U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
--------------
___ 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
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INDIVIDUAL INVESTOR GROUP, INC.
-------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3487784
-------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
125 Broad Street, 14th Floor, New York, New York 10004
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(Address of principal executive offices)
(212) 742-2277
----------------------------
(Issuer's telephone number)
Check whether the issuer (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 issuer 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 issuer's classes of common
equity, as of the latest practicable date: As of May 14, 2001, issuer had
outstanding 8,969,886 shares of Common Stock, $.01 par value per share.
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
ASSETS 2001 2000
------------ ------------
Current assets:
Cash and cash equivalents $ 2,421,332 $ 4,694,476
Accounts receivable (net of allowances of
$496,686 in 2001 and $552,609 in 2000) 1,634,828 1,754,200
Investment in discontinued operations (Note 3) 49,302 49,302
Prepaid expenses and other current assets 1,105,421 1,036,996
------------ ------------
Total current assets 5,210,883 7,534,974
------------ ------------
Investments (Note 2) 2,678,546 2,678,546
Deferred subscription expense 283,163 337,245
Property and equipment - net 1,450,274 1,479,105
Security deposits 375,580 375,580
Other assets 199,858 300,810
------------ ------------
Total assets $10,198,304 $12,706,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,374,065 $ 2,534,027
Accrued expenses 395,178 462,800
Deferred advertising revenue 1,345,831 1,987,067
------------ ------------
Total current liabilities 4,115,074 4,983,894
------------ ------------
Deferred advertising revenue 502,770 532,653
Deferred subscription revenue 2,779,084 2,607,407
------------ ------------
Total liabilities 7,396,928 8,123,954
------------ ------------
Stockholders' Equity:
Preferred stock, $.01 par value, authorized
2,000,000 shares,7,880 issued and
outstanding in 2001 and in 2000 79 79
Common stock, $.01 par value; authorized
40,000,000 shares, 8,969,886, issued and
outstanding in 2001 and 8,972,886 issued
and outstanding in 2000 89,699 89,729
Additional paid-in capital 33,571,686 33,576,719
Warrants 770,842 872,052
Deferred compensation (48,965) (29,490)
Accumulated deficit (31,581,965) (29,926,783)
------------ ------------
Total stockholders' equity 2,801,376 4,582,306
------------ ------------
Total liabilities and stockholders' equity $10,198,304 $12,706,260
============ ============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
2001 2000
------------ ------------
Revenues:
Print Publications $ 2,622,660 $ 4,939,130
Online Services 609,723 1,273,520
------------ ------------
Total revenues 3,232,383 6,212,650
------------ ------------
Operating expenses:
Editorial, production and distribution 2,293,280 3,469,796
Promotion and selling 1,500,601 2,814,201
General and administrative 925,801 1,453,569
Depreciation and amortization 152,157 139,966
------------ ------------
Total operating expenses 4,871,839 7,877,532
------------ ------------
Operating loss (1,639,456) (1,664,882)
Investment and other income - net (15,714) 68,299
------------ ------------
Net loss ($1,655,170) ($1,596,583)
============ ============
Basic and dilutive loss per common share:
Net loss per share (Note 5) ($0.19) ($0.16)
============ ============
Average number of common shares used in computing
basic and dilutive loss per common share 8,972,672 10,363,991
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss ($1,655,170) ($1,596,583)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization 152,157 139,966
Stock option and warrant transactions (119,325) 58,528
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 376,406 (663,866)
Prepaid expenses and other current assets (68,424) (14,404)
Other assets 94,530 87,477
Deferred subscription expense 54,082 (115,830)
Increase (decrease) in:
Accounts payable and accrued expenses (188,184) 784,067
Deferred advertising revenue (671,119) (837,089)
Deferred subscription revenue 171,677 545,841
------------ ------------
Net cash used in operating activities (1,853,370) (1,611,893)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (123,340) (141,010)
------------ ------------
Net cash used in investing activities (123,338) (141,010)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options - 41,095
Receivables Financing (257,034) -
Preferred stock dividends (39,400) (50,000)
------------ ------------
Net cash used in financing activities (296,434) (8,905)
------------ ------------
Net increase in cash and cash equivalents (2,273,144) (1,761,808)
Cash and cash equivalents, beginning of period 4,694,476 6,437,542
------------ ------------
Cash and cash equivalents, end of period $2,421,332 $4,675,734
============ ============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The consolidated condensed financial statements include the accounts of
Individual Investor Group, Inc. and its subsidiaries (collectively, the
"Company"). Such financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial reporting and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes as
required by accounting principles generally accepted in the United States of
America for annual financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary in
order to make the financial statements not misleading have been included.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. 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, 2000 on Form 10-K.
The Company adopted Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities,"
which is effective for fiscal years beginning after June 15, 2000. SFAS 133, as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Under SFAS 133, certain contracts that
were not formally considered derivatives may now meet the definition of a
derivative. The adoption of SFAS 133 did not have a significant impact on the
financial position, results of operations, or cash flows of the Company.
Certain balances for the period ended March 31, 2000 have been
reclassified to conform to fiscal 2001 presentation.
2. INVESTMENTS
-----------
On May 4, 2000, the Company and Tradeworx, Inc. ("Tradeworx") entered
into an agreement pursuant to which the Company acquired 1,045,000 newly issued
shares of common stock of Tradeworx, representing at the time a 7% stake (with
warrants to acquire up to 10.5%), on a fully diluted basis, of Tradeworx. The
purchase price was paid for in the form of a credit for Tradeworx to use to
purchase advertising in the Company's magazines and websites during the 24
months ending August 1, 2002. The investment and the deferred advertising
revenues were recorded at the fair market value at the date of the transaction
of approximately $1.1 million. The Company was informed that in January 2001,
Tradeworx completed a capital raise pursuant to which Tradeworx raised $3.0
million cash, selling 1,181,102 shares at a price of $2.54 per share (a 134%
premium to the value at which the shares are recorded on the Company's books).
Tradeworx is in the business of developing proprietary software and other
financial analytical tools that provide online investment analysis and
investment decision support platforms for retail and institutional investors and
brokerage firms. There currently is no public market for Tradeworx securities
and there is no assurance that the Company will realize any value (and the
Company in fact may realize a loss) with respect to its investment in Tradeworx.
On February 23, 2000, the Company and Pricing Dynamics Solutions, Inc.
("Pricing Dynamics") entered into an agreement pursuant to which the Company
acquired 1,166,667 newly issued shares of common stock of Pricing Dynamics,
representing at the time a 3.3% stake (on a fully-diluted basis) of Pricing
Dynamics (constituting 7.4% of the then-outstanding shares). The purchase price
was paid in the form of a credit for Pricing Dynamics to use to purchase
advertising in the Company's magazines and web sites during the 21 months ending
December 31, 2001. The investment and the deferred advertising revenues were
recorded at the fair market value at the date of the transaction of
approximately $1.5 million.
Pricing Dynamics provides e-commerce tools and dynamic pricing software
for the business-to- business, business-to-consumer and consumer-to-consumer
markets. There currently is no public market for Pricing Dynamics securities and
there is no assurance that the Company will realize any value (and the Company
may in fact realize a loss) with respect to its investment in Pricing Dynamics.
On June 2, 1999, the Company, Kirlin Holding Corp ("Kirlin") and
VentureHighway (at the time a wholly-owned subsidiary of Kirlin), entered into
an agreement pursuant to which the Company acquired 3,308,688 newly issued
shares (adjusted to reflect subsequent stock splits) of common stock of
VentureHighway, representing 19.9% of the then-outstanding shares of common
stock (the other 80.1% of which immediately after the transaction were held by
Kirlin). The purchase price was paid in the form of a credit for VentureHighway
to use to purchase advertising in the Company's magazines and web sites during
the 30 months ending December 31, 2001. The investment and the deferred
advertising revenues were recorded at the fair market value at the date of the
transaction of approximately $2.6 million.
VentureHighway owns and operated VentureHighway.com, a branded web site
designed to serve as an interactive portal for the matching of companies seeking
funding with qualified investors seeking to fund such companies, and the
facilitation of private placements and public offerings of securities of
companies. In April 2000, VentureHighway acquired Princeton Securities, Inc., a
retail-oriented broker-dealer based in Princeton, New Jersey. In December 2000,
VentureHighway suspended the operations of its web site while it is exploring
strategic alternatives. During the fourth quarter 2000, the Company became aware
of an other than temporary decline in the value of its Venture Highway
investment and adjusted the carrying value to estimated fair market value.
Accordingly, the Company reduced the carrying value of its investments by
approximately $2.6 million during the fourth quarter of the year-ended December
31, 2000.
3. DISCONTINUED OPERATIONS
------------------------
On April 30, 1998 the Company's Board of Directors decided to discontinue
the Company's investment management services business.
The investment management services business was principally conducted by
a wholly owned subsidiary of the Company, WisdomTree Capital Management, Inc.
("WTCM"). 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 to discontinue the investment management services
business, WTCM is continuing to dissolve the domestic investment fund,
liquidating its investments and distributing the net assets to all investors as
promptly as possible.
In 1998, the Company recorded provisions to accrue for its share of any
net operating losses of the domestic fund and related costs that are expected to
occur until the fund liquidates its investments. The Company believes that any
remaining net operating losses and related costs associated with these
discontinued operations have been adequately provided for by the provisions
established in 1998.
At March 31, 2001, the domestic investment fund had remaining net assets
of approximately $534,000. The Company's net investment in discontinued
operations of $49,302 at March 31, 2001 represents its share of the net assets
of the domestic investment fund, less any costs associated with discontinuing
the investment management services.
The Company expects that assets left in the domestic investment fund will
be distributed to its investors, including the Company, during the second
quarter of 2001.
4. STOCK OPTIONS
-------------
During the three months ended March 31, 2001: the Company granted 886,000
options to purchase the Company's Common Stock pursuant to the Company's stock
option plans. No options were exercised; 92,334 options were canceled; and 9,500
options expired.
Of the options granted during the three months ended March 31, 2001, the
420,000 options granted to Jonathan Steinberg, the Company's President and Chief
Executive Officer, were granted at an exercise price equal to 110% of the fair
market value of the stock on the date of grant; all other options granted during
the first quarter of 2001 have an exercise price equal to the fair market value
of the stock at the date of issuance and expire at various dates through
February 2011.
In April 2001, the Company's board of directors approved the 2001
Performance Equity Plan ("2001 Plan"). In order to grant options intended to
qualify as incentive options under the Internal Revenue Code, the Company's
stockholders must adopt the 2001 Plan by April 2002. The 2001 Plan covers
1,000,000 shares of the Company's common stock, and is similar to the Company's
1993, 1996 and 2000 Plans, except that incentive options may only be granted
until April 24, 2011. The 2001 Plan is administered by the Company's stock
option committee pursuant to the powers delegated to it by the Company's board
of directors.
5. LOSS PER COMMON SHARE
---------------------
Basic net loss per share is computed by dividing the net loss, after
deducting dividends on cumulative convertible preferred stock, by the weighted
average number of shares of Common Stock outstanding during the period. Diluted
loss per share is computed using the weighted average number of outstanding
shares of Common Stock and common equivalent shares during the period. Common
equivalent shares consist of the incremental shares of Common Stock issuable
upon the exercise of stock options, warrants and other securities convertible
into shares of Common Stock. The loss per common share for the three months
ended March 31, 2001 and 2000, is computed based on the weighted average number
of shares of Common Stock outstanding during the period. The exercise of stock
options, warrants and other securities convertible into shares of Common Stock
were not assumed in the computation of dilutive loss per common share, as the
effect would have been antidilutive.
The computation of net loss applicable to common shareholders is as
follows:
Three Months Ended March 31,
2001 2000
---- ----
Net loss ($1,655,170) ($1,596,583)
Preferred stock dividends (39,400) (50,000)
------------ ------------
Net loss applicable to common shareholders ($1,694,570) ($1,646,583)
============ ============
6. COMPREHENSIVE LOSS
-------------------
Comprehensive loss for the three months ended March 31, 2001 and 2000,
respectively, is presented in the following table:
Three Months Ended March 31,
2001 2000
---- ----
Net loss ($1,655,170) ($1,596,583)
Other comprehensive loss - -
------------ ------------
Total comprehensive loss ($1,655,170) ($1,596,583)
============ ============
7. SEGMENT INFORMATION
-------------------
The Company's business segments are focused on providing research and
analysis of investment information to individuals and investment professionals
through two operating segments: Print Publications and Online Services. For the
period ended March 31, 2000, the Company's Print Publications operations
published and marketed Individual Investor magazine, a personal finance and
investment magazine, Ticker, a magazine for investment professionals, and
Individual Investor's Special Situations Report, a financial investment
newsletter. The Company's Online Services operations for the period ended March
31, 2000 included individualinvestor.com (www.individualinvestor.com) and
InsiderTrader.com. The assets of Ticker magazine and InsiderTrader.com were sold
during the quarter ended September 30, 2000. During the first quarter of 2001,
the Company launched another online product, SHORTInterest.com
(www.shortinterest.com). Substantially all of the Company's operations are
within the United States.
The table below presents summarized operating data for the Company's two
business segments, consistent with the way such data is utilized by Company
management in evaluating operating results. Any inter-segment revenues included
in segment data are not material. The accounting policies utilized in the table
below are the same as those described in Note 1 of the notes to consolidated
condensed financial statements, as well as the consolidated financial statements
and footnotes thereto in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000. Operating contribution represents the difference
between operating revenues less operating expenses (before general and
administrative ("G&A") and depreciation and amortization expenses). The column
entitled "2000 Excluding Sold Assets" reflects results excluding the results of
Ticker magazine and InsiderTrader.com.
Three Months Ended March 31,
----------------------------
2000
Excluding
Sold
2001 2000 Assets
---- ---- -----------
Revenues:
Print Publications $2,622,660 $4,939,130 $3,803,806
Online Services 609,723 1,273,520 1,089,771
------------ ------------ -----------
$3,232,383 $6,212,650 $4,893,577
============ ============ ===========
Operating contribution (before G&A
and depreciation and amortization expenses)
Print Publications ($ 540,876) $ 1,941 ($ 319,960)
Online Services (20,622) (73,288) (71,086)
------------- ------------- -------------
(561,498) (71,347) (391,046)
G&A and depreciation and amortization expenses
(1,077,958) (1,593,535) (1,593,535)
Investment and other income (15,714) 68,299 68,299
------------ ------------ -----------
Net loss ($1,655,170) ($1,596,583) ($1,916,283)
============ ============ ===========
There was no change in non-current investments as of March 31, 2001 as
compared to December 31, 2000. Net accounts receivable as of March 31, 2001
decreased approximately $0.1 million due to the decreased advertising sales.
Accounts payable as of March 31, 2001 decreased approximately $0.2 million due
to the timing of payments to vendors. Deferred advertising revenue as of March
31, 2001 decreased approximately $0.7 million due to revenue earned during the
period. Additionally, deferred subscription revenue as of March 31, 2001
increased approximately $0.2 million due to the timing of direct mail and
subscription renewal campaigns. There were no other material changes from
year-end 2000 in total assets, in the basis of segmentation, or in the basis of
measurement of segment profit or loss.
8. ACCOUNTS RECEIVABLE FINANCING
-----------------------------
In August 2000, the Company entered into a securitization facility with
an unrelated financial services company. Under the terms of the facility, the
Company may transfer an undivided ownership interest in certain trade accounts
receivable to the financial services company. The Company receives cash from the
third party based on a formula of a percentage of the face value of the eligible
transferred receivables, less certain fees. The maximum amount of transferred
receivables that may be outstanding under this facility is $2.0 million. The
Company pays a variable interest rate (prime plus 1.5%) during the period from
when a receivable is transferred until the time the third party collects and
remits the balance of the receivable. During the period ended March 31, 2001,
this interest rate averaged approximately 10.3 %. The Company retains the credit
risk for any receivable that is transferred and with respect to which the
customer subsequently defaults on payment. The Company had no credit losses
under this facility during the period. The Company recorded interest expense
fees of approximately $16,000 related to this facility during the three months
ended March 31, 2001. The amount of transferred receivables at March 31, 2001
was approximately $0.4 million. The securitization facility ends June 30, 2002,
subject to earlier termination in accordance with the contract.
9. SUBSEQUENT EVENT
----------------
In May 2001, the Company entered into a sublease agreement with an
unrelated third party to sublet approximately 17,000 square feet of its New York
City corporate office space, through March 31, 2004, at a rental amount per
square foot in excess of the Company's current cost. The anticipated sublease
payments will reduce the Company's effective rent to approximately $0.4 million
per year, excluding the effect of the capital expenses related to the sublease
that will be paid this year. The Company required and received a deposit of
approximately $0.2 million as advance payment of rent for certain months in 2001
to offset in part the capital expenses related to the sublease.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Important Notice Concerning "Forward-looking Statements" in this Report
1. "Forward-looking Statements." Certain parts of this Report describe
historical information (such as operating results for the three months ended
March 31, 2001 and March 31, 2000, respectively), and the Company believes the
descriptions to be accurate. In contrast to describing the past, various
sentences of this Report indicate that the Company believes certain results are
likely to occur after March 31, 2001. These sentences typically use words or
phrases like "believes," "expects," "anticipates," "estimates," "projects,"
"will continue" and similar expressions. Statements using those words or similar
expressions are intended to identify "forward-looking statements" as that term
is used in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements include, but are not limited to, projections of operating results for
periods after March 31, 2001, concerning either a specific segment of the
Company's business or the Company as a whole. For example, projections
concerning the following are forward-looking statements: net revenues, operating
expenses, net income or loss, contribution to overhead, number of subscribers,
subscription revenues, revenues per advertising page, number of advertising
pages, production expense per copy, page views, revenues per page view,
marketing expenses, sales expenses, and general and administrative expenses.
Except to the extent that a statement in this Report is describing a historical
fact, each statement in this Report is deemed to be a forward-looking statement.
2. Actual Results May Be Different than Projections. Due to a variety of
risks and uncertainties, however, actual results may be materially different
from the results projected in the 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
Part I hereof, in Exhibit 99 hereof and elsewhere in this Report, and in Item 1
(entitled "Business") of Part I and in Item 7 (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-K for the fiscal year ended December 31,
2000, filed with the Securities and Exchange Commission.
3. The Company Has No Duty to Update Projections. The forward-looking
statements in this Report are current only on the date this Report is filed.
After the filing of this Report, the Company's expectations of likely results
may change, and the Company might come to believe that certain forward-looking
statements in this Report are no longer accurate. The Company shall not have any
obligation, however, to release publicly any corrections or revisions to any
forward-looking statements contained in this Report, even if the Company
believes the forward-looking statements are no longer accurate.
Three Months Ended March 31, 2001 as Compared to the Three Months Ended
March 31, 2000
Operating Loss
The Company's operating loss for the three months ended March 31, 2001
improved approximately 2%, to approximately $1.6 million, as compared to
approximately $1.7 million for the three months ended March 31, 2000. The
improvement is primarily due to decreased promotion and selling, editorial,
production and distribution, and general and administrative expenses, partially
offset by decreased advertising revenues. Results from operations for the three
months ended March 31, 2000 include the results of Ticker magazine and
InsiderTrader.com, assets that were sold during the quarter ended September 30,
2000. Excluding the results of Ticker magazine and InsiderTrader.com, the
Company's operating loss for the three months ended March 31, 2001 improved
approximately 17%, to approximately $1.6 million, as compared to approximately
$2.0 million for the three months ended March 31, 2000.
Print Publications operations provided a negative operating contribution
(before deducting G&A and depreciation and amortization expenses) of
approximately $0.5 million for the three months ended March 31, 2001, as
compared to being break-even for the three months ended March 31, 2000. The
change in operating contribution is primarily due to decreased advertising
revenues, partially offset by decreased promotion and selling, and production
and distribution expenses. Excluding the results of Ticker magazine, print
publications provided a negative operating contribution (before deducting G&A
and depreciation and amortization expenses) of approximately $0.5 million for
the three months ended March 31, 2001, as compared to a negative operating
contribution of approximately $0.3 million in the first quarter of 2000.
Online Services operations provided a break-even result for the three
months ended March 31, 2001 as compared to a negative operating contribution
(before deducting G&A, and depreciation and amortization expenses) of
approximately $0.1 million for the three months ended March 31, 2000. The change
in operating contribution is primarily due to decreased advertising revenues,
partially offset by decreased editorial, production and development, and
promotion and selling expenses. The results of InsiderTrader.com for the three
months ended March 31, 2000 were break-even.
Revenues
Revenues for the three months ended March 31, 2001 decreased
approximately 48%, to approximately $3.2 million, as compared to approximately
$6.2 million for the three months ended March 31, 2000. Excluding the results of
Ticker magazine and InsiderTrader.com, revenues decreased approximately 34% in
the three months ended March 31, 2001, to approximately $3.2 million, as
compared to approximately $4.9 million for the three months ended March 31,
2000. Revenues from Print Publications operations for the three months ended
March 31, 2001 decreased approximately 47%, to approximately $2.6 million, as
compared to approximately $4.9 million for the three months ended March 31,
2000. Excluding the results of Ticker magazine, revenues from Print Publications
operations decreased approximately 31% in the three months ended March 31, 2001,
to approximately $2.6 million, as compared to approximately $3.8 million for the
three months ended March 31, 2000. Revenues from Online Services operations for
the three months ended March 31, 2001 decreased approximately 52%, to
approximately $0.6 million, as compared to approximately $1.3 million for the
three months ended March 31, 2000. Excluding the results of InsiderTrader.com,
revenues from Online Services operations decreased approximately 44% in the
three months ended March 31, 2001, to approximately $0.6 million, as compared to
approximately $1.1 million for the three months ended March 31, 2000.
Print Publications advertising revenues for the three months ended March
31, 2001 decreased approximately 56%, to approximately $1.6 million, as compared
to approximately $3.6 million for the three months ended March 31, 2000.
Individual Investor advertising revenues for the three months ended March 31,
2001 decreased approximately 37%, to approximately $1.6 million, as compared to
approximately $2.5 million for the three months ended March 31, 2000, due to an
approximate 41% decrease in advertising pages sold, combined with a decrease in
the net advertising rate per page (excluding the effect of revenue recognized in
connection with the Company's equity-for-advertising agreements), offset in part
by an increase in revenue recognized in connection with the Company's
equity-for-advertising agreements, when compared to the three months ended March
31, 2000. Ticker advertising revenues for the three months ended March 31, 2000
were approximately $1.1 million. The Company's visibility with respect to
advertising revenues in 2001 is poor at the time this report is filed. After
three quarters of growth (as compared to the applicable prior year period) in
advertising, a sudden and sharp decline (as compared to the applicable prior
year period) in advertising began in the fourth quarter of 2000 and has
continued through the time this report is filed. This slowdown could be followed
by an equally sudden and sharp rebound or by continued weakness. Continued
weakness in the advertising climate for print publications (and more
specifically, for personal finance magazines) would hamper the Company's ability
to achieve greater advertising revenues for Individual Investor magazine and
could have a material adverse effect on the Company's business, operating
results and financial condition.
Print Publications circulation revenues for the three months ended March
31, 2001 decreased approximately 14%, to approximately $0.8 million, as compared
to approximately $0.9 million for the three months ended March 31, 2000.
Subscription revenues for the three months ended March 31, 2001 decreased
approximately 14%, to approximately $0.6 million, as compared to approximately
$0.7 million for the three months ended March 31, 2000. Newsstand revenues for
the three months ended March 31, 2001 decreased approximately 11%, to
approximately $197,000 as compared to approximately $221,000 for the three
months ended March 31, 2000. The decrease in circulation revenues is primarily
due to a decrease in newsstand sales for Individual Investor magazine during the
quarter ended March 31, 2001 as compared to the prior-year period. The Company
believes that the magazine industry in general, and personal finance titles in
particular, have experienced declining newsstand sales since approximately the
middle of 2000. The Company cannot predict whether newsstand sales for
Individual Investor magazine will remain increase, remain stable, or experience
further decreases. A further weakening of newsstand sales for Individual
Investor magazine could have a material adverse effect on the Company's
business, operating results and financial condition.
Print Publications list rental and other revenues for the three months
ended March 31, 2001 decreased approximately 40%, to approximately $255,000, as
compared to approximately $429,000 for the three months ended March 31, 2000.
Excluding the results of Ticker magazine, list rental revenues from Print
Publications decreased approximately 37% in the three months ended March 31,
2001, to approximately $255,000, as compared to approximately $403,000 for the
three months ended March 31, 2000. List rental revenues for Individual Investor
magazine have declined by approximately the same percentage as advertising
revenues for Individual Investor magazine, when comparing the three months ended
March 31, 2001 with the prior-year period. As with advertising revenues, the
Company's visibility with respect to list rental revenues is poor at the time
this report is filed. Continued weakness in list rental revenues would hamper
the Company's ability to achieve greater advertising revenues for Individual
Investor magazine and could have a material adverse effect on the Company's
business, operating results and financial condition.
Online Services advertising revenues for the three months ended March 31,
2001 decreased approximately 50%, to approximately $0.6 million, as compared to
approximately $1.2 million for the three months ended March 31, 2000. The
decrease in advertising revenues is attributable to a decrease in demand for and
pricing of advertising impressions due to the current market conditions in
online advertising. The Company's visibility with respect to Online Services
advertising revenues is poor at the time this report is filed. As noted above,
the Company's Online Services operations provided a break-even result in the
three months ended March 31, 2001, before deducting G&A, depreciation and
amortization expenses. If Online Services advertising revenues were to weaken
further, the Company's Online Services operations likely would make a negative
contribution to overhead (before deducting G&A, depreciation and amortization
expenses).
Operating Expenses
Operating expenses for the three months ended March 31, 2001 decreased
approximately 38%, to approximately $4.8 million, as compared to approximately
$7.9 million for the three months ended March 31, 2000. Excluding the results of
Ticker magazine and InsiderTrader.com, operating expenses decreased
approximately 29% in the three months ended March 31, 2001, to approximately
$4.8 million, as compared to approximately $6.9 million for the three months
ended March 31, 2000.
Editorial, production and distribution expenses for the three months
ended March 31, 2001 decreased approximately 34%, to approximately $2.3 million,
as compared to approximately $3.5 million for the three months ended March 31,
2000. Excluding the results of Ticker magazine and InsiderTrader.com, editorial,
production and distribution expenses decreased approximately 20% in the three
months ended March 31, 2001, to approximately $2.3 million, as compared to
approximately $2.8 million for the three months ended March 31, 2000. The
decrease is primarily related to the sale of Ticker magazine and an approximate
$0.5 million reduction in editorial, production and distribution expenses of
approximately 37% and 10%, respectively, with respect to
www.individualinvestor.com (to approximately $0.5 million as compared to
approximately $0.8 million in the prior period) and Individual Investor magazine
(to approximately $1.7 million as compared to approximately $1.9 million in the
prior period).
Promotion and selling expenses for the three months ended March 31, 2001
decreased approximately 47%, to approximately $1.5 million, as compared to
approximately $2.8 million for the three months ended March 31, 2000. Print
Publications promotion and selling expenses for the three months ended March 31,
2001 decreased approximately 43%, to approximately $1.4 million, as compared to
approximately $2.4 million for the three months ended March 31, 2000. Excluding
the results of Ticker magazine, Print Publications promotion and selling
expenses decreased approximately 33% in the three months ended March 31, 2001,
to approximately $1.4 million, as compared to approximately $2.1 million for the
three months ended March 31, 2000. The decrease is primarily due to decreased
subscription promotion expense; absence of severance expenses related to a
termination arrangement and the non-recurrence of recruiting fees as a result of
hiring additional in-house sales personnel for the three months ended March 31,
2000. Online Services promotion and selling expenses for the three months ended
March 31, 2001 decreased approximately 72%, to approximately $0.1 million, as
compared to approximately $0.4 million for the three months ended March 31,
2000. The decrease from the prior year is primarily attributable to lower
marketing and promotion expenses associated with the Individual Investor of the
Year(TM) and Magic 25(TM) online trading contests offered by the Company.
General and administrative expenses for the three months ended March 31,
2001 decreased approximately 36%, to approximately $0.9 million, as compared to
approximately $1.5 million for the three months ended March 31, 2000. The
Company during the third quarter of 2000 implemented a significant reduction in
its general and administrative expenses through a reduction in general and
administrative personnel, which has favorably impacted results in the first
quarter of 2001.
Depreciation and amortization expense for the three months ended March
31, 2001 increased approximately 9%, to approximately $152,000, as compared to
approximately $140,000 for the three months ended March 31, 2000. The increase
is attributable to additional depreciation for furniture and fixtures as well as
the amortization of leasehold improvements.
Investment and Other Income
Investment and other income for the three months ended March 31, 2001
decreased to approximately ($16,000), as compared to approximately $68,000 for
the three months ended March 31, 2000.
Net Loss
The Company's net loss for the three months ended March 31, 2001
increased approximately 4%, to approximately $1.7 million, as compared to
approximately $1.6 million for the three months ended March 31, 2000. No income
taxes were provided in 2001 or 2000 due to the net loss. The basic and dilutive
net loss per weighted average common share for the three months ended March 31,
2001 was $0.19, as compared to approximately $0.16 for the three months ended
March 31, 2000. Excluding the results of Ticker magazine and InsiderTrader.com,
the Company's net loss for the three months ended March 31, 2001 decreased
approximately 14%, to approximately $1.7 million, as compared to approximately
$1.9 million for the three months ended March 31, 2000.
Liquidity and Capital Resources
As of March 31, 2001, the Company had cash and cash equivalents of
approximately $2.4 million, which was included in working capital of
approximately $1.1 million.
In August 2000, the Company arranged a line of credit whereby the Company
may borrow principal amounts up to $2.0 million secured by certain of its
assets. Availability under the facility is based on a formula of a percentage of
eligible accounts receivable and provides for interest on direct borrowings at
an annual rate equal to prime plus 1.5% plus fees based on the amount of the
invoices financed. The term of the line of credit is for a period of two years,
subject to certain termination provisions. Total funding pursuant to this line
of credit at March 31, 2001 was approximately $0.4 million.
The Company's current levels of revenues are not sufficient to cover its
expenses. It is the Company's intention to control its operating expenses and,
as noted above, the Company recently implemented changes intended to
substantially reduce certain operating and general and administrative expenses.
The Company notes that its operating expenses in the first quarter of 2001
decreased approximately 28% as compared to the prior year period, excluding the
expenses of Ticker magazine and InsiderTrader.com and also notes that in May
2001 it executed a sublease agreement that will reduce its annual rent payments
by approximately 60%, excluding the effect of capital expenses related to the
sublease. The Company anticipates quarterly losses to continue. Profitability
may be achieved in future periods only if the Company can substantially increase
its revenues and/or realize capital gains on investments or the sale of certain
assets while controlling increases in expenses. Further reductions in expense
alone will not enable the Company to achieve profitability in its print
publications or online services operations. There can be no assurance that
revenues will be substantially increased, that additional capital gains will be
realized on investments (instead capital losses in fact may be realized) or that
certain assets will be sold, or that expenses can be adequately decreased to
enable the Company to attain profitability.
The Company's visibility with respect to advertising revenues in 2001 is
poor at the time this report is filed. After three quarters of growth (as
compared to the applicable prior year period) in advertising, a sudden and sharp
decline (as compared to the applicable prior year period) in advertising began
in the fourth quarter of 2000 and has continued through the time this report is
filed. This slowdown could be followed by an equally sudden and sharp rebound or
by continued weakness. The Company also is not able to predict the magnitude of
the licensing revenues, if any, that it might obtain in connection with the
Company's license of the America's Fastest Growing Companies(TM) Index to Nuveen
Investments and the American Stock Exchange for the creation of an
exchange-traded fund to be sponsored by Nuveen and based upon the America's
Fastest Growing Companies(TM) Index. The licensing revenue, which the Company
would be owed quarterly once the exchange-traded fund based upon the America's
Fastest Growing Companies(TM) Index began trading, would be almost 100% gross
margin as the Company would have essentially no marginal expenses associated
with such revenues. Nuveen is working to obtain the necessary regulatory
approval to commence trading of such an exchange-traded fund but there can be no
assurance that Nuveen will obtain the necessary regulatory approval or that the
exchange-traded fund based upon the America's Fastest Growing Companies(TM)
Index will commence trading. There also can be no assurance that, if it does
commence trading, the exchange-traded fund based upon the America's Fastest
Growing Companies(TM) Index will prove to be popular or that the Company will
receive any material amount of revenues with respect to the licenses described
in this paragraph. The Company recently announced three additional indexes, the
America's Fastest Growing Companies(TM) MidCap 300 Index, the America's Fastest
Growing Companies(TM) LargeCap 50 Index and the America's Fastest Growing
Companies(TM) Total Market Index and has announced its intention to develop
sector indexes in the America's Fastest Growing Companies(TM) Index family. The
Company is in discussions with a variety of parties concerning the potential
license of those additional indexes for the creation of financial products.
There can no assurance the Company will execute licensing agreements with
respect to such indexes, that financial products based upon such indexes would
enter the market or that the Company would derive any material revenues with
respect to any such licenses.
During the second quarter of 2000, the Company retained The Jordan,
Edmiston Group, Inc., the media investment bank, to explore a range of strategic
alternatives to enhance shareholder value, including the possible sale of the
Company. The Company during the quarter ended September 30, 2000 entered into
three separate agreements with unrelated third parties that resulted in net
gains on the sale of assets of approximately $6.7 million and that generated net
cash proceeds of approximately $6.6 million. In connection with one of these
agreements, the Company also issued a warrant to purchase 250,000 shares of the
Company's Common Stock at an exercise price of $2.00 per share.
The Company believes that its working capital and the value it believes
it could realize from the sale of assets and/or securities of the Company should
be sufficient to fund its capital requirements through 2001. The Company will
need to obtain additional financing or sell certain of its assets early in the
third quarter of 2001 in order to sustain operations and is continuing its
exploration of strategic alternatives, including exploring sources of additional
financing and/or the sale of assets. There can be no assurance, however, that
the Company will be able to obtain additional financing or sell additional
assets, or as to the terms upon which the Company could do so. Any additional
financing could result in substantial dilution of an investor's equity
investment in the Company and failure to obtain additional financing or sell
certain assets could render the Company unable to continue existing operations.
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company from time to time is involved in ordinary and routine
litigation incidental to its business; the Company currently believes that there
is no such pending legal proceeding that would have a material adverse effect on
the consolidated financial statements of the Company.
ITEM 2. Changes in Securities
Sales of Unregistered Securities
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
Consideration received and Exemption from If option, warrant or
Date of sale Title of security Number Sold description of underwriting or registration convertible security, terms
other discounts to market claimed of exercise or conversion
price afforded to purchasers
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
1/01/01-3/31/01 Options to purchase 886,000 Employment services; in Section 4(2) Vesting over a period of
common stock addition, exercise price would four years from date of
granted to employees be received upon exercise grant, subject to certain
conditions of continued
service; exercisable for a
period lasting ten years from
date of grant t exercise
prices ranging from $0.4062
to $0.75 per share
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description Method of Filing
No.
-----
3.1 Amended and Restated Certificate of Incorporation Incorporated by reference to Exhibit 3.2 to the Form 10-Q
of Issuer, as amended through June 22, 1999 for the quarter ended June 30, 1999
3.2 By-laws of Issuer amended through April 27, 1999 Incorporated by reference to Exhibit 3.3 to the Form 10-Q
for the quarter ended June 30, 1999
10.1+ Indemnification Agreement between Issuer and Filed herewith
Howard B. Lorch dated January 1, 2001.
99 Certain Risk Factors Filed herewith
+ Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-QSB.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the Quarter Ended March
31, 2001.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Issuer caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: May 15, 2001
INDIVIDUAL INVESTOR GROUP, INC. (Issuer)
By: /s/ Jonathan L. Steinberg
-------------------------
Jonathan L. Steinberg, Chief Executive Officer
and Director
By: /s/ Gregory E. Barton
----------------------
Gregory E. Barton, Vice President,
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Howard B. Lorch
-------------------
Howard B. Lorch, Vice President, Controller
(Principal Accounting Officer)
Exhibit 10.1
INDEMNIFICATION AGREEMENT
- -------------------------
This Agreement ("Agreement") is made and entered into as of
the January 1, 2001 by and between Individual Investor Group, Inc., a Delaware
corporation ("Corporation"), and Howard Lorch ("Indemnitee"):
WHEREAS, highly competent persons recently have become more
reluctant to serve publicly-held corporations as directors, officers, or in
other capacities, unless they are provided with better protection from the risk
of claims and actions against them arising out of their service to and
activities on behalf of such corporation; and
WHEREAS, the current impracticability of obtaining adequate
insurance and the uncertainties related to indemnification have increased the
difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation ("Board")
has determined that the inability to attract and retain such persons is
detrimental to the best interests of the Corporation's stockholders and that
such persons should be assured that they will have better protection in the
future; and
WHEREAS, it is reasonable, prudent and necessary for the
Corporation to obligate itself contractually to indemnify such persons to the
fullest extent permitted by applicable law so that such persons will serve or
continue to serve the Corporation free from undue concern that they will not be
adequately indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance
of Article VIII of the By-laws of the Corporation, and Article VIII of the
Amended and Restated Certificate of Incorporation of the Corporation and any
resolutions adopted pursuant thereto and shall neither be deemed to be a
substitute therefor nor to diminish or abrogate any rights of Indemnitee
thereunder; and
WHEREAS, Indemnitee is willing to serve and to take on
additional service for or on behalf of the Corporation on the condition that he
be indemnified according to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Corporation and Indemnitee do hereby covenant
and agree as follows:
1 Definitions.
-----------
For purposes of this Agreement:
1.1 "Change in Control" means a change in control of the Corporation
occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended ("Act"), whether or not the
Corporation is then subject to such reporting requirement provided, however,
that, without limitation, such a Change in Control shall be deemed to have
occurred if after the date hereof (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act) is or becomes "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Corporation representing 20% or more of the combined voting power of the
then outstanding securities of the Corporation without the prior approval of at
least two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; (ii) the Corporation is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
1.2 "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Corporation or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Corporation.
1.3 "Disinterested Director" means a director of the Corporation who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
1.4 "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
1.5 "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Corporation or
Indemnitee in any other matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
1.6 "Proceeding" means any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce
his rights under this Agreement.
2 Services by Indemnitee.
----------------------
Indemnitee agrees to serve as Vice President and Controller of the
Corporation. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of law).
3 Indemnification - General.
-------------------------
The Corporation shall indemnify, and advance Expenses to, Indemnitee as
provided in this Agreement to the fullest extent permitted by applicable law in
effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other Sections of this Agreement.
4 Proceedings Other Than Proceedings by or in the Right of the Corporation.
------------------------------------------------------------------------
Indemnitee shall be entitled to the rights of indemnification provided
in this Section if, by reason of his Corporate Status, he is, or is threatened
to be made, a party to any threatened, pending or completed Proceeding, other
than a Proceeding by or in the right of the Corporation. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses, judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with any such Proceeding or any claim, issue or
matter therein, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful.
5 Proceedings by or in the Right of the Corporation.
-------------------------------------------------
Indemnitee shall be entitled to the rights of indemnification provided
in this Section if, by reason of his Corporate Status, he is, or is threatened
to be made, a party to any threatened, pending or completed Proceeding brought
by or in the right of the Corporation to procure a judgment in its favor.
Pursuant to this Section, Indemnitee shall be indemnified against Expenses
actually and reasonably incurred by him or on his behalf in connection with any
such Proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation.
Notwithstanding the foregoing, no indemnification against such Expenses shall be
made in respect of any claim, issue or matter in any such proceeding as to which
Indemnitee shall have been adjudged to be liable to the Corporation if
applicable law prohibits such indemnification unless the Court of Chancery of
the State of Delaware, or the court in which such Proceeding shall have been
brought or is pending, shall determine that indemnification against Expenses may
nevertheless be made by the Corporation.
6 Indemnification for Expenses of Party Who is Wholly or Partly Successful.
------------------------------------------------------------------------
Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For the purposes of this Section and without limiting the
foregoing, the termination of any claim, issue or matter in any such Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
7 Indemnification for Expenses as a Witness.
-----------------------------------------
Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a witness in any
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
8 Advancement of Expenses.
-----------------------
The Corporation shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding within twenty days after the
receipt by the Corporation of a statement or statements from Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses.
9 Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
9.1 To obtain indemnification under this Agreement in connection with
any Proceeding, and for the duration thereof, Indemnitee shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of any such request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
9.2 Upon written request by Indemnitee for indemnification pursuant to
Section 9.1 hereof, a determination, if required by applicable law, with respect
to Indemnitee's entitlement thereto shall be made in such case: (i) if a Change
in Control shall have occurred, by Independent Counsel (unless Indemnitee shall
request that such determination be made by the Board or the stockholders, in
which case in the manner provided for in clauses (ii) or (iii) of this Section
9.2) in a written opinion to the Board, a copy of which shall be delivered to
Indemnitee); (ii) if a Change of Control shall not have occurred, (A) by the
Board by a majority vote of a quorum consisting of Disinterested Directors, or
(B) if a quorum of the Board consisting of Disinterested Directors is not
obtainable, or even if such quorum is obtainable, if such quorum of
Disinterested Directors so directs, either (x) by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee,
or (y) by the stockholders of the Corporation, as determined by such quorum of
Disinterested Directors, or a quorum of the Board, as the case may be; or (iii)
as provided in Section 10.2 of this Agreement. If it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within ten (10) days after such determination. Indemnitee shall cooperate with
the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Corporation
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
9.3 If required, Independent Counsel shall be selected as follows: (i)
if a Change of Control shall not have occurred, Independent Counsel shall be
selected by the Board, and the Corporation shall give written notice to
Indemnitee advising him of the identity of Independent Counsel so selected or
(ii) if a Change of Control shall have occurred, Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board, in which event (i) shall apply), and Indemnitee shall give
written notice to the Corporation advising it of the identity of Independent
Counsel so selected. In either event, Indemnitee or the Corporation, as the case
may be, may, within seven days after such written notice of selection shall have
been given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel unless and until a court has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 9.1
hereof, no Independent Counsel shall have been selected and not objected to,
either the Corporation or Indemnitee may petition the Court of Chancery of the
State of Delaware, or other court of competent jurisdiction, for resolution of
any objection which shall have been made by the Corporation or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by such court or by such other person
as such court shall designate, and the person with respect to whom an objection
is so resolved or the person so appointed shall act as Independent Counsel under
Section 9.2 hereof. The Corporation shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with its actions pursuant to this Agreement, and the Corporation
shall pay all reasonable fees and expenses incident to the procedures of this
Section 9.3, regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement date of any judicial proceeding
or arbitration pursuant to Section 11.1(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
10 Presumptions and Effects of Certain Proceedings.
-----------------------------------------------
10.1 If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 9.1 of this
Agreement, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
10.2 If the person, persons or entity empowered or selected under
Section 9 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days after receipt
by the Corporation of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) prohibition of such indemnification under
applicable law provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith require(s) such additional time for the obtaining or evaluating of
documentation and/or information relating thereto and provided, further, that
the foregoing provisions of this Section 10.2 shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 9.2 of this Agreement and if (A) within 15 days
after receipt by the Corporation of the request for such determination the Board
has resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9.2 of this Agreement.
10.3 The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
11 Remedies of Indemnitee.
----------------------
11.1 In the event that (i) a determination is made pursuant to Section
9 of this Agreement that Indemnitee is not entitled to indemnification under
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 8 of this Agreement, (iii) the determination of indemnification is to be
made by Independent Counsel pursuant to Section 9.2 of this Agreement and such
determination shall not have been made and delivered in a written opinion within
90 days after receipt by the Corporation of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 7 of this
Agreement within ten days after receipt by the Corporation of a written request
therefor, or (v) payment of indemnification is not made within ten days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 9 or 10 of
this Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of competent
jurisdiction, of his entitlement to such indemnification or advancement of
Expenses. Alternatively, the Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 11.1. The Corporation shall not oppose Indemnitee's
right to seek any such adjudication or award in arbitration.
11.2 In the event that a determination shall have been made pursuant to
Section 9 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section shall
be conducted in all respects as a de novo trial or arbitration on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination.
11.3 If a determination shall have been made or deemed to have been
made pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled
to indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii)
prohibition of such indemnification under applicable law.
11.4 The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section that the procedures
and presumptions of this Agreement are not valid, binding and enforceable and
shall stipulate in any such court or before any such arbitrator that the
Corporation is bound by all the provisions of this Agreement.
11.5 In the event that Indemnitee, pursuant to this Section, seeks a
judicial adjudication of, or an award in arbitration to enforce, his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the kinds described in the
definition of Expenses) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in such judicial adjudication or arbitration that Indemnitee is
entitled to receive some but less than all of the indemnification or advancement
of expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
12 Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
-----------------------------------------------------------
12.1 The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the certificate of incorporation or by-laws of the Corporation, any
agreement, a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or any provision hereof shall
be effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.
12.2 To the extent that the Corporation maintains an insurance policy
or policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee, agent or fiduciary under such policy or policies.
12.3 In the event of any payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Corporation to bring suit to enforce such rights.
12.4 The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
13 Duration of Agreement.
---------------------
This Agreement shall continue until and terminate upon the later of:
(a) ten years after the date that Indemnitee shall have ceased to serve as an
officer of the Corporation, or (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of indemnification
or advancement of Expenses hereunder and or any proceeding commenced by
Indemnitee pursuant to Section 11 of this Agreement. This Agreement shall be
binding upon the Corporation and its successors and assigns and shall inure to
the benefit of Indemnitee and his heirs, executors and administrators.
14 Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
15 Exception to Right of Indemnification or Advancement of Expenses.
----------------------------------------------------------------
Except as provided in Section 11.5, Indemnitee shall not be entitled to
indemnification or advancement of Expenses under this Agreement with respect to
any Proceeding, or any claim therein, brought or made by him against the
Corporation.
16 Identical Counterparts.
----------------------
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement.
17 Headings.
--------
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
18 Modification and Waiver.
-----------------------
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
19 Notice by Indemnitee.
--------------------
Indemnitee agrees promptly to notify the Corporation in writing upon
being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating any Proceeding or matter which may be
subject to indemnification or advancement of Expenses covered hereunder.
20 Notices.
-------
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if (i) delivered by
hand and receipted for by the party to whom such notice or other communication
shall have been directed, or (ii) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
If to Indemnitee, to:
Howard B. Lorch
147-29 72nd Drive
Flushing, New York 11367
If to the Corporation, to:
Individual Investor Group, Inc.
125 Broad Street, 14th Floor
New York, New York 10004
or to such other address or such other person as Indemnitee or the Corporation
shall designate in writing in accordance with this Section, except that notices
regarding changes in notices shall be effective only upon receipt.
21 Governing Law.
-------------
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
22 Miscellaneous.
-------------
Use of the masculine pronoun shall be deemed to include usage of the
feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
INDIVIDUAL INVESTOR GROUP, INC.
By:/s/ Jonathan L. Steinberg
-------------------------
Jonathan L. Steinberg
Chief Executive Officer
INDEMNITEE
/s/ Howard B. Lorch
-------------------
Howard B. Lorch
EXHIBIT 99
CERTAIN RISK FACTORS
Dated: May 15, 2001
You should carefully consider these risks, as well as those described in our
most recent Form 10-K, before making an investment decision. The risks described
below are not the only risks we face. Additional risks may also impair our
business operations. If any of the following risks occur, our business,
operating results or financial condition could be materially adversely affected.
If that happens, the trading price of our common stock could decline, and you
may lose all or part of your investment. In the risk factors below, the word
"web," refers to the portion of the Internet commonly referred to as the "world
wide web."
We will need to raise additional capital in the future. Our current levels of
revenues are not sufficient to cover our expenses. We intend to control our
operating expenses while continuing to invest in its existing products - and, as
noted in the Form 10-QSB, we recently implemented changes intended to
substantially reduce certain operating and general and administrative expenses.
Further reductions in expense alone will not enable us to achieve profitability
in its print publications or online services operations and, because we expect
continuing net losses, we will need to raise additional capital. We believe that
our working capital and the value we believe we could realize from the sale of
assets and/or securities should be sufficient to fund our capital requirements
through 2001. We will need to obtain additional financing or sell certain of our
assets early in the third quarter of 2001 in order to sustain operations and we
are continuing our exploration of strategic alternatives, including exploring
sources of additional financing and/or the sale of assets. During the second
quarter of 2000, we retained The Jordan, Edmiston Group, Inc., a media
investment bank, to explore a range of strategic alternatives to enhance
shareholder value, including the possible sale of the Company. In September
2000, we sold certain assets, including Ticker magazine and InsiderTrader.com
that generated net cash proceeds of approximately $6.6 million. We are
continuing to explore strategic alternatives, including exploring sources of
additional financing and/or sale of assets. We cannot assure you, however, that
we will be able to obtain additional financing or sell any assets. We also
cannot assure you as to the terms upon which such additional financing or sale
of assets could be consummated if we are able to obtain additional financing or
sell assets. It is possible that any additional financing or sale of assets
could result in a substantial dilution of an investor's equity interest in us.
If we are unable to obtain additional financing or sell assets prior to
exhausting our existing resources, or if we only could consummate such financing
or sale of assets on unfavorable terms, our ability to continue operations and
the value of our common stock would be materially adversely affected.
We have a history of losses and we anticipate that our losses will continue in
the future. As of March 31, 2001, we had an accumulated deficit of approximately
$31.6 million. Since inception, the only calendar year during which we were
profitable was 1995. We expect to continue to incur operating losses into 2001.
Even if we do achieve profitability, we may be unable to sustain or increase
profitability on a quarterly or annual basis in the future.
Our online services business has a limited operating history. Because we
commenced our online services operations in May 1997, we have only a limited
operating history upon which you can evaluate this business segment and its
prospects. An investor in our common stock must consider the risks, expenses and
difficulties frequently encountered by an early stage business in this new and
rapidly evolving market of web-based financial news and information companies.
We face intense competition in both our print publications business and our
online services business. A large number of financial news and information
sources compete for consumers' and advertisers' attention and spending. We
expect this competition to continue and the number of competitors might
increase. These competitors include:
o online services or web sites focused on business, finance and investing,
such as CBS MarketWatch.com; The Wall Street Journal Interactive Edition;
CNBC.com; CNNfn.com; TheStreet.com; Briefing.com; The Motley Fool; Yahoo!
Finance; Silicon Investor; MSN Money Central; SmartMoney.com; Money.com;
and Multex.com;
o publishers and distributors of traditional print media, such as The Wall
Street Journal; Barron's; Investors Business Daily; Business Week; Fortune;
Forbes; Money; Kiplinger's; Smart Money; and Worth;
o publishers and distributors of radio and television programs focused on
business, finance and investing, such as Bloomberg Business Radio and CNBC;
o web "portal" companies, such as Yahoo!; Excite; Lycos; and America Online;
and
o online brokerage firms, many of which provide financial and investment news
and information, such as Charles Schwab and E*TRADE.
Our ability to compete depends on many factors, including the originality,
timeliness, comprehensiveness and trustworthiness of our content and that of our
competitors, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts and that of
our competitors.
Many of our competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. This may allow them to devote
greater resources than we can to the development and promotion of their services
and products, as well as adapting to rapid technological changes with regard to
the Internet. In particular, future changes may evolve (for example, a rapid
move to broadband or wireless technologies) which we may not be able to cope
with in a timely manner. These competitors may also engage in more extensive
research and development, undertake far-reaching marketing campaigns, adopt more
aggressive pricing policies to attract Internet users, print readers and
advertisers and make more attractive offers to existing and potential employees,
outside contributors, strategic partners and advertisers. Our competitors may
develop content that is equal or superior to our content or that achieves
greater market acceptance than our content. It is also possible that new
competitors may emerge and rapidly acquire significant market share. We may not
be able to compete successfully for advertisers, Internet users, print readers,
staff, outside contributors or strategic partners. Increased competition could
result in price reductions, reduced margins or loss of our market share. Any of
these could materially adversely affect our business.
We have not yet generated revenues from licensing the stock indexes we have
developed. We have not yet generated revenues from licensing the stock indexes
we have developed and we might never generate any such revenues. We have
licensed the America's Fastest Growing Companies(TM) Index to Nuveen Investments
and the American Stock Exchange for the creation of an exchange-traded fund to
be based upon the America's Fastest Growing Companies(TM) Index. Nuveen
Investments has filed to obtain the regulatory approvals necessary to permit the
launch of an exchange-traded fund based upon the America's Fastest Growing
Companies(TM) Index. The necessary regulatory approvals have not yet been
obtained and we cannot assure you that such approvals will in fact be obtained.
Moreover, we cannot assure you that an exchange-traded fund based upon the
America's Fastest Growing Companies(TM) Index would commence trading if the
necessary regulatory approvals were obtained. We also cannot assure you that an
exchange-traded fund based upon the America's Fastest Growing Companies(TM)
Index would prove to be popular or that the Company would receive any material
amount of revenues related to the licenses described in this paragraph. We are
seeking to execute license agreements for the creation of financial products
based upon other stock indexes we've developed, including the America's Fastest
Growing Companies(TM) Total Market Index, the America's Fastest Growing
Companies(TM) MidCap 300 Index and the America's Fastest Growing Companies(TM)
LargeCap 50 Index and America's Fastest Growing Companies(TM) sector indexes,
but we cannot assure you that we will be successful in our endeavors to do so.
We may not be able to attract and retain qualified employees for our online
service business. Current and potential employees for our online services
business might prefer to work at a company that has operations exclusively
related to online services. Since we are also in the print publication business,
people may perceive us as a less attractive employer than a pure Internet
company. If we are unable to attract and retain qualified employees for our
online services business, that business could suffer materially.
We may not be able to attract and retain qualified employees for our print
publications business. Many of our competitors in the print publications
business are larger than us and have a number of print titles. In print, we
publish only one magazine and one newsletter. There is a general perception in
the employment market that larger publishers are more prestigious or offer more
varied career opportunities. We may be perceived by people as a less attractive
employer than a larger publisher. If we are unable to attract and retain
qualified employees for our print publications business, that business could
suffer materially.
We may not be able to grow our online business. We intend to introduce new
and/or enhanced products, content and services to retain the current users of
our online services and to attract new users. If we introduce a new or enhanced
product, content, or service that is not favorably received or fail to introduce
certain new or enhanced products, content, or services, our current users may
choose a competitive service over our service. Our business could be materially
adversely affected if we experience difficulties and/or delays in introducing
new products, content or services or if these new products, content or services
are not favorably received by our users.
Increased traffic to our web sites may strain our systems and impair our online
services business. On occasion, we have experienced significant spikes in
traffic on our web sites. In addition, the number of users of our online
services has increased over time and we are seeking to increase our user base
further. Accordingly, our web sites must accommodate a high volume of traffic,
often at unexpected times. Our web sites have in the past, and may in the
future, experience slower response times than usual or other problems for a
variety of reasons. These occurrences could cause our users to perceive our web
sites as not functioning properly and, therefore, cause them to use other
methods to obtain the financial information they desire. In such a case, our
business, operating results and financial condition could be materially
adversely affected.
Our efforts to build positive brand recognition may not be successful. We
believe that maintaining and growing awareness about our brands (including
Individual Investor, individualinvestor.com, Magic 25(R), America's Fastest
Growing Companies(R), Investor University(R) and Investment University(R)) is an
important aspect of our efforts to continue to attract print subscribers,
magazine readers and Internet users. We cannot assure you that our efforts to
build positive brand recognition will be successful.
In order to build positive brand recognition, it is very important that we
maintain our reputation as a trustworthy source of investment ideas, research,
analysis and news. The occurrence of certain events, including our misreporting
a news story or the non-disclosure of a financial interest by one or more of our
employees in a security that we write about, could harm our reputation for
trustworthiness. These events could result in a significant reduction in the
number of our Internet users and print readers, which could materially adversely
affect our business, operating results and financial condition.
We depend on certain advertisers to generate revenues. In 2000, 1999 and 1998,
the majority of our print publications advertising revenues came from financial
services companies, followed by consumer advertisers and others. We were not
dependent upon any particular advertiser for our print publications revenues. In
2000, approximately 38 % of the online services advertising revenues came from a
combination of VentureHighway.com (a company in which we have acquired an
approximately 15.8% equity interest through an equity-for-advertising barter
transaction) and one brokerage firm offering online trading and the large
majority of such revenues from those two advertisers were derived in the first
half of 2000 (VentureHighway.com did not advertise on the Company's online
properties during the second half of 2000). We expect that the majority of
advertising revenues derived from our online services operations will come from
financial services companies (including online brokerage firms and mutual fund
companies) and from companies in which we have obtained equity stakes in
exchange for advertising. In the event that financial services companies choose
to scale back on their online advertising (on the Internet in general or on our
web sites in particular) or we do not enter into additional
equity-for-advertising transactions, our online services business could be
materially adversely affected.
We need to manage our operations effectively. The Company has in the past few
years experienced periods of rapid growth in revenues and headcount and periods
of declining revenues and headcount. Both types of change place a strain on our
managerial, operational and financial resources. To manage our business, we must
continue to implement and improve our managerial controls and procedures and our
operational and financial systems. In addition, our future success will depend
in part on our ability to expand, train and manage our workforce, in particular
our editorial, advertising sales and business development staff, and to
effectively manage any workforce reductions that we have made or may in the
future make. We cannot assure you that we have made adequate allowances for the
costs and risks associated with any such expansion or reduction, that our
systems, procedures or controls will be adequate to support our operations, or
that our management will be able to successfully offer our services. If we are
unable to manage our operations effectively, our business, operating results and
financial condition could be materially adversely affected.
We face a risk of system failure for our online services business. Our ability
to provide timely information and continuous news updates depends on the
efficient and uninterrupted operation of our computer and communications
hardware and software systems. Similarly, our ability to track, measure and
report the delivery of advertisements on our sites depends largely on the
efficient and uninterrupted operation of a third-party system maintained by
DoubleClick. These systems and operations are vulnerable to damage or
interruption from human error, natural disasters, telecommunication failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We do not have a formal disaster recovery plan for the event of such
damage or interruption. Any system failure that causes an interruption in our
service or a decrease in responsiveness of our web sites could result in reduced
traffic, reduced revenues and harm to our reputation, brand and our relations
with our advertisers. Our insurance policies may not adequately compensate us
for any losses that we may incur because of any failures in our system or
interruptions in our delivery of content. Our business, operating results and
financial condition could be materially adversely affected by any event, damage
or failure that interrupts or delays our operations.
We depend on the continued growth in use and efficient operation of the web. Our
business will be materially adversely affected if web usage does not continue to
grow or grows slowly. Web usage may be inhibited for a number of reasons, such
as:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service; and
o unavailability of cost-effective, high-speed access to the Internet.
The users of our online services depend on Internet service providers, online
service providers and other web site operators for access to our web sites. Many
of these services have experienced significant service outages in the past and
could experience service outages, delays and other difficulties due to system
failures unrelated to our systems. These occurrences could cause our Internet
users to perceive the web in general or our web sites in particular as an
unreliable medium and, therefore, cause them to use other media or other online
content providers to obtain their financial news and information. We also depend
on certain information providers to deliver information and data feeds to us on
a timely basis. Our web sites could experience disruptions or interruptions in
service due to the failure or delay in the transmission or receipt of this
information, which could have a material adverse effect on our business,
operating results and financial condition.
We realized a loss related to our investment in VentureHighway.com, Inc. and we
may realize losses related to our investments in Pricing Dynamics, Inc. and
Tradeworx, Inc. We record on our balance sheet investments in non-readily
marketable securities at their fair market value at the date of acquisition,
unless and until we become aware of an other than temporary impairment in such
securities or unless and until such securities become readily marketable. We
originally recorded the value of VentureHighway.com, Inc. at approximately $2.6
million, Pricing Dynamics, Inc. at approximately $1.5 million and Tradeworx,
Inc. at approximately $1.1 million. As of December 31, 2000, we determined that
the value of our VentureHighway.com securities had become impaired and we
adjusted the carrying value to the estimated fair market value. Accordingly, we
took a charge to operating earnings in 2000 of approximately $2.6 million. There
currently is no public market for VentureHighway.com, Inc., Pricing Dynamics,
Inc. or Tradeworx, Inc. securities, and there is no assurance that we will
realize any value with respect to these investments. If we need to take any
additional downward adjustments to the carrying value of our investments, our
financial condition could be materially adversely affected.
Our quarterly financial results are subject to significant fluctuations. Our
quarterly operating results may fluctuate significantly as a result of a variety
of factors, many of which are outside our control. For example, revenues in our
print publications business tend to reflect seasonal patterns. We believe that
quarter-to-quarter comparisons of our operating results may not be a good
indication of our future performance, nor would our operating results for any
particular quarter be indicative of future operating results. In some quarters,
our operating results may be below the expectations of public market analysts
and investors. If that happens, the price of our common stock may fall, perhaps
dramatically. After three quarters of growth (as compared to the applicable
prior year period), a sudden and sharp decline (as compared to the applicable
prior year period) in the advertising for print publications in general
(including personal finance magazines) began in the fourth quarter of 2000 and
has continued into the second quarter of 2001. This slowdown could be followed
by an equally sudden and sharp rebound or by continued weakness. In addition,
online advertising has weakened in recent quarters. At the time this report is
filed, we are not able to predict when, if at all, the overall advertising
climate for print publications (and more specifically, for personal finance
magazines) or online advertising might improve and therefore we cannot predict
the level of advertising revenues that may be achieved by Individual Investor
magazine or our online services. Continued weakness in the advertising climate
for print publications (and more specifically, for personal finance magazines)
would hamper our ability to achieve greater revenues for Individual Investor
magazine and could have a material adverse effect on our business, operating
results and financial condition. Continued weakness in the advertising climate
for online services would hamper our ability to achieve greater revenues for our
online services and could have a material adverse effect on our business,
operating results and financial condition.
Because our editorial content is focused on the financial markets, a prolonged
"bear market" may cause our businesses to suffer. Our editorial content is
highly focused on the financial markets. If the markets suffer a prolonged
downturn or "bear market," it is possible that our businesses might suffer
materially for two reasons. First, during a bear market, people may become less
interested in buying and selling securities - and the level of trading volume at
online brokerages, for instance, has declined in recent months as the market has
moved generally lower - and thus less interested in our research and analysis of
securities. If this occurs, fewer people might be interested in subscribing to
our print publications and using our online services. An indication of this is
the fact that newsstand sales of personal finance magazines in general have
suffered in recent months. Second, many advertisers, particularly financial
services advertisers that are our most important source of advertising revenue,
have announced reduction in their advertising budgets. As noted above, the
advertising climate for print publications in general and personal finance
magazines in particular has suffered a sharp decline beginning in the fourth
quarter of 2000. A continuation of a general market downturn would have a
material adverse effect on our business, operating results and financial
condition.
Because our editorial content is focused on research and analysis of specific
stocks, our businesses could suffer if our recommendations are poor. Our
editorial content is focused on research and analysis of specific stocks. We
frequently state that a particular company's stock is undervalued or overvalued
at the current prices. If our opinions prove to be wrong, our customers may be
less interested in subscribing to our print publications and in using our online
services and our business could suffer materially.
We depend on our outside contributors. To some extent we depend upon the efforts
of our outside contributors to produce original, timely, comprehensive and
trustworthy content. Our outside contributors are not bound by employment
agreements. Competition for financial journalists is intense, and we may not be
able to retain existing or attract additional qualified contributors in the
future. If we lose the services of our outside contributors or are unable to
attract additional outside contributors with appropriate qualifications, our
business, operating results and financial condition could be materially
adversely affected.
We depend on key management personnel. Our future success depends upon the
continued service of key management personnel. We currently are relying upon the
services of Jonathan Steinberg, our Chief Executive Officer and President, and
Gregory Barton, our Vice President of Business Development, Finance and Legal
Affairs, Chief Financial Officer and General Counsel, neither of whom is under
any employment contract with us. The loss of either of our key management
personnel could materially adversely affect our business. Moreover, the costs
that may arise in connection with executive departures and replacements can be
significant, as they were during 2000, 1999 and 1998.
We rely on several third party sole providers to conduct many of our operations.
Our strategy is to enter into relationships with various third parties to be the
exclusive provider of their respective service in order to obtain their
technological expertise and capabilities as well as to achieve economies of
scale. If the business of these providers is disrupted for any reason, our
operating results could suffer materially. Some of these providers are listed as
follows:
1. We depend on Quebecor to print Individual Investor magazine. We depend
upon an independent party, Quebecor, to print Individual Investor
magazine. If Quebecor's business is disrupted for any reason, such as
fire or other natural disaster, labor strife, supply shortages, or
machinery problems, we might not be able to distribute Individual
Investor magazine in a timely manner and may lose subscribers and
newsstand sales. This could cause our operating results to suffer
materially.
2. We depend on independent parties to distribute Individual Investor
magazine to newsstands. We depend upon independent parties (the largest
of which is Comag Marketing Group, a venture between The Hearst
Corporation and Conde Nast) to direct the distribution of Individual
Investor magazine to newsstands. If the business of our distributors is
disrupted for any reason, such as labor strife or natural disaster, we
may not be able to distribute Individual Investor magazine to newsstands
in a timely manner and may lose newsstand sales. This could cause our
operating results to suffer materially.
3. We depend on an independent party to manage our subscriber files. We
depend upon an independent party to manage our subscriber files. This
party receives subscription orders and payments for Individual Investor
magazine and Special Situations Report newsletter, sends renewal and
invoice notices to subscribers and generates subscribers' labels and
circulation reports for us. If the business of this party is disrupted,
we may become unable to process subscription requests, or send out
renewal notices or invoices, or deliver our print publications. If this
were to happen, our business could suffer materially.
4. We depend on independent parties to obtain the majority of the
subscribers to Individual Investor magazine. We depend upon independent
parties to obtain the majority of the subscribers to Individual Investor
magazine. These agencies include Synapse, Special Data Processing and
EBSCO. These agencies obtain subscribers primarily through use of
subscription offers in credit card statements and direct mail campaigns.
If the positive response to the promotion of Individual Investor magazine
by these agencies is not great enough, they may stop promoting our
magazine. This could cause our subscriber base to shrink, which would
lower our subscription revenues and reduce our advertising rate base,
which would lead to lower advertising revenues. Also, many publications
compete for services of subscription agencies, and one or more of these
subscription agencies may choose not to continue to market Individual
Investor in order to better serve one of our competitors. Any of those
developments could cause our operating results to suffer materially.
5. We depend on WinStar Interactive Media Sales, Inc. to sell advertising,
sponsorships and e-commerce partnerships on our web sites. We depend on
an independent party, WinStar Interactive Media Sales, Inc. ("WinStar"),
to sell advertising, sponsorships and e-commerce partnerships on our web
sites, to complement our internal efforts. WinStar recently filed for
reorganization under Chapter 11 of the United States Bankruptcy Code. If
WinStar's business is disrupted or its sales force is ineffective, the
revenues generated from our web sites could be materially adversely
affected.
Control of the Company by Principal Stockholders. At the present time, Jonathan
Steinberg, and Saul Steinberg (who is Jonathan Steinberg's father), beneficially
own approximately 22.2% of the common stock of the Company. Additionally, the
following entities currently beneficially own the following amount of the common
stock of the Company: Telescan, Inc., approximately 12.8%; American Financial
Group, Inc., approximately 7.7%; and Reliance Financial Services Corporation,
approximately 7.4%. As a result of their beneficial ownership of common stock,
these parties will be able to significantly influence all matters requiring
approval by the Company's stockholders, including the election of its directors.
Because it may be very difficult for another company to acquire us without the
approval of the Steinbergs, other companies might not view us as an attractive
takeover candidate. Our stockholders, therefore, may have less of a chance to
benefit from any possible takeover of the Company, than they would if the
Steinbergs did not have as much influence.
We rely on our intellectual property. To protect our rights to our intellectual
property, we rely on a combination of trademark, copyright and patent law, trade
secret protection, confidentiality agreements, laws governing tortuous conduct
(including, for example, unfair competition) and other contractual arrangements
with our employees, affiliates, clients, strategic partners and others. The
protective steps we have taken may be inadequate to deter misappropriation of
our proprietary information. We may be unable to detect the unauthorized use of,
or take appropriate steps to enforce, our intellectual property rights. We have
registered certain of our trademarks in the United States and have pending U.S.
applications for other trademarks. Effective trademark, copyright, trade secret
and patent protection may not be available in every country in which we offer or
intend to offer our services.
We are somewhat dependent upon the use of certain trademarks in our
operation, including the marks Individual Investor,
individualinvestor.com, Magic25(R), America's Fastest Growing
Companies(R), Investor University(R) and Investment University(R). We
have a perpetual license for use of the trademark Individual Investor.
To perfect our interests in the mark, however, we filed suit in 1997
against the licensor and a third party whom we believed was infringing
the mark. The litigation was resolved favorably to us, with an
agreement by the third party not to further infringe the mark. We
commenced negotiations with the licensor to obtain assignment of the
mark, The Individual Investor, but did not reach an agreement.
Although we will continuously monitor and may seek enforcement against
any perceived infringement of the mark, we cannot assure you that our
efforts will be successful.
Additionally, we are somewhat dependent upon the ability to protect our
proprietary content through the laws of copyright, unfair competition and other
law. We cannot assure you, however, that the laws will give us meaningful
protection.
Claims of our infringement of the intellectual property rights of others could
be costly and disruptive to our business operations. Other parties may assert
claims against us that we have infringed a copyright, trademark or other
proprietary right belonging to them. Defending against any such claim could be
costly and divert the attention of management from the operation of our
business. In addition, the inability to obtain or maintain the use of copyrights
or trademarks could adversely affect our business operations, as could the award
of damages against us. Our insurance may not adequately protect us against such
claims
We may be liable for information published in our print publications or on our
online services. We may be subject to claims for defamation, libel, copyright or
trademark infringement, invasion of privacy or based on other theories relating
to the information we publish in our print publications or through our online
services. We could also be subject to claims based upon the content that is
accessible from our web sites through links to other web sites. Defending
against any such claim could be costly and divert the attention of management
from the operation of our business, and the award of damages against us could
adversely affect our financial condition. Our insurance may not adequately
protect us against such claims.