U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 1-10932
INDIVIDUAL INVESTOR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3487784
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
125 Broad Street, 14th Floor, New York, New York 10004
(Address of principal executive offices)
(212) 742-2277
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
State the number of shares outstanding of each of the registrant's classes
of common equity, as of the latest practicable date: As of May 5, 1999,
registrant had outstanding 8,942,297 shares of Common Stock, $.01 par value
per share.
PART I. Financial Information
ITEM 1. Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
ASSETS 1999 1998
------------ ------------
Current assets:
Cash and cash equivalents $4,985,688 $4,752,587
Investments 419,061 877,231
Accounts receivable (net of allowances of
$404,183 in 1999 and $391,328 in 1998) 2,562,651 2,356,126
Investment in discontinued operations (Note 2) 142,534 282,383
Prepaid expenses and other current assets 541,411 512,641
------------ ------------
Total current assets 8,651,345 8,780,968
Deferred subscription expense 398,172 576,237
Property and equipment - net 1,750,121 586,007
Security deposits 469,627 469,627
Other assets 311,958 374,404
------------ ------------
Total assets $11,581,223 $10,787,243
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,509,649 $2,191,765
Accrued expenses 623,516 519,887
Deferred revenue 138,097 138,097
------------ ------------
Total current liabilities 3,271,262 2,849,749
Deferred subscription revenue 2,348,351 2,246,422
------------ ------------
Total liabilities 5,619,613 5,096,171
============ ============
Stockholders' Equity:
Preferred stock, $.01 par value, authorized
2,000,000 shares, 10,000 issued and outstanding
in 1999 and 1998 100 100
Common stock, $.01 par value; authorized 18,000,000
shares; 8,890,964 issued and outstanding in 1999
and 8,490,851 shares in 1998 88,910 84,909
Additional paid-in capital 29,150,476 27,595,151
Accumulated deficit (23,240,727) (21,922,595)
Accumulated other comprehensive loss (Note 5) (37,149) (66,493)
------------ ------------
Total stockholders' equity 5,961,610 5,691,072
------------ ------------
Total liabilities and stockholders' equity $11,581,223 $10,787,243
============ =============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31,
---------------------------------------------------
1999 1998
------------ ------------
Revenues:
Print Publications $3,748,847 $3,724,552
Online Services 252,969 229,421
------------ ------------
Total revenues 4,001,816 3,953,973
------------ ------------
Operating expenses:
Editorial, production and distribution 2,755,718 2,900,474
Promotion and selling 1,851,476 1,642,669
General and administrative 1,172,491 1,149,660
Depreciation and amortization 96,830 73,311
------------ ------------
Total operating expenses 5,876,515 5,766,114
------------ ------------
Operating loss from continuing operations (1,874,699) (1,812,141)
Interest and other income 556,567 29,955
------------ ------------
Net loss from continuing operations (1,318,132) (1,782,186)
Discontinued operations (Note 2)
Loss from discontinued operations - (377,460)
------------ ------------
Net loss ($1,318,132) ($2,159,646)
============ ============
Basic and dilutive loss per common share:
Continuing operations ($0.15) ($0.25)
Discontinued operations 0.00 (0.05)
------------ ------------
Net loss per share ($0.15) ($0.30)
============ ============
Average number of common shares used in computing 8,786,599 7,203,199
basic and dilutive loss per common share
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended March 31,
--------------------------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
Net loss ($1,318,132) ($2,159,646)
Less:
Loss from discontinued operations - (377,460)
------------ ------------
Loss from continuing operations (1,318,132) (1,782,186)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization 96,830 73,311
Stock option and warrant transactions 81,818 -
Loss on sale of equipment - 1,258
Gain on sale of investments (503,215) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (206,525) 391,957
Prepaid expenses and other current assets (53,883) (55,508)
Deferred subscription expense 178,065 41,208
Increase in:
Accounts payable and accrued expenses 421,513 121,299
Deferred revenue - 4,890
Deferred subscription revenue 101,929 69,735
------------ ------------
Net cash used in operating activities (1,201,600) (1,134,036)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,255,203) (38,559)
Proceeds from sale of equipment - 1,051
Proceeds from sale of investments 990,729 -
Net cash provided by discontinued operations 139,849 62,853
------------- -------------
Net cash (used in) provided by investing activities (124,625) 25,345
------------- -------------
Cash flows from financing activities:
Proceeds from exercise of stock options 1,559,326 398,152
------------- -------------
Net cash provided by financing activities 1,559,326 398,152
------------- -------------
Net increase (decrease) in cash and cash equivalents 233,101 (710,539)
Cash and cash equivalents, beginning of period 4,752,587 3,533,622
------------- -------------
Cash and cash equivalents, end of period $4,985,688 $2,823,083
============= =============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(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 generally accepted accounting principles
for interim financial reporting and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
as required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. 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, 1998 on Form 10-K.
2. DISCONTINUED OPERATIONS
On April 30, 1998 the Company's Board of Directors decided to
discontinue the Company's investment management services business. As a
result, the operating results relating to investment management
services have been segregated from continuing operations and reported
as a separate line item on the consolidated condensed statements of
operations. The Company has restated its consolidated condensed
financial statements for the prior year to conform to the current year
presentation.
The investment management services business was principally
conducted by a wholly-owned subsidiary of the Company, WisdomTree
Capital Management, Inc. ("WTCM"). WTCM served 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 dissolving the domestic investment fund, liquidating its
investments and distributing the net assets to all investors as
promptly as possible.
In 1998, the Company recorded a provision of $591,741 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 adequate provision has been
made for any remaining net operating losses and related costs
associated with these discontinued operations.
The Company, through WTCM and another wholly-owned subsidiary,
also provided investment management services to an offshore private
investment fund. On May 21, 1998 the sole voting shareholder of the
offshore fund, in consultation with WTCM, resolved to wind up the fund
and appointed a liquidator to distribute the assets of the fund to its
investors in accordance with Cayman Islands law. Substantially all of
the fund assets were distributed in cash to its investors by December
31, 1998. The Company has no investment in the offshore fund.
In January 1999, the domestic investment fund distributed cash
to its partners totaling $1,189,510, of which $139,849 was received by
the Company and was used to reduce its net investment in discontinued
operations. At March 31, 1999, the domestic investment fund had
remaining net assets of approximately $1,460,000. The Company's
net investment in discontinued operations of $142,534 at March 31,
1999, represents its share of the net assets of the domestic investment
fund, less any costs associated with discontinuing the investment
management services business.
3. STOCK OPTIONS
During the three months ended March 31, 1999, the Company
granted 57,500 options to purchase the Company's Common Stock; 400,113
options were exercised (providing proceeds of $1,559,326); and 15,333
options were canceled. Of the total options granted, 37,500 were
granted under the Company's stock option plans, 20,000 shares were
granted outside of the plans, and all expire at various dates through
March 2009.
4. LOSS PER COMMON SHARE
Net loss per basic and dilutive common share for the three
month periods ended March 31, 1999 and 1998 were computed using the
weighted average number of common shares outstanding during each
period. The exercise of stock options and warrants were not assumed in
the computation of loss per common share, as the effect would have been
antidilutive.
5. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," requires the disclosure of
comprehensive income (loss), defined as the change in equity of a
business enterprise during a period from transactions and other events
and circumstances from non-owner sources. Comprehensive income (loss)
is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not
been recognized in the calculation of net income (loss).
Comprehensive loss for the three months ended March 31, 1999
and 1998, respectively, is presented in the following table:
Three Months Ended March 31
1999 1998
--------------- ---------------
Net loss $ (1,318,132) $ (2,159,646)
Accumulated other comprehensive gain:
Net unrealized gain on investments 29,344 -
--------------- ---------------
Total comprehensive loss $ (1,288,788) $ (2,159,646)
=============== ===============
6. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which changes the
way the Company reports information about its operating segments.
Accordingly, the prior year's information has been restated to be
consistent with the current year presentation. 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. The
Company's Print Publications operations publishes and markets
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 include Individual
Investor Online (www.iionline.com) and InsiderTrader.com
(www.insidertrader.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. The
accounting policies utilized in the table below are the same as those
described in Note 1 of the Notes to Condensed Consolidated 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, 1998. Operating contribution represents the
difference between operating revenues less operating expenses (before
general and administrative ("G&A") and depreciation and amortization
expenses).
Three Months Ended March 31,
1999 1998
Revenues: -------------- --------------
Print Publications $3,748,847 $3,724,552
Online Services 252,969 229,421
-------------- --------------
$4,001,816 $3,953,973
============== ==============
Operating contribution (before G&A
and depreciation and amortization
expenses):
Print Publications ($123,271) ($121,646)
Online Services (482,107) (467,524)
-------------- --------------
(605,378) (589,170)
G&A and depreciation and
amortization expenses (1,269,321) (1,222,971)
Interest and other income 556,567 29,955
-------------- --------------
Net loss from continuing operations ($1,318,132) ($1,782,186)
============== ==============
Net property and equipment as of March 31, 1999 increased
approximately $1.2 million as compared to December 31, 1998. The
increase is primarily due to capital expenditures (primarily leasehold
improvements and furniture) in connection with the relocation of the
Company's corporate office in March 1999. The capital expenditures
allocable to Print Publications, Online Services and Corporate are
approximately $0.8 million, $0.2 million and $0.2 million respectively.
There were no other material changes from year-end 1998 in total
assets, the basis of segmentation, or in the basis of measurement of
segment profit or loss.
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 quarters ended March
31, 1999 and March 31, 1998, 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 that certain results
are likely to occur after the first quarter of 1999. These sentences typically
use words or phrases like "believes," "expects," "anticipates," "estimates,"
"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 the first quarter of 1999, either concerning a specific segment of
the Company's business, or concerning 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. Any statement in this Report that does not describe a
historical fact is deemed to be a forward-looking statement.
2. Actual Results May Be Different than Projections. Actual results,
however, may be materially different from the results projected in the
forward-looking statements, due to a variety of risks and uncertainties. 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, 1998, filed with the Securities and Exchange
Commission.
3. The Company Has No Duty to Update Projections. The forward-looking
statements in this Report are current only on the date this Report is filed.
After the filing of this Report, the Company's expectations of likely results
may change, and the Company might come to believe that certain forward-looking
statements in this Report are no longer accurate. The Company shall not have any
obligation, however, to release publicly any corrections or revisions to any
forward-looking statements contained in this Report, even if the Company
believes the forward-looking statements are no longer accurate.
Three Months Ended March 31, 1999 as Compared to the Three Months Ended March
31, 1998
Loss from Continuing Operations
The Company's loss from continuing operations for the three months
ended March 31, 1999 decreased by $464,054, or 26%, to $1,318,132, as compared
to $1,782,186 in 1998. The decrease is due primarily to realized gains on the
sale of investments in the first quarter of 1999.
Print Publications operations provided a negative operating
contribution (before deducting general and administrative ("G&A") and
depreciation and amortization expenses) of $123,271 for the three months ended
March 31, 1999, as compared to a negative operating contribution of $121,646 in
1998. Individual Investor magazine provided a negative operating contribution
(before deducting G&A and depreciation and amortization expenses) of $189,957
for the three months ended March 31, 1999, as compared to a negative operating
contribution of $49,495 in 1998. This change is primarily due to a 17% decrease
in advertising revenues, offset in part by a 20% decrease in production and
distribution costs. Ticker (sm) magazine provided a positive operating
contribution (before deducting G&A and depreciation and amortization expenses)
of $42,201 for the three months ended March 31, 1999, as compared to a negative
operating contribution of $96,889 in 1998. This change is primarily attributable
to a 79% increase in Ticker advertising revenues, offset in part by a 39%
increase in operating expenses primarily attributable to increased promotion and
selling costs associated with the increase in revenues. Special Situations
Report provided a positive operating contribution (before deducting G&A and
depreciation and amortization expenses) of $24,485 for the three months ended
March 31, 1999, as compared to a positive operating contribution of $24,738 in
1998. The Company currently anticipates that the Print Publishing operations as
a whole will provide a positive contribution to overhead before year-end.
Online Services operations provided a negative operating contribution
(before deducting G&A and depreciation and amortization expenses) of $482,107
for the three months ended March 31, 1999, as compared to a negative operating
contribution of $467,524 in 1998. This increase is primarily due to lower
advertising revenues for the Company's website, Individual Investor Online
(www.iionline.com), offset in part by lower production and development expenses.
Operating Revenues
Total revenues from continuing operations for the three months ended
March 31, 1999 increased by 1%, to $4,001,816, as compared to $3,953,973 in
1998. Revenues for the Print Publications operations for the three months ended
March 31, 1999 increased by 1%, to $3,748,847, as compared to $3,724,552 in
1998. Revenues for the Online Services operations for the three months ended
March 31, 1999 increased by 10%, to $252,969, as compared to $229,421 in 1998.
Print Publications advertising revenues for the three months ended
March 31, 1999 increased by $3,065, to $2,566,908, as compared to $2,563,843 in
1998. Ticker advertising revenues for the three months ended March 31, 1999
increased by 79%, to $802,517, as compared to $448,932 in 1998. This increase
relates primarily to an increase in advertising pages of approximately 60%.
Individual Investor advertising revenues for the three months ended March 31,
1999 decreased 17%, to $1,764,391, as compared to $2,114,911 in 1998. The
decline is primarily attributable to a 22% decrease in advertising pages, offset
in part by an increase in the advertising net rate per page of approximately
13%.
Print Publications circulation revenues for the three months ended
March 31, 1999 increased 1%, to $857,554, as compared to $850,957 in 1998. This
increase is attributable to Individual Investor newsstand sales, which, for the
three months ended March 31, 1999 increased 16%, to $200,631, as compared to
$173,519 for the prior year period, mostly due to increased newsstand
sell-through of the January 1999 Individual Investor "Magic 25 (TM)" issue. This
increase was partially offset by a 2% reduction in Individual Investor
subscription revenues, which resulted from the Company's use of
subscription-generation sources that provide for continuing numbers of new
subscribers with low marketing expenses but little or no subscription revenue.
The Company believes that the reduction in subscription revenues has stabilized
and expects the full year subscription revenues to increase.
Print Publications list rental and other revenues for the three months
ended March 31, 1999, increased 5%, to $324,385, as compared to $309,752 in
1998. List rental revenue for the three months ended March 31, 1999 increased
47%, to $236,873, as compared to $160,767 in 1998. The increase in list rental
revenue is primarily attributable to increased demand, partially offset by the
decrease in the number of subscribers to Special Situations Report. Other
revenues for the three months ended March 31, 1999 decreased 41%, to $87,512, as
compared to $148,985 in 1998. The decrease is primarily attributable to reduced
demand for reprints of Individual Investor magazine.
Online Services subscription and advertising revenues for the three
months ended March 31, 1999 were $48,977 and $203,992, respectively, as compared
to $0 and $229,421 in 1998. The increase in subscription revenues is
attributable to InsiderTrader.com (www.insidertrader.com), which the Company
purchased in November 1998. The decrease in advertising revenues is attributable
to a decline in advertising sponsorship sales by the Company's independent sales
agent, along with lower rates earned on advertising impressions for Individual
Investor Online (www.iionline.com), offset in part by advertising revenue earned
by InsiderTrader.com. As a result of the decrease in advertising sponsorships
for Individual Investor Online, in April 1999 the Company reorganized and
strengthened its sales efforts and is now selling sponsorship advertisements
directly as opposed to through a sales agent. During the first quarter of 1999,
traffic to the Company's web sites averaged approximately 4 million page views
per month. In April 1999, traffic to the Company's web sites reached a record
for the fifth consecutive month with approximately 6 million page views. The
Company expects that Online Services advertising revenues should trend higher in
the future (with sequential fluctuations), and expects that gross margins
associated with such revenues will increase in light of reduced dependence upon
outside sales agents.
Operating Expenses
Total operating expenses from continuing operations for the three
months ended March 31, 1999 increased 2%, to $5,876,515, as compared to
$5,766,114 in 1998. The increase is due to several factors, including increased
advertising salaries and commissions and marketing expenses, partially offset by
reduced editorial, production, and distribution costs related to the Company's
print publications, and moving costs related to the relocation of the Company's
corporate office in March 1999.
Editorial, production and distribution expenses for the three months
ended March 31, 1999, decreased 5%, to $2,755,718, as compared to $2,900,474 in
1998. Print Publications editorial, production and distribution expenses
decreased 7%, to $2,214,127, as compared to $2,381,382 in 1998. The decrease
relates primarily to Individual Investor magazine, which had fewer pages and
less copies printed, along with lower paper costs and reduced manufacturing
expenses resulting from a renegotiated agreement with the Company's printer.
Online Services production and editorial expenses for the three months ended
March 31, 1999 increased 4%, to $541,591, as compared to $519,092 in 1998. The
increase is primarily related to production and research costs for
InsiderTrader.com, which the Company purchased in November 1998.
Promotion and selling expenses for the three months ended March 31,
1999, increased 13%, to $1,851,476, as compared to $1,642,669 in 1998. Print
Publications promotion and selling expenses for the three months ended March 31,
1999 increased by 13%, to $1,657,991, as compared to $1,464,816 in 1998. The
increase was primarily due to increased advertising salaries and commissions as
a result of hiring additional in-house sales personnel, as well as increased
marketing expenses. Online Services promotion and selling expenses for the three
months ended March 31, 1999 increased 9%, to $193,485, as compared to $177,853
in 1998. This increase is primarily attributable to advertising commissions for
InsiderTrader.com.
General and administrative expenses for the three months ended March
31, 1999, increased 2%, to $1,172,491, as compared to $1,149,660 in 1998. The
increase resulted primarily from moving costs related to relocation of the
Company's corporate office in March 1999.
Depreciation and amortization expense for the three months ended March
31, 1999 increased 32%, to $96,830, as compared to $73,311 in 1998. The increase
is primarily attributable to additional depreciation for computer equipment
purchased for the Company's Online Services operations.
Interest and Other Income
Interest and other income for the three months ended March 31, 1999,
increased to $556,567, as compared to $29,955 in 1998. The increase is primarily
attributable to realized gains from the sale of investments.
Discontinued Operations
On April 30, 1998, the Company's Board of Directors decided to
discontinue the Company's investment management services business. As a result
of the Board's decision, WisdomTree Capital Management, Inc. ("WTCM") is
dissolving the domestic and offshore investment funds, liquidating fund
investments and distributing the net assets to all investors as promptly as
possible. Accordingly, the operating results related to investment management
services have been segregated from continuing operations and reported as a
separate line item on the statement of operations.
Net loss from discontinued operations for the three months ended March
31, 1999 was $0, as compared to a net loss of $377,460 for 1998. No additional
loss amounts were recorded by the Company for the three months ended March 31,
1999 for discontinued operations because the Company believes that any remaining
net operating losses and related costs associated with these discontinued
operations have been adequately provided for by provisions established in 1998.
The Company's net investment in discontinued operations of $142,534 at
March 31, 1999, represents its share of the net assets of the domestic
investment fund, less any costs associated with discontinuing the investment
management services business.
Net Loss
The Company's net loss for the three months ended March 31, 1999
decreased 39%, to $1,318,132, as compared to a net loss of $2,159,646 in 1998.
No income taxes were provided in 1999 or 1998 due to the net loss. The basic and
dilutive net loss per weighted average common share for the three months ended
March 31, 1999 was $0.15, as compared to $0.30 in 1998.
Liquidity and Capital Resources
During the three months ended March 31, 1999, the Company received
$1,559,326 from exercises of stock options, $990,729 from sales of investments,
and $139,849 from the liquidation of the domestic fund. These inflows more than
funded the Company's net cash used in operating activities of $1,201,600 during
the quarter. The Company also had approximately $1.2 million of capital
expenditures (primarily leasehold improvements and furniture) during the first
quarter of 1999 in connection with the relocation of its corporate office.
As of March 31, 1999, the Company had working capital of $5,380,083,
which included cash and cash equivalents totaling $4,985,688 and investments of
$419,061. In addition, in the second quarter of 1999 through May 11, the Company
received approximately $0.5 million from the exercise of stock options.
The Company's current levels of revenues are not sufficient to cover
its expenses. Under its current business plan for the year 1999, the Company
intends to control its operating expenses while continuing to invest in its
existing products. The Company anticipates losses to continue through 1999,
although the Company anticipates that losses from continuing operations in 1999
will be significantly less than in 1998. Profitability may be achieved in future
periods only if the Company can substantially increase its revenues while
controlling increases in expenses. There can be no assurance that revenues will
be substantially increased, or that the increases in expenses can be controlled
adequately to enable the Company to attain profitability.
Management continues to expect that revenues will grow significantly in
1999 as the Company implements changes made by a new management team.
Advertising sales are expected to increase for Individual Investor and Ticker
magazines due to the addition of new key sales personnel, anticipated
publication of 13th issues and the effect of the increased awareness in the
marketplace for both magazines due in part to selected public relations and
advertising efforts. There can be no assurance, however, that advertising sales
will increase because higher advertising rates may not be accepted by
advertisers, advertising pages may continue to decline for Individual Investor,
circulation may drop at either or both Individual Investor and Ticker, and the
advertising mix may change. Although the Company has recently added key
advertising sales personnel, no assurance can be given that these changes will
result in advertising revenue increases. The Company also believes that a stock
market correction or "bear" market would adversely affect its ability to sell
advertising, particularly to the financial advertiser categories.
The Company plans to continue investing in its Online Services because
it believes that this line of business offers the greatest opportunity for
generating substantial revenues and shareholder value over the longer term. The
Company expects to realize higher revenues from operations of its flagship
online service, Individual Investor Online, primarily due to the anticipated
continuation of traffic growth to the site. There can be no assurance, however,
that such traffic growth will be realized, or that, even if realized, such
traffic growth will result in higher revenues or shareholder value. The Company
also expects to launch additional subscription-based online products during
1999. There can be no assurance, however, that such products in fact will be
launched, or that if launched, such products will be successful.
Based on the Company's business plan, the Company believes that its
working capital and its investments will be sufficient to fund its operations
and capital requirements through 1999. Thereafter, the Company may need to raise
additional capital in order to sustain operations unless the Company achieves
profitability through the generation of revenues beyond those currently
anticipated. The Company is currently exploring its ability to obtain additional
financing. No assurance can be given as to the availability of additional
financing or, if available, the terms upon which it may be obtained. Any such
additional financing may result in dilution of an investor's equity investment
in the Company. Failure to obtain additional financing on favorable terms, or at
all, could have a substantial adverse effect on the Company's future ability to
conduct operations.
The Company currently owns 250,000 shares of Series A Preferred Stock
of Wit Capital Group, an online investment banking and brokerage firm. These
shares will convert into 250,000 shares of Wit Capital Common Stock in the event
of an initial public offering ("IPO") of Wit Capital. The Company's stake in Wit
Capital was acquired in 1997, and is recorded on the Company's March 31, 1999
balance sheet at $375,000. On March 18, 1999, Wit Capital filed an S-1
registration statement for an IPO and announced that it expected to complete its
IPO, for which Bear, Stearns & Co. Inc. is acting as lead underwriter, prior to
June 30, 1999. On March 29, 1999, Wit Capital and the Goldman Sachs Group
announced that Goldman Sachs had agreed to acquire an approximately 22% stake in
Wit Capital. In the event that Wit Capital completes its IPO, the Company will
be subject to a 180-day lock-up preventing any sale of the Wit Capital stock.
The Company could record a significant gain with respect to this investment,
although there can be no assurance that the Company ultimately will realize any
value with respect to its shares of Wit Capital.
Year 2000
The Company has evaluated the potential impact of the situation
commonly referred to as the "Year 2000 Issue". The Year 2000 Issue concerns the
inability of information systems, whether due to computer hardware or software,
to properly recognize and process date sensitive information relating to the
year 2000 and beyond. Many of the world's computer systems currently record
years in a two-digit format. Such computer systems may be unable to properly
interpret dates beyond the year 1999, which could lead to business disruptions
in the U.S and internationally. The potential costs and uncertainties associated
with the Year 2000 Issue will depend on a number of factors, including software,
hardware and the nature of the industry in which a company operates. The Year
2000 Issue could have a material adverse effect on the Company's results of
operations and ability to conduct business.
To attempt to ensure that the Company's computer systems (including
computer hardware and computer software) are "Year 2000 Ready" (that is, are not
disrupted by the Year 2000 Issue), the Company developed a plan to assess, and
remediate where necessary, any Year 2000 Issue with respect to the Company's
computer systems, and appointed certain employees to administer such plan. The
plan contains four phases: first, identifying all computer hardware and software
being used by the Company; second, determining whether such hardware and
software is Year 2000 Ready; third, remediating any Year 2000 Issue with respect
to any particular piece of hardware or software; and fourth, performing a final
audit and test. The Company has completed the first two phases, and has
completed the third phase with respect to hardware issues. The Company has made
significant progress toward completing the third phase with respect to software
issues, and currently expects to complete the third phase before June 1999. The
Company intends to commence the fourth phase upon the completion of the first
three phases, and currently expects to complete the fourth phase before October
1999.
As of March 31, 1999, the Company has incurred direct costs of
approximately $15,000 relating to the development and implementation of its Year
2000 Plan. The Company currently believes that total direct costs associated
with making the Company's systems Year 2000 Ready should not exceed $30,000 and
that such costs, together with any lost revenue associated with making the
Company's systems Year 2000 Ready, should not have a material adverse effect on
the Company's operating results or financial condition. The Company does not
believe that the diversion of employee resources required to address the Year
2000 Issue will have a material effect on the Company's operating results or
financial condition. The Company does not have in place a contingency plan of
action in the event that it is not able to make its computer systems Year 2000
Ready, but will consider on an ongoing basis whether a contingency plan should
be developed.
The dates on which the Company believes it will complete its Year 2000
readiness phases, and the costs associated with such efforts, are based on the
Company's current best estimates. However, there can be no guarantee that these
estimates will be achieved, or that there will not be a delay in, or increased
costs associated with, making the Company's systems Year 2000 Ready. Specific
factors that might cause differences between the estimates and actual results
include, but are not limited to, the availability and cost of personnel trained
in these areas, the ability to locate and correct all relevant computer code and
hardware devices (such as microcontrollers), timely responses to and corrections
by third parties and suppliers, the ability to implement interfaces between the
new systems and the systems not being replaced, and similar uncertainties. Due
to the general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third parties and the
interconnection of global businesses, the Company cannot ensure its ability to
timely and cost-effectively resolve problems associated with the Year 2000
Issue, and a failure to do so could materially adversely affect the Company's
operations and business, and expose it to third party liability.
The Company also faces risks and uncertainties to the extent that the
third party suppliers of products, services and systems on which the Company
relies or customers do not have business systems or products that are Year 2000
Ready. The Company has initiated communications with all of its significant
suppliers to determine the extent to which the Company's systems and products
are vulnerable to those third parties' failure to remediate their own systems'
Year 2000 Issues. The Company has received assurances from certain of its
suppliers stating that such suppliers' systems are or will timely be Year 2000
Ready, but there is no guarantee that the systems or products of other companies
on which the Company relies will be timely, if at all, made Year 2000 Ready, and
such a failure by such other companies could have a material adverse effect on
the Company's systems and products. No one customer has accounted for more than
10% of the Company's revenues in the past year, and the Company has not
initiated contact with its customers concerning the status of their Year 2000
readiness. There is no guarantee that the systems of the Company's customers
will be made Year 2000 Ready, and a failure by a number of the Company's
customers to become Year 2000 Ready could have a material adverse effect on the
Company's revenues and cash flows. The Company is in the process of identifying
what actions may be needed to mitigate vulnerability to problems related to
enterprises with which the Company interacts, but does not currently have in
place a contingency plan of action in the event that the failure by one or more
third parties to make their computer systems Year 2000 Ready causes adverse
effects to be suffered by the Company. The Company will consider on an ongoing
basis the extent to which a contingency plan should be developed.
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PART II- OTHER INFORMATION
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 description of underwriting registration convertible security, terms
Sold or other discounts to market claimed of exercise or conversion
price afforded to purchasers
- ----------------- ----------------------- ---------- -------------------------------- ---------------- -----------------------------
1/99 - 3/99 Options to purchase 57,500 Exercise price would be Section 4(2) Vesting over a period of
common stock granted received upon exercise four years from date of
to employees grant, subject to certain
conditions of continued
service; exercisable for a
period lasting ten years
from date of grant at
exercise prices ranging
from $3.3125 to $8.1875
per share
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM 5. Other Information
In July 1997 certain former limited partners of WisdomTree Associates,
L.P. ("WTA"), a domestic private investment fund of which WisdomTree Capital
Management, Inc., a wholly-owned subsidiary of the Company, is the general
partner, initiated an action in the Supreme Court of the State of New York,
County of New York, captioned Richard Tarlow and Sandra Tarlow v. WisdomTree
Associates, L.P., Bob Schmidt and Jonathan Steinberg, Index No. 113819/97.
Defendants moved to dismiss the action based on plaintiffs' failure to file a
complaint, and the action was dismissed without prejudice in October 1997. In
October 1998, plaintiffs moved to vacate the default judgment. Defendants
opposed the motion. On April 20, 1999, the court denied plaintiffs' motion with
respect to Messrs. Schmidt and Steinberg, but granted the motion with respect to
WTA, and plaintiffs will be permitted to file and serve a complaint and proceed
with the action solely with respect to this defendant. In their motion
plaintiffs alleged that defendants did not timely process plaintiffs' request
for redemption of their interest in WTA, which delay allegedly caused plaintiffs
to suffer approximately $470,000 in damages. WTA is currently awaiting service
of the complaint and intends to continue conducting a vigorous defense. Due to
the inherent uncertainty of litigation, the Company is not able to reasonably
estimate the potential losses, if any, that may be incurred in relation to this
litigation.
In April 1999 a stockholder of the Company initiated an action in the
Court of Chancery of the State of Delaware, New Castle County, captioned Michele
S. Criden v. Jonathan L. Steinberg, Bruce L. Sokoloff, Peter M. Ziemba and S.
Christopher Meigher III (C.A. No. 17082). The Company is named as a nominal
defendant in the action. Plaintiff alleges that the four individual defendants,
who comprise the entire Board of Directors of the Company, took improper action
(i) on November 19, 1998, in determining to amend the terms of options
previously granted to Jonathan Steinberg to reduce their exercise prices (which
ranged from $4.9375 to $7.50) to $1.25 (11% higher than the last sale price on
the trading date immediately preceding the date of such amendment), and (ii) on
December 23, 1998, in determining to grant replacement options to each of
Messrs. Sokoloff, Ziemba and Meigher, conditioned upon cancellation of their
existing options, which replacement options had an exercise price of $2.00 per
share (the last sale price of the Common Stock on the trading date immediately
preceding the date of the new grant), which was less than the exercise price of
options previously granted to them (which exercise prices ranged from $4.375 to
$10.50). Plaintiff claims that such actions constituted corporate waste and a
diversion of corporate assets for improper and unnecessary purposes and that the
directors breached their fiduciary duties, including their duty of loyalty, to
the Company and its stockholders. Plaintiff demands judgment (i) enjoining the
four directors from exercising any options at the reduced exercise price, (ii)
declaring a constructive trust of any proceeds resulting from the directors'
exercise of such options, (iii) damages, on behalf of the Company, for losses
and damages suffered and to be suffered in connection with the option
repricings, including interest thereon, and (iv) awarding plaintiffs the costs
of this action, including reasonable attorney's fees. The Board of Directors
believed at the time, and continues to believe, that the actions taken on
November 19, 1998 and December 23, 1998, were proper.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description Method of Filing
No.
3.1 Amended and Restated Certificate Incorporated by reference
of Incorporation of Registrant, to Exhibit 3.4 to the Form
as amended, through June 18, 1997 10-Q for the quarter ended
September 30, 1998
3.2 Bylaws of Registrant Incorporated by reference
to Exhibit 3.2 to the
Registrant's Registration
Statement on Form S-18
(File No. 33-43551-NY)
(the "Form S-18")
4.1 Specimen Certificate for Common Incorporated by reference
Stock of Registrant to Exhibit 4.1 to the Form
S-18
10.1 Indemnification Agreement, dated Filed herewith
June 17, 1998, between Registrant
and S. Christopher Meigher III
27 Financial Data Schedule March 31, Filed only with the
1999 electronic submission of
Form 10-Q in accordance
with the EDGAR requirement
99 Certain Risk Factors Filed herewith
(b) The Company did not file any reports on Form 8-K during the Quarter
Ended March 31, 1999.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: May 17, 1999
INDIVIDUAL INVESTOR GROUP, INC. (Registrant)
By: /s/ Jonathan L. Steinberg
Jonathan L. Steinberg, Chief Executive
Officer and Director
By: /s/ Henry G. Clark
Henry G. Clark, Vice President Finance
(Principal Financial and Accounting Officer)