Road
Boonton Township, NJ 07005
John D. Case (5) 768,99416 .2%
12 Timberland Lane
Old Brookville, NY 11545
Raymond B. Dooley (6) 12,187 .3%
98 Eighth Avenue
Sea Cliff, NY 11579
William Harris & Company (7) 28,000 .6%
Profit Sharing Trust
2 North LaSalle Street
Chicago, IL 60602
Steven A. Hirsh - -
1895 Lake Avenue
Highland Park, IL 60035
Thomas A. Prendergast (8) 88,4501 .9%
3907 North Mesa, Apt. 200A
El Paso, TX 79902
All Directors and Officers 2,252,695 46.8%
as a Group (6 persons)
(1) Unless otherwise indicated, all shares are directly owned and the sole
voting and investment power is held by the persons named.
(2) Based upon 4,748,594 shares of Common Stock issued and outstanding as of May
15, 1998.
(3) Includes options for the purchase of 10,000 shares of Common Stock at $2.50
per share and for the purchase of 10,000 shares of Common Stock at $3.00 per
share.
(4) Shares owned directly and owned by Mark B. Burka, Trustee FBO Mark B. Burka
Trust.
(5) Includes options for the purchase of 12,500 shares of Common Stock at $2.68
per share.
(6) Includes options for the purchase of 5,000 shares of Common Stock at $2.50
per share and 5,000 shares of Common Stock at $3.00 per share.
(7) Steven Hirsh, a Market Guide director, is employed as a
Portfolio Manager for William Harris & Company Profit Sharing
Trust.
(8) Includes options for the purchase of 5,000 shares of Common Stock at $3.00
per share.
The Company does not know of any arrangements or pledge of its securities by
persons now considered in control of the Company that might result in a change
of control of the Company.
Item 13: Certain Relationships and Related Party Transactions
None.
Item 14: Financial Statements and Financial Statement Schedules, Exhibits and
Reports on Form 8-K and 8-A
(a) (1) (2) Financial Statements and Financial Statement Schedules
A list of the Financial Statements and Financial Statement Schedules filed
as a part of this Report is set forth in Item 8, and appears at Page F-2
of this Report; which is incorporated herein by reference.
(a) (3) Exhibits
3 Certificate of Incorporation and Amendments thereto*
3(A)By-Laws*
(b) Reports on Form 8-K
In June 1996, Market Guide announced the signing of a multi-year contract to
provide Reuters Ltd. with the right to use and distribute the contents of
the Market Guide database. The Company deems the acquisition of this
contract to be of importance to its shareholders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this Report to be signed on its behalf by
the undersigned, as principal financial and accounting officer thereunto duly
authorized.
MARKET GUIDE INC.
Dated: May 28, 1998
Lake Success, New York /s/ Homi M. Byramji
Homi M. Byramji
President, CEO and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- --------------------------------------- -------- ------------------------------------- --------------------------------------
Chairman of the Board
and Secretary May 28, 1998
/s/ John D. Case
JOHN D. CASE
President, CEO,
Treasurer and Director May 28, 1998
/s/ Homi M. Byramji
HOMI M. BYRAMJI
Director May 28, 1998
/s/ Mark B. Burka
MARK B. BURKA
Director May 28, 1998
/s/ Raymond B. Dooley
RAYMOND B. DOOLEY
Director May 28, 1998
/s/ Steven A. Hirsh
STEVEN A. HIRSH
Director May 28, 1998
/s/ Thomas A. Prendergast
THOMAS A. PRENDERGAST
MARKET GUIDE INC.
FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT AUDITORS'
FOR THE YEARS ENDED FEBRUARY 28, 1998
FEBRUARY 28, 1997, AND
FEBRUARY 29, 1996
Table of Contents
Financial Statements
Report of Independent Auditors'
Balance Sheets for the Fiscal Years Ended February 28, 1998
and February 28, 1997 F-4-5
Statements of Operation and Accumulated Deficit for the Fiscal Years Ended
February 28, 1998, February 28, 1997, and February 29, 1996 F-6
Statements of Cash Flows for the Fiscal Years Ended February 29, 1998, February
28, 1997, and February 29, 1996 F-7
Statements of Stockholders' Equity for the Fiscal Years Ended February 28, 1998,
February 28, 1997, and February 29, 1996 F-8
Notes to Financial Statements February 28, 1998, February 28, 1997,
and February 29, 1996 F-9-18
[Zerbo, McKiernan & Zambito Letterhead]
REPORT OF INDEPENDENT AUDITORS'
To the Board of Directors and Stockholders of
Market Guide Inc.
2001 Marcus Avenue, Suite S200
Lake Success, NY 11042-1011
We have audited the accompanying Balance Sheets of Market Guide Inc. as of
February 28, 1998 and February 28, 1997 and the related Statements of Operation
and Accumulated Deficit, Cash Flows and Stockholders' Equity for the years
February 28, 1998, February 28, 1997 and February 29, 1996 then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Market Guide Inc. as of
February 28, 1998 and February 28, 1997 and the results of its operations and
its cash flows for the years February 28, 1998, February 28, 1997 and February
29, 1996 then ended in conformity with generally accepted accounting principles.
/s/ Zerbo, McKiernan & Zambito, L.L.C
Zerbo, McKiernan & Zambito, L.L.C
Fairfield, New Jersey
May 18, 1998
MARKET GUIDE INC.
Balance Sheets
February 28, February 28,
1998 1997
--------------------------- ----------------------------
ASSETS
Current assets:
Cash $ 809,618 $ 1,230,893
Accounts receivable (net of allowance
for doubtful accounts) 1,047,449 557,415
Prepaid expenses and other current assets 114,985 263,630
--------------------- ----------------------
Total current assets 1,972,052 2,051,938
Property, plant and equipment:
Furniture and equipment 1,623,206 936,097
Equipment held under capital leases 942,950 942,949
Leasehold improvements 80,990 72,509
--------------------- ----------------------
2,647,146 1,951,555
Less: Accumulated depreciation and amortization
(including amortization of $367,610 and $189,234
in 1998 and 1997, respectively, on capital leases) 1,117,876 744,551
--------------------- ----------------------
Net property, plant and equipment 1,529,270 1,207,004
Other assets:
Computer software and database expansion
(net of accumulated amortization) 2,780,128 1,891,621
Deposits and other assets 78,084 78,084
--------------------- ----------------------
Total other assets 2,858,212 1,969,705
--------------------- ----------------------
Total assets $ 6,359,534 $ 5,228,647
===================== ======================
The accompanying notes are an integral part of these financial statements.
MARKET GUIDE INC.
Balance Sheets - continued
February 28, February 28,
1998 1997
-------------------------- -----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current maturities of long-term debt and capital
Leases $ 274,031 $ 176,012
Unearned revenues 999,949 248,679
Accounts payable and other accrued expenses 218,618 179,493
-------------------- ------------------------
Total current liabilities 1,492,598 604,184
Non-current liabilities:
Long-term debt and capital lease obligations,
less current maturities 761,981 564,262
-------------------- ------------------------
Total non-current liabilities 761,981 564,262
Total liabilities 2,254,579 1,168,446
Stockholders' equity:
Common stock - $.001 par value; 20,000,000 shares authorized, 4,723,594 and
4,708,186 shares issued and outstanding in 1998 and 1997,
respectively 4,723 4,708
Capital in excess of par value 5,010,134 4,972,032
Retained earnings (deficit) (909,902) (916,539)
-------------------- ------------------------
Total stockholders' equity 4,104,955 4,060,201
-------------------- ------------------------
Total liabilities and stockholders' equity $ 6,359,534 $ 5,228,647
==================== ========================
The accompanying notes are an integral part of these financial statements.
MARKET GUIDE INC.
Statements of Operation and Accumulated Deficit
For the Years Ended
------------------------------------------------------------------
February 28, February 28, February 29,
1998 1997 1996
------------------- ------------------- -----------------
Revenues:
Database vendors $ 5,079,380 $ 4,150,777 $ 3,674,830
Market Guide products 1,769,605 563,788 257,001
Print product 50,992 61,853 67,928
------------------- ------------------- -----------------
Total revenues 6,899,977 4,776,418 3,999,759
Expenses:
Salaries, payroll taxes & employee benefits 4,151,529 2,692,063 2,121,109
Database and product costs 460,919 395,217 322,670
General and administrative 1,078,237 733,087 574,740
Depreciation 373,325 228,576 149,666
Amortization 429,798 288,072 199,233
Advertising and promotion 327,554 138,961 87,702
------------------- ------------------- -----------------
Total expenses 6,821,362 4,475,976 3,455,120
Income from operations 78,615 300,442 544,639
Interest income 21,173 31,128 24,641
Interest expense 85,877 75,592 60,974
------------------- ------------------- -----------------
Income before income taxes 13,911 255,978 508,306
Provision for income taxes 7,274 (2,351) 1,127
------------------- ------------------- -----------------
Net income $ 6,637 $ 258,329 $ 507,179
=================== =================== =================
Accumulated deficit, beginning of year (916,539) (1,174,868) (1,682,047)
------------------- ------------------- -----------------
Accumulated deficit, end of year $ (909,902) $ (916,539) $ (1,174,868)
=================== =================== =================
Earnings per share:
Basic $ 0.00 $ 0.06 $ 0.12
Diluted $ 0.00 $ 0.06 $ 0.12
Weighted average number of shares outstanding:
Basic 4,712,503 4,250,124 4,165,457
Diluted 4,755,905 4,408,378 4,401,135
The accompanying notes are an integral part of these financial statements.
MARKET GUIDE INC.
Statements of Cash Flows
For the Years Ended
---------------------------------------------------------------
February 28, February 28, February 29,
1998 1997 1996
-------------------- ----------------- ----------------
(restated)
Cash Flows From Operating Activities:
Net income $ 6,637 $ 258,329 $ 507,179
-------------------- ----------------- ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 803,123 516,648 348,899
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable (490,034) 203,765 (202,367)
(Increase)/Decrease in prepaid assets 148,645 781 (199,540)
(Increase)/Decrease in deposits and other assets -0- (14,858) (6,750)
Increase/(Decrease) in accounts payable 39,125 (222,053) 185,548
Increase/(Decrease) in unearned revenues 751,270 85,308 (39,494)
-----------------
-------------------- ----------------
Total adjustments 1,252,129 569,591 86,296
-------------------- ----------------- ----------------
Net cash provided by operating activities 1,258,766 827,920 593,475
-------------------- ----------------- ----------------
Cash Flows From Investing Activities:
Payments for purchase of fixed assets (687,111) (695,447) (372,475)
Payments for leasehold improvements (8,481) (72,509) -0-
Development of computer software and
database expansion (1,318,305) (1,145,213) (519,488)
-------------------- ----------------- ----------------
Net cash used by investing activities (2,013,897) (1,913,169) (891,963)
-------------------- ----------------- ----------------
Cash Flows From Financing Activities:
Payments for long term debt and capital leases (176,011) (250,392) (60,428)
Proceeds from capital leases and equipment line of credit 471,750 532,110 246,984
Proceeds from issuance of employee's and director's
stock plan 38,117 51,869 64,129
Proceeds from private placement of common stock -0- 1,201,771 -0-
Proceeds from stock options exercised -0- 100,001 33,451
-------------------- ----------------- ----------------
Net cash provided by financing activities 333,856 1,635,359 284,136
-------------------- ----------------- ----------------
Net increase/(decrease) in cash (421,275) 550,110 (14,352)
Cash at beginning of year 1,230,893 680,783 695,135
-------------------- ----------------- ----------------
Cash at end of year $ 809,618 $ 1,230,893 $ 680,783
==================== ================= ================
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 85,877 $ 137,578 $ 60,974
Corporate taxes 6,000 4,200 5,250
The accompanying notes are an integral part of these financial statements.
MARKET GUIDE INC.
Statements of Stockholders' Equity
Capital in Total
Excess of Accumulated Stockholders'
Shares Par Value Par Value Deficit Equity
--------------- ------------- ---------------- ---------------- ----------------
Balance at February 28, 1995 4,112,697 $ 4,113 $ 3,521,405 $ (1,682,047) $ 1,843,471
Stock Options Exercised 45,717 45 33,406 -0- 33,451
Issuance of common stock
pursuant to employee stock 29,831 30 64,099 -0- 64,129
plan
Net income for the year -0- -0- -0- 507,179 507,179
--------------- ------------- ---------------- ---------------- ----------------
Balance at February 29, 1996 4,188,245 4,188 3,618,910 (1,174,868) 2,448,230
--------------- ------------- ---------------- ---------------- ----------------
Issuance of common stock in a
private placement for cash 343,363 344 1,201,428 -0- 1,201,772
Stock options exercised 158,334 158 99,843 -0- 100,001
Issuance of common stock
pursuant to employee's and
director's stock plans 18,244 18 51,851 -0- 51,869
Net income for the year -0- -0- -0- 258,329 258,329
--------------- ------------- ---------------- ---------------- ----------------
Balance at February 28, 1997 4,708,186 4,708 4,972,032 (916,539) 4,060,201
--------------- ------------- ---------------- ---------------- ----------------
Issuance of common stock
pursuant to employee's and
director's stock plans 15,408 15 38,102 -0- 38,117
Net income for the year -0- -0- -0- 6,637 6,637
--------------- ------------- ---------------- ---------------- ----------------
Balance at February 28, 1998 4,723,594 $ 4,723 $ 5,010,134 $ (909,902) $ 4,104,955
=============== ============= ================ ================ ================
The accompanying notes are an integral part of these financial statements.
MARKET GUIDE INC.
Notes to Financial Statements
February 28, 1998, February 28, 1997 and
February 29, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Business
Market Guide Inc. was incorporated on March 23, 1983, as The Unlisted
Market Service Corporation for the purpose of collecting information to
produce corporate profile reports on unlisted publicly traded companies. On
September 3, 1986, the current corporate name was adopted. Market Guide is
currently engaged in acquiring, condensing, publishing and distributing
historical and current financial information and software to the
individual, financial services, and institutional investor marketplaces.
The majority of the Company's revenue is derived from approximately seventy
third party vendors who distribute and sell Market Guide database products.
Sales are made through both third party vendors and direct sales to end
users.
2. Revenue Recognition
Database revenues from certain information vendors are not completely known
until after the end of the fiscal period. In these instances, management
uses estimates in recording vendor revenue in accordance with generally
accepted accounting principles. Accordingly, actual results could differ
from these estimates. Subsequent adjustments are made after actual
collection.
CreditRisk Monitor subscriptions, print product revenues and Market Guide
for Windows revenues are deferred at the time of sale and recognized
ratably as revenues over the terms of their subscriptions. Costs associated
with procurement of these revenues are expensed as incurred.
Bad debts are recorded under the allowance method of accounting. For the
fiscal years ended February 28, 1998, February 28, 1997 and February 29,
1996, $0, $5,000, and $15,000 were charged to bad debt expense,
respectively. As of February 28, 1998 and February 28, 1997, the allowance
for doubtful accounts remained at $24,207.
3. Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to their estimated useful service
lives. Leased property under capital leases is amortized over the lives of
the respective leases or over the service lives of the assets for those
leases which substantially transfer ownership.
The straight-line method of depreciation is followed for substantially all
assets for both financial and tax reporting purposes. For the fiscal years
ended February 28, 1998, February 28, 1997 and February 29, 1996,
$373,325, $228,576 and $149,666, respectively, were charged to
depreciation expense, as shown in the Statements of Operation and
Accumulated Deficit on page F-6.
4. Capitalization of Computer Software and Database Expansion
Management has elected, pursuant to SFAS No. 86, to capitalize certain
computer software costs incurred for new product development and database
expansion for the periods since February 28, 1989. These costs are reported
at the lower of unamortized cost or net realizable value. The amortization
of these costs are included in database and product cost. All research and
development, database maintenance and customer support costs are expensed
as incurred.
The straight-line method of amortization is used over the estimated
economic life of the asset. For the years ended February 28, 1998 and
February 28, 1997, capitalization of computer software and database
expansion totaled $1,318,305 and $1,145,213, respectively. For the fiscal
years ended February 28, 1998, February 28, 1997 and February 29, 1996,
$429,798, $288,072 and $199,233, respectively, were charged to amortization
expense. As of February 28, 1998 and February 28, 1997, accumulated
amortization was $1,602,353 and $1,172,555, respectively.
5. Earnings Per Share
Basic earnings per share are computed based on the weighted average number
of shares of Common Stock outstanding. Diluted earnings per share are
calculated based on the weighted average number of shares plus outstanding
stock options.
6. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts of cash and cash
equivalents approximate their fair values.
Capital lease obligations: The carrying amounts of capital lease
obligations approximate their fair value.
7. Employee Benefit Plan
The Company established a 401(k) plan effective January 1, 1997 for all
employees with over six months of service. On an annual basis, the
employees may contribute the lesser of 15% of gross salary or $10,000. The
Company matched 50% of the first 6% of the employees' contributions in
calendar 1997, and matched 20% of the first 6% of the employees'
contributions in calendar 1998. Future Company matches will depend on
Company profitability. Participants are vested 20% for each year of service
and are fully vested after 5 service years. For the fiscal years ended
February 28, 1998 and February 28, 1997, the Company contributed $71,041
and $16,791 to the plan, respectively.
8. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE B - LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
February 28, February 28,
1998 1997
------------------ -------------------
Fleet Bank line of credit $ 471,750 $ -0-
Capital lease obligations 564,262 740,274
----- ------------ ----- -------------
1,036,012 740,274
Less: Current maturities 274,031 176,012
----- ------------ ----- -------------
Total long-term debt
and capitalized leases $ 761,981 $ 564,262
===== ============ ===== =============
On April 15, 1997, the Company secured a $1,000,000 line of credit with Fleet
Bank. The credit line is secured by a first-priority perfected security interest
in all present and future assets of the Company. The Company must maintain net
earnings on a consolidated basis of not less than $1 in any fiscal year, and
total consolidated liabilities to tangible net worth may not exceed a 1.5 to 1.0
ratio at any fiscal quarter end. The interest rate on the line of credit ranges
from prime rate plus 1/4% to prime rate plus 1/2%.
Annual scheduled principal maturities of long-term debt and capital lease
obligations as of February 28, 1998 are summarized as follows:
Total of Long-Term Debt
Long-Term Capital Lease and Capital Lease
Debt Obligations Obligations
---------------- ---------------- ---------------------------
Year Ending February 28(29),
1999 $ 78,625 $ 195,405 $ 274,030
2000 157,250 201,625 358,875
2001 157,250 140,486 297,736
2002 78,625 26,746 105,371
================ ================ ===========================
TOTAL $ 471,750 $ 564,262 $ 1,036,012
================ ================ ===========================
NOTE C - COMMITMENTS AND CONTINGENCIES
1. Capital Leases
The schedule of future minimum lease payments for the Company's capital leases
and the present value of the net minimum lease payments are as follows:
Fiscal $ Amount
Year
------------ ---------------
Year ending February 28 (29), 1999 246,519
2000 229,791
2001 149,859
2002 27,400
---------------
Total minimum lease payments $ 653,569
Less: Amounts representing interest 89,307
---------------
Present value of net minimum
lease payments as of February 28, 1998 $ 564,262
===============
2. Operating Leases
The Company rents its three office facilities under operating leases. Two of the
offices are located in Lake Success, New York with a lease expiration in October
2005, and the other office is located in Chicago, Illinois with a lease
expiration in May 1998. The Chicago office lease will not be renewed. For the
periods ended February 28, 1998, February 28, 1997 and February 29, 1996;
$393,632, $205,975, and $127,910 were charged to rent expense, respectively.
The Company can exercise a buyout option for the Lake Success, New York offices
in October 2001 for the amount of $165,134. The annual minimum lease payments
under the operating leases as of February 28, 1998 are:
Fiscal Year $ Amount
------------- ---------------
Year ending February 28 (29), 1999 441,394
2000 452,836
2001 467,169
2002 482,051
2003 497,473
2004 513,337
2005 529,812
2006 360,740
---------------
Total $ 3,744,812
===============
NOTE C - COMMITMENTS AND CONTINGENCIES (continued)
3. Legal Proceedings
The Company is currently involved in a pending lawsuit. The ultimate outcome of
this litigation is unknown at the present time. Accordingly, no provision for
any liability has been made to the accompanying financial statements. Management
does not believe that pending actions will have a material effect on the
business activities of the Company.
NOTE D - INCOME TAXES
The Company has adopted SFAS 109 and as of February 28, 1998 has net operating
loss and investment tax credit carryforwards in the amount of $873,877 and
$10,524, respectively. Pursuant to SFAS 109, management believes that it does
not have a greater than 50% probability of realization of such loss
carryforwards and credits and has decided to provide for a full valuation
allowance. The investment tax credits will begin to expire, if unused, in the
fiscal year ending February 28, 1999. Annual fiscal year expirations total
$3,588 in 1999; $5,470 in 2000; $1,466 in 2001. Net operating losses will begin
to expire, if unused, in the fiscal year ending February 29, 2002. Annual fiscal
year expirations total $585,394 in 2002 and $288,483 in 2003. The Company has
recorded deferred tax assets related to the allowance for doubtful accounts in
deposits and other assets. As of February 28, 1998 and February 28, 1997 the
deferred tax assets remained at $11,116.
The components of the provisions for income taxes (credits) are as follows:
For the Years Ended
-----------------------------------------------------------
02/28/98 02/28/97 02/29/96
-------------------- ------------------ -------------------
Current
Federal $ -0- $ -0- $ 2,900
State and Local 7,274 (4,734) 4,977
Deferred
Federal -0- 1,801 (5,100)
State and Local -0- 582 (1,650)
======== =========== ====== =========== ===== =============
TOTALS $ 7,274 $ (2,351) $ 1,127
======== =========== ====== =========== ===== =============
NOTE D - INCOME TAXES (continued)
Total income tax expense differs from the expected tax expense (computed by
applying the U.S. Federal statutory income tax rate of 34% to income before
income taxes) as follows:
2/28/98 % 2/28/97 % 2/29/96 %
----------------- ---------- ------------------ ----------- ----------------- ---------
Tax at Federal statutory rate $ 4,730 34.0 $ 87,033 34.0 $ 172,824 34.0
Federal alternative minimum tax -0- 0.0 -0- 0.0 2,900 0.6
State income taxes, net of
Federal tax benefit 4,801 34.5 (2,542) (1.0) 1,636 0.3
Net operating loss
carryforwards, utilized (2,283) (16.3) (88,324) (34.5) (179,716) (35.4)
Other 26 0.0 1,482 0.6 3,483 0.7
====== ========== ========== ===== ============ =========== ====== ========== =========
TOTALS $ 7,274 52.2 $ (2,351) (0.9) $ 1,127 0.2
====== ========== ========== ===== ============ =========== ====== ========== =========
Income taxes payable as of February 28, 1998, February 28, 1997 and February 29,
1996 are as follows:
2/28/98 2/28/97 2/29/96
---------------- ------------------ --------------------
Federal $ -0- $ -0- $ 2,900
State and Local 2,803 929 -0-
===== ========== ====== =========== ========== =========
TOTALS $ 2,803 $ 929 $ 2,900
===== ========== ====== =========== ========== =========
NOTE E - STOCKHOLDERS' EQUITY
1. Common Stock
On January 27, 1997 the Company raised $1,201,771 through the sale of 343,363
shares of restricted common stock at a price of $3.50 per share in a private
placement to a limited number of institutional and individual investors.
On March 21, 1994 the Company raised $853,370 through the sale of 568,930 shares
of restricted common stock at a price of $1.50 per share, adjusted for the
October 1995 one-for-four reverse stock split, in a private placement with a
limited number of institutional and individual investors.
NOTE E - STOCKHOLDERS' EQUITY (continued)
On August 11, 1994 the Company created a stock bonus program for employees based
upon merit and years of service. The bonus was awarded in four equal quarterly
installments in the periods ending August 1994, November 1994, February 1995 and
May 1995, subject to an employee's continued employment on the dates of each
award. In the period ending February 28, 1995, the Company issued 38,638
restricted shares adjusted for the 1-for-4 reverse stock split at a total cost
of $60,844. In the period ending February 29, 1996, the Company issued 29,831
restricted shares adjusted for the 1-for-4 reverse stock split at a total cost
of $64,129. In the period ended February 28, 1997, the Company did not issue any
stock bonus. In the period ended February 28, 1998, the Company issued 3,750
shares at a total cost of $10,325.
The Company adopted an Employee Stock Purchase Plan effective September 1, 1995.
The Employee Stock Purchase Plan is intended to qualify under Section 423 of the
Internal Revenue Code. Under the terms of the Plan, 125,000 shares are available
for purchase. The purchase price will be the lesser of an amount equal to 85% of
the fair market value of stock calculated on the lower of the average of the
stock's closing price for a full fiscal quarter or the average of the stock's
closing price for the last five trading days of a fiscal quarter. In the periods
ending February 28, 1998, February 28, 1997 and February 29, 1996, 11,658
shares, 7,772 shares and 2,472 shares had been purchased under this plan at a
total cost of $27,805, $23,626 and $7,762, respectively.
2. Common Stock Options
In May 1993 the Company granted options to two officers for the purchase of an
aggregate of 125,000 shares of restricted Common Stock at an exercise price of
$0.40 per share, adjusted for the October 1995 one-for-four reverse stock split,
through February 28, 1998. These options were exercised on January 2, 1997.
In March 1994 the Company granted options to two officers for the purchase of an
aggregate of 33,334 shares of restricted Common Stock at an exercise price of
$1.50 per share, adjusted for the October 1995 one-for-four reverse stock split,
through February 28, 1999. These options were exercised on January 2, 1997.
In March 1995 the Company granted options to two officers for the purchase of an
aggregate of 25,000 shares of restricted Common Stock at an exercise price of
$2.68 per share, adjusted for the October 1995 one-for-four reverse stock split,
through February 29, 2000.
The Company adopted an Incentive Stock Option Plan for key employees effective
September 1, 1995. The Incentive Stock Option Plan is intended to qualify under
Section 422 of the Internal Revenue Code. Under the terms of the Plan, an
aggregate of 300,000 shares adjusted for the 1-for-4 reverse stock split were
made available. The option price cannot be less than 100% of the fair market
value of the stock as determined by the Company's Board of Directors on the date
of the grant of the option. As of February 28, 1997, there were no options
granted or exercised. As of February 28, 1998, there were 169,600 shares under
option granted at $3.00 per share vesting over a four year period beginning on
February 9, 1999.
The Company adopted an Independent Director's Stock Incentive Plan effective
September 1, 1995. Under the terms of the Plan, only non-qualified stock options
and stock awards may be granted and an aggregate of 50,000 shares were made
available. The option price is determined by a Committee of three disinterested
persons appointed by the Board of Directors on the date of grant of the option.
As of February 28, 1997, there were no options granted or exercised. As of
February 28, 1998, there were 35,000 shares under option granted at $2.50 to
$3.00 per share.
NOTE F - REVERSE STOCK SPLIT
On August 31, 1995 the shareholders approved a one-for-four reverse stock split
of the Company's $.001 par value common stock. The reverse stock split was
effective as of October 16, 1995. All references in the accompanying financial
statements to the per share amounts and earnings per share have been restated to
reflect the reverse stock split for all periods presented.
NOTE G - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
For the fiscal year ending February 28, 1998, the Company had two major
customers accounting for sales of $1,087,409 and $851,882, respectively.
As of February 28, 1998, the Company had $579,318 on deposit at First National
Bank of Long Island and $180,596 on deposit at Fleet Bank.
NOTE H - SEGMENT REPORTING
For the purpose of determining operating segments, Market Guide has separated
CreditRisk Monitor (formed in September 1996) from Market Guide.
The Market Guide segment consists of sales made to the Institutional, Quote
Terminal, and Individual Investor marketplaces. Additionally, revenues are
generated from a print product, customized screens, data and report sales to the
corporate and institutional marketplaces and direct sales on the internet.
The CreditRisk Monitor (CRM) segment includes all business derived from selling
CreditRisk Monitor services on the Internet (www.creditriskmonitor.com). The CRM
service is a subscription-based credit monitoring service targeted towards the
corporate credit manager. This business has little in common with Market Guide's
core business which remains selling reports and data to the Institutional, Quote
Terminal and Individual Investor marketplaces. Therefore, management has decided
to treat CRM as a separate operating entity and to evaluate its financial
performance based on expenses that are directly attributable to this division.
There has been no allocation of Market Guide data costs, corporate overhead, or
personnel costs to CRM in the segment analysis.
NOTE H - SEGMENT REPORTING (continued)
12 months ended February 28, 1998 12 months ended February 28, 1997
CreditRisk Market Guide Consolidated CreditRisk Market Guide Consolidated
Revenues
Database vendor $ - $5,079,380 $5,079,380 $ - $4,150,777 $4,150,777
Market Guide products 298,993 1,470,612 1,769,605 - 563,788 563,788
Print products - 50,992 50,992 - 61,853 61,853
Total revenues 298,993 6,600,984 6,899,977 - 4,776,418 4,776,418
Expenses
Salaries & benefits 802,128 3,349,401 4,151,529 8,525 2,683,538 2,692,063
Database & product costs 91,957 368,962 460,919 8,812 386,405 395,217
General & admin. 75,518 1,002,719 1,078,237 15,552 717,535 733,087
Depreciation 35,747 337,578 373,325 5,734 222,842 228,576
Amortization 71,938 357,860 429,798 - 288,072 288,072
Advertising & promo. 167,250 160,304 327,554 33,788 105,173 138,961
Total expenses 1,244,538 5,576,824 6,821,362 72,410 4,403,566 4,475,976
Operating income (loss) $ (945,545) $1,024,160 $ 78,615 $(72,410) $ 372,852 $ 300,442
Accounts receivable $ 234,970 $ 812,479 $1,047,449 $ - $ 557,415 $ 557,415
Prop., plant & equip., net 193,852 1,335,418 1,529,270 108,062 1,098,942 1,207,004
Capitalized assets, net 516,260 2,263,868 2,780,128 391,976 1,499,645 1,891,621
Unearned revenue 450,030 549,919 999,949 - 248,679 248,679
NOTE I - SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Selected quarterly financial data for the years ended February 28, 1998 and
February 28, 1997 are presented in the following table:
Three Months Ended
May 31, 1997 August 31, 1997 November 30, 1997 February 28, 1998
Total revenues $ 1,446,013 $ 1,679,313 $ 1,743,295 $ 2,031,356
Operating income (61,952) (33,078) 35,095 138,550
Income before taxes (74,529) (47,189) 17,493 118,136
Net income (74,529) (49,189) 17,493 112,862
Basic earnings per share $ (0.02) $ (0.01) $ 0.00 $ 0.02
Basic weighted average number
of shares outstanding 4,708,203 4,709,801 4,713,709 4,718,440
Diluted earnings per share $ (0.02) $ (0.01) $ 0.00 $ 0.02
Diluted weighted average
number of shares outstanding 4,733,203 4,737,084 4,753,709 4,800,573
May 31, 1996 August 31, 1996 November 30, 1996 February 28, 1997
Total revenues $ 1,131,106 $ 1,117,148 $ 1,256,688 $ 1,271,476
Operating income 150,374 45,068 124,052 (19,052)
Income before taxes 139,032 38,092 108,874 (30,020)
Net income 137,712 37,442 107,341 (24,166)
Basic earnings per share $ 0.03 $ 0.01 $ 0.03 $ (0.01)
Basic weighted average number
of shares outstanding 4,188,272 4,192,088 4,195,172 4,428,238
Diluted earnings per share $ 0.03 $ 0.01 $ 0.02 $ 0.00
Diluted weighted average
number of shares outstanding 4,371,701 4,375,517 4,378,601 4,509,568