3
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, 1997
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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
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Individual,Inc
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
04-303-6959
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(I.R.S. Employer Identification No.)
8 New England Executive Park West, Burlington, MA 01803
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(Address of principal executive offices) (Zip Code)
(617) 273-6000
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(Registrant's telephone number, including area code)
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(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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
__X__Yes ___No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 1997, 16,092,129 shares of Common Stock, $.01 par value per
share, were outstanding.
<PAGE>
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Individual, Inc.
Form 10-Q
For the Quarter Ended June, 1997
Index
<TABLE>
<CAPTION>
Page #
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<S> <C> <C>
Facing Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 1
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I - UNAUDITED FINANCIAL INFORMATION
- --------------------------------------------------------------
Item 1.. Consolidated Financial Statements
Consolidated Balance Sheets June 30, 1997 (unaudited) and December 31, 1996 3
Consolidated Statements of Operations (unaudited). . 4
Consolidated Statements of Cash Flows (unaudited) . . 5
Notes to Unaudited Consolidated Financial Statements. 6
Item 2.. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 9
PART II - OTHER INFORMATION
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Item 2.. Change in Securities 16
Item 4.. Submission of Matters to a Vote of Security Holders 17
Item 6.. Exhibits and Reports on Form 8-K 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit 11 . Computation of Loss Per Share 20
Financial Data Schedule. . . . . . . . . . . . . . . . . . .. 21
</TABLE>
<PAGE>
INDIVIDUAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 16,014,232 $ 22,117,834
Investments in marketable securities. . . . . . . . . . . 9,125,577 8,448,306
Accounts receivable, net. . . . . . . . . . . . . . . . . 7,274,660 11,950,638
Deferred income taxes . . . . . . . . . . . . . . . . . . - 35,000
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . 715,809 562,063
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Total current assets. . . . . . . . . . . . . . . . . . 33,130,278 43,113,841
Property and equipment, net. . . . . . . . . . . . . . . . . 4,328,851 4,333,580
Other assets, net. . . . . . . . . . . . . . . . . . . . . . 475,831 952,388
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Total assets. . . . . . . . . . . . . . . . . . . . . . $ 37,934,960 $ 48,399,809
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 3,943,973 $ 4,894,036
Accrued royalties . . . . . . . . . . . . . . . . . . . . 1,836,835 1,610,829
Accrued expenses. . . . . . . . . . . . . . . . . . . . . 6,968,979 3,955,481
Deferred revenue. . . . . . . . . . . . . . . . . . . . . 11,387,085 14,694,856
Equipment financing loans and notes payable . . . . . . . 1,457,351 1,074,055
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Total current liabilities . . . . . . . . . . . . . . . 25,594,223 26,229,257
Other long term liabilities. . . . . . . . . . . . . . . . . 1,694,624 1,540,375
Commitments and contingencies (note 6)
Stockholders' equity:
Common stock, $0.01 par value; 25,000,000 shares
authorized, 16,092,129 and 15,722,498 shares
issued and outstanding in 1997 and 1996, respectively. 147,836 144,140
Additional paid in capital. . . . . . . . . . . . . . . . 90,887,572 89,915,343
Cumulative translation adjustment . . . . . . . . . . . . 63,732 70,149
Unrealized gains on marketable securities . . . . . . . . 116,172 125,475
Accumulated deficit . . . . . . . . . . . . . . . . . . . (80,569,199) (69,594,253)
Less 32,865 shares held in treasury
(at cost) at December 31, 1996 . . . . . . . . . . . . - (30,677)
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Total stockholders' equity. . . . . . . . . . . . . . 10,646,113 20,630,177
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Total liabilities and stockholders' equity. . . . . . . $ 37,934,960 $ 48,399,809
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<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
INDIVIDUAL, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . $ 8,806,575 $ 6,638,334 $ 17,575,721 $ 12,550,024
Cost of revenue . . . . . . . . . 4,238,804 2,961,153 8,832,832 5,548,085
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Gross margin. . . . . . . . . . . 4,567,771 3,677,181 8,742,889 7,001,939
Operating expenses:
Sales and marketing. . . . . . 1,916,035 1,502,058 4,128,287 2,709,507
New subscriber acquisition . . 3,414,866 1,948,926 6,197,924 4,179,629
Product development. . . . . . 1,803,840 1,128,833 3,243,455 2,046,442
General and administrative . . 839,825 1,203,541 2,043,365 2,029,782
Acquisitions and other charges 3,068,433 36,220,417 4,700,722 36,220,417
------------- -------------- -------------- --------------
Total operating expenses. . 11,042,999 42,003,775 20,313,753 47,185,777
------------- -------------- -------------- --------------
Loss from operations. . . . . . . (6,475,228) (38,326,594) (11,570,864) (40,183,838)
Interest income and other, net. . 485,741 231,245 854,160 472,839
Interest expense. . . . . . . . . (161,443) (63,880) (258,242) (828,386)
Net loss. . . . . . . . . . . . . ($6,150,930) ($38,159,229) ($10,974,946) ($40,539,385)
============= ============== ============== ==============
Net loss per common share . . . . ($0.39) ($2.78) ($0.69) ($3.29)
============= ============== ============== ==============
Weighted average common
shares outstanding . . . . . . 15,976,190 13,730,789 15,917,649 12,338,771
============= ============== ============== ==============
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
INDIVIDUAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($10,974,871) ($40,492,293)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 1,468,977 678,010
Loss on disposal of property and equipment . . . . . . . . . . . . 421,117 18,728
Provision for doubtful accounts. . . . . . . . . . . . . . . . . . - 217,675
Compensation recognized under employee stock plans . . . . . . . . - 27,981
Purchased incomplete technology. . . . . . . . . . . . . . . . . . - 35,563,750
Loss on joint venture. . . . . . . . . . . . . . . . . . . . . . . - 1,303,821
Changes in operating assets and liabilities:
Decrease in accounts receivable . . . . . . . . . . . . . . . 4,675,978 891,873
Increase in prepaid expenses. . . . . . . . . . . . . . . . . (118,824) (383,310)
Decrease/ (Increase) in other assets. . . . . . . . . . . . . 444,939 10,276
(Decrease)/ Increase in accounts payable and accrued expenses 1,970,780 1,668,893
Increase in other long term liabilities . . . . . . . . . . . (500,004) 166,667
(Decrease)/ Increase in deferred revenue. . . . . . . . . . . (3,307,771) 572,635
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Net cash used in operating activities: . . . . . . . . . . . . . . (5,919,679) 244,706
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Cash flows from investing activities:
Additions to property and equipment. . . . . . . . . . . . . . . . (1,241,655) (937,930)
Investment in joint venture. . . . . . . . . . . . . . . . . . . . - (1,883,417)
Cash acquired from/(paid for) acquistion . . . . . . . . . . . . . (280,000) 1,010,354
Investments in marketable securities . . . . . . . . . . . . . . . (700,000) (5,992,450)
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Net cash used in investing activities: . . . . . . . . . . . . . . (2,221,655) (7,803,443)
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Cash flows from financing activities:
Principal repayments on loans . . . . . . . . . . . . . . . . . . (55,149) (69,391)
Increase in equipment loan, net. . . . . . . . . . . . . . . . . . 1,092,697 180,963
Proceeds from issuance of common stock, net of related expenses. . 1,006,601 34,086,706
Payment on senior subordinated notes . . . . . . . . . . . . . . . - (10,000,000)
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Net cash provided by financing activities. . . . . . . . . . . . . 2,044,149 24,198,278
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Effect of exchange rate on cash. . . . . . . . . . . . . . . . . . (6,417) (2,342)
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Net increase in cash and cash equivalents. . . . . . . . . . . . . (6,103,602) 16,637,199
Cash and cash equivalents at the beginning of period . . . . . . . 22,117,834 17,920,924
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Cash and cash equivalents at the end of period . . . . . . . . . . $ 16,014,232 $ 34,558,123
============== ==============
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,806 $ 746,688
============== ==============
Non cash transactions:
Issuance of common stock in connection with acquisition. . . . $ 512,500 -
============== ==============
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
============== ==============
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
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. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996. 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. In June 1997, the
Company acquired all of the outstanding capital stock of ClariNet
Communications Corp. in a transaction accounted for as a pooling of interests.
Accordingly, all prior period financial statements presented herein have been
restated to include the financial position, results of operations, and cash
flows of ClariNet Communications Corp. See Note 5.
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Reclassification of Amounts
Certain amounts in the financial statements for the three months and the
six months ended June 30, 1996 have been reclassified to conform to the
presentation for the three months and the six months ended June 30, 1997.
4. Per Share Computations
Net loss per common share for 1996 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 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.
5. Acquisitions and Other Charges
In June 1997, the Company completed the acquisition of ClariNet
Communications Corp. ("ClariNet" through a subsidiary merger (the
"merger")whereby a wholly-owned subsidiary of the Company was merged with and
into ClariNet, with ClariNet continuing as the surviving corporation and a
wholly-owned subsidiary of the Company. ClariNet publishes a global
electronic newspaper on the Internet called ClariNews, which is distributed
through internet service providers and to corporations, educational
institutions and individual subscribers. Approximately 1,475,000 shares of
Individual Common Stock were issued in exchange for all of the outstanding
Common Stock of ClariNet (including approximately 138,512 shares of
Individual Common Stock reserved for issuance upon exercise of outstanding
ClariNet stock options assumed by Individual in the Merger). The transaction
was accounted for as pooling of interests and therefore, all prior period
financial statements presented herein have been restated as if the merger took
place at the beginning of such periods. Separate results of operations for
the periods prior to the merger with ClariNet are as follows:
<TABLE>
<CAPTION>
Unaudited Unadited Unaudited Unaudited
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/97 6/30/96 6/30/97 6/30/96
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<S> <C> <C> <C> <C>
Net Sales
Individual. . . . 7,874,827 5,647,727 15,669,714 10,677,018
ClariNet. . . . . 931,748 990,607 1,906,007 1,873,006
---------- --------- ----------- ----------
Combined . . . . . . 8,806,575 6,638,334 17,575,721 12,550,024
Net Income
Individual. . . . (5,896,129) (38,338,143) 10,554,743) (40,848,364)
ClariNet. . . . . (254,801) 178,914 (420,203) 308,979
----------- ------------- ----------- ----------
Combined . . . . . . (6,150,930) (38,159,229)(10,974,946) (40,539,385)
Other changes in
shareholders' equity
Individual. . . . 639,939 38,819,702 990,882 10,902,367
ClariNet. . . . . - - - 7,425
---------- ------------ ----------- ----------
Combined . . . . . . 639,939 38,819,702 990,882 10,909,792
</TABLE>
In connection with the Merger, $873,000 of merger costs and expenses were
incurred and have been charged to expense in the second quarter of 1997 and
are included in acquisitions and other charges. The Merger costs and expenses
related primarily to legal, accounting, and investment adviser's fees.
In June 1997, the Company acquired certain assets and liabilities of the
CompanyLink service from Knowledge Factory Partners, L.L.C., a subsidiary of
Delphi Internet Services Corporation. The CompanyLink service detects
corporate-specific references and detailed market statistics on more than
65,000 companies and dynamically links those references to related news and
information on the Web. The purchase price for the acquisition included
$280,000 in cash, a Common Stock Purchase Warrant exercisable for the purchase
of 50,000 shares of Individual Common Stock at an exercise price of $5.25 per
share and certain monthly contingent payments payable for a period of twelve
months after the closing of the acquisition. The Company also recognized
$50,000 of legal and accounting expenses in connection with the acquisition.
The acquisition has been recorded using the purchase method of accounting.
The total estimated purchase price of $447,000 has been recorded as an
intangible asset and is being amortized over 18 months. Amortization expense
for June is included in acquisitions and other charges.
Amortization of goodwill of approximately $174,000 was charged primarily
in connection with the Company's acquisition in October 1996 of certain assets
and liabilities of the Hoover Business Intelligence Services unit ("Hoover")
from Information Access Company, a unit of the Thomson Corporation (Toronto).
The amortization expense is included in acquisitions and other charges.
The Company ceased operations of its FreeLoader service as of May 31,
1997, and all costs related to the shutdown are included in acquisitions and
other charges as well as operating expenses of FreeLoader of approximately
$1.4 million, which are predominantly product development expenses.
6. Commitments and Contingencies
Under the merger agreement with FreeLoader, the Company is required to pay a
balloon payment of $2,000,000 to the two founders of FreeLoader, payable upon
the successful completion of three years of employment with the Company. The
Company has accrued this charge in acquisitions and other charges. The
Company has also guaranteed the value of certain shares issued to the two
founders in the transaction, which will be measured during the period August
31, 1997 through February 28, 1998. If the fair value of the stock is less
than the guaranteed value, then the Company will pay out the difference in
cash. At June 30, 1997, the fair value of the stock is approximately
$3,791,000 below the guaranteed value. The Company has letters of credit
outstanding of approximately $4,100,000 in connection with the repayment of
this amount by the Company.
7. Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement No. 128 ("SFAS
128"), "Earnings per Share", which modifies the way in which earnings per
share (EPS) is calculated and disclosed. Upon adoption of this standard for
the fiscal period ending December 31, 1997, the Company will disclose basic
and diluted EPS and will restate all prior period EPS data presented. Basic
EPS excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS, similar to fully diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Management believes the adoption of SFAS 128 will not have a material impact
on reported earnings per share.
The Financial Accounting Standard Board recently issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." This
Statement requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. The Statement will become effective for fiscal years
beginning after December 15, 1997. The Company will adopt the new standard
beginning in the first quarter of the fiscal year ending December 31, 1998.
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 specifies
new guidelines for determining a company's operating segments and related
requirements for disclosure. The Company is in the process of evaluating the
impact of the new standard on the presentation of the financial statements and
the disclosures therein. The Statement will become effective for fiscal years
beginning after December 15, 1997. The Company will adopt the new standard
for the fiscal year ending December 31, 1998.
<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 early
1990, and has subsequently introduced additional services targeted at multiple
market segments.
The Company's revenue is derived from three classes of services: enterprise
services, single-user services and ClariNews, a news service of ClariNet,
acquired in June 1997 and described below. Revenue for the Company's
principal enterprise service, First! (introduced in the first quarter of 1990)
consists of subscription fees from organizations. In October 1996, the
Company acquired the Hoover business intelligence unit ("Hoover"), from the
Information Access Company ("IAC"), a unit of the Thomson Corporation.
Revenue from the enterprise Hoover service consists of both subscription fees
for content, and software license and maintenance fees. The Company's
principal single-user service is the World Wide Web-based service NewsPage,
introduced in the second quarter of 1995. NewsPage base service is generally
available for no charge to users. Revenue consists of advertising fees from
companies placing advertisements through this service and from subscription
fees for premium levels of service and fees for the fulfillment of certain
user requests for additional information. Another single-user service of the
Company is HeadsUp, which was introduced in the second quarter of 1993.
HeadsUp consists of subscription fees and fees for the fulfillment of certain
user requests for additional information. HeadsUp is a fax and email-based
service and is not being promoted actively in 1997, primarily due to the
Company's belief that users are moving to Web-based information services, such
as NewsPage.
On June 28, 1996, the Company acquired FreeLoader, a developer of agent-based
software for the off-line delivery of World Wide Web multi-media content.
The Company ceased operations of FreeLoader as of May 31, 1997, and all costs
related to the shutdown are included in acquisitions and other charges as well
as operating expenses of FreeLoader of approximately $1.4 million, which are
predominantly product development expenses. No material impact on operations
was incurred in the shutdown, as the majority of the purchase price was
allocated to purchased incomplete technology and accordingly, was expensed at
the time of the purchase.
In June 1997, the Company acquired CompanyLink, a service of Delphi Internet
Services. CompanyLink's advanced technology detects corporate-specific
references and detailed market statistics on more than 65,000 companies and
dynamically links those references to related news and information on the Web.
The service also features a personalized news product that enables automatic
access to updated information for competitive research, industry reports,
potential business/customer investigation, and more. Company Link did not
materially contribute to revenues for the quarter ended June 30, 1997. The
purchase price for the acquisition included $280,000 in cash, a Common Stock
Purchase Warrant exercisable for the purchase of 50,000 shares of Individual
Common Stock at an exercise price of $5.25 per share and certain monthly
contingent payments payable for a period of twelve months after the closing of
the acquisition. The Company also incurred $50,000 of legal and accounting
expenses in connection with the acquisition. The acquisition has been
recorded using the purchase method of accounting. The total purchase price of
$447,000 has been recorded as an intangible asset and is being amortized over
18 months. Amortization expense for June is included in acquisitions and
other charges.
In June 1997, the Company completed the acquisition of ClariNet Communications
Corp. ("ClariNet") through a subsidiary merger (the "merger") whereby
approximately 1,475,000 shares of Individual Common Stock were issued in
exchange for all of the outstanding Common Stock of ClariNet (including
approximately 138,512 shares of Individual Common Stock reserved for issuance
upon exercise of outstanding ClariNet stock options assumed by Individual in
the Merger). The transaction was accounted for as pooling of interests and
therefore, all prior period financial statements presented herein have been
restated as if the merger took place at the beginning of such periods.
ClariNet Communications is the publisher of ClariNews, the premier globally
branded electronic newspaper. ClariNet revenue consists primarily of
subscription fees generated by the licensing of its content through more than
350 Internet Service Providers, corporations, and educational institutions
worldwide. Although advertising currently accounts for less than five percent
of ClariNet revenue, ClariNet intends to explore ways of incorporating
advertising into its 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, under certain
circumstances, 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 majority of the Company's operating expenses consists of salaries and
related costs. The Company had 241 full-time employees on June 30,1997, up
from 214 on December 31, 1996, and up from 157 and 96 on December 31, 1995 and
1994, respectively. The number on June 30, 1997 includes 40 employees working
at ClariNet. 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 That May Affect Future Quarterly Results
- ---------------------------------------------------------------------
This Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to risks and uncertainties. The Company's actual future results may differ
materially from the results discussed in the forward-looking statements.
Factors that might cause such differences include, but are not limited to,
those discussed in "Factors That May Affect Future Performance" under Item 7
of the Company's Annual Report on Form 10K for the fiscal year ended December
31, 1996 as well as other factors described from time to time in the Company's
filings with the Securities and Exchange Commission.
The market for current awareness products is experiencing rapid changes as
organizations introduce company-wide information and knowledge solutions built
on enterprise computing platforms such as internal intranets and groupware
products, such as Lotus Notes. As a result of these changes, Individual has
migrated its First! product from fax and e-mail distribution, sold primarily
to small groups of users at an average annual contract value of less than
$10,000, to distribution via intranet and Lotus Notes systems capable of
servicing large organizations. This evolving market focus has required the
Company not only to invest in the product development and engineering required
to introduce new and enhanced enterprise-based products such as First!
Intranet and First! Notes, but also to adapt its selling efforts in order to
address the requirements of large organizations that desire to implement
current business awareness solutions on an enterprise-wide basis over their
existing information infrastructures. Such solutions typically involve large
contracts with annual contract values in excess of $50,000 and generally
require a longer sales cycle than departmental or business-group sales. As a
result, the Company has been investing in additional sales and sales
management personnel with experience in selling large contracts, as well as in
additional customer service personnel capable of addressing increasingly
complex customer needs. Approximately 75% of the Company's enterprise customer
base presently distributes the Company's products from intranets and Lotus
Notes, almost double from a year ago. Notwithstanding such growth, however,
the ability of the Company to achieve future growth is heavily dependent on
the Company's ability to successfully sell large contracts to enterprise
customers and to support implementations with those customers. There can be
no assurance that the Company will be successful in recruiting and training
additional sales and customer service personnel with the skills required to
sell and support large contracts which may affect its rate of growth. In
addition, the Company is experiencing longer sales cycles and if this trend
continues its rate of growth and future operating results may be adversely
affected.
Management may in future periods consider 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. Such acquisitions involve potential risks, including difficulties
in assimilating the acquired Company's operations, technology, products and
personnel, completing and integrating acquired in-process technology,
diverting management's resources, uncertainties associated with operating in
new markets and working with new employees and customers, and the potential
loss of the acquired Company's key employees.
The Company depends, in significant part, upon the continued services of its
key technical, editorial, sales and product development, most of whom are not
bound by employment agreements, and only certain of whom are bound by
noncompetition agreements. The Company's plan requires the hiring of
additional engineering and sales personnel in order to add additional products
and features and grow its customer base. In the Boston, MA and Silicon
Valley, CA markets, these skills are in high demand and there is no assurance
that the Company will be successful in hiring these personnel.
In view of the Company's revenue growth in recent years and its limited
operating history, period-to-period comparisons of its financial results are
not necessarily meaningful and should not be relied upon as any indication of
future performance. The Company's quarterly results of operations have
fluctuated significantly in the past and will likely fluctuate in the future
due to, among other factors, demand for its services and changes in service
mix, the size and timing of new and renewal subscriptions from corporate
customers, advertising revenue levels, the effect of new service announcements
by the Company and its competitors, the ability of the Company to develop,
market and introduce new and enhanced versions of its services on a timely
basis and the level of product and price competition. A substantial portion of
the Company's cost of revenue, which consists principally of fees payable to
information providers, telecommunication costs and personnel expenses, is
relatively fixed in nature. The Company's operating expense levels are based,
in significant part, on the Company's expectations of future revenue. If
quarterly revenues are below management's expectations, both gross margins and
results of operations would be adversely affected because a relatively small
amount of the Company's costs and expenses varies with its revenue in the
short-term.
Results of Operations
- -----------------------
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenue (All data has been restated to reflect
the acquisition of ClariNet, which was acquired in June 1997 and accounted for
as a pooling of interests):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . 100% 100% 100% 100%
Cost of Revenue. . . . . . . . . . . . . . 48% 45% 50% 44%
------- -------- ------ -------
Gross Margin . . . . . . . . . . . . . . . 52% 55% 50% 56%
Operating expenses:
Sales and marketing. . . . . . . . . . . . 22% 23% 23% 22%
New subscriber acquisition . . . . . . . . 39% 29% 35% 33%
Product development. . . . . . . . . . . . 20% 17% 19% 16%
General and administrative . . . . . . . . 10% 18% 12% 16%
Mergers, acquisitions and related charges. 35% 546% 27% 289%
------- ------- ------- --------
Total operating expense. . . . . . . . . 126% 633% 116% 376%
Loss from operations . . . . . . . . . . . (74)% (578)% (66%) (320)%
Interest and other income (expense), net . 4% 3% 4% (3)%
-------- ------- -------- ------
Net loss . . . . . . . . . . . . . . . . . (70)% (575)% (62%) (323)%
========= ======== ========= ======
</TABLE>
Three months and six months ended June 30, 1997 and 1996
- ------------------------------------------------------------------
Revenue.
Revenues increased 33% from $6,638,000 for the three months ended June 30,
1996 to $8,807,000 for the three months ended June 30, 1997. Revenues
increased 40% from $12,550,000 to $17,576,000 in the six months ended June 30,
1996 and 1997, respectively. Additionally, the number of registered and
authorized users of the Company's information services, including ClariNet,
increased to more than 2,130,000 at June 30, 1997, an increase of 22% over the
number of users at June 30, 1996 (Including in each case the 1.5 million
subscribers acquired with the acquisition of ClariNet).
In the second quarter of fiscal 1997, revenue from the Company's enterprise
(First! and Hoover) products was $5,341,000, up from $3,712,000 for the second
quarter of fiscal 1996. This increase of 44% in revenue resulted primarily
from Hoover, acquired in October 1996 and new sales of First! Intranet,
which are offsetting declining revenues from First! distributed by fax and
e-mail. For the six months ended June 30, 1997, revenue from First! and
Hoover grew to $10,715,000, an increase of 49% over the $7,177,000 of revenue
for the same period in 1996. During the first half of 1997, the Company has
revamped its sales approach to target larger, strategic account relationships
for First! Intranet and First! Notes. This decision has resulted in a 24
percent increase in the average size of a First! account during the first six
months of 1997 to almost $25,000, as compared to a contract base a year ago
which was weighted more heavily by multiple fax and e-mail contracts with an
average contract value of $6,000 to $8,000. However, due to the longer
selling cycle for larger accounts, the new sales strategy has reduced some
short term enterprise revenue while creating a sales pipeline to generate long
term growth.
In the second quarter of fiscal 1997, revenue from single user services
(NewsPage and Heads Up) grew by 31% to $2,534,000, up from $1,935,000 for the
second quarter of fiscal 1996. The growth was attributable primarily to the
Company's NewsPage service on the World Wide Web. The increase in revenue
from NewsPage was partially offset by the declining revenues of the non-Web
single user service HeadsUp, which has not been actively promoted as the
Company believes that many of these users are migrating to Web-based services,
including the Company's NewsPage service. The Company expects this trend to
continue in the future. For the six months ended June 30, 1997, single user
revenue grew to $4,954,000, an increase of 42% over the $3,500,000 of revenue
for the same period in 1996.
In the second quarter of fiscal 1997, revenue from ClariNet totaled $932,000,
representing a 4% drop from the $972,000 of revenue in the second quarter of
fiscal 1996. For the six months ended June 30, 1997 ClariNet revenue totaled
$1,906,000, an increase of 2% from the $1,873,000 of revenue for the six
months ended June 30, 1996. Much of the reduction in revenue for the second
quarter of 1997 is attributable to a number of ISP's (Internet Service
Providers) switching their subscriptions to a lower level of service to
minimize their costs while still providing their subscribers with the
opportunity to upgrade to a ClariNet premium service. In future quarters, the
Company expects to incorporate ClariNet's revenue into the enterprise and
single user products.
Cost of revenue.
Cost of revenue was $4,239,000 for the three months ended June 30, 1997, as
compared to $2,961,000 for the same period in 1996, or an increase of 43%.
Cost of revenue was $8,833,000 for the six months ended June 30, 1997, as
compared to $5,548,000 for the same period in 1996, or an increase of 59%.
Gross margin decreased from 55% to 52% for the three months ended June 30,
1997, and decreased from 56% to 50% for the six months ended June 30, 1997.
The decline in gross margin is the result of higher information provider
costs, including minimum royalties paid to certain information providers and
the higher royalty percentage paid on Hoover revenue as compared to revenue
from First!. Additional costs were also incurred by increasing the capacity
for NewsPage email deliveries and supporting larger scale enterprise accounts.
The Company expects many of these costs to remain fairly constant throughout
the rest of fiscal 1997 and the first half of fiscal 1998, which should
improve the gross margin percent if revenues continue to grow.
Sales and marketing.
Sales and marketing expenses increased 28% to $1,916,000 for the three months
ended June 30, 1997, up from $1,502,000 for the same period of 1996. Sales
and marketing expenses increased by 52% to 4,128,000 for the six months ended
June 30, 1997, up from $2,710,000 for the same period of 1996. This increase
is primarily due to additional personnel for product management and
advertising sales related to NewsPage, additional sales personnel for
ClariNet, subscription and advertising royalties paid to NewsPage distribution
partners such as Netcom, and increased expenses related to renewing First!
contracts.
New subscriber acquisition.
New subscriber acquisition expenses increased 75% to $3,415,000 for the three
months ended June 30, 1997 from $1,949,000 for the same period in 1996. New
subscriber acquisition expenses increased 48% from $4,180,000 to $6,198,000
for the six months ended June 30, 1996 and June 30, 1997 respectively. The
increase is primarily due to costs incurred to acquire NewsPage users,
including Web site advertising, radio advertising, and direct mailings. The
Company does not expect the current level of spending for this type of
advertising to continue in the near future as it intends to focus on more
efficient subscriber acquisition programs, including leveraging strategic
distribution partnerships to grow the NewsPage subscriber base.
Product development.
Product development increased 60% to $1,804,000 for the three months ended
June 30, 1997, up from $1,129,000 for the same period in 1996. Product
development expenses increased 59% to $3,243,000 for the six months ended June
30, 1997, up from $2,046,000 for the same period in 1996. This increase is
primarily the result of additional personnel related to the continued
enhancements of both First! and NewsPage products.
General and administrative.
General and administrative expenses decreased 30% to $840,000 for the three
months ended June 30, 1997, down from $1,204,000 for the same period of 1996.
General and administrative expenses increased 1% to $2,043,000 for the six
months ended June 30, 1997, up from $2,030,000 for the same period of 1996.
The decrease in the second quarter of 1997 is due in part to a reduction in
severance payments and recruiting expenses for additional management and
administrative personnel incurred in the second quarter of 1996.
Additionally, one time charges were incurred in the second quarter of 1996 in
preparation for the shutdown of the BookWire business which occurred in
September 1996.
Acquisitions and other charges.
Acquisitions and other charges were $3,068,000 for the three months ended
June 30, 1997, and were $4,701,000 for the six months ended June 30, 1997.
These charges primarily include operating costs, primarily development
expenses, related to Freeloader, a wholly-owned subsidiary acquired in June
1996, and charges related to the shutdown of FreeLoader in May 1997. Other
items included in these charges were amortization on goodwill acquired in the
Hoover acquisition in October 1996, and transaction costs related to the
CompanyLink and ClariNet acquisitions in June 1997. Acquisition and other
charges for the six months ended June 30, 1996 were $36 million, primarily
related to the acquisition of FreeLoader which was expensed as in process
development at the time of the acquisition.
Interest income and other, net.
Interest income and other, net increased 110% to $486,000 for the three months
ended June 30, 1997, up from $231,000 for the same period of 1996. Interest
income and other, net increased 81% to $854,160 for the six months ended June
30, 1997, up from $473,000 for the same period of 1996. These increases were
due to the recognition in 1996 of the Company's share of operating losses of
its joint venture in Japan with Toshiba Corp. and Mitsui & Co. Ltd. The
Company's investment in the joint venture was reduced to zero during the third
quarter of 1996. Interest income increased primarily from interest earned on
the investment of net proceeds of the Company's IPO in March 1996.
Interest expense.
Interest expense increased 151% to $161,000 for the three months ended June
30, 1997, up from $64,000 for the same period of 1996. Interest expense
decreased 68% to $258,000 for the six months ended June 30, 1997, down from
$828,000 for the same period of 1996. The increase for the three months ended
June 30, 1997 is due to interest costs incurred on guaranteed payments with
two FreeLoader employees related to the acquisition of FreeLoader in June
1996. The decrease over the six month period is due to interest costs
incurred in 1996 on senior subordinated notes that were paid in full in March
1996 from a portion of the proceeds of the Company's IPO.
Liquidity and Capital Resources
- ----------------------------------
The Company's cash, cash equivalents and marketable securities balance at June
30, 1997 was $25,140,000, as compared to $30,566,000 at December 31, 1996.
Net cash used in operations was $5,920,000 for the six months ended June 30,
1997, as compared with $245,000 for the same period in 1996. The decrease in
cash is due to increased operating losses incurred in the first half of 1997,
and a decrease in deferred revenue of $3,308,000 in the first half of 1997.
Net cash used in investing activities was $2,222,000 in the six months ended
June 30, 1997 as compared with $7,803,000 for the same period of 1996. In the
first quarter of 1997, $700,000 was used to purchase marketable securities,
primarily from U.S. government agencies, down from $5,992,000 used during the
same period a year ago. Net cash provided by financing activities was
$2,044,000 for the six months ended June 30, 1997, as compared to $24,198,000
in the same period of 1996. This decrease resulted primarily from the
completion of the Company's IPO in March of 1996.
The Company has also used equipment leases and debt instruments to finance the
majority of its purchases of capital equipment. At June 30, 1997 the Company
had approximately $1,971,000 outstanding in connection with these obligations
and had an additional $1,010,000 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, 1997, no amounts were outstanding under this
line.
Management believes that cash and marketable securities will be sufficient to
fund its operations for the next twelve months and to provide for the payments
of up to $6 million to the two FreeLoader founders, under the terms of the
agreements with the founders. 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.
Recently Issued Accounting Standards
- ---------------------------------------
The Financial Accounting Standards Board issued Statement No. 128 ("SFAS
128"), "Earnings per Share", which modifies the way in which earnings per
share (EPS) is calculated and disclosed. Upon adoption of this standard for
the fiscal period ending December 31, 1997, the Company will disclose basic
and diluted EPS and will restate all prior period EPS data presented. Basic
EPS excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS, similar to fully diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Management believes the adoption of SFAS 128 will not have a material impact
on reported earnings per share.
The Financial Accounting Standard Board recently issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." This
Statement requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. The Statement will become effective for fiscal years
beginning after December 15, 1997. The Company will adopt the new standard
beginning in the first quarter of the fiscal year ending December 31, 1997.
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 specifies
new guidelines for determining a company's operating segments and related
requirements for disclosure. The Company is in the process of evaluating the
impact of the new standard on the presentation of the financial statements and
the disclosures therein. The Statement will become effective for fiscal years
beginning after December 15, 1997. The Company will adopt the new standard
for the fiscal year ending December 31, 1998.
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities
- -------- -----------------------
On June 6, 1997, the Company acquired certain of the assets and
liabilities of the CompanyLink service from Knowledge Factory Partners,
L.L.C., a subsidiary of Delphi Internet Services Corporation. The purchase
price for the acquisition of the CompanyLink assets included $280,000 in cash,
certain monthly contingent payments payable for a period of twelve months
after the closing of the acquisition, and the issuance by the Company to
Knowledge Factory Partners, L.L.C. on June 6, 1997 of an unregistered Common
Stock Purchase Warrant (the "Warrant") exercisable for the purchase of 50,000
shares of Common Stock of the Company at an exercise price of $5.25 per share
(the last sale price of the Company's Common Stock on the Nasdaq National
Market on the last trading day immediately preceding the closing date of the
CompanyLink acquisition). The Warrant was issued to Knowledge Factory
Partners, L.L.C. in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, because such issuance
did not involve a public offering.
On June 18, 1997, the Company completed the acquisition (the "Merger") of
ClariNet Communications Corp. ("ClariNet") through a subsidiary merger whereby
a wholly-owned subisidiary of the Company was merged with and into ClariNet,
with ClariNet continuing as the surviving corporation and a wholly-owned
subsidiary of the Company. As consideration for the acquisition, the Company
issued approximately 1,475,000 shares of Common Stock to the ClariNet
shareholders on June 18, 1997 in exchange for all of the outstanding shares of
ClariNet Common Stock (including approximately 138,512 shares of Company
Common Stock reserved for issuance upon exercise of outstanding ClariNet stock
options assumed by the Company in the Merger). The shares of Company Common
Stock were issued to the shareholders of ClariNet in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended, because such issuance did not involve a public offering.
In connection with the Merger, the Company also entered into a fee
payment agreement (the "Fee Payment Agreement") dated as of June 13, 1997 with
Broadview Associates ("Broadview") and ClariNet, pursuant to which the Company
agreed to assume ClariNet's obligation to pay Broadview $500,000 (the
"Broadview Fee") as full payment for all services provided by Broadview in
connection with the Merger. The Broadview Fee is payable in cash or
Individual Common Stock in Individual's discretion, subject to the terms and
conditions of the Fee Payment Agreement. Pursuant to the terms of the Fee
Payment Agreement, the Company issued to Broadview 100,000 shares of Company
Common Stock upon the consummation of the Merger on June 18, 1997 as a
downpayment on the Broadview Fee. The number of such shares of Company Common
Stock, if any, to be retained by Broadview as payment for the Broadview Fee is
subject to adjustment in accordance with the terms of the Fee Payment
Agreement. The shares of Company Common Stock were issued to Broadview
Associates in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, because such issuance
did not involve a public offering.
<PAGE>
- ------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) The Annual Meeting of Stockholders of the Company was held on May
22, 1997 pursuant to the Notice of Annual Meeting of Stockholders dated April
17, 1997.
(b) Jeffery S. Galt and Marino R. Polestra were elected as Class I
Directors of the Company for a three-year term. The terms of office of the
following directors continued after the meeting: Michael E. Kolowich, Joseph
A. Amram, James D. Daniell, William A. Devereaux, Elon Kohlberg and Daniel
Rosen.
(c) (i) The first matter voted upon was the proposal to elect
Jeffery S. Galt and Marino R. Polestra to serve as Class I Directors of the
Company, each to serve a three (3) year term and until his successor is duly
elected and qualified or until his earlier resignation or removal:
Nominee Votes For Votes Withheld Abstained
------- --------- -------------- ---------
Jeffery S. Galt 12,796,435 27,501 0
Marino R. Polestra 12,772,743 51,193 0
(ii) The second matter voted upon was the proposal to ratify an
amendment of the Company's Amended and Restated 1989 Stock Option Plan,
increasing the number of shares of Common Stock of the Company authorized for
issuance thereunder from 3,500,000 to 5,000,000. This matter was approved by
a vote of 8,293,995 FOR, 1,813,630 AGAINST, 360,176 ABSTAINING and 2,356,135
BROKER NON-VOTES.
(iii) The third and final matter voted upon was the proposal to
ratify the selection of Coopers & Lybrand L.L.P. as independent auditors for
the fiscal year ending December 31, 1997. This matter was approved by a vote
of 12,387,271 FOR, 16,003 AGAINST, 420,662 ABSTAINING, and 0 BROKER NON-VOTES.
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 July 3, 1997, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, disclosing under Item 2 the acquisition of
ClariNet Communications Corp. by means of a subsidiary merger. No financial
statements were required to be filed as part of this Report.
<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 8, 1997
By: /s/Michael E. Kolowich
------------------------
Michael E. Kolowich
Chariman of the Board, President and
Chief Executive Officer and Director
(Principal Executive Officer)
By: /s/Robert L. Lentz
--------------------
Robert L. Lentz
Senior Vice President, Finance and
Administration, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX INDIVIDUAL, INC.
<TABLE>
<CAPTION>
Exhibit Number Description Page
- -------------- ------------------------------------------ ----
<C> <S> <C>
11 Computation of Weighted Average Shares
Used in Computing Loss Per Share Amounts 20
Financial Data Schedule. . . . . . . . . 21
</TABLE>
20
INDIVIDUAL, INC. Exhibit 11
COMPUTATION OF WEIGHTED AVERAGE SHARES
USED IN COMPUTING LOSS PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Primary Fully Diluted Supplemental
Type of Security Shares Shares Shares (1)
- ------------------------------------------------------------------ -------------- -------------- -------------
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30, 1996:
Common stock less shares held in treasury, beginning of period. 13,264,725 13,264,725 13,264,725
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. . . . 13,730,789 13,730,789 13,730,789
============== ============== =============
Net loss per common share. . . . . . . . . . . . . . . . . ($2.78) ($2.78) ($2.78)
============== ============== =============
FOR THE THREE MONTHS ENDED JUNE 30, 1997:
Common stock less shares held in treasury, beginning of period. 15,946,582 15,946,582 15,946,582
Weighted average common stock issued during the period. . . . . 29,608 29,608 29,608
Weighted average shares of common stock outstanding . . . . . 15,976,190 15,976,190 15,976,190
============== ============== =============
Net loss per common share . . . . . . . . . . . . . . . . . . ($0.37) ($0.37) ($0.37)
============== ============== =============
Primary Fully Diluted Supplemental
Type of Security . . . . . . . . . . . . . . . . . . . . . . . . . Shares Shares Shares (1)
- ------------------------------------------------------------------ -------------- -------------- -------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996:
Common stock less shares held in treasury, beginning of period. 2,813,035 2,813,035 2,813,035
Weighted average common stock issued during the period. . . . . 1,901,327 1,901,327 1,901,327
Weighted average treasury stock repurchased during the period . (801) (801) (801)
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. . . . 8,987,030 8,987,030 12,338,771
============== ============== =============
Net loss per common share. . . . . . . . . . . . . . . . . ($4.51) ($4.51) ($3.29)
============== ============== =============
FOR THE SIX MONTHS ENDED JUNE 30, 1997:
Common stock less shares held in treasury, beginning of period. 15,689,633 15,689,633 15,689,633
Weighted average common stock issued during the period. . . . . 228,016 228,016 228,016
Weighted average shares of common stock outstanding . . . . . 15,917,649 15,917,649 15,917,649
============== ============== =============
Net loss per common share . . . . . . . . . . . . . . . . . . ($0.67) ($0.67) ($0.67)
============== ============== =============
<FN>
(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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 0 16,014,232
<SECURITIES> 0 9,125,577
<RECEIVABLES> 0 7,274,660
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 33,130,278
<PP&E> 0 4,328,851
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 37,934,960
<CURRENT-LIABILITIES> 0 25,594,223
<BONDS> 0 0
0 0
0 0
<COMMON> 0 147,836
<OTHER-SE> 0 10,498,277
<TOTAL-LIABILITY-AND-EQUITY> 0 37,934,960
<SALES> 0 0
<TOTAL-REVENUES> 8,806,575 17,575,721
<CGS> 4,238,804 8,832,832
<TOTAL-COSTS> 11,042,099 20,313,753
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 161,443 854,160
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,150,930) (10,974,946)
<EPS-PRIMARY> $(.39) $(.69)
<EPS-DILUTED> 0 0
</TABLE>
