U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10932
INDIVIDUAL INVESTOR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3487784
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 Broadway, 38th Floor, New York, New York 10019
(Address of principal executive offices)
(212) 843-2777
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 .
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date: As of October 26, 1998,
registrant had outstanding 8,490,851 shares of Common Stock, $.01 par value per
share.
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
INDEX
Part 1. Financial Information
Page
Item 1. Financial Statements
Consolidated Condensed Balance Sheets (Unaudited)
as of September 30, 1998 and December 31, 1997 3
Consolidated Condensed Statements
of Operations (Unaudited) for the three and nine
months ended September 30, 1998 and 1997 4
Consolidated Condensed Statements
of Cash Flows (Unaudited) for the nine months
ended September 30, 1998 and 1997 5
Notes to Consolidated Condensed
Financial Statements (Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
Part 2. Other Information
Item 2. Sales of Unregistered Securities 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
ASSETS 1998 1997
--------------- ----------------
Current assets:
Cash and cash equivalents $4,657,987 $3,533,622
Marketable securities (Note 6) 518,392 -
Accounts receivable (net of allowances of $336,964 in 2,511,571 2,993,299
1998 and $533,693 in 1997)
Investment in discontinued operations (Note 2) 816,580 4,037,432
Prepaid expenses and other current assets 223,832 224,801
--------------- ----------------
Total current assets 8,728,362 10,789,154
Deferred subscription expense 623,180 426,826
Property and equipment - net 419,529 556,070
Other assets 385,727 384,917
=============== ================
Total assets $10,156,798 $12,156,967
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,256,689 $2,093,987
Accrued expenses 778,230 803,502
Deferred revenue 167,034 343,250
--------------- ----------------
Total current liabilities 3,201,953 3,240,739
Deferred subscription revenue 2,248,562 2,661,129
--------------- ----------------
Total liabilities 5,450,515 5,901,868
--------------- ----------------
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares - -
Common stock, $.01 par value; authorized
18,000,000 shares; issued and outstanding 8,490,851 84,908 71,461
shares in 1998 and 7,146,071 shares in 1997
Additional paid-in capital 24,899,068 19,514,363
Accumulated deficit (19,946,257) (13,330,725)
Accumulated other comprehensive loss (Note 6) (331,436) -
--------------- ----------------
Total stockholders' equity 4,706,283 6,255,099
=============== ================
Total liabilities and stockholders' equity $10,156,798 $12,156,967
=============== ================
See Notes to Consolidated Condensed Financial Statements
3
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Sept 30, Nine Months Ended Sept 30,
---------------------------------------------------------------
1998 1997 1998 1997
-------------- ------------- -------------- -------------
Revenues:
Advertising $2,915,518 $2,416,561 $8,107,316 $6,778,303
Circulation 835,715 893,165 2,605,576 3,012,876
List rental and other 296,478 369,738 950,322 953,175
-------------- ------------- -------------- -------------
Total revenues 4,047,711 3,679,464 11,663,214 10,744,354
-------------- ------------- -------------- -------------
Operating expenses
Editorial, production and distribution 2,818,854 2,483,837 8,687,742 6,808,713
Promotion and selling 1,609,155 1,516,473 4,857,883 4,358,746
General and administrative 932,156 1,110,066 3,825,309 3,253,191
Depreciation and amortization 80,888 103,055 232,467 235,652
-------------- ------------- -------------- ------------
Total operating expenses 5,441,053 5,213,431 17,603,401 14,656,302
-------------- ------------- -------------- ------------
Operating loss from continuing operations (1,393,342) (1,533,967) (5,940,187) (3,911,948)
Interest income 62,362 26,236 106,025 57,425
-------------- ------------- -------------- -------------
Loss from continuing operations (1,330,980) (1,507,731) (5,834,162) (3,854,523)
-------------- ------------- -------------- -------------
Discontinued operations (Note 2)
Income (loss) from discontinued operations - 1,473,224 (189,629) 85,328
Loss on disposal of discontinued operations (145,291) - (591,741) -
-------------- ------------- -------------- -------------
(Loss) income from discontinued operations (145,291) 1,473,224 (781,370) 85,328
-------------- ------------- -------------- -------------
Net loss ($1,476,271) ($34,507) ($6,615,532) ($3,769,195)
============== ============= ============== =============
Basic and dilutive (loss) income per common share:
Continuing operations ($0.16) ($0.23) ($0.76) ($0.60)
Discontinued operations ($0.02) $0.22 ($0.10) $0.01
============== ============= ============== =============
Net loss ($0.17) ($0.01) ($0.86) ($0.59)
============== ============= ============== =============
Average number of common shares used in
computing basic and dilutive
loss per common share 8,490,851 6,638,148 7,669,479 6,400,435
See Notes to Consolidated Condensed Financial Statements
4
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
--------------------------------------------
1998 1997
-------------------- -------------------
Cash flows from operating activities:
Net loss ($6,615,532) ($3,769,195)
Less:
(Loss) income from discontinued operations (781,370) 85,328
-------------------- -------------------
Loss from continuing operations (5,834,162) (3,854,523)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation and amortization 232,467 235,652
Loss on sale of equipment 2,634 -
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 481,728 86,931
Prepaid expenses and other current assets 969 (110,820)
Other assets (810) -
Deferred subscription expense (196,354) 350,087
Increase (decrease) in:
Accounts payable and accrued expenses 137,430 (21,271)
Deferred subscription revenue (412,567) (688,848)
Deferred revenue (176,216) 412,000
-------------------- -------------------
Net cash used in operating activities (5,764,881) (3,590,792)
-------------------- -------------------
Cash flows from investing activities:
Purchase of property and equipment (102,011) (128,983)
Proceeds from sale of equipment 3,451 -
Net cash provided by discontinued operations 1,589,654 1,144,611
-------------------- -------------------
Net cash provided by investing activities 1,491,094 1,015,628
-------------------- -------------------
Cash flows from financing activities:
Proceeds from exercise of stock options (Note 3) 398,152 736,786
Proceeds from issuance of common stock (Note 5) 5,000,000 2,250,000
-------------------- -------------------
Net cash provided by financing activities 5,398,152 2,986,786
-------------------- -------------------
Net increase in cash and cash equivalents 1,124,365 411,622
Cash and cash equivalents, beginning of period 3,533,622 1,544,451
==================== ===================
Cash and cash equivalents, end of period $4,657,987 $1,956,073
==================== ===================
See Notes to Consolidated Condensed Financial Statements
5
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts of
Individual Investor Group, Inc. and its subsidiaries (the "Company"). Such
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with the instructions
to Form 10-Q. Accordingly, they do not include all of the information and
footnotes as required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report for the year ended December 31, 1997 on Form 10-KSB.
2. DISCONTINUED OPERATIONS
On April 30, 1998 the Company's Board of Directors decided to discontinue
the Company's investment management services business. A wholly owned subsidiary
of the Company, WisdomTree Capital Management, Inc. ("WTCM"), serves as general
partner of (and is an investor in) a domestic private investment fund. The
Company is also a limited partner in the fund. As a result of the Board's
decision, WTCM is dissolving the domestic investment fund, liquidating its
investments and distributing the net assets to all investors as promptly as
possible. In July 1998 the fund distributed $19,682,415 to its partners in cash
and securities. In October 1998 the fund distributed additional funds totaling
approximately $4,500,000 in cash to its partners. The remainder of the net
assets will be distributed as soon as the investments held by the fund are
liquidated. The operating results relating to investment management services
have been segregated from continuing operations and reported as a separate line
item on the statement of operations. As a result the Company has restated its
financial statements for the corresponding periods of the prior year.
Operating results from discontinued operations are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Investment management services revenues - $141,999 $137,183 $439,191
Net (depreciation) appreciation in fund - 1,371,887 (276,497) (159,283)
Operating expenses - (40,662) (50,315) (194,580)
=========== ============ ============= ============
(Loss) income from discontinued operations - $1,473,224 $(189,629) $85,328
=========== ============ ============= ============
6
Loss on disposal of discontinued operations totaled $145,291 and $591,741
for the three and nine months ended September 30, 1998, respectively. Under
generally accepted accounting principles, loss on disposal of discontinued
operations includes actual losses from the date the Board resolved to
discontinue the investment management services operations plus a provision for
additional losses based on management's best estimate of the amount to be
realized on dissolution of the fund, including applicable severance and legal
fees. Additional losses were incurred in the third quarter as a result of
changes in the market value of the fund's investments.
The fair market value of the Company's investment in the discontinued
operations decreased from $4,037,432 at December 31, 1997 to $816,580 at
September 30, 1998. The net depreciation in the Company's investment for the
three and nine months ended September 30, 1998 was $168,799 and $927,054,
respectively. In July 1998 the Company received $2,293,799 of its investment,
including cash of $1,443,997 and securities of $849,822 (valued as of June 30,
1998). In October 1998 the Company received an additional $524,432 in cash from
the fund. No assurance can be given that the Company will realize any further
amount with respect to its investment in the domestic fund. Moreover, the
securities received by the Company in July 1998 suffered a material decline in
value between June 30, 1998 and September 30, 1998, and subsequently through the
date of this Report. There can be no assurance that such securities will not
suffer further material declines in value.
Selected unaudited financial information for the fund as of September 30,
1998 and December 31, 1997 is as follows:
September 30, December 31,
1998 1997
Assets (at fair value) $ 7,195,281 $71,245,441
Liabilities 188,459 32,104,302
Partners' capital 7,006,822 39,141,139
The net losses for the fund for the three and nine months ended September
30, 1998 totaled $1,448,415 and $7,954,776, respectively, as compared to a net
gain of $16,544,302 and $3,242,622 for the corresponding periods in 1997.
The Company, through WTCM, also provides investment management services to
an offshore private investment fund. On May 21, 1998 the sole voting shareholder
of the offshore fund, in consultation with WTCM, resolved to wind up the fund
and appointed a liquidator to distribute the assets of the fund to its investors
in accordance with Cayman Islands law. In July 1998 approximately 55% of the net
assets of the offshore fund were distributed in cash to its investors. The
remainder of the net assets will be distributed promptly following the
liquidation of the investments held by the fund. The Company has no investment
in the offshore fund.
WTCM is also entitled to receive a special allocation equal to 20% of the
net income, if any, of each of the funds (not including income earned on its own
investment with respect to the domestic fund), subject to certain limitations,
calculated at each funds' year-end, which is December 31st for the domestic fund
and June 30th for the offshore fund. The amount of the special allocation for
the offshore fund for the year ended June 30, 1998 was $109,319. The Company
does not expect to receive a special allocation during 1998 from the domestic
fund based on the negative performance of that fund to date.
7
3. STOCK OPTIONS
During the three and nine months ended September 30, 1998, the Company
granted 563,000 and 751,000 options, respectively, to purchase the Company's
Common Stock; 84,938 options were exercised year to date providing proceeds of
$398,152 (none were exercised in the third quarter); and 112,500 and 534,310
options were canceled, respectively. Of the total options granted in the third
quarter, 250,500 were under the Company's stock option plans and 312,500 were
outside the Company's plans, all of which expire at various dates through
September 2008.
4. LOSS PER COMMON SHARE
Net loss per basic and dilutive common share for the three and nine month
periods ended September 30, 1998 and 1997, respectively, were computed using the
weighted average number of common shares outstanding during each period. The
exercise of stock options and warrants were not assumed in the computation of
loss per common share, as the effect would have been antidilutive. Previously
reported net loss per share amounts are the same as required by the adoption of
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share," which became effective in the fourth quarter of 1997.
5. SALE OF COMMON STOCK
On June 26, 1998 the Company entered into a Stock Purchase Agreement with
Wise Partners, L.P. providing for the sale of 1,259,842 shares of Common Stock
for an aggregate purchase price of $5,000,000, which was based on the closing
"ask" price of the common stock on June 25, 1998. Wise Partners; L.P. is a
limited partnership of which the Chief Executive Officer of the Company,
Jonathan L. Steinberg, is the General Partner.
6. OTHER COMPREHENSIVE INCOME
During the year, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 requires the disclosure of comprehensive income, defined
as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosure of certain financial information that historically has not
been recognized in the calculation of net income.
Comprehensive loss for the three and nine months ended September 30, 1998
and 1997, respectively, is presented in the following table:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Net loss $(1,476,271) $(34,507) $(6,615,532) $(3,769,195)
Accumulated other comprehensive loss:
Unrealized loss on securities (331,436) - (331,436) -
================ ============== ================= =================
Total comprehensive loss $(1,807,707) $(34,507) $(6,946,968) $(3,769,195)
================ ============== ================= =================
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
When used in this Report and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result,"
"expects," "will continue," "estimates," "believes," "anticipates," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward-looking statements.
Such forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from the results projected
in such forward-looking statements. These risks and uncertainties include those
set forth in Item 2 (entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations") of this Report, and in Item 1 (entitled
"Business") of Part I and in Item 6 (entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations") of Part II of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997, filed with the Securities and Exchange Commission. These forward-looking
statements speak only as of the date of this Report. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or to reflect any
change in events, conditions or circumstances on which any such forward-looking
statement is based, in whole or in part.
Three and Nine Months Ended September 30, 1998 as Compared to the Three and
Nine Months Ended September 30, 1997
Loss from Continuing Operations
The Company's loss from continuing operations was $1,330,980 and $5,834,162
for the three and nine months ended September 30, 1998, respectively, a 12%
decrease and 51% increase from the corresponding periods of the previous fiscal
year. The decrease in the loss from continuing operations for the third quarter
of 1998 as compared to the third quarter of 1997 is due primarily to the
improved operating performance for Individual Investor and Ticker magazines as
well as lower general and administrative ("G&A") costs. The increase in the year
to date operating loss for 1998 as compared to the corresponding period of 1997
relates primarily to three factors: the continued investment in the development
of the Company's online service, the decrease in advertising pages and revenues
for Individual Investor magazine, and high levels of severance and hiring
expenses incurred relating to changes in senior management and key advertising
sales personnel.
The decrease in the loss from continuing operations for the third quarter
of 1998 as compared to the corresponding period of 1997 is due to revenues
growing 10% for the period while expenses grew by only 4%. For the three months
ended September 30, 1998, total revenues were $4,047,711 as compared to
$3,679,464 for the same period in 1997. For the three months ended September 30,
1998, total expenses were $5,441,053 as compared to $5,213,431 for the same
period in 1997. Individual Investor magazine made a positive contribution
(before deducting G&A expenses) of $43,785 for the third quarter of 1998 as
compared to a negative contribution (before deducting G&A expenses) of $34,823
in the corresponding period of 1997. This is primarily attributable to a 36%
9
decrease in subscription promotion expenses for the magazine. Ticker
magazine made a negative contribution (before deducting G&A expenses) of $1,047
for the third quarter of 1998 as compared to a negative contribution (before
deducting G&A expenses) of $107,535 in the corresponding period of 1997,
resulting from a 70% increase in revenues, offset in part by a 34% increase in
operating expenses. The Company's online service, Individual Investor Online
(www.iionline.com), made a negative contribution (before deducting G&A expenses)
of $437,329 for the third quarter of 1998 as compared to a negative contribution
(before deducting G&A expenses) of $256,261 in the corresponding period of 1997.
This is due to higher levels of expenses incurred for the development and
redesign of the service, offset in part by an increase in revenues. In addition,
G&A expenses decreased by 16% for the third quarter of 1998 as compared to the
corresponding period of 1997.
The loss from continuing operations for the nine months ended September 30,
1998 includes a negative contribution (before deducting G&A expenses) of
$1,442,324 from the Company's online service, Individual Investor Online
(www.iionline.com), as compared to a negative contribution (before deducting G&A
expenses) of $590,629 in the corresponding period of 1997. This increase is due
to higher levels of expenses incurred for the development and redesign of the
service, offset in part by higher revenues. Individual Investor magazine
incurred a negative contribution (before deducting G&A expenses) of $312,746 for
the nine months ended September 30, 1998, as compared to a positive contribution
(before deducting G&A expenses) of $286,423 in the corresponding period of 1997.
This change is primarily due to a 5% decrease in advertising revenues in the
1998 period compared to the corresponding period of 1997, and an increase in
operating expenses related to a larger subscriber base. Ticker magazine incurred
a negative contribution (before deducting G&A expenses) of $165,577 for the nine
months ended September 30, 1998, as compared to a negative contribution (before
deducting G&A expenses) of $458,373 in the corresponding period of 1997. This
improvement for Ticker results primarily from a 90% increase in revenues offset
in part by a 38% increase in operating expenses. G&A expenses increased for the
year by 18% as compared to 1997.
Revenues
Revenues from continuing operations for the three and nine months ended
September 30, 1998 were $4,047,711 and $11,663,214, respectively, a 10% and 9%
increase from the corresponding periods of the previous fiscal year.
Advertising revenues for the three and nine months ended September 30, 1998
were $2,915,518 and $8,107,316, respectively, a 21% and 20% increase over the
corresponding periods of 1997. Of this increase, the Company's online service,
Individual Investor Online (www.iionline.com), generated $307,204 and $888,011
for the three and nine months ended September 30, 1998, respectively, compared
to $32,246 and $37,246 for the same periods in 1997. Ticker advertising revenues
for the three and nine months ended September 30, 1998 were $651,748 and
$1,638,653, respectively, a 72% and 90% increase from the corresponding periods
in 1997. This increase relates primarily to nine issues published in 1998
compared to seven in 1997, together with 20% circulation and rate increases
effected in February 1998. Individual Investor advertising revenues for the
three and nine months ended September 30, 1998 were $1,957,121 and $5,581,206,
respectively, a 2% and 5% decrease from the corresponding period of 1997. As a
result of the increase in paid circulation of Individual Investor, effective
November 1997 the Company increased its advertising rates by 18%. However, total
advertising pages for Individual Investor decreased by 41 and 90 total pages for
the three and nine months ended September 30, 1998, respectively, reflecting the
10
fact that the sales department was in a period of transition. The Company went
without a Publisher from July 1997 until April 1998 and also terminated its West
Coast representative in May 1998 and replaced it with two in house
representatives located in Los Angeles and San Francisco, respectively, in July
1998.
Circulation revenues for the three and nine months ended September 30, 1998
were $835,715 and $2,605,576, respectively, a 6% and 14% decrease when compared
to the corresponding periods of the previous fiscal year. Individual Investor
subscription revenues for the three and nine months ended September 30, 1998,
were $564,744 and $1,788,910, respectively, a 1% increase and 3% decrease from
the corresponding periods of 1997. Special Situations Report subscription
revenues for the three and nine months ended September 30, 1998 were $104,581
and $301,979, respectively, a 41% and 55% decrease when compared to the
corresponding periods of 1997. The decline in Special Situations Report
subscription revenues results from a decrease in paid subscribers to 4,500 as of
September 30, 1998, as compared to 9,100 as of September 30, 1997. The Company
distributes Ticker free of charge by controlled distribution to financial
service professionals, and does not currently impose a charge for use of its
online service.
List rental and other revenues for the three and nine months ended
September 30, 1998 were $296,478 and $950,322, respectively, a 20% and 1%
decrease from the corresponding periods of the previous fiscal year. List rental
revenues for the three and nine months ended September 30, 1998 was $210,996 and
$600,521, respectively, a 23% and 18% decrease when compared to the
corresponding periods of the previous fiscal year. The decrease in list rental
revenue is primarily attributable to reduced demand and the decrease in the
number of subscribers to Special Situations Report. Other revenues for the three
and nine months ended September 30, 1998 were $85,482 and $349,801,
respectively, a 10% decrease and 60% increase from the corresponding periods of
the previous fiscal year. The year to date increase in other revenues is due
primarily to an increase in the sale of reprints from Individual Investor and
Ticker magazines and increased revenues generated from an affinity credit card
agreement.
Operating Expenses
Total operating expenses from continuing operations for the three and nine
months ended September 30, 1998 were $5,441,053 and $17,603,401 respectively, a
4% and 20% increase from the corresponding periods of the previous fiscal year.
Editorial, production and distribution expenses for the three and nine
months ended September 30, 1998 were $2,818,854 and $8,687,742, respectively, a
13% and 28% increase from the same periods of the previous fiscal year. The
increase in such expenses is primarily related to the continuing development,
redesign, and ongoing maintenance of the Company's online service Individual
Investor Online (www.iionline.com). The Company incurred online editorial and
production costs totaling $496,139 and $1,566,805 for the three and nine months
ended September 30, 1998, respectively, compared to $278,158 and $617,526 for
the corresponding periods of the previous fiscal year. Production and
distribution expenses relating to all three print publications for the three and
nine months ended September 30, 1998 were $1,506,614 and $4,651,003,
respectively, a 1% and 12% increase from the corresponding periods of 1997,
primarily due to additional copies printed for a larger subscriber base in both
Individual Investor and Ticker. Editorial costs for the three and nine months
ended September 30, 1998 were $572,202 and $1,761,924, respectively, a 10% and
19% increase from the corresponding periods of the previous fiscal year. This
was due mostly to an increase in staffing levels to aid the growth in the
Company's print publications and its online service.
11
Promotion and selling expenses for the three and nine months ended
September 30, 1998 were $1,609,155 and $4,857,883, respectively, a 6% and 11%
increase from the corresponding periods of the previous fiscal year. This
increase primarily is due to online advertising expenses of $248,394 and
$763,529 for the three and nine months ended September 30, 1998, respectively,
compared to $10,348 of online advertising costs for the three and nine months
ended September 30, 1997. Subscription promotion expenses for the three and nine
months ended September 30, 1998 were $479,207 and $1,596,293, respectively, a
26% and 18% decrease from the corresponding periods of 1997. Advertising
salaries, commissions and other related costs for the Company's three
publications, for the three and nine months ended September 30, 1998, were
$802,755 and $2,282,728, respectively, as compared to $783,112 and $2,211,135
for the same periods in 1997.
General and administrative expenses for the three and nine months ended
September 30, 1998 were $932,156 and $3,825,309, respectively, as compared to
$1,110,066 and $3,253,191 for the same periods in 1997. The decrease of 16% for
the third quarter of 1998 as compared to the third quarter of 1997 relates
primarily to less salaries paid (the Company's President and General Counsel
were hired in September) and lower bad debt expenses compared to the
corresponding periods of 1997. Substantially all of the year to date increase as
compared to the prior year resulted from incremental expenses (severance, legal
fees and executive search fees) incurred in the second quarter totaling
approximately $560,000 relating to changes in senior management personnel and
key advertising sales personnel.
Depreciation and amortization expense for the three and nine months ended
September 30, 1998, were $80,888 and $232,467 respectively, as compared to
$103,055 and $235,652 for the same periods in 1997.
Interest and other income for the three and nine months ended September 30,
1998 were $62,362 and $106,025, respectively, compared to $26,236 and $57,426
for the same periods in 1997. These changes are primarily due to varying levels
of cash invested by the Company.
Discontinued Operations
On April 30, 1998 the Company's Board of Directors decided to discontinue
the Company's investment management services business. Accordingly, the
operating results relating to investment management services have been
segregated from continuing operations and reported as a separate line item on
the statement of operations.
Net loss from discontinued operations for the three and nine months ended
September 30, 1998 were $145,291 and $781,370 respectively, as compared to net
income of $1,473,224 and $85,328 for the same periods in 1997. Loss on disposal
of discontinued operations was $145,291 and $591,741 for the three and nine
months ended September 30, 1998. Under generally accepted accounting principles,
loss on disposal of discontinued operations includes actual losses from the date
the Board resolved to discontinue the investment management services business,
plus a provision for additional losses based on management's best estimate of
the amount to be realized on dissolution of the fund.
Net loss from discontinued operations includes revenues from investment
management services and net appreciation (depreciation) in fund. Investment
management services are a combination of management fees, being 1 to 1-1/2
percent of assets under management, and a special profit allocation, being 20%
of defined performance. Net appreciation (depreciation) in fund relates to the
12
realized and unrealized earnings of the amount invested by the Company in the
domestic fund's portfolio which, because of the nature of the investments, will
vary significantly from period to period and may result in losses as well as
income. As of September 30, 1998 the value of the Company's investment in the
domestic fund was $816,580. As a result of the Board's decision, WTCM is
dissolving the domestic and offshore investment funds, liquidating fund
investments and distributing the net assets to all investors as promptly as
possible. In July 1998 the Company received $2,293,799 of its investment,
including cash of $1,443,997 and securities of $849,822 (valued as of June 30,
1998). In October 1998 the Company received an additional $524,432 in cash from
the fund. No assurance can be given that the Company will realize any further
amounts with respect to its investment the domestic fund.
Net Loss
The Company's net loss for the three and nine months ended September 30,
1998 was $1,476,271 and $6,615,532, respectively, as compared to a net loss of
$34,507 and $3,769,195 for the corresponding periods in 1997. No income taxes
were provided in 1998 or 1997 due to the net loss. The basic and dilutive net
loss per weighted average common share for the three and nine months ended
September 30, 1998 were ($0.17) and ($0.86), respectively, as compared to
($0.01) and ($0.59) for the corresponding periods in 1997.
Liquidity and Capital Resources
As of September 30, 1998, the Company had working capital of $5,526,409
including cash and cash equivalents totaling $4,657,987. As of September 30,
1998 the fair market value of the Company's investment in the discontinued
operations was $816,580, which may be available, subject to market fluctuations
and liquidity, to fund the Company's operations as the domestic fund is
liquidated and its assets are distributed to its partners. In July 1998 the
Company received $2,293,799 of its investment, including cash of $1,443,997 and
securities of $849,822 (valued as of June 30, 1998). In October 1998 the Company
received an additional $524,432 in cash from the fund. No assurance can be given
that the Company will realize any further amount with respect to its investment
upon final liquidation of the fund. Moreover, the securities received by the
Company in July 1998 suffered a material decline in value between June 30, 1998
and September 30, 1998, and subsequently through the date of this Report. There
can be no assurance that such securities will not suffer further material
declines in value that may have a material adverse affect on the Company's
financial performance.
On June 26, 1998 the Company entered into a Stock Purchase Agreement with
Wise Partners, L.P. providing for the sale of 1,259,842 shares of Common Stock
for an aggregate purchase price of $5,000,000, which was based on the closing
"ask" price of the common stock on June 25, 1998. Wise Partners, L.P. is a
limited partnership of which the Chief Executive Officer of the Company,
Jonathan L. Steinberg, is the General Partner. In addition, during the first
nine months of 1998 the Company received $398,152 from exercises of stock
options.
Management expects revenues to grow for the remainder of 1998 and in 1999
as the Company begins to implement changes made by a new management team,
including a new President hired in September 1998 and a new Publisher hired in
April 1998. Advertising sales are expected to increase for Individual Investor
and Ticker magazines due to the addition of new key sales personnel and the
effect of the increased awareness in the marketplace for both magazines begins
to take effect. Additionally, the Company expects to realize higher revenues
from operations of its online service Individual Investor Online
(www.iionline.com). There can be no assurance, however, that such growth will be
realized.
13
The Company incurred a net loss of $1,476,271 and $6,615,532 for the three
and nine months ended September 30, 1998, respectively. The Company's current
levels of revenues are not sufficient to cover its expenses. Under its current
business plan, during the remainder of 1998 and for the year 1999, the Company
intends to control and reduce several of its expenses while continuing to invest
in its existing products. The Company anticipates losses to continue through
1999. Profitability may be achieved in future periods only if the Company can
substantially increase its revenues while controlling increases in expenses.
There can be no assurance that revenues will be substantially increased, or that
the increases in expenses can be controlled adequately to enable the Company to
attain profitability.
The Company plans to continue investing in its online service Individual
Investor Online (www.iionline.com), because it believes that this line of
business offers the greatest opportunity for generating substantial revenues
over the longer term. There can be no assurance, however, that the online
business in fact will generate substantial revenues, as the Company faces many
competitors in the business. No assurance can be given that advertising revenues
for Individual Investor and Ticker will increase because higher advertising
rates may not be accepted by advertisers, advertising pages may continue to
decline for Individual Investor, circulation may drop at either or both
Individual Investor and Ticker, and the advertising mix may change. Although the
Company has recently added key advertising sales personnel and has hired a new
publisher, no assurance can be given that these changes will result in
advertising revenue increases. The Company also believes that a further stock
market correction or "beaR" market would affect its ability to sell advertising
to the financial advertiser categories. The Company expects that the lease
expenses it will incur in connection with its anticipated relocation to new
space in early 1999 will be at a significantly higher rate per square foot and
that the Company will incur significant costs related to the relocation.
Based on the Company's business plan, the Company believes that its working
capital and its investments will be sufficient to fund its operations and
capital requirements through 1998. Thereafter, if revenues have not been
significantly increased above current and expected levels, the Company will need
to raise additional capital in order to sustain operations. The Company is
currently exploring its ability to obtain additional financing. No assurance can
be given as to the availability of additional financing or, if available, the
terms upon which it may be obtained. Any such additional financing may result in
dilution of an investor's equity investment in the Company. Failure to obtain
additional financing on favorable terms, or at all, will have a substantial
In August 1997 the Company retained the investment banking firm of Bear,
Stearns & Co. Inc. ("Bear Stearns") to assist the Company in exploring strategic
initiatives to enhance shareholder value, the process for which is continuing.
With the assistance of Bear Stearns since the time of such retention, the
Company has focused on various alternatives including identifying, evaluating,
and approaching potential strategic partners seeking investment positions in the
Company's financial information services business.
Year 2000
The Company has evaluated the potential impact of the situation commonly
referred to as the "Year 2000 Issue". The Year 2000 Issue concerns the inability
of information systems, whether due to computer hardware or software, to
properly recognize and process date sensitive information relating to the year
2000 and beyond. Many of the world's computer systems currently record years in
14
a two-digit format. Such computer systems may be unable to properly
interpret dates beyond the year 1999, which could lead to business disruptions
in the U.S. and internationally. The potential costs and uncertainties
associated with the Year 2000 Issue will depend on a number of factors,
including software, hardware and the nature of the industry in which a company
operates. The Year 2000 Issue could have a material adverse effect on the
Company's results of operations and ability to conduct business.
To attempt to ensure that the Company's computer systems (including
computer hardware and computer software) are "Year 2000 Ready" (that is, are not
disrupted by the Year 2000 Issue), the Company developed a plan to assess, and
remediate where necessary, any Year 2000 Issue with respect to the Company's
computer systems, and appointed certain employees to administer such plan. The
plan contains four phases: first, identifying all computer hardware and software
being used by the Company; second, determining whether such hardware and
software is Year 2000 Ready; third, remediating any Year 2000 Issue with respect
to any particular piece of hardware or software; and fourth, performing a final
audit and test. The Company has made significant progress toward completing the
first two phases, and currently expects to complete these phases before January
1999. The Company has made significant progress toward completing phase three
with respect to software issues, and currently expects to complete phase three,
with respect to both software and hardware, before April 1999. The Company
intends to commence phase four upon the completion of the first three phases,
and currently expects to complete phase four before October 1999.
The Company currently believes that additional direct costs associated with
making the Company's systems Year 2000 Ready should not exceed $30,000 and that
such costs, together with any lost revenue associated with making the Company's
systems Year 2000 Ready, should not have a material adverse effect on the
Company's operating results or financial condition. The Company does not believe
that the diversion of employee resources required to address the Year 2000 Issue
would have a material effect on the Company's operating results or financial
condition. The Company does not currently have in place a contingency plan of
action in the event that it is not able to make its computer systems Year 2000
Ready, but will consider on an ongoing basis whether such a contingency plan
should be developed.
The dates on which the Company believes it will complete its Year 2000
readiness phases, and the costs associated with such efforts, are based on the
Company's current best estimates. However, there can be no guarantee that these
estimates will be achieved, or that there will not be a delay in, or increased
costs associated with, making the Company's systems Year 2000 Ready. Specific
factors that might cause differences between the estimates and actual results
include, but are not limited to, the availability and cost of personnel trained
in these areas, the ability to locate and correct all relevant computer code and
hardware devices (such as microcontrollers), timely responses to and corrections
by third-parties and suppliers, the ability to implement interfaces between the
new systems and the systems not being replaced, and similar uncertainties. Due
to the general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third-parties and the
interconnection of global businesses, the Company cannot ensure its ability to
timely and cost-effectively resolve problems associated with the Year 2000
Issue, and a failure to do so could materially adversely affect the Company's
operations and business, and expose it to third-party liability.
The Company also faces risks and uncertainties to the extent that the third
party suppliers of products, services and systems on which the Company relies do
not have business systems or products that are Year 2000 Ready. The Company has
initiated communications with all of its significant suppliers and
15
customers to determine the extent to which the Company's systems and
products are vulnerable to those third parties' failure to remediate their own
systems' Year 2000 Issues. There is no guarantee that the systems or products of
other companies on which the Company relies will be timely, if at all, made Year
2000 Ready, and such a failure by such other companies could have a material
adverse effect on the Company's systems and products. The Company is in the
process of identifying what actions may be needed to mitigate vulnerability to
problems related to enterprises with which the Company interacts, but does not
currently have in place a contingency plan of action in the event that the
failure by one or more third parties to make their computer systems Year 2000
Ready causes adverse effects to be suffered by the Company. The Conpany will
consider on an ongoing basis whether such a contingency plan should be
developed.
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PART II- OTHER INFORMATION
ITEM 2 - Sales of Unregistered Securities
- ------------- ------------------ ------------ ------------------------------ --------------- ------------------------------
Date of sale Title of security Number Sold Consideration received and Exemption from If option, warrant or
description of underwriting registration convertible security, terms
or other discounts to market claimed of exercise or conversion
price afforded to purchasers
- ------------- ------------------ ------------ ------------------------------ --------------- ------------------------------
7/98 -9/98 Options to purchase 563,000 options granted - no Section 4(2) vesting over a period of
common stock granted consideration received by three to five years from
to employees, Company until exercise date of grant, subject to
directors and certain conditions of
consultants continued service;
exercisable for a period
lasting ten years from date
of grant at an exercise
prices ranging from $1.1875
to $3.50
ITEM 5 - Other Information
As previously reported, in July 1997 certain former limited partners of
WisdomTree Associates, L.P. (the "Fund"), the domestic private investment fund
managed by a subsidiary of the Company (which fund is treated as a discontinued
operation as described elsewhere in this Report), initiated an action in the
Supreme Court of the State of New York, County of New York, captioned Richard
Tarlow and Sandra Tarlow v. WisdomTree Associates, L.P., Bob Schmidt and
Jonathan Steinberg, Index No. 113819/97. Defendants moved to dismiss the action
based on plaintiffs' failure to file a complaint, and the action was dismissed
without prejudice in October 1997. In October 1998, plaintiffs served notice of
motion to vacate the default judgment. Plaintiffs allege that defendants did not
timely process plaintiffs request for redemption of their interest in the Fund,
which delay allegedly caused plaintiffs to suffer approximately $470,000 in
damages. The Company is currently evaluating this matter, and intends to take
vigorous action to defend itself. Due to the inherent uncertainty of litigation,
the Company is not able to reasonably estimate the potential losses, if any,
that may be incurred in relation to this litigation.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description Method of Filing
3.1 Amended and Restated Certificate of Filed herewith
Incorporation of Registrant dated August 19, 1991
3.2 Certificate of Amendment of Amended and Restated Filed herewith
Certificate of Incorporation of Registrant dated
May 26, 1993
3.3 Certificate of Amendment of Amended and Restated Incorporated by reference to
Certificate of Incorporation of Registrant Registrant's Form 10-QSB
dated June 18, 1997 for the quarter ended June 30, 1997.
3.4 Amended and Restated Certificate of Incorporation of Filed herewith
Registrant, as amended through June 18, 1997
3.5 Bylaws of Registrant Incorporated by reference to Exhibit
3.2 to the Registrant's Registration
Statement on Form S-18 (File No.
33-43551-NY) (the form "S-18")
4.1 Specimen Certificate for Common Stock of Registrant Incorporated by reference to Exhibit
4.1 to the Form S-18
10.1 Employment Agreement between Registrant and Brette Popper Filed herewith
dated September 14, 1998
10.2 Stock Option Agreement between Registrant and Brette Filed herewith
Popper dated September 14, 1998
10.3 Employment Agreement between Registrant and Gregory Filed herewith
Barton dated July 21, 1998
10.4 Stock Option Agreement between Registrant and Gregory Filed herewith
Barton dated September 14, 1998
10.5 Indemnification Agreement between Registrant and Brette Filed herewith
Popper dated September 14, 1998
10.6 Indemnification Agreement between Registrant and Gregory Filed herewith
Barton dated September 14, 1998
27 Financial Data Schedule September 30, 1998 Filed only with the electronic
submission of Form 10-Q in
accordance with the EDGAR
requirement
(b) The Company did not file any reports on Form 8-K for the Quarter Ended
September 30, 1998
17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: November 12, 1998
INDIVIDUAL INVESTOR GROUP, INC. (Registrant)
By: /s/ Jonathan L. Steinberg
Jonathan Steinberg, Chief Executive Officer
By: /s/ Henry G. Clark
Henry G. Clark, Vice President Finance
(Principal Financial and Accounting Officer)
18
EXHIBIT INDEX
Exhibit No. Description Page
3.1 Amended and Restated Certificate of Incorporation of Registrant 20 - 27
dated August 19, 1991
3.2 Certificate of Amendment of Amended and Restated 28 - 29
Certificate of Incorporation of Registrant dated May 26, 1993
3.4 Amended and Restated Certificate of Incorporation of Registrant, 30 - 36
as amended through June 18, 1997
10.1 Employment Agreement with Brette Popper dated September 11, 1998 37 - 47
10.2 Stock Option Agreement with Brette Popper dated September 14, 1998 48 - 59
10.3 Employment Agreement with Gregory Barton dated July 21, 1998 60 - 61
10.4 Stock Option Agreement with Gregory Barton dated September 14, 1998 62 - 70
10.5 Indemnification Agreement with Brette Popper dated September 14, 1998 71 - 80
10.6 Indemnification Agreement with Gregory Barton dated September 14, 1998 81 - 90
27 Financial Data Schedule September 30, 1998 91
19