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 September 30, 1997
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-10932
INDIVIDUAL INVESTOR GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3487784
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 Broadway, 38th Floor, New York, New York
10019 (Address of principal executive
offices)
(212) 843-2777
(Issuer's telephone number)
(Former name, former address and former fiscal quarter,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of October 31, 1997, issuer had
outstanding 6,655,938 shares of Common Stock, $.01 par value per share.
EXHIBIT INDEX - Page 18
Page 1 of 19 pages
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
September 30, 1997
ASSETS
Current assets:
Cash and cash equivalents $1,956,073
Accounts receivable (net of allowances of $588,735) 2,494,341
Prepaid expenses and other current assets 255,566
-------------
Total current assets 4,705,980
Deferred subscription expense 607,327
Investment in fund (Note 2) 3,888,217
Property and equipment - net 614,333
Other assets 384,917
-------------
Total assets $10,200,774
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,863,877
Accrued expenses 852,743
Deferred revenue 412,000
-------------
Total current liabilities 3,128,620
Deferred subscription revenue 2,639,889
-------------
Total liabilities 5,768,509
-------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares -
Common stock, $.01 par value; authorized
18,000,000 shares; issued and outstanding 6,654,938 66,549
Additional paid-in capital 16,505,301
Deficit (12,139,585)
-------------
Total stockholders' equity 4,432,265
-------------
-------------
Total liabilities and stockholders' equity $10,200,774
=============
See Notes to Consolidated Condensed Financial Statements
2
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------- -------------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
Revenues :
Financial Information Services:
Circulation $893,165 $1,414,667 $3,012,876 $4,246,358
Advertising 2,416,561 1,420,708 6,778,303 3,322,695
List rental and other 369,738 305,788 953,175 976,258
---------------- ---------------- ---------------- ----------------
Total financial information services revenues 3,679,464 3,141,163 10,744,354 8,545,311
Investment management services (Note 3) 141,999 170,082 439,191 681,792
Net appreciation (depreciation) in fund (Note 2) 1,371,887 (773,847) (159,283) (481,890)
---------------- ---------------- ---------------- ----------------
Total revenues 5,193,350 2,537,398 11,024,262 8,745,213
---------------- ---------------- ---------------- ----------------
Operating expenses:
Editorial, production and distribution 2,494,185 1,672,335 6,819,060 4,490,848
Promotion and selling 1,546,787 1,442,459 4,542,980 3,546,027
General and administrative 1,110,066 955,427 3,253,191 2,757,863
Depreciation and amortization 103,055 58,783 235,652 139,818
---------------- ---------------- ---------------- ----------------
Total operating expenses 5,254,093 4,129,004 14,850,883 10,934,556
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Operating loss (60,743) (1,591,606) (3,826,621) (2,189,343)
---------------- ---------------- ---------------- ----------------
Interest and other income 26,236 27,333 57,426 155,744
---------------- ---------------- ---------------- ----------------
Net loss ($34,507) ($1,564,273) ($3,769,195) ($2,033,599)
---------------- ---------------- ---------------- ----------------
Dividends paid - - - -
Loss per weighted average common
and equivalent shares ($0.01) ($0.26) ($0.59) ($0.33)
Weighted average number of common
shares outstanding during the period 6,638,148 6,091,412 6,400,435 6,222,870
See Notes to Consolidated Condensed Financial Statements
3
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
------------------------------------
1997 1996
---------------- ----------------
Cash flows from operating activities:
Net loss ($3,769,195) ($2,033,599)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 235,652 139,818
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 86,931 (311,384)
Prepaid expenses and other assets (110,820) (267,639)
Deferred subscription expense 350,087 166,829
Increase (decrease) in:
Accounts payable and accrued expenses (21,271) (840,589)
Deferred revenue 412,000 -
Deferred subscription revenue (688,848) 69,429
---------------- ----------------
Net cash used in operating activities (3,505,464) (3,077,135)
---------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (128,983) (390,808)
Net depreciation in fair value of investment in fund 159,283 481,890
Withdrawals from fund, net 900,000 1,200,000
---------------- ----------------
Net cash provided by investing activities 930,300 1,291,082
---------------- ----------------
Cash flows from financing activities:
Proceeds from exercise of stock options 736,786 233,293
Proceeds from issuance of Common Stock 2,250,000 -
Common Stock Repurchased (2,453,665)
---------------- ---------------
Net cash provided by (used in) financing activities 2,986,786 (2,220,372)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 411,622 (4,006,425)
Cash and cash equivalents, beginning of period 1,544,451 6,276,987
---------------- ----------------
Cash and cash equivalents, end of period $1,956,073 $2,270,562
================ ================
See Notes to Consolidated Condensed Financial Statements
4
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Individual Investor Group, Inc. and its subsidiaries (the "Company").
The accompanying consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and
footnotes as required by generally accepted accounting principles for
annual financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments)
considered necessary in order to make the financial statements not
misleading have been included. Operating results for the nine months
ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report for the
fiscal year ended December 31, 1996 on Form 10-KSB.
2. INVESTMENT IN FUND
A wholly-owned subsidiary, WisdomTree Capital Management, Inc.
("WTCM"), serves as general partner of a domestic private investment
fund. The Company is also a limited partner in the fund. The value of
the Company's investment in the fund decreased from $4,947,500 at
December 31, 1996 to $3,888,217 at September 30, 1997. This decrease
resulted from net depreciation in the fair value of the Company's
investment in the fund and from a withdrawal of $900,000 by the Company
in February 1997. Selected unaudited financial information for the fund
(which is an affiliate of the Company) as of September 30, 1997 and for
the nine months then ended is as follows:
Assets (at fair value) $ 93,428,203
Liabilities 46,102,880
Partners' Capital 47,325,323
Net income of the fund $ 3,242,622
The net appreciation in the fair value of the Company's
investment in the fund for the three months ended September 30, 1997
totaled $1,371,887 as compared to net depreciation of $773,847 in 1996.
During the nine months ended September 30, 1997 the Company's net
depreciation in the fair value of investment in the fund was $159,283
as compared to net depreciation of $481,890 in 1996.
5
3. INVESTMENT MANAGEMENT SERVICES
The Company, through WTCM, provides investment management
services to the domestic fund referred to in Note 2, and to an offshore
private investment fund, which commenced operations in January 1996.
The Company has no investment in the offshore fund. The Company is
entitled to receive a management fee equal to 1/4 of 1% of the net
asset value of the domestic fund, calculated as of the last business
day of each quarter, and a management fee equal to 1/8 of 1% of the net
asset value of the offshore fund, calculated monthly. Total management
fees for the nine months ended September 30, 1997 were $319,335, as
compared to $487,495 in 1996.
Total equity under management by the Company as of September
30, 1997 for both the domestic and offshore funds was approximately $57
million.
WTCM is also entitled to receive a special allocation equal to
20% of the net income, if any, of each of the funds (not including
income earned on its own investment), subject to certain limitations,
calculated at year end, which is December 31st for the domestic fund
and June 30th for the offshore fund. If the amount of the special
allocation for both the domestic and offshore funds were calculated as
of November 10, 1997 a gain of approximately $1,691,000 and $533,000,
respectively, would have been earned by the Company; however, as the
ultimate amount to be earned is dependent on the performance of the
funds through December 31st and June 30th, and may decrease as well as
increase, benefits (if any) are not recorded until December 31, 1997
and June 30, 1998, respectively. The special allocation for the fiscal
period ended June 30, 1997 and 1996, relating to the offshore fund,
totaled $61,617 and $150,297, respectively.
4. STOCK OPTIONS
During the nine months ended September 30, 1997, the Company
granted 327,000 options to purchase the Company's Common Stock; 152,645
options were exercised (providing proceeds of $736,786), and; 234,434
options were canceled. Of the total granted, all options were granted
under Company stock option plans which expire at various dates through
September 2007.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
Earnings per Share. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS No. 128") which simplifies the
standards for computing earnings per share by establishing a new
standard for presenting earnings per share. The Company will begin
reporting earnings (loss) per share according to this new standard for
the year ended December 31, 1997, requiring all prior period earnings
per share data (including interim periods) to be restated to conform
with the provisions of the new statement. Loss per share amounts for
the three and nine months ended September 30, 1997 and 1996, computed
under this new standard are not expected to be materially different
from the per share disclosed in the accompanying financial statements.
6
Disclosure of Information about Capital Structure. In February
1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure", which becomes
effective for the Company's 1997 year-end consolidated financial
statements. SFAS No. 129 requires an entity to describe the pertinent
rights and privileges of its various securities outstanding.
Management of the Company believes that adoption of SFAS No. 129 will
not have a significant impact on the Company's present disclosure.
Reporting Comprehensive Income. In September 1997, the
Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income", which becomes effective for the Company's 1998
consolidated financial statements. SFAS No. 130 requires the disclosure
of comprehensive income, defined as the change in equity of a business
enterprise from transactions and other events and circumstances from
nonowner sources, in the Company's consolidated financial statements.
In the opinion of the Company's management, it is not anticipated that
the adoption of this new accounting standard will have a material
effect on the consolidated financial statements of the Company.
Disclosure about Segments of an Enterprise and Related
Information. In September 1997, the Financial Accounting Standards
Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which becomes effective for the Company's
1998 consolidated financial statements. SFAS No. 131 requires that a
public business enterprise report certain financial and descriptive
information about its reportable operating segments. In the opinion of
the Company's management, it is not anticipated that the adoption of
this new accounting standard will have a material effect on the
consolidated financial statements of the Company.
6. SALE OF COMMON STOCK
On May 1, 1997 the Company entered into Stock Purchase
Agreements with two parties unrelated to the Company, providing in the
aggregate for the private sale of 328,678 shares of Common Stock for a
total purchase price of $2,000,000. These shares were sold pursuant to
an exemption from registration under the Securities Act of 1933. On
June 30, 1997 the Company entered into a Stock Purchase Agreement with
Wise Partners, L.P. providing for the sale of 31,496 shares of Common
Stock for an aggregate purchase price of $250,000. The Company granted
each of these investors registration rights in respect of the shares.
Wise Partners, L.P. is a limited partnership of which the Chief
Executive Officer of the Company, Jonathan L. Steinberg, is the General
Partner and Saul Steinberg, a beneficial owner of over 19% of the
Company's Common Stock, is a limited partner.
7
7. LITIGATION
The Company is involved in ordinary and routine litigation
incidental to its business. In the opinion of management, there is no
pending legal proceeding that would have a material adverse effect on
the consolidated financial statements of the Company.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
When used in this Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result," "management expects," or "the Company expects," "will continue," "is
anticipated," "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance
on any such forward-looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company has no obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect anticipated events or circumstances occurring after the
date of such statements.
Results of Operations
Total revenues for the three and nine months ended September 30, 1997
were $5,193,350 and $11,024,262, respectively, a 105% and 26% increase from the
corresponding periods of the previous fiscal year.
Revenues from financial information services for the three and nine
months ended September 30, 1997 were $3,679,464 and $10,744,354, respectively, a
17% and 26% increase from the corresponding periods of the previous fiscal year.
Circulation revenues for the three and nine months ended September 30,
1997 were $893,165 and $3,012,876, respectively, a 37% and 29% decrease from the
corresponding periods of the previous fiscal year. Subscription revenues for the
Company's flagship magazine, Individual Investor, decreased by 35% and 34%,
respectively, for the quarter and year to date. Newsstand revenues for the
magazine remained unchanged for the third quarter and increased by 18% for the
year to date. Subscription revenues for the Company's newsletter, Individual
Investor's Special Situations Report (SSR), decreased 55% and 35%, respectively,
for the quarter and year to date. Management attributes the decreases in
circulation revenues of Individual Investor and SSR to the reduction of direct
mail and television campaigns in favor of other sources for subscribers that
will provide for continuing numbers of new subscribers with lower marketing
expenses but less subscription revenue. Individual Investor had average paid
circulation of over 458,000 in the third quarter of 1997, as compared to average
paid circulation of over 345,000 in the third quarter of 1996. SSR had over
9,000 average paid subscribers in the third quarter of 1997 as compared to
21,000 in the third quarter of 1996. This decrease is a direct result of a
reduction of television campaign promotions.
9
Advertising revenues for the three and nine months ended September 30,
1997 were $2,416,561 and $6,778,303, respectively, a 70% and 104% increase over
the corresponding periods of the previous fiscal year. This is a result of a
greater number of advertising pages sold, increased advertising rates per page,
and an increased mix of higher margin consumer advertisers. As a result of the
increase in paid circulation of Individual Investor, the Company increased its
advertising rates by approximately 43% in June 1996, 40% in November 1996, and
is currently implementing an increase of 18% in November 1997. Management
anticipates, but can give no assurance, that in the near term there will be
advertising revenue growth from the rate increases implemented in 1996 and 1997,
and that the number of advertising pages sold will continue to increase.
Management also expects to continue to attract higher margin consumer
advertisers. The Company also launched a new publication, Ticker (sm), in
October 1996. Ticker, with a controlled circulation of 75,000 brokers and
financial advisers, has sold advertising space to a number of leading
advertisers, resulting in revenues of $377,953 and $864,564 for the quarter and
year to date, respectively. In addition, during the third quarter the Company
generated $32,246 of advertising revenues relating to its online operations.
List rental and other revenues for the three and nine months ended
September 30, 1997 were $369,738 and $953,175, respectively, a 21% increase and
2% decrease from the corresponding periods of the previous fiscal year. The
increase for the quarter relates primarily to higher list rental activity and
reprint income. This decrease for the nine months results from lower list rental
revenues, offset in part by higher levels of reprint and other income. The
decrease in list revenue is a direct result of changes in the mix of subscribers
to Individual Investor as a result of the Company's lessened reliance on direct
mail and television marketing efforts during the nine month period.
Investment management services revenues for the three and nine months
ended September 30, 1997 were $141,999 and $439,191 respectively, a 17% and 36%
decrease from the corresponding periods of the previous fiscal year. Revenues
from investment management services are a combination of management fees, being
1 to 1-1/2 percent of assets under management, and a special profit allocation,
being 20% of defined performance, with additional revenues being contributed as
a result of the Company's portfolio consulting activities. Total equity managed
by the Company was approximately $57 million as of September 30, 1997 as
compared to $66 million as of September 30, 1996. Management fees earned by the
Company decreased for the quarter and nine months ended September 30, 1997 by
16% and 34%, respectively. The special profit allocation relating to the
offshore fund, which is recognized annually in the second quarter also declined
to $61,617 in 1997 from $150,297 in 1996. During the nine months ended September
30, 1997 investors in the funds made net withdrawals in excess of additional
investment contributions of approximately $12.8 million. The Company also
anticipates that investment management services revenues will vary from period
to period, because the managed funds are invested primarily in the relatively
volatile small-cap U.S. equity market. For the three months ended September 30,
1997, the managed funds experienced positive performance, which followed
significant negative performance in the first half of 1997. There can be no
assurance as to the funds' performance for 1997 or that each of the managed
fund's asset bases will be maintained at current levels by the investors
participating in such funds.
10
Net appreciation in the fair value of the Company's investment in the
private domestic investment fund totaled $1,371,887 for the quarter ended
September 30, 1997 as compared to net depreciation of $773,847 in 1996. For the
year to date, the net depreciation was $159,283 as compared to net depreciation
of $481,890 in 1996. Net appreciation (depreciation) in the fair value of
investment in the fund represents both realized and unrealized earnings (losses)
of the amount invested by the Company in the domestic fund's portfolio which,
because of the nature of the investments as described above, will vary
significantly from period to period and may result in losses as well as income.
No assurance can be given that the Company will record income from its
investments in future periods.
Total operating expenses for the three and nine months ended September
30, 1997 were $5,254,093 and $14,850,883, respectively, a 27% and 36% increase
from the corresponding periods of the previous fiscal year.
Editorial, production and distribution expenses for the three and nine
months ended September 30, 1997 increased 49% and 52%, to $2,494,185 and
$6,819,060, respectively. The increase for the three and nine months relates to
additional production and distribution expenses for Individual Investor, due to
additional copies printed for newsstand sales, and a larger subscriber base.
These costs include $373,092 and $1,052,472 for the three and nine months,
respectively, that were incurred for the production, printing, editing,
fulfillment and distribution of Ticker. The Company has also incurred expenses
totaling $255,941 and $540,510 during the three and nine months, respectively,
related to the establishment of an online service. Management anticipates
expenses relating to online services to increase as development continues. While
additional investment is necessary to complete its development, management
intends to incur these expenses in a controlled manner to help achieve the
Company's ultimate goal of profitability. Editorial, production and research
salaries and related expenses have been increased to aid growth in the Company's
current publications as well as to support the launch of Ticker and the online
service.
Promotion and selling expenses for the three and nine months ended
September 30, 1997 increased 6% and 25%, to $1,546,787 and $4,542,980,
respectively. Advertising salaries, payroll taxes and commissions have increased
as a result of higher advertising revenues, new sales personnel, and outside
sales representatives added in 1997 in an attempt to further increase
advertising revenues, and to develop advertising for Ticker.
General and administrative expenses for the three and nine months ended
September 30, 1997 increased 19% and 22%, to $1,110,066 and $3,253,191,
respectively. General and administrative salaries, payroll taxes, and employee
benefits increased for the three and nine months ended September 30, 1997 as
compared to the corresponding periods of the previous year. These increases
related to the addition of personnel, as well as increases in compensation,
postage, telephone, office supplies and related office expenses.
11
Depreciation and amortization expense for the three and nine months
ended September 30, 1997 increased 75% and 69%, to $103,055 and $235,652,
respectively. The increase in 1997 is primarily attributable to depreciation of
office furniture and computer equipment purchased for additional personnel.
Interest and other income for the three and nine months ended September
30, 1997 decreased to $26,236 and $57,426, respectively, as compared to $27,333
and $155,744 for the corresponding periods of the previous year. This decrease
is primarily due to reduced levels of cash invested by the Company.
The Company's operating losses for its financial information services
operations approximated $1.3 million for the quarter and $3.3 million for the
nine months ended September 30, 1997, as compared to $0.7 million and $1.7
million for the same periods in 1996. These increased losses relate in part to
the investment in the online services and development of Ticker. For the nine
months ended September 30, 1997 the Company invested $0.5 million in its online
services and incurred an operating loss of $0.6 million relating to Ticker. The
Company has consciously decided to make these investments because of the
Company's belief in their potential value in the future.
The Company's net losses for the three and nine months ended September
30, 1997 were $34,507 and $3,769,195 as compared to $1,564,273 and $2,033,599
for the same periods in 1996. No income taxes were provided in 1997 or 1996 due
to the net losses sustained. The net loss per common and equivalent share for
the three and nine months were $0.01 and $0.59, respectively, as compared to net
loss per common and equivalent share of $0.26 and $0.33 for the three and nine
months ended September 30, 1996.
Liquidity and Capital Resources
As of September 30, 1997, the Company had working capital of $1,577,360
and cash and cash equivalents totaling $1,956,073. This represents a decrease in
working capital of $190,451 and an increase in cash and cash equivalents of
$411,622 since December 31, 1996.
The Company will incur ongoing expenses in the development of its
business operations, which are expected to be funded by the Company's working
capital. Nevertheless, the Company believes that its cash, working capital and
investments will be sufficient to fund its operations and capital requirements
through 1998. As of September 30, 1997, the total value of the Company's
investment in the domestic private investment fund was $3,888,217. This
investment is available, subject to market fluctuations and liquidity, to
provide working capital to fund the Company's operations. In February 1997, the
Company redeemed $900,000 from this investment. No assurance can be given that
the Company's investment will increase in value, and it may decline in value.
As a result of the current levels of revenues and expenses, the Company
anticipates that it will continue to incur net losses in its quarterly results
for its information services operations in the near-term. The Company's
quarterly results will increase or decrease depending on the results of the
money management operations.
12
In August 1997 the Company retained the investment banking firm of
Bear, Stearns & Co. Inc. to assist the Company in exploring strategic
initiatives to enhance shareholder value. With the assistance of Bear Stearns,
the Company will focus on alternatives including identifying and evaluating
potential strategic partners seeking minority investment positions in the
Company's information services business.
13
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PART II- OTHER INFORMATION
ITEM 1 - Legal Proceedings
On July 31, 1997, Richard and Sandra Tarlow, former limited partners of
WisdomTree Associates, L.P., the domestic private investment fund managed by a
subsidiary of the Company, initiated an action in the Supreme Court of the State
of New York against WisdomTree Associates, L.P. and each of Robert Schmidt and
Jonathan Steinberg individually. WisdomTree Associates, L.P. and the other
defendants moved to dismiss this action based on Plaintiff's failure to serve a
complaint. On October 21, 1997, the Tarlows' lawsuit was Dismissed Without
Prejudice by Order of the Supreme Court of the State of New York.
Because certain rights in and to the use by the Company of the name
INDIVIDUAL INVESTOR may derive from that certain Trademark License Agreement
between the Company's predecessor and the American Association of Individual
Investors ("AAII") dated June 19, 1992 (the "Trademark License Agreement"), and
because the Trademark License Agreement provides that certain prosecution of
violations shall first be referred to AAII, the Company has given AAII repeated
notice of several uses of the INDIVIDUAL INVESTOR and related marks which the
Company believes infringe rights granted under the Trademark License Agreement
and possibly other rights held by the Company. AAII has given a notice to cease
and desist such conduct to certain of these parties, including such a notice
sent to Phillips Publishing, Inc. ("Phillips") in July 1997. Phillips has
continued to use the mark, in connection with its further publication of "The
Individual Investor's Inside Track". Further, Phillips and its list rental agent
The Specialists, Ltd. ("TSL") pursued a persistent and deliberate course of
conduct to violate rights in and to the trademark INDIVIDUAL INVESTOR and the
Company's common law and contractual protections in that Phillips, even after
receiving notice of its infringing conduct and a demand to cease and desist, not
only continues to infringe the mark, but has done so in promotional materials
specifically targeted at subscribers of the Company's INDIVIDUAL INVESTOR
Magazine after contracting to mail different pieces to that list of the
Company's subscribers. In response to the Company's first call to Phillips'
attorneys during the first week of September 1997 respecting their separate
misuse of the Company's rented list, Phillips then filed against AAII a Petition
to Cancel Registration of the federally registered mark "The Individual
Investor", in the United States Patent & Trademark Office. When the Company met
with AAII to seek AAII's prosecutorial initiative, AAII informed the Company
that, absent a new and substantial payment of monies in excess of those already
paid by the Company as consideration under the Trademark License Agreement, AAII
intended to settle and/or default in respect of AAII's action to the derogation
of the Company's related mark and rights.
On October 30, 1997, the Company filed a civil action in the United
States District Court For the Southern District of New York captioned Individual
Investor Group, Inc. V. Phillips Publishing, Inc., American Association of
Individual Investors, Inc., and The Specialists, Ltd. The Complaint alleges
False Designation of Origin Under 15 U.S.C. 1125(a), Common Law Trademark
Infringement, Violation of the New York General Business Law 349, Dilution of
Plaintiff's Trademark Under New York General Business Law 368-d, Federal
Trademark Infringement, Dilution Under 15 U.S.C. 1125(c), Common Law Unfair
Competition, and Breach of Contract against defendants Phillips and TSL. Based
primarily on AAII's stated intention not to prosecute, the Complaint also names
AAII as a party defendant with an allegation of Breach of Contract. Service of
the Complaint has yet to be effected.
14
In response to the Company's notice to AAII's counsel respecting the
filing of the above action, on November 5, 1997, AAII sent notice to the
Company: (i) stating that, on November 4, 1997, AAII initiated an action in the
United States District Court for the Northern District of Illinois against
Phillips, with respect to which AAII states Phillips has waived service of
process, alleging trademark infringement, violation of Lanham Act 43(a) and
unfair competition, and, (ii) giving the Company notice of AAII's position that
"...under paragraph 8 of the license agreement [the Company] breached the
license agreement by contending in its complaint that it has rights in the
INDIVIDUAL INVESTOR mark, apart from the rights arising from the license
agreement [by the statement in the Company's Complaint that] "INDI's rights in
and to the common law mark INDIVIDUAL INVESTOR are based, inter alia, on its
nationwide publication of INDIVIDUAL INVESTOR Magazine...". We thus give [the
Company] notice under paragraph 8 of this Agreement that [the Company] is in
material breach and that [the Company's] license will be terminated for cause
unless [the Company] cures this breach within 30 days ".
On November 6, 1997, counsel for the Company spoke with counsel for
AAII, at which time AAII's representatives informed counsel for the Company that
AAII was engaged in settlement discussions with Phillips wherein AAII has
proposed that Phillips would agree not to use the mark INDIVIDUAL INVESTOR but
Phillips would be permitted to use the phrase "individual investor" in a purely
descriptive sense. The Company and AAII have agreed that AAII will keep the
Company advised of the progress of the settlement negotiations with Phillips.
Accordingly, because such a settlement would be satisfactory to the Company
notwithstanding the separate complaints the Company has against Phillips based
primarily in Phillips fraudulent use of the INDIVIDUAL INVESTOR subscriber list,
the Company has determined to hold-off on serving the named defendants in the
Southern District of New York action pending a near-term settlement of the
actions between AAII and Phillips which accomplishes a cessation of Phillips
infringing conduct reasonably satisfactory to the Company.
The Company's counsel has also discussed with AAII's counsel the
Company's willingness, subject to the satisfactory settlement between AAII and
Phillips and subject to AAII's acknowledgment that any breach of the Trademark
License Agreement as above stated has thus been cured, to amend its Complaint to
remove AAII as a defendant and to eliminate from the Complaint such aspects of
the allegations against Phillips and TSL which AAII and the Company may agree
should be subsumed by the AAII-Phillips litigation and settlement.
15
ITEM 2 - Sales of Unregistered Securities
- --------------- ---------------------- ----------- ----------------------------- -------------- ----------------------------
Consideration received and Exemption If option, warrant or
Date of sale Title of security Number description of underwriting from convertible security,
Sold or other discounts to registration terms of exercise or
market price afforded to claimed conversion
purchasers
- --------------- ---------------------- ----------- ----------------------------- -------------- ----------------------------
- --------------- ---------------------- ----------- ----------------------------- -------------- ----------------------------
7/97 -9/97 options to purchase 20,000 options granted - no Section 4(2) vesting over a period of
common stock granted consideration received by three years from date of
to employees, Company until exercise grant, subject to certain
directors and conditions of continued
consultants service; exercisable for a
period lasting ten years
from date of grant at an
exercise price $8.00
- --------------- ---------------------- ----------- ----------------------------- -------------- ----------------------------
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
DATE: November 12, 1997
INDIVIDUAL INVESTOR GROUP, INC.
By: /s/ Jonathan L. Steinberg
-------------------------
Jonathan Steinberg, CEO and Chairman of the Board
By: /s/ Scot A. Rosenblum
-----------------------
Scot Rosenblum, Vice President and
Chief Financial officer
By: /s/ Henry G. Clark
------------------------
Henry G. Clark, Controller
(Principal Accounting Officer)
17
EXHIBIT INDEX
Exhibit No. Description Page
27 Financial Data Schedule September 30, 1997 19
18