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 June 30, 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 July 30, 1999,
registrant had outstanding 9,146,998 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 (Unaudited)
as of June 30, 1999 and December 31,1998 3
Consolidated Condensed Statements of Operations (Unaudited)
for the three and six months ended June 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 11-20
Part II Other Information
Item 2. Changes in Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
ASSETS 1999 1998
------------- -------------
Current assets:
Cash and cash equivalents $2,332,163 $4,752,587
Investments (Note 2) 7,506,376 877,231
Accounts receivable (net of allowances of $378,479 in 2,920,807 2,356,126
1999 and $391,328 in 1998)
Investment in discontinued operations (Note 3) 142,534 282,383
Prepaid expenses and other current assets 860,499 512,641
------------- -------------
Total current assets 13,762,379 8,780,968
Investment (Note 2) 2,638,356 -
Deferred subscription expense 359,746 576,237
Property and equipment - net 1,806,430 586,007
Security deposits 372,735 469,627
Other assets 249,513 374,404
------------- -------------
Total assets $19,189,159 $10,787,243
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,547,398 $2,191,765
Accrued expenses 674,458 519,887
Deferred advertising revenue 1,433,371 138,097
------------- -------------
Total current liabilities 4,655,227 2,849,749
Deferred advertising revenue 1,583,013 -
Deferred subscription revenue 2,246,072 2,246,422
------------- -------------
Total liabilities 8,484,312 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 40,000,000
shares, 9,119,665 issued and outstanding in 1999;
authorized 18,000,000 shares, 8,490,851 issued and
outstanding in 1998 91,197 84,909
Additional paid-in capital 29,833,913 27,595,151
Accumulated deficit (25,517,453) (21,922,595)
Accumulated other comprehensive gain (loss) 6,297,090 (66,493)
------------- -------------
Total stockholders' equity 10,704,847 5,691,072
------------- -------------
Total liabilities and stockholders' equity $19,189,159 $10,787,243
============= =============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Revenues:
Print Publications $3,385,090 $3,310,144 $7,133,937 $7,034,696
Online Services 318,547 351,386 571,516 580,807
------------- ------------- ------------- -------------
Total revenues 3,703,637 3,661,530 7,705,453 7,615,503
------------- ------------- ------------- -------------
Operating expenses:
Editorial, production and distribution 2,684,104 2,968,414 5,439,822 5,868,888
Promotion and selling 1,824,526 1,606,059 3,676,002 3,248,728
General and administrative 1,359,985 1,743,493 2,532,476 2,893,153
Depreciation and amortization 151,575 78,268 248,405 151,579
------------- ------------- ------------- -------------
Total operating expenses 6,020,190 6,396,234 11,896,705 12,162,348
------------- ------------- ------------- -------------
Operating loss from continuing operations (2,316,553) (2,734,704) (4,191,252) (4,546,845)
Interest and other income 39,827 13,708 596,394 43,663
------------- ------------- ------------- -------------
Net loss from continuing operations (2,276,726) (2,720,996) (3,594,858) (4,503,182)
Discontinued operations (Note 3)
Loss from discontinued operations - (258,619) - (636,079)
------------- ------------- ------------- -------------
Net loss ($2,276,726) ($2,979,615) ($3,594,858) ($5,139,261)
============= ============= ============= =============
Basic and dilutive loss per common share:
Continuing operations ($0.25) ($0.37) ($0.40) ($0.62)
Discontinued operations $0.00 ($0.04) $0.00 ($0.09)
------------- ------------- ------------- -------------
Net loss per share ($0.25) ($0.41) ($0.40) ($0.71)
============= ============= ============= =============
Average number of common shares used in computing
basic and dilutive loss per common share 9,016,759 7,286,385 8,902,315 7,245,021
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,
-----------------------------------
1999 1998
------------- -------------
Net loss ($3,594,858) ($5,139,261)
Less:
Loss from discontinued operations - (636,079)
------------- -------------
Loss from continuing operations (3,594,858) (4,503,182)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization 248,405 151,579
Stock option and warrant transactions 160,862 -
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 (564,681) 461,594
Prepaid expenses and other current assets (378,361) 10,667
Deferred subscription expense 216,491 (53,858)
Security deposits 96,892 -
Increase (decrease) in:
Accounts payable and accrued expenses 510,204 855,973
Deferred advertising revenue 239,931 9,370
Deferred subscription revenue (350) (203,523)
------------- -------------
Net cash used in operating activities (3,568,680) (3,270,122)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (1,457,346) (65,684)
Proceeds from sale of equipment - 1,051
Proceeds from sale of investments 990,729 -
Increase in investments (753,076) -
Net cash provided by discontinued operations 139,849 122,175
------------- -------------
Net cash (used in) provided by investing activities (1,079,844) 57,542
------------- -------------
Cash flows from financing activities:
Proceeds from exercise of stock options 2,228,100 398,152
Proceeds from issuance of common stock - 5,000,000
------------- -------------
Net cash provided by financing activities 2,228,100 5,398,152
------------- -------------
Net (decrease) increase in cash and cash equivalents (2,420,424) 2,185,572
Cash and cash equivalents, beginning of period 4,752,587 3,533,622
------------- -------------
Cash and cash equivalents, end of period $2,332,163 $5,719,194
============= =============
Supplemental schedule of noncash investing and financing activities:
The Company acquired 19.9% of the then-outstanding shares of common stock
of VentureHighway.com Inc. The purchase price is payable in the form of
advertising for VentureHighway in the Company's magazines and websites
during the next 30 months. The purchase price had a stated value of $3.2
million, and is recorded on the Company's June 30, 1999 balance sheet at a
fair value of $2.6 million (See Note 2).
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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 six
months ended June 30, 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. INVESTMENTS
Investments included in Current Assets
Investments are in equity securities and are carried at fair
market value. The aggregate fair value of such investments was
$7,506,376 and $877,231 at June 30, 1999 and December 31, 1998,
respectively. Gross unrealized holding gains were $6,452,303 and
$86,477 at June 30, 1999 and December 31, 1998, respectively. Gross
unrealized holding losses were $155,213 and $152,970 at June 30, 1999
and December 31, 1998, respectively. Unrealized gains and losses are
shown as accumulated other comprehensive gain (loss), which is a
component of stockholders' equity (see Note 6).
The Company currently owns 175,000 shares of Wit Capital
Group, Inc. Class C Common Stock. Wit Capital is an online investment
banking and brokerage firm. The Company's stake in Wit Capital was
acquired in 1997 as 250,000 shares of Series A Preferred Stock valued
at $250,000, and was converted into 175,000 shares of Class C Common
Stock due to a 7-for-10 reverse split of Class C Common Stock and the
completion of Wit Capital's IPO on June 4, 1999. The investment is
recorded on the Company's June 30, 1999 balance sheet at $5,950,000
based upon the June 30, 1999 closing price of Wit Capital Common Stock
on the Nasdaq National Market. The Company may not transfer or dispose
of the Class C Common Stock (or any interest in such shares) until 180
days from the completion of the IPO (i.e., until December 1, 1999), at
which point it will automatically convert into Common Stock and will
not be subject to any lock-up. The Company could realize 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. As of August 9, 1999, the value
of the Company's investment in Wit Capital has declined to $3,171,875.
On June 2, 1999, the Company and Kirlin Holding Corp.
("Kirlin") entered into a Securities Purchase Agreement ("Securities
Purchase Agreement") pursuant to which the Company acquired 300,000
shares ("Investor Shares") of common stock of Kirlin for $750,000,
representing 4.9% of the then-outstanding shares of Kirlin's common
stock (the share amount has been restated to reflect a 2-for-1 stock
split effected July 30, 1999). The purchase price was paid from the
Company's working capital. Kirlin contributed all the proceeds of this
sale to the capital of its subsidiary, VentureHighway.com Inc.
("VentureHighway"), in which the Company has a 19.9% stake. Kirlin
filed a registration statement registering the resale of the Investor
Shares under the Securities Act of 1933 and is obligated to use its
best efforts to cause the registration statement to become effective as
soon as practicable thereafter. The investment in Kirlin is recorded on
the Company's June 30, 1999 balance sheet at $1,471,950 based upon the
June 30, 1999 closing price of Kirlin's common stock on the Nasdaq
Small-Cap Market. The Company could realize 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
Kirlin. As of August 9, 1999, the value of the Company's investment in
Kirlin has increased to $2,062,500.
Kirlin (Nasdaq: KILN) is a holding company engaged in
securities brokerage, securities trading and merchant banking
activities through its primary operating subsidiary, Kirlin Securities,
Inc. Kirlin Securities is a full service, retail oriented brokerage
firm and is a member of the NASD.
Other Investment
On June 2, 1999, the Company, Kirlin and VentureHighway (at
the time a wholly-owned subsidiary of Kirlin), entered into an
agreement ("Agreement") pursuant to which the Company acquired 2,484
newly issued shares of common stock of VentureHighway, representing
19.9% of the then-outstanding shares of common stock (the other 80.1%
of which continue to be held by Kirlin). The purchase price is payable
in the form of advertising for VentureHighway in the Company's
magazines and websites during the next 30 months. The purchase price
had a stated value of $3.2 million, and is recorded on the Company's
June 30, 1999 balance sheet at a fair value of $2.6 million.
VentureHighway owns and operates VentureHighway.com, a branded
website 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. There currently is no public
market for VentureHighway securities, and there is no assurance that
the Company will realize any value with respect to its investment in
VentureHighway.
3. 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 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 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 adequate provision has been made
for any remaining net operating losses and related material 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 June 30, 1999, the domestic investment fund had
remaining net assets of approximately $1,446,848. The Company's net
investment in discontinued operations of $142,534 at June 30, 1999,
represents its share of the net assets of the domestic investment fund,
less any costs associated with discontinuing the investment management
services business.
4. STOCK OPTIONS
During the three and six months ended June 30, 1999, the
Company granted 40,100 and 97,600 options, respectively, to purchase
the Company's Common Stock; 228,701 and 628,814 options, respectively,
were exercised (providing proceeds of $668,774 and $2,228,099,
respectively); and 30,100 and 45,433 options were canceled,
respectively. Of the total options granted, 67,600 were granted under
the Company's stock option plans, 30,000 shares were granted outside of
the plans, and all expire at various dates through June 2009.
5. LOSS PER COMMON SHARE
Net loss per basic and dilutive common share for the three and
six month periods ended June 30, 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.
6. 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 income (loss) for the three and six months ended
June 30, 1999 and 1998, respectively, is presented in the following
table:
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
Net loss $ (2,276,726) $ (2,979,615) $ (3,594,858) $ (5,139,261)
Other comprehensive gain:
Net unrealized gain on investments (see
Note 2) 6,334,239 - 6,363,583 -
------------- ------------- ------------- -------------
Total comprehensive income (loss) $ 4,057,513 $ (2,979,615) $ 2,768,725 $ (5,139,261)
============= ============= ============= =============
7. 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.individualinvestor.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 June 30, Six Months Ended June 30,
------------------------------- ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Revenues:
Print Publications $3,385,090 $3,310,144 $7,133,937 $7,034,696
Online Services 318,547 351,386 571,516 580,807
------------- ------------- ------------- -------------
$3,703,637 $3,661,530 $7,705,453 $7,615,503
============= ============= ============= =============
Operating contribution (before G&A
and depreciation and amortization
expenses):
Print Publications ($92,636) ($369,053) ($215,904) ($497,119)
Online Services (712,357) (543,890) (1,194,467) (1,004,994)
------------ ------------- ------------- -------------
(804,993) (912,943) (1,410,371) (1,502,113)
G&A and depreciation and amortization (1,511,560) (1,821,761) (2,780,881) (3,044,732)
expenses
Interest and other income 39,827 13,708 596,394 43,663
------------- ------------- ------------- -------------
Net loss from continuing operations ($2,276,726) ($2,720,996) ($3,594,858) ($4,503,182)
============= ============= ============= =============
Net property and equipment as of June 30, 1999 increased
approximately $1.2 million as compared to December 31, 1998 (primarily
leasehold improvements and furniture connected 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 $0.7 million, $0.3 million, and $0.2 million,
respectively. Additionally, investments as of June 30, 1999 increased
approximately $9.3 million as compared to December 31, 1998. This was
primarily due to an increase in the unrealized gain on Wit Capital
(approximately $5.6 million), as well as investments in Kirlin Holding
Corp. and VentureHighway.com Inc. (see Note 2). There were no other
material changes from year-end 1998 in total assets, in 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 three and six months
ended June 30, 1999 and June 30, 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 certain results are
likely to occur after June 30, 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 June
30, 1999, 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. 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. Due to a variety
of risks and uncertainties, actual results, however, 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,
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 and Six Months Ended June 30, 1999 as Compared to the Three and Six Months
Ended June 30, 1998
Net Loss from Continuing Operations
The Company's net loss from continuing operations for the three and six
months ended June 30, 1999 decreased 16% and 20%, to $2,276,726 and $3,594,858,
respectively, as compared to $2,720,996 and $4,503,182, respectively, in 1998.
The decrease is primarily due to reduced general and administrative expenses as
well as realized gains on the sale of investments that occurred 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 $92,636 and $215,904 for the three
and six months ended June 30, 1999, respectively, an improvement of 75% and 57%,
respectively, from the prior year's negative operating contribution of $369,053
and $497,119, respectively. Individual Investor magazine provided a negative
operating contribution (before deducting general and administrative ("G&A") and
depreciation and amortization expenses) of $79,458 and $269,416 for the three
and six months ended June 30, 1999, respectively, as compared to a negative
operating contribution of $252,700 and $301,684, respectively, in 1998, an
improvement of 69% and 11%, respectively. The change in operating contribution
is primarily due to a decrease in production and distribution expenses, offset
in part by a decrease in revenues. Ticker (sm) magazine provided a negative
operating contribution (before deducting G&A and depreciation and amortization
expenses) of $14,954 and a positive operating contribution (before deducting G&A
and depreciation and amortization expenses) of $27,249 for the three and six
months ended June 30, 1999, respectively, as compared to a negative operating
contribution of $121,982 and $219,379, respectively, in 1998. The change in
operating contribution is primarily attributable to increased advertising
revenues, offset in part by increased promotion and selling costs associated
with the increase in revenues. Ticker is expected to provide a positive
contribution to overhead going forward. Special Situations Report provided a
positive operating contribution (before deducting G&A and depreciation and
amortization expenses) of $1,776 and $26,263 for the three and six months ended
June 30, 1999, respectively, as compared to a positive operating contribution of
$5,629 and $23,944, respectively, in 1998. The Company currently anticipates
that the Print Publishing operations as a whole will be providing 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 $712,357
and $1,194,467 for the three and six months ended June 30, 1999, respectively,
as compared to a negative operating contribution of $543,890 and $1,004,994,
respectively, in 1998. The change in operating contribution is primarily
attributable to lower advertising revenues for the Company's website, Individual
Investor Online (www.individualinvestor.com), together with increased editorial
and research costs, offset in part by lower production and development expenses.
Advertising revenues for Individual Investor Online are expected to increase
significantly in the third quarter of 1999, as compared to the second quarter of
1999.
Operating Revenues
Total revenues from continuing operations for the three and six months
ended June 30, 1999 increased 1% and 1% to $3,703,637 and $7,705,453,
respectively, as compared to $3,661,530 and $7,615,503, respectively, in 1998.
Revenues for the Print Publications operations for the three and six months
ended June 30, 1999 increased 2% and 1%, to $3,385,090 and $7,133,937,
respectively, as compared to $3,310,144 and $7,034,696, respectively, in 1998.
Revenues for the Online Services operations for the three and six months ended
June 30, 1999 decreased 9% and 2%, to $318,547 and $571,516, respectively, as
compared to $351,386, and $580,807, respectively, in 1998.
Print Publications advertising revenues for the three and six months
ended June 30, 1999 increased 11% and 5%, to $2,266,808 and $4,833,715,
respectively, as compared to $2,047,147 and $4,610,990, respectively, in 1998.
Ticker advertising revenues for the three and six months ended June 30, 1999
increased 33% and 54%, to $713,718 and $1,516,236, respectively, as compared to
$537,974 and $986,905, respectively, in 1998. This increase relates primarily to
an increase in advertising pages for the three and six months ended June 30,
1999 of approximately 26% and 42%, as well as an increase in the advertising net
rate per page of 6.5% and 4.9%, respectively, when compared to 1998. Individual
Investor advertising revenues for the three and six months ended June 30, 1999
increased 3% and decreased 8%, respectively, to $1,553,090 and $3,317,479,
respectively, as compared to $1,509,173 and $3,624,085, respectively, in 1998.
The three month increase for Individual Investor relates primarily to a higher
advertising net rate per page of approximately 13%, partially offset by a
reduction in advertising pages of approximately 10%, when compared to 1998. The
six month decrease relates primarily to a reduction in advertising pages of
approximately 17%, offset in part by an increase in the advertising net rate per
page of approximately 13%, when compared to 1998.
Print Publications circulation revenues for the three and six months
ended June 30, 1999 decreased 9% and 4%, to $837,013 and $1,694,567,
respectively, as compared to $918,905 and $1,769,861, respectively, in 1998. The
decrease is primarily attributable to a reduction in Individual Investor
subscription revenues, partially offset by an increase in newsstand
sell-through. Subscription revenues for the three and six months ended June 30,
1999 decreased 15% and 9%, to $544,582 and $1,115,066, respectively, as compared
to $640,145 and $1,224,166, respectively, in 1998. The decrease resulted from
the Company's use of subscription-generation sources that provide for continuing
numbers of subscribers with low marketing expenses but little or no subscription
revenue. The Company believes that subscription revenues has stabilized at this
level. Newsstand revenues for the three and six months ended June 30, 1999
increased 25% and 20%, to $218,853 and $419,484, respectively, as compared to
$174,780 and $348,298, respectively, in 1998.
Print Publications list rental and other revenues for the three and six
months ended June 30, 1999 decreased 18% and 7%, to $281,269 and $605,655,
respectively, as compared to $344,092 and $653,845, respectively, in 1998. List
rental revenue for the three and six months ended June 30, 1999 decreased 4% and
increased 17%, to $220,479 and $457,353, respectively, as compared to $228,758
and $389,526, respectively, in 1998. Other revenues for the three and six months
ended June 30, 1999 decreased 47% and 44%, to $60,790 and $148,302,
respectively, as compared to $115,334 and $264,319, respectively, in 1998. The
decrease in other revenues is primarily attributable to reduced demand for
reprints of Individual Investor magazine.
Online Services advertising revenues for the three and six months ended
June 30, 1999 decreased 24% and 20%, to $267,989 and $463,276, respectively, as
compared to $351,386 and $580,807, respectively, in 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.individualinvestor.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. Traffic to the Company's web sites
for the three months ended June 30, 1999 increased 30% to an average of
approximately 5.3 million page views per month, as compared to an average of
approximately 4.0 million page views per month during the three months ended
March 31, 1999. 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.
Online Services subscription revenues for the three and six months
ended June 30, 1999 were $32,320 and $72,472, respectively, as compared to $0
and $0, respectively, in 1998. The increase in subscription revenues is
attributable to InsiderTrader.com (www.insidertrader.com), which the Company
purchased in November 1998. The Company anticipates launching other
subscription-based web sites this year, which should increase Online Services
subscription revenues.
Operating Expenses
Total operating expenses from continuing operations for the three and
six months ended June 30, 1999 decreased 6% and 2% to $6,020,190 and
$11,896,705, respectively, as compared to $6,396,234 and $12,162,348,
respectively, in 1998.
Editorial, production and distribution expenses for the three and six
months ended June 30, 1999 decreased 10% and 7% to $2,684,104 and $5,439,822,
respectively, as compared to $2,968,414 and $5,868,888, respectively, in 1998.
Print Publications editorial, production and distribution expenses for the three
and six months ended June 30, 1999 decreased 13% and 10% to $2,098,588 and
$4,312,712, respectively, as compared to $2,410,420 and $4,798,222,
respectively, 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 and six months ended June 30, 1999 increased 5% and 5% to $585,516
and $1,127,110, respectively, as compared to $557,994 and $1,070,666,
respectively, in 1998. The increase is primarily related to higher editorial and
research costs, offset in part by lower production and development expenses for
the Company's primary website, Individual Investor Online
(www.individualinvestor.com), together with production and research costs for
InsiderTrader.com, which the Company purchased in November 1998.
Promotion and selling expenses for the three and six months ended June
30, 1999 increased 14% and 13% to $1,824,526 and $3,676,002, respectively, as
compared to $1,606,059 and $3,248,728 respectively, in 1998. Print Publications
promotion and selling expenses for the three and six months ended June 30, 1999
increased 9% and 11% to $1,379,138 and $3,037,129, respectively, as compared to
$1,268,777 and $2,733,593, respectively, in 1998. The increase is primarily due
to higher advertising salaries as a result of hiring additional in-house sales
personnel, as well as increased marketing and promotion expenses, partially
offset by reduced sales commissions. Online Services promotion and selling
expenses for the three and six months ended June 30, 1999 increased 32% and 24%
to $445,388 and $638,873, respectively, as compared to $337,282 and $515,135,
respectively, in 1998. The increase is primarily attributable to increased
marketing and promotion expenses, increased newspaper advertising and increased
recruiting fees, partially offset by reduced advertising sales commissions and
reduced barter advertising expenses.
General and administrative expenses for the three and six months ended
June 30, 1999 decreased 22% and 12% to $1,359,985 and $2,532,476, respectively,
as compared to $1,743,493 and $2,893,153, respectively, in 1998. The decrease
primarily results from unusually high 1998 expenses (severance, legal fees and
executive search fees) relating to changes in senior management and key
advertising sales personnel, offset in part by moving costs and increased rent
expense in the 1999 periods related to the relocation of the Company's corporate
office in March 1999.
Depreciation and amortization expense for the three and six months
ended June 30, 1999 increased 94% and 64% to $151,575 and $248,405,
respectively, as compared to $78,268 and $151,579, respectively, in 1998. The
increase is primarily attributable to additional depreciation for computer
equipment purchased for the Company's Online Services operations as well as the
amortization of leasehold improvements related to the new corporate office.
Interest and Other Income
Interest and other income for the three and six months ended June 30,
1999 increased to $39,827 and $596,394, respectively, as compared to $13,708 and
$43,663, respectively, in 1998. The increase is primarily attributable to
realized gains of $503,215 from the sale of investments in the first quarter of
1999.
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 and six months
ended June 30, 1999 was $0 and $0, respectively, as compared to a net loss of
$258,619 and $636,079 for 1998. No additional loss amounts were recorded by the
Company for the three and six months ended June 30, 1999 for discontinued
operations because the Company believes that any remaining net operating losses
and related material 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
June 30, 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 and six months ended June 30, 1999
decreased 24% and 30% to $2,276,726 and $3,594,858, respectively, as compared to
$2,979,615 and $5,139,261, respectively, 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 and six months ended June 30, 1999
was $0.25 and $0.40, respectively, as compared to $0.41 and $0.71, respectively,
in 1998.
Liquidity and Capital Resources
During the six months ended June 30, 1999, the Company received
$2,228,100 from exercises of stock options, $990,729 from sales of investments,
and $139,849 from the liquidation of the domestic fund. These inflows help to
fund the Company's net cash used in operating activities of $3,568,680 during
the period. The Company also incurred approximately $1.5 million of capital
expenditures during the six months ended June 30, 1999 (primarily leasehold
improvements and furniture connected with the relocation of its corporate
office). Additionally, the Company used its working capital to fund a $750,000
acquisition of common stock of Kirlin Holding Corp.
As of June 30, 1999, the Company had working capital of $9,107,152,
which included cash and cash equivalents totaling $2,332,163 and investments of
$7,506,376 which should be available during the second half of 1999, subject to
market fluctuations and liquidity, to provide working capital to fund the
Company's operations. As of August 9, 1999, the value of these investments
declined to $5,304,451.
The Company currently owns 175,000 shares of Wit Capital Group, Inc.
Class C Common Stock. Wit Capital is an online investment banking and brokerage
firm. The Company's stake in Wit Capital was acquired in 1997 as 250,000 shares
of Series A Preferred Stock valued at $250,000, and was converted into 175,000
shares of Class C Common Stock due to a 7-for-10 reverse split of Class C Common
Stock and the completion of Wit Capital's IPO on June 4, 1999. The investment is
recorded on the Company's June 30, 1999 balance sheet at $5,950,000 based upon
the June 30, 1999 closing price of Wit Capital Common Stock on the Nasdaq
National Market. The Company may not transfer or dispose of the Class C Common
Stock (or any interest in such shares) until 180 days from the completion of the
IPO (i.e., until December 1, 1999), at which point it will automatically convert
into Common Stock and will not be subject to any lock-up. The Company could
realize 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. As of August 9, 1999, the value of the Company's
investment in Wit Capital has declined to $3,171,875.
On June 2, 1999, the Company and Kirlin Holding Corp ("Kirlin") entered
into a Securities Purchase Agreement ("Securities Purchase Agreement") pursuant
to which the Company acquired 300,000 shares ("Investor Shares") of common stock
of Kirlin for $750,000, representing 4.9% of the then-outstanding shares of
Kirlin's common stock (the share amount has been restated to reflect a 2-for-1
stock split effected July 30, 1999). The purchase price was paid from the
Company's working capital. Kirlin contributed all the proceeds of this sale to
the capital of its subsidiary, VentureHighway.com ("VentureHighway"), in which
the Company has a 19.9% stake. Kirlin filed a registration statement registering
the resale of the Investor Shares under the Securities Act of 1933 and is
obligated to use its best efforts to cause the registration statement to become
effective as soon as practicable thereafter. The investment in Kirlin is
recorded on the Company's June 30, 1999 balance sheet at $1,471,950 based upon
the June 30, 1999 closing price of Kirlin's common stock on the Nasdaq Small-Cap
Market. The Company could realize 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 Kirlin. As of August 9, 1999,
the value of the Company's investment in Kirlin has increased to $2,062,500.
Kirlin (Nasdaq: KILN) is a holding company engaged in securities
brokerage, securities trading and merchant banking activities through its
primary operating subsidiary, Kirlin Securities, Inc. Kirlin Securities is a
full service, retail oriented brokerage firm and is a member of the NASD.
On June 2, 1999, the Company, Kirlin and VentureHighway (at the time a
wholly-owned subsidiary of Kirlin), entered into an agreement ("Agreement")
pursuant to which the Company acquired 2,484 newly-issued shares of common stock
of VentureHighway, representing 19.9% of the then-outstanding shares of common
stock (the other 80.1% of which continue to be held by Kirlin). The purchase
price is payable in the form of advertising for VentureHighway in the Company's
magazines and websites during the next 30 months. The purchase price had a
stated value of $3.2 million, and is recorded on the Company's June 30, 1999
balance sheet at a fair value of $2.6 million.
VentureHighway owns and operates VentureHighway.com, a branded website
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. There currently is no public market for VentureHighway securities,
and there is no assurance that the Company will realize any value with respect
to its investment in VentureHighway.
The Company's current levels of revenues are not sufficient to cover
its expenses. Under its current business plan, 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 in 1999 as the
Company implements changes made by a new management team. Print Publications
advertising sales are expected to increase due to the addition of new key sales
personnel, anticipated publication of a 13th issue of Ticker, and the effect of
the increased awareness in the marketplace 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
traffic growth to the site, which is expected to generate higher levels of
sponsorship and banner revenues. Additionally, the Company expects to recognize
at least $1.1 million of online revenues over the next four quarters as a result
of its agreement with VentureHighway.com. 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 at least through 1999. In the event that the Company
cannot obtain sufficient liquidity with respect to the Company's investments,
the Company may need to obtain debt or equity financing during the fourth
quarter of 1999 (during which quarter the Company's shares of Wit Capital should
become freely tradable). 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.
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 and fourth phases before
October 1999.
As of June 30, 1999, the Company has incurred direct costs of
approximately $20,000 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 these or other
companies on which the Company relies will be timely, if at all, made Year 2000
Ready, and such a failure by such 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
- ----------------- ----------------------- ---------- -------------------------------- ---------------- -----------------------------
Date of sale Title of security Number Consideration received and Exemption from If option, warrant or
sold description of underwriting registration convertible security, terms
or other discounts to market claimed of exercise or conversion
price afforded to purchasers
- ----------------- ----------------------- ---------- -------------------------------- ---------------- ----------------------------
- ----------------- ----------------------- ---------- -------------------------------- ---------------- ----------------------------
4/99 - 6/99 Options to purchase 37,700 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 $4.50 to $8.125 per
share.
- ----------------- ----------------------- ----------- ------------------------------- ----------------- ----------------------------
4/99 - 6/99 Common stock granted 2,400 Public relations advisory Section 4(2) Shares held by the Company
to consultant services in escrow and delivered in
equal monthly amounts from
June 1999 to May 2000,
provided agreement is not
terminated. Shares held in
escrow and not yet delivered
subject to repurchase at
nominal amount in event of
termination.
- ---------------- ----------------------- ---------- -------------------------------- ---------------- -----------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders
On June 22, 1999, the Company held the annual meeting of stockholders
for the purpose of electing one director of the Company, S. Christopher Meigher
III, for a term of three years, and to consider and vote upon a proposal to
amend the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock to 40,000,000. The shares of Common Stock
voted on the matters were as follows: 8,106,531 shares were cast in favor and
173,837 shares were withheld for the election of the director, and 8,027,910
shares were cast in favor, 242,848 shares were against and 9,610 shares were
abstained for the increase to the number of authorized shares of Common Stock.
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 were permitted to and did file and serve a complaint solely
against this defendant. Plaintiffs allege that WTA 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 has
moved to dismiss the complaint as to all causes of action other than the breach
of contract claim. The parties are awaiting the Court's ruling on the motion,
and WTA 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 alleged 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 claimed 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 demanded 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. In June 1999, defendants
moved to dismiss the complaint. Plaintiff indicated that she would not oppose
the motion, but rather would file an amended complaint. In August 1999,
plaintiff filed an amended complaint. 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
Exhibits
Exhibit Description Method of Filing
NO.
---- ------------ ----------------
3.1 Certificate of Amendment of Amended Filed herewith
and Restated Certificate of Incorporation
dated June 22, 1999
3.2 Amended and Restated Certificate of Filed herewith
Incorporation of Registrant, as amended,
through June 22, 1999
3.3 By-Laws of Registrant amended through Filed herewith
April 27,1999
4.1 Specimen Certificate for Common Stock of Incorporated by
Registrant reference to Exhibit
4.1 to the Form S-18
10.1 Form of Warrant dated December 16, 1998 Filed herewith
10.2 Letter dated as of April 28, 1999 between Filed herewith
Registrant, Great American Life Insurance
Company and Great American Insurance
Company
27 Financial Data Schedule June 30, 1999 Filed only with the
electronic submission
of Form 10-Q in
accordance with the
EDGAR requirement
99 Certain Risk Factors Filed herewith
(a) Reports on Form 8-K
During the Quarter Ended June 30, 1999, the Company filed a Current Report
on Form 8-K dated June 2, 1999, reporting under Item 2 the acquisition of
19.9% of the then-outstanding shares of common stock of VentureHighway.com
Inc., as well as 150,000 shares (pre-split) of common stock of Kirlin
Holding Corp.
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: August 13, 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)