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 June 30, 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
(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 August 13, 2001, issuer had
outstanding 8,987,083 shares of Common Stock, $.01 par value per share.
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page
------ ----
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
as of June 30, 2001 (Unaudited) and December 31, 2000 3
Consolidated Condensed Statements of Operations (Unaudited)
for the Three and Six Months Ended June 30, 2001 and 2000 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 2001 and 2000 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
------
Signatures
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 2001 2000
UNAUDITED
---------- ------------
Current assets:
Cash and cash equivalents $ 486,846 $ 4,694,476
Accounts receivable (net of allowances of
$379,776 in 2001 and $552,609 in 2000)
760,831 1,754,200
Investment in discontinued operations (Note 3) 49,302 49,302
Prepaid expenses and other current assets 950,801 1,036,996
------------ ------------
Total current assets 2,247,780 7,534,974
------------ ------------
Investments (Note 2) 2,678,546 2,678,546
Deferred subscription expense 193,482 337,245
Property and equipment - net 1,687,622 1,479,105
Security deposits 374,466 375,580
Other assets 101,046 300,810
------------ ------------
Total assets $7,282,942 $12,706,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,216,598 $ 2,534,027
Accrued expenses 492,543 462,800
Deferred advertising revenue 1,446,839 1,987,067
------------ ------------
Total current liabilities 4,155,980 4,983,894
------------ ------------
Deferred advertising revenue 147,668 532,653
Deferred subscription revenue 2,525,580 2,607,407
------------ ------------
Total liabilities 6,829,228 8,123,954
------------ ------------
Commitments and contingencies
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, 9,173,083, issued and
outstanding in 2001 and; 8,972,886 issued and
outstanding in 2000 91,731 89,729
Additional paid-in capital 33,669,806 33,576,719
Warrants 770,842 872,052
Deferred compensation (80,383) (29,490)
Accumulated deficit (33,998,361) (29,926,783)
------------ ------------
Total stockholders' equity 453,714 4,582,306
------------ ------------
Total liabilities and stockholders' equity $7,282,942 $12,706,260
============ ============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
3 Months Ended June 30, 6 Months Ended ,June 30,
------------------------------- ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Print Publications $ 1,562,638 $ 4,251,157 $ 4,185,298 $ 9,190,288
Online Services 240,510 981,134 850,233 2,254,653
------------ ------------ ------------ ------------
Total revenues 1,803,148 5,232,291 5,035,531 11,444,941
------------ ------------ ------------ ------------
Operating expenses:
Editorial, production and distribution 1,972,618 3,495,011 4,265,898 6,964,807
Promotion and selling 1,278,967 2,292,358 2,779,568 5,106,559
General and administrative 607,845 1,234,868 1,533,646 2,688,437
Depreciation and amortization 186,163 143,223 338,320 283,189
------------ ------------ ------------ ------------
Total operating expenses 4,045,593 7,165,460 8,917,432 15,042,992
------------ ------------ ------------ ------------
Operating loss from continuing operations (2,242,445) (1,933,169) (3,881,901) (3,598,051)
Investment and other income (95,163) 58,518 (110,877) 126,817
------------ ------------ ------------ ------------
Net loss ($2,337,608) ($1,874,651) ($3,992,778) ($3,471,234)
============ ============ ============ ============
Basic and dilutive net loss per common share
(Note 5): ($0.26) ($0.19) ($0.45) ($0.34)
============ ============ ============ ============
Average number of common shares used in computing
basic and dilutive loss per common share 9,093,775 10,392,173 9,032,697 10,378,082
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended June 30,
2001 2000
------------ -----------
Cash flows from operating activities:
Net loss ($3,992,778) (3,471,234)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization 338,320 283,189
Stock option and warrant transactions (47,213) 115,646
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,286,097 147,255
Prepaid expenses and other current assets 86,206 (176,507)
Security deposits 1,114 (3,720)
Other assets 189,060 126,560
Deferred subscription expense 143,763 (83,201)
Increase (decrease) in:
Accounts payable and accrued expenses (287,686) 277,617
Deferred advertising revenue (925,214) (1,325,556)
Deferred subscription revenue (81,827) 439,678
------------ -----------
Net cash used in operating activities (3,290,158) (3,670,273)
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment (545,943) (217,976)
------------ -----------
Net cash provided by investing activities (545,943) (217,976)
------------ -----------
Cash flows from financing activities:
Proceeds from exercise of stock options - 59,845
Receivables financing (292,729) -
Preferred stock dividends (78,800) (100,000)
------------ -----------
Net cash provided by financing activities (371,529) (40,155)
------------ -----------
Net decrease in cash and cash equivalents (4,207,630) (3,928,404)
Cash and cash equivalents, beginning of period 4,694,476 6,437,542
------------ -----------
Cash and cash equivalents, end of period $486,846 $2,509,138
============ ===========
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 and six months ended June 30, 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 on January 01, 2001, 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.
In June 2001, the FASB approved the final standards resulting
from its business combinations project. The FASB issued SFAS No. 141,
"Business Combinations," and No. 142, "Goodwill and Other Intangible
Assets," in July 2001. SFAS No. 141 is effective for any business
combination accounted for by the purchase method that is completed
after June 30, 2001. SFAS No. 142, which includes the requirements to
test goodwill and intangible assets with indefinite lives for
impairment, rather than amortize them, will be effective for fiscal
years beginning after December 15, 2001. The Company believes that the
adoption of SFAS No. 141 and No. 142 will not have a material impact on
the financial position, results of operations, or cash flows of the
Company.
Certain balances for the period ended June 30, 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 June 30, 2001, the domestic investment fund had remaining
net assets of approximately $511,000. The Company's net investment in
discontinued operations of $49,302 at June 30, 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 third quarter of 2001.
4. STOCK OPTIONS
During the three and six months ended June 30, 2001: the
Company granted none and 886,000 options, respectively, to purchase the
Company's Common Stock pursuant to the Company's stock option plans; no
options were exercised; 92,334 and 123,834 options, respectively, were
canceled; and 9,500 and 9,500 options, respectively, expired.
Of the options granted during the six months ended June 30,
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 period 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.
In May 2001, the Stock Option Committee, pursuant to the
Company's 2000 Performance Equity Plan, awarded 223,000 shares
("Restricted Shares") of authorized but unissued Common Stock in the
aggregate to certain employees subject to the terms of a restricted
stock agreement. In July 2001, as a result of the sale of the
subscriber list and discontinuance of publication of Individual
Investor magazine (the "Magazine Sale") (see Note 10), the Company
terminated the majority of its employees and 186,000 of the Restricted
Shares were cancelled.
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
and six months ended June 30, 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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net loss $ (2,337,608) $ (1,874,651) $(3,992,778) $(3,471,234)
Preferred stock dividends 39,400 50,000 78,800 100,000
------------- ------------- ------------ ------------
Net loss applicable to common shareholders $ (2,377,008) $ (1,924,651) $ 4,071,578) $(3,571,234)
============= ============= ============ ============
6. COMPREHENSIVE LOSS
Comprehensive loss for the three and six months ended June 30,
2001 and 2000, respectively, is presented in the following table:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2001
---- ---- ---- ----
Net loss $ (2,337,608) $ (1,874,651) $ (3,992,778) $ (3,471,234)
Other comprehensive loss: - - - -
------------- ------------- ------------- -------------
Total comprehensive loss: $ (2,337,608) $ (1,874,651) $ (3,992,778) $ (3,471,234)
============= ============= ============= =============
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 June 30, 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 June 30, 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 June 30,
---------------------------
2000
Excluding Sold
2001 2000 Assets
---- ---- ------
Revenues:
Print Publications $ 1,562,638 $ 4,251,157 $3,185,396
Online Services 240,510 981,134 788,483
------------ ------------ ------------
$ 1,803,148 $ 5,232,291 $3,973,879
Operating contribution (before G&A
and depreciation and amortization expenses)
Print Publications ($1,177,953) $ 71,438 ($231,130)
Online Services (270,484) (626,516) (617,549)
------------ ------------ ------------
(1,448,437) (555,078) (848,679)
G&A and depreciation and amortization expenses (794,008) (1,378,091) (1,378,091)
Investment and other income (95,163) 58,518 58,518
------------ ------------ ------------
Net loss ($2,337,608) ($1,874,651) ($2,168,252)
============ ============ ============
Six Months Ended June 30,
-------------------------
2000
Excluding
2001 2000 Sold Assets
---- ---- -----------
Revenues:
Print Publications $4,185,298 $9,190,288 $6,986,354
Online Services 850,233 2,254,653 1,878,254
------------ ------------ ------------
$5,035,531 $11,444,941 $8,864,608
============ ============ ============
Operating contribution (before G&A
and depreciation and amortization expenses)
Print Publications ($1,718,829) $ 73,379 ($ 551,090)
Online Services (291,106) (699,804) (688,635)
------------ ------------ ------------
(2,009,935) (626,425) (1,239,725)
G&A and depreciation and amortization expenses (1,871,966) (2,971,626) (2,971,626)
Investment and other income (110,877) 126,817 126,817
------------ ------------ ------------
Net loss ($3,992,778) ($3,471,234) ($4,084,534)
============ ============ ============
There was no change in non-current investments as of June 30,
2001 as compared to December 31, 2000. Net accounts receivable as of
June 30, 2001 decreased approximately $1.0 million due to the decreased
advertising sales and improved collections. Accounts payable as of June
30, 2001 decreased approximately $0.3 million due to the timing of
payments to vendors. Deferred advertising revenue as of June 30, 2001
decreased approximately $0.9 million due to revenue earned during the
period. Additionally, deferred subscription revenue as of June 30, 2001
decreased approximately $0.1 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 three and six months ended June 30, 2001, this interest rate
averaged approximately 9.0% and approximately 9.7% respectively. 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 of approximately
$7,000. and $23,000, respectively, related to this facility during the
three and six months ended June 30, 2001. The amount of transferred
receivables at June 30, 2001 was approximately $0.3 million. The
securitization facility ends June 30, 2002, subject to earlier
termination in accordance with the contract.
Following the Magazine Sale on July 9, 2001 (see Note 10) the
facility was terminated in accordance with the contract terms. The
facility continues to collect the eligible transferred receivables in
accordance with the contract terms. The estimated cancellation cost of
the contract is reflected in the pro-forma results (Note 11) as a cost
of the sale and has reduced the gain accordingly.
9. COMMITMENTS AND CONTINGENCIES
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. Pursuant to the sublet, the Company is entitled to
receive annual rent of approximately $607,000, escalating to
approximately $642,000 over the term of the sublease. 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 have been or 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.
Additionally, the Company is seeking to sublet the remaining 18,000
square feet of its office space. (see Note 10).
10. SUBSEQUENT EVENT
On July 9, 2001, the Company completed the transactions (the
"Magazine Sale") contemplated by an agreement ("Agreement") with The
Kiplinger Washington Editors, Inc. ("Kiplinger"), the publisher of
Kiplinger's Personal Finance Magazine ("KPFM"). Pursuant to the
Agreement, the Company, among other things:
-- sold to Kiplinger the subscriber list to the Company's
Individual Investor magazine ("II");
-- agreed, until July 9, 2006, not to use the name "Individual
Investor" for print periodical publishing or list rental
purposes, except in connection with the Company's Individual
Investor's Special Situations Report newsletter; and
-- agreed to provide certain consulting services to Kiplinger
until July 9, 2002.
In return, Kiplinger:
-- agreed to provide II subscribers with KPFM, at no additional
cost to II subscribers, for the number of issues of II that
such subscribers have paid for but have not been served,
representing approximately $2.6 million of deferred
subscription liability of the Company; and
-- paid the Company $3.5 million in cash, a portion of which was
placed in escrow to secure certain obligations.
In connection with this transaction, the Company reduced its
employee headcount by approximately 90% in order to focus on its stock
index licensing operations and the low-cost maintenance of its online
operations, which include www.individualinvestor.com and
www.SHORTInterest.com. Additionally, the Company announced that it
would seek to sublet 18,000 square feet of its office space.
11. PRO FORMA FINANCIAL INFORMATION
The following pro forma June 30, 2001 balance sheet shows the
effects of the Magazine Sale on July 9, 2001 (see Note 10) as if such
transaction had occurred as of June 30, 2001. The pro forma income
statements for the year ended December 31, 2000 and six months ended
June 30, 2001 show the effect of the Magazine Sale on July 9, 2001 (see
Note 10) as if such transaction had occurred as of January 1, 2000 and
2001, respectively. The pro forma information as presented below is not
necessarily indicative of the results that would have been obtained had
the transaction occurred as of January 1, 2000 and January 1, 2001
respectively (e.g. potential reductions in general and administrative
expenses).
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
UNAUDITED
PRO FORMA
June 30, PRO FORMA June 30,
ASSETS 2001 ADJUSTMENT 2001
------------ ------------ -----------
Current assets:
Cash and cash equivalents $ 486,846 $ 2,691,956 (1) $ 3,178,802
Accounts receivable (net of allowances of $379,776) 760,831 (151,490) (7) 609,341
Investment in discontinued operations 49,302 - 49,302
Prepaid expenses and other current assets 950,801 (88,499) (2) 862,302
------------ ------------ -----------
Total current assets 2,247,780 2,451,967 4,699,747
------------ ------------ -----------
Investments 2,678,546 - 2,678,546
Deferred subscription expense 193,482 (189,603) (3) 3,879
Property and equipment - net 1,687,622 (379,972) (4) 1,307,650
Security deposits 374,466 - 374,466
Other assets 101,046 1,229,800 (8) 1,330,846
------------ ------------ -----------
Total assets $7,282,942 $ 3,112,192 $10,395,134
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,216,598 $ - $ 2,216,598
Accrued expenses 492,543 - 492,543
Deferred consulitng fees and non compete - 1,000,000 (5) 1,000,000
Deferred advertising revenue 1,446,839 (25,241) (10) 1,421,598
------------ ------------ -----------
Total current liabilities 4,155,980 974,759 5,130,739
------------ ------------ -----------
Deferred advertising revenue 147,668 - 147,668
Deferred subscription revenue 2,525,580 - 2,525,580
------------ ------------ -----------
Total liabilities $6,829,228 974,759 7,803,987
------------ ------------ -----------
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 2,000,000
shares, 7,880 issued 79 - 79
Common stock, $.01 par value; authorized 40,000,000
shares, 9,173,083 issued and outstanding,
8,987,083 pro forma 91,731 (1,860) (9) 89,871
Additional paid-in capital 33,669,806 (81,840) (9) 33,587,966
Warrants 770,842 - 770,842
Deferred compensation (80,383) 69,750 (9) (10,633)
Accumulated deficit (33,998,361) 2,151,383 (6) (31,846,978)
------------ ------------ -----------
Total stockholders' equity 453,714 2,137,433 2,591,147
------------ ------------ -----------
Total liabilities and stockholders' equity $ 7,282,942 $ 3,112,192 $10,395,134
============ ============ ============
Notes to Pro Forma Consolidated Condensed Balance Sheet
(1) Net cash proceeds on Magazine sale
(2) Cash proceeds put in escrow (125,000), net of writeoff
of prepaid expenses not refundable (213,499)
(3) Write off of deferred subscription expense
(4) Writedown of furniture and fixtures to estimated net realizable value
(5) Non compete and consulting fees to be earned
(6) Estimated gain Magazine sale net of estimated expenses and writedowns and
reversal of amortization of deferred compensation
(7) Termination of securitization facility
(8) Purchaser's responsibility for potential subscriber cancellations
(9) Cancellation of 186,000 restricted shares to terminated employees
(10) Deferred advertising revenue earned
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
AS REPORTED PRO FORMA
6 Months 6 Months
Ended June 30, PRO FORMA Ended June 30,
2001 ADJUSTMENT 2001
------------ ------------ ------------
Revenues:
Print Publications $ 4,185,298 ($3,602,832) (1)(2) $ 582,466
Online Services 850,233 - 850,233
Other income - 450,000 (5) 450,000
------------ ------------ ------------
Total revenues 5,035,531 (3,152,832) 1,882,699
------------ ------------ ------------
Operating expenses:
Editorial, production and distribution 4,265,898 (3,286,864) (3) 979,034
Promotion and selling 2,779,568 (2,557,890) (4) 221,678
General and administrative 1,533,646 (13,950) (8) 1,519,696
Depreciation and amortization 338,320 - 338,320
------------ ------------ ------------
Total operating expenses 8,917,432 (5,858,704) 3,058,728
------------ ------------ ------------
Gain on sale of assets - 2,151,383 (7) 2,151,383
Operating income (loss) from continuing operations (3,881,901) 4,857,255 975,354
-
Investment and other income (110,877) 53,839 (6) (57,038)
------------ ------------ ------------
-
Net income (loss) ($3,992,778) $ 4,911,094 $918,316
============ ============ ============
Basic income (loss) per common share: ($0.45) $0.09
============ ============
Average number of common shares used in computing
basic income (loss) per common share 9,032,697 9,032,697
Dilutive income (loss) per common share ($0.45) $0.09
============ ============
Average number of common shares used in computing
dilutive income (loss) per common share 9,032,697 9,776,093
Notes to Pro Forma Consolidated Condensed Statement of Operations
(1) Elimination of print revenues related to Magazine sale
(2) Recognition of deferred subscription revenues
(3) Elimination of editorial, production and distribution costs related to
Magazine sale
(4) Elimination of promotion and selling expenses related to Magazine sale
(5) Accretion of non - compete and consulting income
(6) Investment income earned on net cash from Magazine sale
(7) Pro forma gain on Magazine sale
(8) Amortization of deferred compensation related to restricted shares
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
AS REPORTED PRO FORMA
YEAR ENDED PRO FORMA YEAR ENDED
December 31, 2000 ADJUSTMENT December 31, 2000
----------------- ------------- ----------------
Print Publications $ 16,590,782 ($12,180,393) (1)(2) $ 4,410,389
Online Services 3,188,022 - 3,188,022
Other Income - 900,000 (5) 900,000
------------ ------------- ------------
Total revenues 19,778,804 (11,280,393) 8,498,411
------------ ------------- ------------
Editorial, production and distribution 12,683,600 (7,487,973) (3) 5,195,627
Promotion and selling 8,683,141 (6,099,415) (4) 2,583,726
General and administrative 5,494,521 - 5,494,521
Depreciation and amortization 557,802 - 557,802
------------ ------------- ------------
Total operating expenses 27,419,064 (13,587,388) 13,831,676
------------ ------------- ------------
Gain on sale of assets 6,702,219 2,151,383 (7) 8,853,602
------------ ------------- ------------
Impairment of investment (2,638,356) - (2,638,356)
------------ ------------- ------------
Operating income (loss) from continuing operations (3,576,397) 4,458,378 881,981
Investment and other income 170,608 107,807 (6) 278,415
------------ ------------- ------------
Net Income (loss) ($3,405,789) $ 4,566,185 $ 1,160,396
============ ============= ============
Basic and dilutive income (loss) per common share: ($0.34) $0.09
============ ============
Average number of common shares used in computing
basic income (loss) per common share: 10,439,887 10,439,887
Dilutive income (loss) per common share: ($0.34) $0.09
============ ============
Average number of common shares used in computing
basic income (loss) per common share: 10,439,887 11,183,283
Notes to Pro Forma Consolidated Condensed Statement of Operations
(1) Elimination of print revenues related to Magazine sale
(2) Recognition of deferred subscription revenues
(3) Elimination of editorial, production and distribution costs
related to Magazine sale
(4) Elimination of promotion and selling expenses related to Magazine sale
(5) Accretion of non - compete and consulting income
(6) Investment income earned on net cash from Magazine sale
(7) Pro forma gain on sale of Magazine sale
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 and six months
ended June 30, 2001 and June 30, 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 June 30, 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 June 30, 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 and Six Months Ended June 30, 2001 as Compared to the Three and Six Months
Ended June 30, 2000
Operating Loss
The Company's operating loss for the three and six months ended June
30, 2001 increased approximately 16% and 8%, respectively, to approximately $2.2
million and $3.9 million, respectively, as compared to approximately $1.9
million and $3.6 million, respectively, for the three and six months ended June
30, 2000. The increase is primarily due to lower advertising revenues offset by
decreased promotion and selling, editorial, production and distribution, and
general and administrative expenses. Results from operations for the three and
six months ended June 30, 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 June 30, 2001 remained at
approximately $2.2 million as compared to the comparable three month period
ended June 30, 2000 and improved approximately 8%, to approximately $4.0
million, as compared to approximately $4.2 million for the six months ended June
30, 2000.
Print Publications operations provided a negative operating
contribution (before deducting G&A and depreciation and amortization expenses)
of approximately $1.2 million and $1.7 million, respectively, for the three and
six months ended June 30, 2001, as compared to a positive contribution of
approximately $ 0.1 million and $0.1 million, respectively, for the three and
six months ended June 30, 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 operations provided a negative
operating contribution (before deducting G&A and depreciation and amortization
expenses) of approximately $1.2 million and $1.7 million, respectively, for the
three and six months ended June 30, 2001, as compared to a negative operating
contribution of approximately $0.2 million and $0.6 million, respectively, for
the three and six months ended June 30, 2000.
Online Services operations provided a negative operating contribution
(before deducting G&A, and depreciation and amortization expenses) of
approximately $0.3 million and $0.3 million , respectively, for the three and
six months ended June 30, 2001 as compared to a negative operating contribution
(before deducting G&A, and depreciation and amortization expenses) of
approximately $0.6 million and $0.7 million, respectively, for the three and six
months ended June 30, 2000. The change in operating contribution is primarily
due to decreased advertising revenues, offset by decreased editorial, production
and development, and promotion and selling expenses. The results of
InsiderTrader.com for the three and six months ended June 30, 2000 were
break-even.
Revenues
Revenues for the three and six months ended June 30, 2001 decreased
approximately 66% and 56%, respectively, to approximately $1.8 million and $5.0
million, respectively, as compared to approximately $5.2 million and $11.4,
million respectively, for the three and six months ended June 30, 2000.
Excluding the results of Ticker magazine and InsiderTrader.com, revenues
decreased approximately 55% and 43%, respectively, in the three and six months
ended June 30, 2001, to approximately $1.8 million and $5.0 million,
respectively, as compared to approximately $4.0 million and $8.9 million,
respectively, for the three and six months ended June 30, 2000.
Revenues from Print Publications operations for the three and six
months ended June 30, 2001 decreased approximately 63% and 54%, respectively, to
approximately $1.6 million and $4.2 million, respectively, as compared to
approximately $4.3 million and $9.2 million, respectively for the three and six
months ended June 30, 2000. Excluding the results of Ticker magazine, revenues
from Print Publications operations decreased approximately 51% and 40%,
respectively, in the three and six months ended June 30, 2001, to approximately
$1.6 million and $4.2 million, respectively, as compared to approximately $3.2
million and $7.0 million, respectively, for the three and six months ended June
30, 2000.
Revenues from Online Services operations for the three and six months
ended June 30, 2001 decreased approximately 75% and 62%, respectively, to
approximately $0.2 million and $0.9 million, respectively, as compared to
approximately $1.0 million and $2.3 million, respectively, for the three and six
months ended June 30, 2000. Excluding the results of InsiderTrader.com, revenues
from Online Services operations decreased approximately 69% and 55%,
respectively, in the three and six months ended June 30, 2001, to approximately
$0.2 million and $0.9 million, respectively, as compared to approximately $0.8
million and $1.9 million, respectively, for the three and six months ended June
30, 2000.
Print Publications advertising revenues for the three and six months
ended June 30, 2001 decreased approximately 74% and 64%, respectively, to
approximately $0.8 million and $2.3 million, respectively, as compared to
approximately $3.0 million and $6.5 million, respectively, for the three and six
months ended June 30, 2000. Individual Investor advertising revenues for the
three and six months ended June 30, 2001 decreased approximately 59% and 47%,
respectively, to approximately $0.8 million and $2.3 million, respectively, as
compared to approximately $1.9 million and $4.4 million, respectively, for the
three and six months ended June 30, 2000, due to a 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 and six months ended June 30, 2000. Ticker
advertising revenues for the three and six months ended June 30, 2000 were
approximately $1.0 million and $2.1 million, respectively. Since the fourth
quarter of 2000, the advertising climate has been weak for the magazine industry
in general and has been particularly weak for the personal finance and business
titles.
Print Publications circulation revenues for the three and six months
ended June 30, 2001 decreased approximately 34% and 24%, to approximately $0.6
million and $1.4 million, respectively, as compared to approximately $1.0
million and $1.9 million, respectively, for the three and six months ended June
30, 2000. Subscription revenues for the three and six months ended June 30, 2001
decreased approximately 18 % and 16%, respectively, to approximately $0.6
million and $1.2 million, respectively, as compared to approximately $0.7
million and $1.4 million, respectively, for the three and six months ended June
30, 2000. Newsstand revenues for the three and six months ended June 30, 2001
decreased approximately 75% and 46%, respectively, to approximately $0.1 million
and $0.3 million, respectively, as compared to approximately $0.3 million and
$0.5 million, respectively, for the three and six months ended June 30, 2000.
The decrease in circulation revenues is primarily due to a decrease in newsstand
sales for Individual Investor magazine during the three and six months ended
June 30, 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.
Print Publications list rental and other revenues for the three and six
months ended June 30, 2001 decreased approximately 55% and 47%, respectively, to
approximately $149,000, and $404,000, respectively, as compared to approximately
$333,000 and $762,000, respectively, for the three and six months ended June 30,
2000. Excluding the results of Ticker magazine, list rental revenues and other
revenues from Print Publications decreased approximately 51% and 43%,
respectively, in the three and six months ended June 30, 2001, to approximately
$149,000 and $404,000, respectively, as compared to approximately $304,000 and
$706,000, respectively, for the three and six months ended June 30, 2000. List
rental and other revenues for Individual Investor magazine have declined by
approximately the same percentage as advertising revenues for Individual
Investor magazine, when comparing the three and six months ended June 30, 2001
with the prior-year period.
Online Services advertising revenues for the three and six months ended
June 30, 2001 decreased approximately 77% and 62%, respectively to approximately
$0.2 million and $0.8 million, respectively, as compared to approximately $0.9
million and $2.0 million, respectively, for the three and six months ended June
30, 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.
Operating Expenses
Operating expenses for the three and six months ended June 30, 2001
decreased approximately 44% and 41%, respectively, to approximately $4.0 million
and $8.9 million, respectively, as compared to approximately $7.2 million and
$15.0 million, respectively, for the three and six months ended June 30, 2000.
Excluding the results of Ticker magazine and InsiderTrader.com, operating
expenses decreased approximately 35% and 32%, respectively, in the three and six
months ended June 30, 2001, to approximately $4.0 million and $8.9 million,
respectively, as compared to approximately $6.2 million and $13.1 million,
respectively, for the three and six months ended June 30, 2000.
Editorial, production and distribution expenses for the three and six
months ended June 30, 2001 decreased approximately 44% and 39%, respectively, to
approximately $2.0 million and $4.3 million, respectively, as compared to
approximately $3.5 million and $7.0 million, respectively, for the three and six
months ended June 30, 2000. Excluding the results of Ticker magazine and
InsiderTrader.com, editorial, production and distribution expenses decreased
approximately 32% and 26%, respectively, in the three and six months ended June
30, 2001, to approximately $2.0 million and $4.3 million, respectively, as
compared to approximately $2.9 million and $5.8 million, respectively, for the
three and six months ended June 30, 2000. The decrease is primarily related to
the sale of Ticker magazine, an approximate $0.5 million and $1.1 million,
reduction in editorial, production and distribution expenses for the three and
six months ended June 30, 2001, respectively, and a reduction in editorial,
production and distribution expenses for www.individualinvestor.com, to
approximately $0.4 million and $0.9 million, respectively, as compared to
approximately $0.8 million and $1.7 million, respectively, for the three and six
months ended June 30, 2000; and for Individual Investor magazine, to
approximately $1.5 million and $3.3 million, respectively, as compared to
approximately $1.9 and $3.8 million, respectively, for the three and six months
ended June 30, 2000.
Promotion and selling expenses for the three and six months ended June
30, 2001 decreased approximately 44% and 46%, respectively, to approximately
$1.3 million and $2.8 million, respectively, as compared to approximately $2.3
million and $5.1 million, respectively, for the three and six months ended June
30, 2000. Print Publications promotion and selling expenses for the three and
six months ended June 30, 2001 decreased approximately 30% and 38%,
respectively, to approximately $1.2 million, and $2.6 million, respectively, as
compared to approximately $1.7 million and $4.1 million, respectively, for the
three and six months ended June 30, 2000. Excluding the results of Ticker
magazine, Print Publications promotion and selling expenses decreased
approximately 15% and 25%, respectively, in the three and six months ended June
30, 2001, to approximately $1.2 million and $2.6 million, respectively, as
compared to approximately $1.4 million and $3.5 million, respectively, for the
three and six months ended June 30, 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 and six
months ended June 30, 2000. Online Services promotion and selling expenses for
the three and six months ended June 30, 2001 decreased approximately 84% and
79%, respectively, to approximately $0.1 million and $0.2 million, respectively,
as compared to approximately $0.6 million and $1.0 million, respectively, for
the three and six months ended June 30, 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 and six months ended
June 30, 2001 decreased approximately 51% and 43%, respectively, to
approximately $0.6 million and $1.5 million, respectively, as compared to
approximately $1.2 and $2.7 million, respectively for the three and six months
ended June 30, 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 for the three months and six months ended June 30, 2001.
Depreciation and amortization expense for the three and six months
ended June 30, 2001 increased approximately 30% and 19%, respectively, to
approximately $186,000, and $338,000, respectively, as compared to approximately
$143,000 and $283,000, respectively, for the three and six months ended June 30,
2000. The increase is attributable to additional depreciation for furniture and
fixtures as well as the amortization of leasehold improvements.
Investment and Other Income (Loss)
Investment and other income (loss) for the three and six months ended
June 30, 2001 decreased to approximately ($95,000) and ($111,000), respectively,
as compared to approximately $59,000 and $127,000, respectively, for the three
and six months ended June 30, 2000. The fiscal 2001 results include the costs
associated with the accounts receivable securitization financing.
Net Loss
The Company's net loss for the three and six months ended June 30, 2001
increased approximately 25% and 15%, respectively, to approximately $2.3 million
and $4.0 million, respectively, as compared to approximately $1.9 million and
$3.5 million, respectively, for the three and six months ended June 30, 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 and six months
ended June 30, 2001 was $0.26 and $0.45, respectively, as compared to $0.19 and
$0.34, respectively for the three and six months ended June 30, 2000. Excluding
the results of Ticker magazine and InsiderTrader.com, the Company's net loss for
the three and six months ended June 30, 2001 increased (decreased) approximately
8% and (2%), to approximately $2.3 million and $4.0 million, respectively, as
compared to approximately $2.2 million and $4.1 million for the three and six
months ended June 30, 2000.
Liquidity and Capital Resources
As of June 30, 2001, the Company had cash and cash equivalents of
approximately $0.5 million, and negative working capital of approximately $1.9
million. The pro forma June 30, 2001 impact of the transaction described in the
following paragraph (see Note 11 to the Company's unaudited consolidated
condensed financial statements for the period endied June 30, 2001 filed with
this Report) decreased negative working capital to approximately $0.4 million
and cash (after considering the estimated expenses of the sale) to approximately
$3.2 million.
On July 9, 2001, the Company completed the transactions (the "Magazine
Sale") contemplated by an agreement ("Agreement") with The Kiplinger Washington
Editors, Inc. ("Kiplinger"), the publisher of Kiplinger's Personal Finance
Magazine ("KPFM"). Pursuant to the Agreement, the Company, among other things:
- -- sold to Kiplinger the subscriber list to the Company's Individual Investor
magazine ("II");
- -- agreed, until July 9, 2006, not to use the name "Individual Investor" for
print periodical publishing or list rental purposes, except in connection
with the Company's Individual Investor's Special Situations Report
newsletter; and
- -- agreed to provide certain consulting services to Kiplinger until July 9,
2002.
- -- In return, Kiplinger:
- -- agreed to provide II subscribers with KPFM, at no additional cost to II
subscribers, for the number of issues of II that such subscribers have paid
for but have not been served, representing approximately $2.6 million of
deferred subscription liability of the Company; and
- -- paid the Company $3.5 million in cash, a portion of which was placed in
escrow to secure certain obligations.
In connection with this transaction, the Company reduced its employee
headcount by approximately 90% in order to focus on its stock index licensing
operations and the low-cost maintenance of its online operations, which include
www.individualinvestor.com and www.SHORTInterest.com. Additionally, the Company
announced that it would seek to sublet 18,000 square feet of its office space.
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 June 2001 was approximately $0.3 million. Following
the Magazine Sale, the facility was terminated in accordance with the contract
terms. The facility continues to collect the eligible transferred receivables in
accordance with the contract terms. The cancellation cost of the contract is
approximately $75,000 and will be recorded in the third quarter of fiscal 2001.
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, with the approximately 90% reduction in headcount and the
consummation of the Magazine Sale, the Company has substantially reduced
operating and general and administrative expenses. The Company 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.
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 will
be sufficient to fund its operations and capital requirements through 2001. The
Company might need to obtain additional capital in the last half of 2002 in
order to sustain operations if its stock index licensing operations do not
generate significant revenue, its online services continue to operate at a loss
and the Company is unsuccessful in finding a subtenant for its office space. The
Company is continuing its exploration of strategic alternatives to maximize
shareholder value, 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.
Recent Accounting Pronouncements
The Company on January 01, 2001, 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.
In June 2001, the FASB approved the final standards resulting from its
business combinations project. The FASB issued SFAS No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets," in July
2001. SFAS No. 141 is effective for any business combination accounted for by
the purchase method that is completed after June 30, 2001. SFAS No. 142, which
includes the requirements to test goodwill and intangible assets with indefinite
lives for impairment, rather than amortize them, will be effective for fiscal
years beginning after December 15, 2001. The Company believes that the adoption
of SFAS No. 141 and No. 142 will not have a material impact on the financial
position, results of operations, or cash flows of the Company.
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
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
4/01/01 - 6/30/01 Restricted shares 223,000 Employment services; no cash Section 4(2) Vesting over a period of one
of common stock payment required by employees. year to May 11, 2002,
granted to employees subject to certain
conditions of continued
service.
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
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
of Issuer, as amended through June 22, 1999 the of Form 10-Q 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
99 Certain Risk Factors Filed herewith
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended June
30, 2001 but filed a Form 8-K on July 23, 2001 with respect to the Magazine Sale
described in Note 10 to the Company's consolidated condensed financial
statements for the period ending June 30, 2001 filed with this Report.
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: August 14, 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, President and Chief Financial
Officer (Principal Financial Officer)
By: /s/ Howard B. Lorch
-------------------
Howard B. Lorch, Vice President, Controller
(Principal Accounting Officer)
EXHIBIT 99
CERTAIN RISK FACTORS
Dated: August 14, 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 may 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, with the approximately 90% reduction in headcount and
the sale of the subscriber list and discontinuance of publication of Individual
Investor magazine, the Company has substantially reduced operating and general
and administrative expenses. Our current expenses, however, exceed our current
revenue from our online operations, monthly newsletter and stock index
licensing, the latter of which has not yet contributed (and might not
contribute) revenue this year. We believe that our working capital and the value
we believe we could realize from the sale of assets and/or securities will be
sufficient to fund our capital requirements through 2001. We might need to
obtain additional capital in the last half of 2002 if our stock index licensing
operations do not generate significant revenue, our online services continue to
operate at a loss and we are unsuccessful in finding a subtenant for our office
space. We are continuing our exploration of strategic alternatives, including
exploring sources of additional financing and/or the sale of assets.
We cannot predict whether our index licensing operations will generate
significant revenue in the future. We have licensed our 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. We are not
able to predict the magnitude of the licensing revenue, if any, that we might
obtain in connection with that license. The licensing revenue, which would be
owed to us 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 we would have essentially no marginal expenses associated with such
revenue. Nuveen is working to obtain the necessary regulatory approval to
commence trading of such an exchange-traded fund but we cannot assure you 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. We also cannot assure you 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 we will receive any material amount of
revenue with respect to the licenses described in this paragraph. We 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 our intention to develop sector indexes in the America's Fastest
Growing Companies(TM) Index family. We are in discussions with a variety of
parties concerning the potential license of those additional indexes for the
creation of financial products. We cannot assure you that we will execute
licensing agreements with respect to such indexes, that financial products based
upon such indexes would enter the market or that we would derive any material
revenues with respect to any such licenses.
We have a history of losses and we anticipate that our losses will continue in
the future. As of June 30, 2001, we had an accumulated deficit of approximately
$34.0 million. Since inception, the only calendar year during which we were
profitable was 1995. We expect to continue to incur operating losses during
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 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 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 allows 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 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, 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.
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. Accordingly, our web sites must be able to 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
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 customers and advertisers. We cannot assure
you that our efforts to build positive brand recognition will be successful.
We depend on certain advertisers to generate revenues. In 2000, 1999 and 1998,
the majority of our online advertising revenues came from financial services
companies, followed by consumer advertisers and others. In fiscal 2001,
approximately 44 % of the online services advertising revenues came from Pricing
Dynamics and Tradeworx , (companies in which we have acquired an equity interest
through an equity-for-advertising barter transaction). 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 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.
Our online services operations depend on the continued growth in use and
efficient operation of the web. Our online services operations 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.
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 Gregory
Barton, our President, 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.
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.
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 8.3%; 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, individualinvestor.com,
Magic25(R), America's Fastest Growing Companies(R), Investor University(R) and
Investment University(R). 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.
We may be liable for information published in our current or former 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 or published in
our current or former 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.