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 September 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 October 29, 1999,
registrant had outstanding 10,333,401 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 September 30, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Operations (Unaudited)
for the three and nine months ended September 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the nine months ended September 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 Operations 11-19
Part II Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
ASSETS 1999 1998
------------- ------------
Current assets:
Cash and cash equivalents $5,351,505 $4,752,587
Investments (Note 2) 3,216,352 877,231
Accounts receivable (net of allowances of $360,013 in 3,003,776 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 1,018,076 386,761
------------ ------------
Total current assets 12,732,243 8,655,088
Investment (Note 2) 2,638,356 -
Deferred subscription expense 361,408 576,237
Property and equipment - net 1,725,354 586,007
Security deposits 374,527 469,627
Other assets 986,798 257,969
------------ ------------
Total assets $18,818,686 $10,544,928
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,472,978 $2,191,765
Accrued expenses 949,682 519,887
Deferred advertising revenue 2,050,736 138,097
------------ ------------
Total current liabilities 5,473,396 2,849,749
Deferred advertising revenue 972,672 -
Deferred subscription revenue 2,190,456 2,246,422
------------ ------------
Total liabilities 8,636,524 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, 10,332,401 issued and outstanding in 1999;
authorized 18,000,000 shares, 8,490,851 issued and
outstanding in 1998 103,324 84,909
Additional paid-in capital 34,009,734 27,352,836
Accumulated deficit (26,894,272) (21,922,595)
Accumulated other comprehensive income (loss) 2,963,276 (66,493)
------------ ------------
Total stockholders' equity 10,182,162 5,448,757
------------ ------------
Total liabilities and stockholders' equity $18,818,686 $10,544,928
============ ============
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- -------------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues:
Print Publications $3,798,338 $3,740,507 $10,932,275 $10,775,203
Online Services 656,714 307,204 1,228,230 888,011
------------ ------------ ------------ ------------
Total revenues 4,455,052 4,047,711 12,160,505 11,663,214
------------ ------------ ------------ ------------
Operating expenses:
Editorial, production and distribution 2,937,584 2,818,854 8,377,406 8,687,742
Promotion and selling 2,062,076 1,609,155 5,738,078 4,857,883
General and administrative 1,429,861 932,156 3,962,337 3,825,309
Corporate advertising 57,490 - 57,490 -
Depreciation and amortization 143,212 80,888 391,617 232,467
------------ ------------ ------------ ------------
Total operating expenses 6,630,223 5,441,053 18,526,928 17,603,401
------------ ------------ ------------ ------------
Operating loss from continuing operations (2,175,171) (1,393,342) (6,366,423) (5,940,187)
Investment and other income 798,352 62,362 1,394,746 106,025
------------ ------------ ------------ ------------
Net loss from continuing operations (1,376,819) (1,330,980) (4,971,677) (5,834,162)
Discontinued operations (Note 3)
Loss from discontinued operations - (145,291) - (781,370)
------------ ------------ ------------ ------------
Net loss ($1,376,819) ($1,476,271) ($4,971,677) ($6,615,532)
============ ============ ============ ============
Basic and dilutive loss per common share:
Continuing operations ($0.15) ($0.16) ($0.55) ($0.76)
Discontinued operations $0.00 ($0.02) $0.00 ($0.10)
------------ ------------ ------------ ------------
Net loss per share ($0.15) ($0.17) ($0.55) ($0.86)
============ ============ ============ ============
Average number of common shares used in computing
basic and dilutive loss per common share 9,188,724 8,490,851 8,998,833 7,669,479
See Notes to Consolidated Condensed Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
---------------------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
Net loss ($4,971,677) ($6,615,532)
Less:
Loss from discontinued operations - (781,370)
------------ ------------
Loss from continuing operations (4,971,677) (5,834,162)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization 391,617 232,467
Non-cash revenue (312,545) -
Stock option and warrant transactions 301,304 -
Loss on sale of equipment - 2,634
Gain on sale of investments (1,277,512) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (647,650) 481,728
Prepaid expenses and other current assets (216,872) 969
Deferred subscription expense 214,829 (196,354)
Security deposits 95,100 -
Other assets (50,002) (810)
Increase (decrease) in:
Accounts payable and accrued expenses 711,008 137,430
Deferred advertising revenue 559,500 (176,216)
Deferred subscription revenue (55,966) (412,567)
------------ ------------
Net cash used in operating activities (5,258,866) (5,764,881)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,513,740) (102,011)
Proceeds from sale of equipment - 3,451
Proceeds from sale of investments 2,721,236 -
Purchase of investments (753,076) -
Net cash provided by discontinued operations 139,849 1,589,654
------------ ------------
Net cash provided by investing activities 594,269 1,491,094
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options (Note 4) 2,263,515 398,152
Proceeds from issuance of common stock (Note 5) 3,000,000 5,000,000
------------ ------------
Net cash provided by financing activities 5,263,515 5,398,152
------------ ------------
Net increase in cash and cash equivalents 598,918 1,124,365
Cash and cash equivalents, beginning of period 4,752,587 3,533,622
------------ ------------
Cash and cash equivalents, end of period $5,351,505 $4,657,987
============ ============
Supplemental schedule of noncash investing and financing activities:
In June 1999, the Company acquired 19.9% of the then-outstanding shares of
common stock of VentureHighway.com Inc. ("VentureHighway"). The purchase
price was paid in the form of a credit for VentureHighway to use to purchase
advertising in the Company's magazines and websites during the 30 months
ending December 31, 2001. Although the purchase price had a stated value of
$3.2 million, the investment and deferred revenue were recorded at the fair
market value at the date of the transaction 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 NINE MONTHS ENDED SEPTEMBER 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 nine
months ended September 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.
Certain reclassifications have been made to the December 31,
1998 balance sheet to conform to the current period presentation.
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
$3,216,352 and $877,231 at September 30, 1999 and December 31, 1998,
respectively. Gross unrealized holding gains were $2,963,276 and
$86,477 at September 30, 1999 and December 31, 1998, respectively.
Gross unrealized holding losses were $0 and $152,970 at September 30,
1999 and December 31, 1998, respectively. Unrealized gains and losses
are shown as accumulated other comprehensive income (loss), which is a
component of stockholders' equity (see Note 7).
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 September 30, 1999 balance sheet at
$3,193,750 based upon the September 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 November 12,
1999, the value of the Company's investment in Wit Capital has
increased to $3,893,750.
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"). The shares were subsequently sold during August
1999 for net cash proceeds of $1,688,594, producing a net realized gain
of $938,594.
Other Investment
On June 2, 1999, the Company, Kirlin and VentureHighway (at
the time a wholly-owned subsidiary of Kirlin), entered into an
agreement pursuant to which the Company acquired 1,654,344 newly issued
shares (the number of shares reflects a subsequent stock split) of
common stock of VentureHighway, representing 19.9% of the then-
outstanding shares of common stock ( the other 80.1% of which
immediately after the transaction were held by Kirlin). The purchase
price was paid in the form of a credit for VentureHighway to use to
purchase advertising in the Company's magazines and websites during
the 30 months ending December 31, 2001. Although the purchase price
had a stated value of $3.2 million, the investment and the deferred
advertising revenue were recorded at the fair market value at the date
of the transaction of $2.6 million (or $1.595 per share).
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 September 30, 1999, the domestic investment fund had
remaining net assets of approximately $1,425,575. The Company's net
investment in discontinued operations of $142,534 at September 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 nine months ended September 30, 1999, the
Company granted 692,750 and 790,350 options, respectively, to purchase
the Company's Common Stock; 28,333 and 657,147 options, respectively,
were exercised (providing proceeds of $35,416 and $2,263,515,
respectively); and 14,500 and 59,933 options were canceled,
respectively. Of the total options granted, 161,600 were granted under
the Company's stock option plans, 628,750 shares were granted outside
of the plans, and all expire at various dates through September 2009.
5. SALE OF COMMON STOCK
On September 29, 1999, the Company entered into a Stock
Purchase Agreement with Telescan, Inc. ("Telescan") providing for the
sale of 779,130 shares of Common Stock for an aggregate purchase price
of $3,000,000, which was based upon one hundred and twenty-five percent
(125%) of the average of the closing prices of the Common Stock, as
reported by Nasdaq, for the seven business days prior to the date of
the closing. Additionally, the Company and Telescan entered into an
agreement pursuant to which the Company obtained a three-year license
to use several of Telescan's propriety technology and investment tools
on the Company's web sites. The Company paid the $1,134,500 license fee
by issuing 368,301 shares of Common Stock to Telescan, which was based
upon the average of the closing prices of the Company's Common Stock,
as reported by Nasdaq, for the seven business days prior to the date of
the closing.
6. LOSS PER COMMON SHARE
Net loss per basic and dilutive common share for the three and
nine month periods ended September 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.
7. 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 nine months
ended September 30, 1999 and 1998, respectively, is presented in the
following table:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
------------ ------------- ------------- -------------
Net loss $(1,376,819) $ (1,476,271) $ (4,971,677) $ (6,615,532)
Other comprehensive income (loss):
Net unrealized (loss) gain on investments
(see Note 2) (3,333,814) (331,436) 3,029,769 (331,436)
------------- ------------- ------------- -------------
Total comprehensive loss $(4,710,633) $ (1,807,707) $ (1,941,908) $ (6,946,968)
============= ============= ============= =============
The unrealized loss for the three months ended September 30,
1999 primarily relates to a decrease in the value of the Company's
investment in Wit Capital (approximately $2.8 million) together with a
decrease in the unrealized gain reported as of June 30, 1999 related
to investments sold by the Company (for a net realized gain of
approximately $.8 million) during the September 1999 quarter. The
net realized gain is included in the net loss as shown above. The
unrealized gain for the nine months ended September 30, 1999 primarily
relates to an increase in the value of the Company's investment in Wit
Capital (approximately $2.9 million) during the period.
8. 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, 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
individualinvestor.com (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"), corporate advertising, and
depreciation and amortization expenses).
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Print Publications $3,798,338 $3,740,507 $10,932,275 $10,775,203
Online Services 656,714 307,204 1,228,230 888,011
------------ ------------ ------------ ------------
$4,455,052 $4,047,711 $12,160,505 $11,663,214
============ ============ ============ ============
Operating contribution (before G&A,
corporate advertising, and
depreciation and amortization
expenses:
Print Publications $(254,126) $57,031 $(470,031) $(440,087)
Online Services (290,482) (437,329) (1,484,948) (1,442,324)
------------ ------------ ------------ ------------
(544,608) (380,298) (1,954,979) (1,882,411)
G&A, corporate advertising, and
depreciation and amortization
expenses (1,630,563) (1,013,044) (4,411,444) (4,057,776)
Investment and other income 798,352 62,362 1,394,746 106,025
------------ ------------ ------------ ------------
Net loss from continuing operations $(1,376,819) $(1,330,980) $(4,971,677) $(5,834,162)
============ ============ ============ ============
Net property and equipment as of September 30, 1999 increased
approximately $1.1 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 net increase allocable to Print
Publications, Online Services and corporate are approximately $0.5 million, $0.4
million, and $0.2 million, respectively. Investments as of September 30, 1999
increased approximately $5.0 million as compared to December 31, 1998. This was
primarily due to an increase in the unrealized gain on Wit Capital
(approximately $2.9 million), as well as an investment in VentureHighway.com
Inc. (see Note 2). Additionally, prepaid expenses and other current assets, and
other assets, as of September 30, 1999 increased approximately $0.6 million and
$0.7 million, respectively. These increases were primarily due to prepaid
license fees to be utilized over the next three years (see Note 5). 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 nine months
ended September 30, 1999 and September 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 September 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 September 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, however, actual results may be materially different
from the results projected in the forward-looking statements. These risks and
uncertainties include those set forth in Item 2 (entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations") of
Part I hereof, in Exhibit 99 hereof and elsewhere in this Report, and in Item 1
(entitled "Business") of Part I and in Item 7 (entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations") of Part II of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
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 Nine Months Ended September 30, 1999 as Compared to the
Three and Nine Months Ended September 30, 1998
Net Loss from Continuing Operations
The Company's net loss from continuing operations for the three and
nine months ended September 30, 1999 increased 3% and decreased 15%, to
$1,376,819 and $4,971,677, respectively, as compared to $1,330,980 and
$5,834,162, respectively, in 1998. The increase in the three months ended
September 30, 1999 is primarily due to increased promotion and selling, and
general and administrative ("G&A") expenses, partially offset by increased
advertising revenues and realized gains on the sale of investments. The decrease
in the nine months ended September 30, 1999 is primarily due to increased
advertising revenues and realized gains on the sale of investments, partially
offset by increased promotion and selling expenses.
Print Publications operations provided a negative operating
contribution (before deducting G&A, corporate advertising, and depreciation and
amortization expenses) of $254,126 and $470,031 for the three and nine months
ended September 30, 1999, respectively, as compared to a positive operating
contribution of $57,031 and negative operating contribution of $440,087,
respectively, in 1998. The change in operating contribution for the three and
nine months ended September 30, 1999 is primarily due to increased advertising
and marketing and promotion expenses, partially offset by decreased production
and distribution expenses for Individual Investor magazine as well as increased
advertising revenues.
Online Services operations provided a negative operating contribution
(before deducting G&A, corporate advertising, and depreciation and amortization
expenses) of $290,482 and $1,484,948 for the three and nine months ended
September 30, 1999, respectively, as compared to a negative operating
contribution of $437,329 and $1,442,324, respectively, in 1998. The change in
operating contribution for the three months ended September 30, 1999 is
primarily attributable to increased advertising revenues for the Company's
websites, together with reduced advertising sales commissions and advertising
expenses, partially offset by increased editorial salaries and consulting fees,
increased research costs, higher marketing and promotion expenses, and higher
salaries for advertising personnel. The change in operating contribution for the
nine months ended September 30, 1999 is primarily attributable to increased
editorial salaries and consulting fees, increased research costs, higher
marketing and promotion expenses, and higher salaries for advertising personnel,
partially offset by increased advertising revenues for the Company's websites,
together with reduced advertising sales commissions and advertising expenses.
Operating Revenues
Total revenues from continuing operations for the three and nine months
ended September 30, 1999 increased 10% and 4% to $4,455,052 and $12,160,505,
respectively, as compared to $4,047,711 and $11,663,214, respectively, in 1998.
Revenues for the Print Publications operations for the three and nine months
ended September 30, 1999 increased 2% and 1%, to $3,798,338 and $10,932,275,
respectively, as compared to $3,740,507 and $10,775,203, respectively, in 1998.
Revenues for the Online Services operations for the three and nine months ended
September 30, 1999 increased 114% and 38%, to $656,714 and $1,228,230,
respectively, as compared to $307,204, and $888,011, respectively, in 1998.
Print Publications advertising revenues for the three and nine months
ended September 30, 1999 increased 2% and 4%, to $2,664,226 and $7,497,941,
respectively, as compared to $2,608,869 and $7,219,859, respectively, in 1998.
Ticker advertising revenues for the three and nine months ended September 30,
1999 increased 8% and 35%, to $701,599 and $2,217,835, respectively, as compared
to $651,748 and $1,638,653, respectively, in 1998. This increase relates
primarily to an increase in advertising pages for the three and nine months
ended September 30, 1999 of 7% and 30%, respectively, combined with an increase
in the advertising net rate per page of 4% and 9%, respectively, when compared
to 1998. Individual Investor advertising revenues for the three and nine months
ended September 30, 1999 were essentially flat and decreased 5%, respectively,
at $1,962,627 and $5,280,106, respectively, as compared to $1,957,121 and
$5,581,206, respectively, in 1998. The increase in the three months ended
September 30, 1999 relates primarily to a higher advertising net rate per page
of 21%, partially offset by a reduction in advertising pages of 13%, when
compared to 1998. The decrease in the nine months ended September 30, 1999
relates primarily to a reduction in advertising pages of 16%, offset in part by
an increase in the advertising net rate per page of 16%, when compared to 1998.
Print Publications circulation revenues for the three and nine months
ended September 30, 1999 decreased 4%, to $806,178 and $2,500,746, respectively,
as compared to $835,715 and $2,605,576, respectively, in 1998. Subscription
revenues for the three and nine months ended September 30, 1999 decreased 7% and
9%, to $621,181 and $1,896,005, respectively, as compared to $669,325 and
$2,090,889, respectively, in 1998. The decrease is primarily attributable to a
reduction in the number of subscribers to Individual Investor's Special
Situations Report. The Company believes that subscription revenues for all print
publications have stabilized at current levels. Newsstand revenues for the three
and nine months ended September 30, 1999 increased 11% and 17%, to $184,997 and
$604,741, respectively, as compared to $166,390 and $514,687, respectively, in
1998. The increase relates primarily to increased newsstand sell-through for
Individual Investor magazine.
Print Publications list rental and other revenues for the three and
nine months ended September 30, 1999 increased 11% and decreased 2%, to $327,934
and $933,588, respectively, as compared to $295,923 and $949,768, respectively,
in 1998. List rental revenue for the three and nine months ended September 30,
1999 increased 23% and 19%, to $260,006 and $717,359, respectively, as compared
to $210,996 and $600,521, respectively, 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 Individual Investor's Special
Situations Report. Other revenues for the three and nine months ended September
30, 1999 decreased 20% and 38%, to $67,928 and $216,229, respectively, as
compared to $84,927 and $349,247, respectively, in 1998. The decrease in other
revenues is primarily attributable to reduced orders for reprints of Individual
Investor magazine.
Online Services advertising revenues for the three and nine months
ended September 30, 1999 increased 96% and 20%, to $600,304 and $1,063,580,
respectively, as compared to $306,649 and $887,457, respectively, in 1998. The
increase in advertising revenues is attributable to several factors, including
the Company's arrangement with VentureHighway.com Inc. (see Note 2), to an April
1999 sales reorganization which resulted in the Company selling sponsorship
advertisements directly as opposed to through an outside sales agent, as well as
advertising revenue earned by InsiderTrader.com, (www.insidertrader.com) which
was purchased in November 1998. Traffic to the Company's web sites for the three
months ended September 30, 1999 decreased 24% to an average of approximately 4.0
million page views per month, as compared to an average of approximately 5.3
million page views per month during the three months ended June 30, 1999. The
Company believes that the decline in page views to its sites may have been
caused in part by seasonal factors, as other financial media and service
companies also reported declining usage over the summer months. Traffic to
individualinvestor.com during the month of October was 21% greater than during
the month of September.
Online Services subscription revenues for the three and nine months
ended September 30, 1999 were $34,316 and $106,788, respectively. The Company
had no subscription revenues in the first nine months of 1998. The increase in
subscription revenues is attributable to InsiderTrader.com, which the Company
purchased in November 1998. The Company anticipates launching other
subscription-based web sites by the first half of 2000.
Operating Expenses
Total operating expenses from continuing operations for the three and
nine months ended September 30, 1999 increased 22% and 5% to $6,630,223 and
$18,526,928, respectively, as compared to $5,441,053 and $17,603,401,
respectively, in 1998.
Editorial, production and distribution expenses for the three and nine
months ended September 30, 1999 increased 4% and decreased 4% to $2,937,584 and
$8,377,406, respectively, as compared to $2,818,854 and $8,687,742,
respectively, in 1998. Print Publications editorial, production and distribution
expenses for the three and nine months ended September 30, 1999 decreased 5% and
9% to $2,202,241 and $6,514,954, respectively, as compared to $2,322,716 and
$7,120,937, 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,
development and editorial expenses for the three and nine months ended September
30, 1999 increased 48% and 19% to $735,343 and $1,862,452, respectively, as
compared to $496,138 and $1,566,805, respectively, in 1998. The increase is
primarily related to higher editorial salaries and consulting fees, and
increased research costs, for the Company's primary website,
individualinvestor.com (www.individualinvestor.com), together with production
and research costs for InsiderTrader.com, which the Company purchased in
November 1998, offset in part by lower outside development costs for
individualinvestor.com.
Promotion and selling expenses for the three and nine months ended
September 30, 1999 increased 28% and 18% to $2,062,076 and $5,738,078,
respectively, as compared to $1,609,155 and $4,857,883 respectively, in 1998.
Print Publications promotion and selling expenses for the three and nine months
ended September 30, 1999 increased 36% and 19% to $1,850,223 and $4,887,352,
respectively, as compared to $1,360,760 and $4,094,353, respectively, in 1998.
The increase is primarily due increased marketing and promotion expenses,
severance related to a termination arrangement, and higher recruiting fees as a
result of hiring additional in-house sales personnel. Online Services promotion
and selling expenses for the three and nine months ended September 30, 1999
decreased 15% and increased 11% to $211,853 and $850,726, respectively, as
compared to $248,395 and $763,530, respectively, in 1998. The decrease for the
three months ended September 30, 1999 is primarily attributable to reduced
advertising sales commissions and reduced advertising expenses, partially offset
by increased marketing and promotion expenses and increased advertising
salaries, together with advertising costs for InsiderTrader.com, which the
Company purchased in November 1998. The increase for the nine months ended
September 30, 1999 is primarily attributable to increased marketing and
promotion expenses, increased newspaper advertising, increased salaries and
recruiting fees, together with advertising costs for InsiderTrader.com,
partially offset by reduced advertising sales commissions and reduced
advertising expenses.
General and administrative expenses for the three and nine months
ended September 30, 1999 increased 53% and 4% to $1,429,861 and $3,962,337,
respectively, as compared to $932,156 and $3,825,309, respectively, in 1998. The
increase for the three months ended September 30, 1999 is primarily attributable
to increased salaries relating to senior management positions that were open for
most of the third quarter of 1998, increased recruiting fees, increased legal
fees and increased rent expense related to the relocation of the Company's
corporate office in March 1999. The increase for the nine months ended September
30, 1999 is primarily attributable to increased legal fees and increased rent
expense in the 1999 periods related to the relocation of the Company's corporate
office, partially offset by lower recruiting fees.
Corporate advertising expenses for the three and nine months ended
September 30, 1999 were $57,490 and $57,490, respectively, as compared to no
such expenses in 1998. The expenses relate to a corporate trade and consumer
brand awareness advertising campaign. The Company anticipates significant
expenditures beginning in the fourth quarter of 1999 related to this campaign.
The campaign is designed to spur online traffic growth, attract further
advertisers to both the print and online operations and to increase awareness of
the Company in the financial community.
Depreciation and amortization expense for the three and nine months
ended September 30, 1999 increased 77% and 68% to $143,212 and $391,617,
respectively, as compared to $80,888 and $232,467, respectively, in 1998. The
increase is attributable to additional depreciation for furniture and fixtures
as well as the amortization of leasehold improvements, primarily related to the
move to the new corporate office.
Investment and Other Income
Investment and other income for the three and nine months ended
September 30, 1999 increased to $798,352 and $1,394,746, respectively, as
compared to $62,362 and $106,025, respectively, in 1998. The increase is
primarily attributable to realized gains of $774,297 and $1,277,512 for the
three and nine months ended September 30, 1999, respectively, 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.
There was no net loss from discontinued operations for the three and
nine months ended September 30, 1999, as compared to a net loss of $145,291 and
$781,370, respectively in 1998. No additional loss amounts were recorded by the
Company for the three and nine months ended September 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
September 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 nine months ended September
30, 1999 decreased 7% and 25% to $1,376,819 and $4,971,677, respectively, as
compared to $1,476,271 and $6,615,532, 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 nine months ended
September 30, 1999 was $0.15 and $0.55, respectively, as compared to $0.17 and
$0.86, respectively, in 1998.
Liquidity and Capital Resources
During the nine months ended September 30, 1999, the Company received
$3,000,000 from the issuance of common stock to Telescan, Inc. (see Note 5),
$2,721,236 from sales of investments, $2,263,515 from exercises of stock
options, 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
$5,258,866 during the period. The Company also incurred approximately $1.5
million of capital expenditures during the nine months ended September 30, 1999
(primarily leasehold improvements and furniture connected with the relocation of
its corporate office).
As of September 30, 1999, the Company had working capital of
$7,258,847, which included cash and cash equivalents totaling $5,351,505 and
investments of $3,216,352 which should be available during the fourth quarter of
1999, subject to market fluctuations and liquidity, to provide working capital
to fund the Company's operations.
On September 29, 1999, the Company entered into a Stock Purchase
Agreement with Telescan, providing for the sale of 779,130 shares of Common
Stock for an aggregate purchase price of $3,000,000, which was based upon one
hundred and twenty-five percent (125%) of the average of the closing prices of
the Common Stock, as reported by Nasdaq, for the seven business days prior to
the date of the closing. Additionally, the Company and Telescan entered into an
agreement pursuant to which the Company obtained a three-year license to use
several of Telescan's propriety technology and investment tools on the Company's
web sites. The Company paid the $1,134,500 license fee by issuing 368,301 shares
of Common Stock to Telescan, which was based upon the average of the closing
prices of the Company's Common Stock, as reported by Nasdaq, for the seven
business days prior to the date of the closing.
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 September 30, 1999 balance sheet at $3,193,750 based
upon the September 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 November 12, 1999, the value of the
Company's investment in Wit Capital has increased to $3,893,750.
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").
The shares were subsequently sold during August 1999 for net cash proceeds of
$1,688,594, producing a net realized gain of $938,594.
On June 2, 1999, the Company, Kirlin and VentureHighway (at the time a
wholly-owned subsidiary of Kirlin), entered into an agreement pursuant to which
the Company acquired 1,654,344 newly issued shares (the number of shares
reflects a subsequent stock split) of common stock of VentureHighway,
representing 19.9% of the then- outstanding shares of common stock ( the other
80.1% of which immediately after the transaction were held by Kirlin). The
purchase price was paid in the form of a credit for VentureHighway to use to
purchase advertising in the Company's magazines and websites during the 30
months ending December 31, 2001. Although the purchase price had a stated value
of $3.2 million, the investment and the deferred advertising revenue were
recorded at the fair market value at the date of the transaction of $2.6 million
(or $1.595 per share).
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. It is the Company's intention to control its operating expenses
while continuing to invest in its existing products. The Company anticipates
losses to continue in the fourth quarter of 1999. 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 the fourth
quarter of 1999 and in the year 2000 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 and the effect of
increased awareness in the marketplace due in part to a trade and consumer brand
awareness advertising campaign that will begin in the fourth quarter of 1999.
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 over time to realize higher revenues from operations of its
primary online service, individualinvestor.com, primarily due to the anticipated
traffic growth to the site, which is expected to generate higher levels of
sponsorship and banner revenues. 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 by the first half of 2000.
There can be no assurance, however, that such products in fact will be launched,
be launched on time, or that if launched, such products will be successful.
Based on the Company's current outlook, the Company believes that its
working capital and its investments will be sufficient to fund its operations
and capital requirements at least through the first half of 2000. 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 first half of 2000. Thereafter, the Company will 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
to fix where necessary, any Year 2000 Issue with respect to its computer
systems. The Company has identified the fixes that should be made to its
computer systems in light of the Year 2000 issue, has completed most of its
repair efforts, and currently expects to complete its repair efforts and test
its systems before December 1999.
The Company currently believes that total direct costs associated with
making its systems Year 2000 Ready should not exceed $30,000 (most of which
costs already have been incurred). 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 currently 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 such a contingency plan
should be developed.
The dates on which the Company believes it will complete its Year 2000
plan, 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 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
guarantee 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 1. Legal Proceedings
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. WTA moved to dismiss the complaint as to all causes of
action other than the breach of contract claim, which motion was denied.
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 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 of
the Common Stock 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. In September 1999, defendants moved to dismiss the 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 2. Changes in Securities
Sales of Unregistered Securities
Consideration received and Exemption If option, warrant or
Date of Sale Title of security Number description of underwriting or from convertible security, terms
Sold other discounts to market registration of exercise or conversion
price afforded to purchasers claimed
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
7/99 - 9/99 Options to purchase 692,750 Exercise price would be Section 4(2) Vesting over a period of
common stock granted received upon exercise three to four years from
to employees and date of grant, subject to
consultants certain conditions of
continued service;
exercisable for a period
lasting ten years from date
of grant at exercise prices
ranging from $6.00 to
$2.53125 per share.
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
09/29/99 Sale of common stock 779,130 The Company received Section 4(2)
to Telescan, Inc. $3,000,000 in cash
consideration for these
shares
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
09/29/99 Sale of common stock 368,301 Three-year license to use Section 4(2)
to Telescan, Inc. proprietary technology and
investment tools on Company
web sites
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
08/16/99 Common stock granted 36,972 Recruiting services Section 4(2)
to consultant
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit Description Method of filing
No.
3.1 Amended and Restated Certificate Incorporated by reference to
of Incorporation of Registrant, Exhibit 3.2 to the Form 10-Q
as amended through June 22, 1999 for the quarter ended June 30,
1999
3.2 By-laws of Registrant amended Incorporated by reference to
through April 27, 1999 Exhibit 3.3 to the Form 10-Q
for the quarter ended June 30,
1999
4.1 Specimen Certificate for Common Incorporated by reference to
Stock of Registrant Exhibit 4.1 to the Registrant's
Registration Statement on Form
S-18 (File No.33-43551-NY)
10.1 Stock Purchase Agreement dated Incorporated by reference to
as of September 29, 1999 between Exhibit 10.8 to the Registrant's
Registrant and Telescan, Inc. Registration Statement on Form
S-3 dated October 29, 1999
(File No.333-89933)(the "Form
S-3")
10.2 Letter Agreement dated as of Incorporated by reference to
September 29, 1999 between Exhibit 10.9 to the Form S-3
Registrant and Telescan, Inc.
10.3 Employment Agreement between Filed herewith
Registrant and David H. Allen
dated August 9, 1999
10.4 Stock Option Agreement between Filed herewith
Registrant and David H. Allen
dated August 16, 1999
10.5 Indemnification Agreement between Filed herewith
Registrant and David H. Allen
dated August 16, 1999
27 Financial Data Schedule September Filed only with the electronic
30, 1999 submission of Form 10-Q in
accordance with the EDGAR
requirement
99 Certain Risk Factors Filed herewith
(a) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the Quarter Ended
September 30, 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: November 15, 1999
INDIVIDUAL INVESTOR GROUP, INC. (Registrant)
By: /s/ Jonathan L. Steinberg
Jonathan L. Steinberg, Chief Executive Officer and Director
By: /s/ David H. Allen
David H. Allen, Chief Financial Officer