<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
------------------------
or
[ ] 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: 0-27734
------------------
Individual, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-303-6959
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
8 New England Executive Park West, Burlington, MA 01803
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 273-6000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 1996, 14,026,071 shares of Common Stock, $.01 par value per
share, were outstanding.
1
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Individual, Inc.
Form 10-Q
For the Quarter Ended June 30, 1996
Index
Page #
------
Facing Sheet 1
Index 2
PART I - UNAUDITED FINANCIAL INFORMATION
- ---------------------------------------------
Item 1. Condensed consolidated Financial Statements 3
Condensed consolidated Balance Sheets 3
Condensed consolidated Statements of Operations 4
Condensed consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
Exhibit 11 Computation of Loss Per Share 19
Financial Data Schedule 20
Page 2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Individual, Inc.
Condensed consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $34,118,404 $17,517,743
Investments in marketable securities 6,014,594 -
Accounts receivable, net 3,982,786 5,741,694
Prepaid expenses 469,928 115,094
----------- ------------
Total current assets 44,585,712 23,374,531
Property and equipment, net 3,641,201 2,926,234
Other assets, net 876,359 501,740
----------- ------------
Total assets $49,103,272 $26,802,505
=========== ============
LIABILITIES AND STOCKHOLDERS'EQUITY (DEFICIT)
Current liabilities:
Accounts payable $2,087,415 $1,382,797
Accrued expenses 6,571,819 2,422,094
Deferred revenue 8,993,360 8,924,309
Bank loans for equipment financing 804,734 638,067
Current obligations under capital leases 119,620 138,017
----------- -----------
Total current liabilities 18,576,948 13,505,284
Senior subordinated notes - 10,000,000
Other long term liabilities 1,128,176 985,738
Redeemable preferred stock - 23,999,013
Stockholders' equity (deficit):
Preferred stock, $0.01 par value - 6,113
Common stock, $0.01 par value; 25,000,000 shares
authorized, 14,106,476 and 1,870,596 shares
issued in 1996 and 1995, respectively 141,065 18,706
Additional paid in capital 88,680,765 3,071,810
Cumulative dividends on redeemable preferred stock - (6,234,366)
Accumulated deficit (59,393,073) (18,544,708)
----------- -----------
29,428,757 (21,682,445)
Less 80,405 and 157,500 shares held in treasury
(at cost), respectively (30,609) (5,085)
----------- -----------
Total stockholders' equity (deficit) 29,398,148 (21,687,530)
----------- -----------
Total liabilities and stockholders' equity (deficit) $49,103,272 $26,802,505
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
Page 3
<PAGE>
Individual, Inc.
Condensed consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30 June 30,
1996 1995 1996 1995
------------------------------ ---------------------------
<S> <C> <C> <C> <C>
Revenue $5,647,727 $4,144,961 $10,677,018 $7,600,872
Cost of revenue 2,637,334 1,790,871 4,894,840 3,383,195
------------------------------ ---------------------------
Gross margin 3,010,393 2,354,090 5,782,178 4,217,677
Operating expense:
Sales and marketing 1,346,221 511,889 2,406,765 986,224
New subscriber acquisition 1,948,926 2,177,921 4,179,629 4,003,960
Product development 1,053,485 649,493 1,892,211 1,048,717
General and administrative 1,630,391 442,588 2,285,814 1,214,351
Purchased incomplete technology 35,563,750 - 35,563,750 -
------------------------------ ---------------------------
Total operating expenses 41,542,773 3,781,891 46,328,169 7,253,252
------------------------------ ---------------------------
Loss from operations (38,532,380) (1,427,801) (40,545,991) (3,035,575)
Interest income and other, net 231,245 27,339 472,839 62,398
Interest expense (37,008) (30,913) (775,215) (67,024)
------------------------------ ---------------------------
Net loss ($38,338,143) ($1,431,375) ($40,848,367) ($3,040,201)
============================== ===========================
Supplemental net loss per common share (Note 4) ($3.09) ($0.15) ($3.67) ($0.32)
============================== ===========================
Supplemental weighted average common
shares outstanding (Note 4) 12,424,474 9,639,260 11,134,497 9,638,767
============================== ===========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE>
Individual, Inc.
Condensed consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($40,848,367) ($3,040,201)
Adjustments to reconcile net loss to net cash
provided by used in operating activities:
Depreciation and amortization 652,192 290,188
Loss on disposal of property and equipment 18,728 --
Provision for doubtful accounts 190,618 14,382
Compensation recognized under employee stock plans 27,981 --
Undistributed loss of joint venture 1,303,821 --
Purchased incomplete technology 35,563,750 --
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,568,290 873,969
Increase in prepaid expenses (342,557) (1,450)
Increase/(decrease) in other assets 10,276 (19,019)
Increase in accounts payable and accrued expenses 1,763,769 1,275,064
Increase in other long term liabilities 166,667 --
Increase in deferred revenue 69,052 239,310
------------ -----------
Net cash provided by/(used in) operating activities: 144,220 (367,757)
------------ -----------
Cash flows from investing activities:
Additions to property and equipment (875,666) (757,351)
Investment in joint venture (1,883,417)
Cash acquired from acquisition 1,010,354 --
(Investments in)/proceeds from sale of marketable securities (5,992,450) 1,000,000
------------ -----------
Net cash (used in)/provided by investing activities: (7,741,179) 242,649
------------ -----------
Cash flows from financing activities:
Principal repayments under lease obligations (60,282) (104,299)
Increase in equipment loan, net 180,963 306,796
Proceeds from issuance of common stock, net of related expenses 34,079,281 978
Payment on senior subordinated notes (10,000,000) --
------------ -----------
Net cash provided by financing activities 24,199,962 203,475
------------ -----------
Effect of exchange rate on cash (2,342) --
------------ -----------
Net increase in cash and cash equivalents 16,600,661 78,367
Cash and cash equivalents at the beginning of period 17,517,743 639,870
------------ -----------
Cash and cash equivalents at the end of period $34,118,404 $718,237
============ ===========
Supplemental cash flow information:
Interest paid $738,488 $63,053
============= ===========
Noncash transactions:
Equipment acquired under capital lease obligation $22,859 --
============= ===========
Net liabilities assumed in exchange for stock $1,643,019 --
============= ===========
Conversion of redeemable preferred stock into common stock $2,999,013 --
============= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5
<PAGE>
Individual, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements of Individual, Inc.
(the "Company") presented herein have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto for the year ended December 31, 1995 included in the Company's
Registration Statement on Form S-1 (No. 333-00792) filed on January 31, 1996, as
amended. In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the consolidated financial
position, results of operations and cash flows of the Company and its
subsidiaries. Quarterly operating results are not necessarily indicative of the
results which would be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and contingent
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
2. Cash and Cash Equivalents and Marketable Securities
At June 30, 1996, cash and cash equivalents included $12,977,083 in
commercial paper, $2,033,340 in money market investments, $17,164,307 in U. S.
Government Agency securities, and $1,943,674 cash on deposit. In addition, the
Company held $6,014,594 in U. S. Government Agency securities classified as
marketable securities. All marketable securities are held to maturity and
therefore carried at amortized cost. At June 30, 1996, the market value of
these marketable securities was $6,012,160. At December 31, 1995, cash and cash
equivalents included cash on deposit and investments in money market type mutual
funds.
3. Initial Public Offering
On March 20, 1996, the Company completed an initial public offering
(the "IPO") of 2,500,000 shares of Common Stock at $14.00 per share, of which
2,300,000 were sold by the Company and 200,000 were sold by selling
stockholders. The proceeds to the Company, net of underwriting discounts,
commissions and offering expenses were approximately $29,100,000. In April
1996, the Underwriters exercised their over-allotment option to purchase an
additional 375,000 shares of Common Stock from the Company, for net proceeds of
approximately $4,700,000.
Upon the closing of the IPO, all series of Preferred Stock were
converted into an aggregate of 7,625,210 shares of Common Stock. Upon
conversion of the Preferred Stock to Common Stock, all cumulative dividends
associated with the Redeemable Preferred Stock expired and were no longer
payable.
6
<PAGE>
Individual, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
4. Per Share Computations
Supplemental Net Loss Per Common Share
The supplemental net loss per common share is computed based upon the
weighted average number of common shares outstanding. Common equivalent shares
are not included in the per share calculations since the effect of their
inclusion would be antidilutive. Common equivalent shares result from the
assumed exercise of outstanding stock options and warrants. The computation of
supplemental earnings per share gives effect to the conversion of all shares of
Series B, C, D, E and G as if such shares were converted for all periods
presented. Redeemable Preferred Stock and Series A and F Preferred Stock and
does not include the dividends on Redeemable Preferred Stock as an increase in
net loss. Pursuant to the requirements of the Securities and Exchange
Commission, common shares and common equivalent shares issued at prices below
the IPO price of $14.00 per share during the twelve months immediately preceding
the date of the initial filing of the Registration Statement have been included
in the calculation of common shares and common share equivalents, using the
treasury stock method, as if they were outstanding for all periods prior to the
IPO. Presentation herein is consistent with the pro forma calculations included
in the Company's Registration Statement on Form S-1 (No. 333-00792) filed on
January 31, 1996, as amended.
Historical Net Loss Per Common Share
Net loss per common share on a historical basis is computed in the
same manner as supplemental net loss per common share, except that Series B, C,
D, E and G Redeemable Preferred Stock and Series A and F Preferred Stock are not
assumed to be converted prior to the IPO. In the computation of net loss per
common share, accretion of redeemable preferred stock dividend amounts is
included as an increase to net loss attributable to common stockholders. Net
loss per common share on a historical basis is calculated as follows:
<TABLE>
<CAPTION>
For the three months ended June 30,
1996 1995
---- ----
<S> <C> <C>
Net loss ($38,338,143) ($1,431,375)
Accretion of dividends on redeemable
preferred stock -- 371,720
------------- -----------
Net loss to common stockholders ($38,338,143) ($1,803,095)
============= ============
Net loss per common share $ (3.09) $ (0.90)
============= ============
Weighted average number of common and
common equivalent shares outstanding 12,424,474 2,014,050
============= ============
For the six months ended June 30,
1996 1995
---- ----
Net loss ($40,848,367) ($3,040,201)
Accretion of dividends on redeemable
preferred stock 462,706 743,440
------------- ------------
Net loss to common stockholders ($41,311,073) ($3,783,641)
============= ============
Net loss per common share $ (5.31) $ (1.88)
============= ============
Weighted average number of common and
common equivalent shares outstanding 7,782,757 2,013,557
============= ============
</TABLE>
7
<PAGE>
Individual, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
5. Changes in Stockholders' Equity (Deficit)
The following table sets forth the changes in stockholders' equity
(deficit) for the six months ended June 30, 1996:
Balance at December 31, 1995 ($21,687,530)
Net proceeds from initial public offering 29,100,994
Conversion of all redeemable preferred stock to common stock 23,999,013
Net proceeds from exercise of over-allotment option 4,738,243
Stock issued in acquisition of FreeLoader 33,981,085
Exercise of stock options and warrants 117,159
Repurchase of treasury shares (28,067)
Issuance of treasury shares 25,615
Net loss (40,848,364)
------------
Balance at June 30, 1996 $29,398,148
===========
8
<PAGE>
Individual, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
6. Acquisition of FreeLoader
On June 28, 1996, Individual completed the acquisition of FreeLoader,
Inc. ("FreeLoader") by a subsidiary merger pursuant to the terms of the
Agreement and Plan of Reorganization dated as of May 30, 1996 among Individual,
FL Merger Corp., a wholly-owned subsidiary of Individual, FreeLoader, and
certain stockholders of FreeLoader (the "Merger Agreement"). As a result of the
merger, FreeLoader became a wholly-owned subsidiary of Individual.
Pursuant to the Merger Agreement, Individual issued approximately 1,874,489
shares of its Common Stock to the stockholders of FreeLoader as consideration
for the merger (including approximately 360,180 shares of Common Stock reserved
for issuance upon exercise of outstanding FreeLoader stock options assumed by
Individual in the merger). The aggregate estimated purchase price of
approximately $39,931,000 is based on the fair market value of Individual, Inc.
Common Stock and options as of May 30, 1996 and includes estimated accrued
transaction costs of approximately $950,000. The transaction was accounted for
as a purchase. Approximately $633,000 of the purchase price has been allocated
to the fair value of the net identifiable liabilities assumed and approximately
$35,564,000 has been allocated to the fair value of purchased technology
determined to be in-process and accordingly, expensed at consummation. This
nonrecurring charge is reflected in the consolidated statement of operations.
The following condensed pro forma results of operations for the six months ended
June 30, 1996 have been presented to disclose the acquisition of FreeLoader as
if it had occurred as of the beginning of fiscal year 1996. The computation of
pro forma net loss per common share assumes the 1,514,309 shares issued in the
acquisition of FreeLoader to be outstanding from January 1, 1996. The
computation also gives effect to the conversion of all shares of Series B, C, D,
E, and G redeemable preferred stock and Series A and F preferred stock as of
January 1, 1996, and excludes the dividends on redeemable preferred stock as an
increase to net loss. In addition, the one time charge of $35,564,000 for the
purchase of incomplete technology has been included in the net loss computation.
The condensed pro forma results of operations for the corresponding period of
the prior year have not been presented because FreeLoader did not commence
operations until November 13, 1995.
For the six
months ended
June 30, 1996
Pro Forma
---------
Revenue $10,677,018
============
Net loss (44,485,200)
============
Pro forma net loss per common share ($3.52)
=======
Pro forma weighted average common
shares outstanding 12,632,165
==========
9
<PAGE>
Individual, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
7. Joint Venture
On May 31, 1996 the Company acquired for approximately $1,883,000 in
cash 44% of the shares of NewsWatch, Inc. ("NewsWatch"), a joint venture
established by the Company, Toshiba Corporation and Mitsui & Co. Ltd. The joint
venture was established to provide customized electronic information services in
Japan. The investment is being accounted for using the equity method of
accounting. Accordingly, the Company recognized $271,000 as its share of the
loss for the three months ended June 30, 1996, which is included in interest and
other income (expense), net.
The Company has entered into certain software and know-how license agreements
with the joint venture in exchange for an initial lump sum royalty payment to
the Company of approximately $1,032,000, received in May 1996, and continuing
royalties based on revenue of the joint venture over a twenty year period. The
license includes the transfer of certain technology from the Company to the
joint venture, which is expected to be completed by the end of 1996. The initial
lump sum royalty has been deferred and is being recognized as revenue over the
term of the technology transfer.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
- --------
Individual offers a suite of customized information services that provide
knowledge workers with relevant current awareness reports each day while
offering information providers and advertisers new ways to reach targeted
audiences. The Company commenced delivery of its initial service in the quarter
ended March 31, 1990, and has subsequently introduced additional services
targeted at multiple market segments.
The Company's revenue is derived from two classes of services: enterprise
services and single-user services. Revenue for the Company's enterprise service,
First! (introduced in the first quarter of 1990) consists of subscription fees
from organizations. Single-user services include HeadsUp (introduced in the
second quarter of 1993), Physician's NewScan (introduced in the fourth quarter
of 1994), NewsPage (introduced in the second quarter of 1995), BookWire
(acquired by the Company in the third quarter of 1995), and FreeLoader (acquired
by the Company in June 1996). Revenue for single-user services consists of both
subscription fees and fees for the fulfillment of certain user requests for
additional information, as well as advertising fees from companies placing
advertisements through these services.
The Company recognizes subscription revenue ratably over the subscription
period. The Company's subscription contracts are typically billed in advance,
and amounts attributable to services not yet delivered are recorded in deferred
revenue. Customers of the Company's services may terminate their subscriptions
at any time and receive a credit in the form of a cash refund for the unused
portion. Historically, the level of subscription cancellations prior to the
termination of the subscription period has not been material and has had no
impact on revenue previously recognized. Fulfillment fees are recognized as
revenue at the time stories are provided. Advertising revenue is recognized
ratably over the advertisement period.
The Company had 204 full-time employees on June 30, 1996, up from 157 on
December 31, 1995, and up from 96 and 66 on December 31, 1994 and 1993,
respectively. The majority of the Company's expenses consists of salaries and
related costs. The Company incurs significant expenses to acquire new customers,
reported as new subscriber acquisition expenses. The Company may also incur
expenses in the process of soliciting a subscription renewal, which are included
in sales and marketing expenses. The cost of soliciting subscription renewals is
substantially less than the cost of acquiring new subscriptions.
General Risk Factors Affecting Quarterly Results
- ------------------------------------------------
This Form 10-Q contains forward-looking statements, the achievement of which
involves risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such differences include, but are not limited to, those
discussed under "Risk Factors" in the Company's Registration Statement on Form
S-1 filed on July 19, 1996 (File No. 333-8511), as amended.
On June 28, 1996, the Company acquired FreeLoader, a developer of agent-based
software for the offline delivery of World Wide Web multi-media content. The
FreeLoader acquisition was effected through the merger of FL Merger Corp., a
wholly-owned subsidiary of the Company, with and into FreeLoader, with
FreeLoader continuing as the surviving corporation and a wholly-owned subsidiary
of the Company. The Company issued approximately 1,874,489 shares of its Common
Stock in the FreeLoader acquisition in exchange for the outstanding securities
of FreeLoader, including approximately 360,180 shares of Individual Common Stock
which are reserved for issuance upon exercise of outstanding FreeLoader stock
options assumed by Individual in the FreeLoader acquisition. The FreeLoader
acquisition has been accounted for as a purchase. Approximately $633,000 of the
purchase price has been allocated to the fair value of the net identifiable
liabilities assumed and approximately $35,564,000 has been allocated to the fair
value of the purchased technology determined to be in-process and accordingly,
expensed at consummation. The Company expects to sell advertising on the
FreeLoader service; however, no revenue has been recorded to date and no revenue
is expected through the end of 1996.
11
<PAGE>
In addition to the FreeLoader acquisition, management may in future quarters
consider other acquisitions that it believes may enable Individual to acquire
complementary skills and capabilities, offer new products and services, expand
its customer base, or obtain other competitive advantages. There can be no
assurance that Individual will be able to successfully identify suitable
acquisition candidates or complete future acquisitions, or that any future
acquisitions will not have a material adverse effect on Individual's business
and results of operations.
The Company terminated the employment of Joseph A. Amram, a founder and former
President and Chief Executive Officer of the Company, in August 1996. The
Company has initiated a search for a new Chief Executive Officer and has
established an Office of the President consisting of Janesse T. Bruce, Senior
Vice President and General Manager of Internet and Single-User Services, Bruce
D. Glabe, Executive Vice President, and Robert L. Lentz, Vice President, Finance
and Chief Financial Officer, to manage the Company pending successful completion
of the search. In addition, William A. Devereaux, a member of the Board of
Directors of the Company since 1989, has been elected Chairman of the Board of
Directors.
There can be no assurance that these management changes will not have a material
adverse effect on the Company's business, results of operations and financial
condition, as well as on perceptions of the Company by current and prospective
investors. Ms. Bruce and Mr. Lentz have been with the Company for only a short
period of time, having joined the Company in January 1996 and March 1996,
respectively. Mr. Glabe has been with the Company since May 1994. There can be
no assurance that Ms. Bruce, Mr. Glabe and Mr. Lentz will be able to effectively
manage the Company while the search for a new Chief Executive Officer is
pending. Moreover, there can be no assurance that the Company will be successful
in recruiting a new Chief Executive Officer in a timely fashion, or that a new
Chief Executive Officer, if hired, will be able to successfully manage the
Company.
In view of the Company's revenue growth in recent years, management believes
that period-to-period comparisons of its financial results should not be relied
upon as an indication of future performance. The limited operating history of
the Company makes the prediction of future operating results difficult or
impossible and therefore there can be no assurance that the Company will sustain
revenue growth or achieve profitability. Revenues to be generated from
advertising on the Company's FreeLoader service will be highly dependent on the
successful development of the FreeLoader service, the integration of FreeLoader
with Individual's services, and the ability of the Company to attract
advertising sponsorship on FreeLoader. The Company expects to spend
approximately $2 Million per quarter in 1996 on FreeLoader development and
marketing, and possibly more in the future. No revenue from FreeLoader is
expected in 1996. New enterprise services released in the quarter ended June 30,
1996 include First! Intranet 2.0. and First! for Microsoft Exchange. The ability
of the Company to market these new releases effectively will impact the growth
of enterprise services revenues in future quarters.
12
<PAGE>
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenue:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
Cost of Revenue 47% 43% 46% 45%
----- ---- ----- ----
Gross Margin 53% 57% 54% 55%
Operating expenses:
Sales and marketing 24% 12% 23% 13%
New subscriber acquisition 34% 53% 39% 52%
Product development 18% 16% 18% 14%
General and administrative 29% 11% 21% 16%
Purchased incomplete technology 630% - 333% -
----- ---- ----- ----
Total operating expense 735% 92% 434% 95%
Loss from operations (682)% (35)% (380)% (40)%
Interest and other income (expense), net 3% 0% (3)% 0%
----- ---- ----- ----
Net loss (679)% (35)% (383)% (40)%
===== ==== ===== ====
</TABLE>
Three months and six months ended June 30, 1996 and 1995
- --------------------------------------------------------
Revenue.
Revenue increased 36%, from $4,145,000 for the three months ended June 30, 1995
to $5,648,000 for the three months ended June 30, 1996. Revenues increased 40%,
from $7,601,000 to $10,677,000 in the six months ended June 30, 1995 and 1996
respectively. The number of registered users increased to more than 280,000 at
June 30, 1996 (including 32,000 users of the FreeLoader service), over five
times the number of users at June 30, 1995. In the second quarter of fiscal
1996, revenue from enterprise services was $3,712,000, up from $2,649,000 for
the same period in 1995. This increase of 40% resulted primarily from new and
upgrade sales of First! for intranet and groupware platforms. The percentage
increase for the six months ended June 30, 1996 was approximately 41%, as
revenue from enterprise services grew to $7,177,000, up from $5,101,000 for the
same period in 1995.
In the second quarter of fiscal 1996, revenue from single user services grew by
29% to $1,935,000, up from $1,496,000 for the same period in 1995. For the six
months ended June 30, 1996, single user services revenue grew by 40% to
$3,500,000, up from $2,500,000 for the same period in 1995. The growth was
attributable to the Company's NewsPage service on the World Wide Web, which was
introduced in the second quarter of 1995. The increase in revenue from Web
single-user services was partially offset by the declining revenues from
Physician's NewScan, a sponsored news service, which has not been heavily
promoted in 1996. The acquisition of FreeLoader did not contribute any revenue
in the second quarter, nor is it expected to have a material impact on revenues
in the second half of 1996.
Cost of revenue.
Cost of revenue was $2,637,000 for the three months ended June 30, 1996, as
compared to $1,791,000 for the same period in 1995, or an increase of 47%. Cost
of revenue was $4,895,000 for the six months ended June 30, 1996, as compared to
$3,383,000 for the same period in 1995, or an increase of 45%. The slight
decrease in gross margin as a percentage of revenue from 55% to 54% for the six
months ended June 30, 1996 and 1995 respectively was mainly the result of higher
information provider costs. The number of information providers increased to
over 700 at June 30, 1996, up from 500 at June 30, 1995. In addition, the
royalties paid to information providers
13
<PAGE>
on NewsPage revenue as a percentage of sales is higher than the enterprise
percentage, as this is a new service and revenue is still ramping up.
FreeLoader expenses.
The acquisition of FreeLoader was completed on June 28, 1996 and as a result, no
material expenses of FreeLoader were reflected in the operating expenses of the
quarter ended June 30, 1996. In future periods however, FreeLoader's sales and
marketing, new subscriber acquisition expenses, product development, and general
and administrative expenses are expected to have a material impact on the
Company's results. The one-time non-cash charge of $35,564,000 incurred in June
1996 was based on the fair value assessment of purchased FreeLoader incomplete
technology.
Sales and marketing.
Sales and marketing expenses increased 163% to $1,346,000 for the three months
ended June 30, 1996, up from $512,000 for the same period of 1995. Sales and
marketing expenses increased by 144% to $2,407,000 for the six months ended June
30, 1996, up from $986,000 for the same period of 1995. These increases were
primarily due to hiring additional personnel in marketing and selling of
advertising for NewsPage, which was launched in the second quarter of
1995. Additionally, there was an increase in expenses related to renewal
subscription sales, due to the larger customer base.
New subscriber acquisition.
New subscriber acquisition expenses declined 11% from $2,178,000 to $1,949,000
for the three months ended June 30, 1995 and June 30, 1996 respectively. New
subscriber acquisition expenses increased 4% from $4,004,000 to $4,180,000 for
the six months ended June 30, 1995 and June 30, 1996 respectively. The decrease
in new subscriber acquisition expenses in the second quarter of 1996 was the
result of a reduction of non-Web single user services promotion expenses which
were partially offset by the continued expansion of the enterprise sales staff
and NewsPage advertising expenses. The decrease is believed to be temporary, as
the Company intends to continue efforts to expand the subscription base for Web
and enterprise services.
Product development.
Product development increased 62% to $1,053,000 for the three months ended June
30, 1996, up from $649,000 for the same period in 1995. Product development
increased 80% to $1,892,000 for the six months ended June 30, 1996, up from
$1,049,000 for the same period in 1995. This increase was primarily the result
of the continued development of new enhancements and new delivery platforms for
both the NewsPage and First! services.
General and administrative.
General and administrative expenses increased 268% to $1,630,000 for the three
months ended June 30, 1996, up from $443,000 for the same period of 1995.
General and administrative expenses increased 88% to $2,286,000 for the six
months ended June 30, 1996, up from $1,214,000 for the same period of 1995. The
reasons for this increase included hiring of additional management and
administrative personnel and deferred compensation charges related to the
FreeLoader acquisition.
Interest and other income (expense), net.
Interest and other income (expense), net, increased to $194,000 for the three
months ended June 30, 1996, up from $(4,000) for the same period of 1995.
Interest and other income (expense), net, for the six months ended June 30, 1996
was $(302,000), as compared to $(5,000) for the same period in 1995. The second
quarter 1996 increase was primarily attributable to interest revenue on proceeds
from the IPO in March 1996, as partially offset by losses incurred by the
Japanese joint venture with Toshiba Corp. and Mitsui & Co., Ltd. The Company
expects that results from the joint venture will continue to negatively impact
other income in the foreseeable future. The year to date changes over last
year's levels are a function of the factors noted above and interest charges on
senior subordinated notes incurred in the first quarter 1996.
14
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's cash and cash equivalents balance at June 30, 1996 was
$34,118,000, as compared to $34,222,000 at March 31, 1996 and $17,518,000 at
December 31, 1995. Net cash provided by operations was $144,000 for the six
months ended June 30, 1996, as compared with net cash used in operations of
$(368,000) for the same period in 1995. The change was mainly attributable to
working capital improvements as accounts receivable decreased and accounts
payable and accrued expenses increased. Net cash used in investing activities
was $(7,741,000) in the six months ended June 30, 1996 as compared with $243,000
provided by investing activities for the same period of 1995. In the first two
quarters of 1996, $5,992,000 was used to purchase marketable securities,
primarily from U.S. Government Agencies, whereas the cash flow from investing
activities in 1995 was positive due to redemption of marketable securities. In
the second quarter of 1996, $1,010,000 of cash was acquired in the FreeLoader
acquisition. Net cash provided by financing activities was $24,200,000 in the
six months ended June 1996, as compared to $203,000 in the same period of 1995.
This increase resulted from the completion of the Company's IPO in March of 1996
and the exercise of the over-allotment option in the second quarter of 1996,
which together generated net proceeds of approximately $33,839,000. In addition,
the Company used $10,000,000 of the offering proceeds for repayment of the
principal on the senior subordinated notes.
The Company has also used equipment leases and debt instruments to finance the
majority of its purchases of capital equipment. At June 30, 1996, the Company
had approximately $1,886,000 outstanding in connection with these obligations
and had an additional $81,000 available under established credit arrangements.
In addition, the Company has a revolving line of credit with a commercial bank
providing for a maximum credit of $3,500,000 subject to certain covenants. At
June 30, 1996, no amounts were outstanding under this line.
Management believes that cash and marketable securities and cash flow from
operations will be sufficient to fund its operations at least for the next
twelve months. This may depend on numerous factors, including the rate of
expansion for current products and services, the development of new products and
services, and potential acquisitions or strategic investments.
15
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
11 Computation of Weighted Average Shares Used in Computing Loss Per Share
Amounts
Financial Data Schedule
(b) Reports on Form 8-K
On June 11, 1996, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, disclosing under Item 5 the execution
of the Merger Agreement among the Company, FreeLoader and the other parties
thereto, and the proposed acquisition of FreeLoader by the Company pursuant
to the terms of the Merger Agreement.
Page 16
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Individual, Inc.
Date: August 14, 1996
By: /s/Bruce D. Glabe
-----------------
Bruce D. Glabe
Executive Vice President and a member of the
Office of the President
(a Principal Executive Officer)
By: /s/Robert L. Lentz
------------------
Robert L. Lentz
Vice President, Finance and Chief Financial
Officer and a member of the Office of the
President (a Principal Executive Officer and the
Principal Financial and Accounting Officer)
Page 17
<PAGE>
Exhibit Index Individual, Inc.
Exhibit Number Description Page
- -------------- ----------- ----
11 Computation of Weighted Average Shares 19
Used in Computing Loss Per Share Amounts
Financial Data Schedule 20
Page 18
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
Individual, Inc.
Computation of Weighted Average Shares
Used in Computing Loss Per Share Amounts
(Unaudited)
Primary Fully Diluted Supplemental
Type of Security Shares Shares Shares (1)
- ------------------------------------------------------- ------------- -------------- --------------
<S> <C> <C> <C>
For the three months ended June 30, 1995:
Common stock less shares held in treasury, beginning of period 1,667,127 1,667,127 1,667,127
Cheap stock outstanding during the period (2) 346,210 346,210 346,210
Weighted average common stock issued during the period 713 713 713
Conversion of preferred stock and redeemable preferred stock
into common stock (1) - - 7,625,210
----------- ------------ -----------
Weighted average shares of common stock outstanding 2,014,050 2,014,050 9,639,260
=========== ============ ===========
Net loss per common share ($0.90) ($0.90) ($0.15)
=========== ============ ===========
For the three months ended June 30, 1996:
Common stock less shares held in treasury, beginning of period 11,958,410 11,958,410 11,958,410
Weighted average common stock issued during the period 466,468 466,468 466,468
Weighted average treasury stock repurchased during the period (404) (404) (404)
----------- ------------ -----------
Weighted average shares of common stock outstanding 12,424,474 12,424,474 12,424,474
=========== ============ ===========
Net loss per common share ($3.09) ($3.09) ($3.09)
=========== ============ ===========
Primary Fully Diluted Supplemental
Type of Security Shares Shares Shares (1)
- ------------------------------------------------------- ------------- -------------- --------------
<S> <C> <C> <C>
For the six months ended June 30, 1995:
Common stock less shares held in treasury, beginning of period 1,666,002 1,666,002 1,666,002
Cheap stock outstanding during the period (2) 346,210 346,210 346,210
Weighted average common stock issued during the period 1,345 1,345 1,345
Conversion of preferred stock and redeemable preferred stock
into common stock (1) - - 7,625,210
----------- ------------ -----------
Weighted average shares of common stock outstanding 2,013,557 2,013,557 9,638,767
=========== ============ ===========
Net loss per common share ($1.88) ($1.88) ($0.32)
=========== ============ ===========
For the six months ended June 30, 1996:
Common stock less shares held in treasury, beginning of period 1,713,096 1,713,096 1,713,096
Common stock outstanding during the period 1,796,992 1,796,992 1,796,992
Weighted average treasury stock repurchased during the period (801) (801) (801)
Weighted average conversion of preferred stock and redeemable
preferred stock into common stock (1) 4,273,470 4,273,470 7,625,210
----------- ------------ -----------
Weighted average shares of common stock outstanding 7,782,757 7,782,757 11,134,497
=========== ============ ===========
Net loss per common share ($5.31) ($5.31) ($3.67)
=========== ============ ===========
</TABLE>
(1) Upon completion of the public offering on March 20, 1996, the redeemable
preferred stock and preferred stock converted to 7,625,210 shares of common
stock. Accordingly, the supplemental earnings per share calculation has
assumed the conversion of all shares of redeemable preferred stock and
preferred stock, effected for the 3-for-2 split, at the beginning of each
period presented.
(2) In accordance with the Securities and Exchange Commission, issuances of
common stock and common stock equivalents, within one year to the initial
filing of the registration statement, at share prices below the assumed initial
public offering price of $14.00 per share (cheap stock), are considered to have
been made in anticipation of the contemplated public offering. Accordingly,
these stock issuances are treated as if issued and outstanding, using the
treasury stock method, since the inception of the Company.
Page 19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996
<CASH> 0 34,118,404
<SECURITIES> 0 6,014,594
<RECEIVABLES> 0 3,982,786
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 44,585,712
<PP&E> 0 4,962,704
<DEPRECIATION> 0 1,321,503
<TOTAL-ASSETS> 0 49,103,272
<CURRENT-LIABILITIES> 0 18,576,948
<BONDS> 0 0
0 0
0 0
<COMMON> 0 141,065
<OTHER-SE> 0 29,257,083
<TOTAL-LIABILITY-AND-EQUITY> 0 49,103,272
<SALES> 5,647,727 10,677,018
<TOTAL-REVENUES> 5,647,727 10,677,018
<CGS> 2,637,334 4,894,840
<TOTAL-COSTS> 41,542,773 46,328,169
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 37,008 775,215
<INCOME-PRETAX> 38,338,143 40,848,367
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 38,338,143 40,848,367
<EPS-PRIMARY> (3.09) (3.67)
<EPS-DILUTED> (3.09) (3.67)
</TABLE>
