U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIE
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-10932
INDIVIDUAL INVESTOR GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3487784
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 Broadway, 38th Floor, New York, New York 10019
(Address of principal executive offices)
(212) 843-2777
(Issuer's telephone number)
(Former name, former address and former fiscal quarter, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No .
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 5, 1997, issuer had
outstanding 6,161,869 shares of Common Stock, $.01 par value per share.
EXHIBIT INDEX - Page 13
Page 1 of 14 pages
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
March 31, 1997
ASSETS
Current assets:
Cash and cash equivalents $825,442
Accounts receivable (net of allowances of $584,704) 2,466,598
Prepaid expenses and other current assets 519,210
----------
Total current assets 3,811,250
Deferred subscription expense 702,970
Investment in affiliate (note 2) 2,382,183
Property and equipment - net 703,178
Other assets 164,991
----------
Total assets $7,764,572
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,289,673
Accrued expenses 588,752
----------
Total current liabilities 1,878,425
Deferred subscription revenue 2,982,480
-----------
Total liabilities 4,860,905
-----------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 1,000,000 shares -
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding 6,161,869 61,619
Additional paid-in capital 13,620,121
Deficit (10,788,603)
Unrealized gain on marketable securities 10,530
------------
Total stockholders' equity 2,903,667
------------
------------
Total liabilities and stockholders' equity $7,764,572
============
See Notes to Consolidated Condensed Financial Statements
2
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31,
------------------------------------
1997 1996
----------------- ----------------
Revenues:
Information Services:
Circulation $1,179,242 $1,388,025
Advertising 2,329,712 917,664
List rental and other 336,661 337,408
---------------- ----------------
Total information services revenues 3,845,615 2,643,097
Investment management services (note 3) 121,174 133,261
Equity in net loss of affiliate (note 2) (1,665,317) (706,270)
---------------- ----------------
Total revenues 2,301,472 2,070,088
---------------- ----------------
Operating expenses:
Editorial, production and distribution 2,156,491 1,388,654
Promotion and selling 1,476,125 1,057,588
General and administrative 1,032,587 785,722
Depreciation and amortization 65,425 32,736
---------------- ----------------
Total operating expenses 4,730,628 3,264,700
---------------- ----------------
---------------- ----------------
Operating loss (2,429,156) (1,194,612)
---------------- ----------------
Interest and other income 10,943 73,090
---------------- ----------------
Net loss ($2,418,213) ($1,121,522)
---------------- ----------------
Dividends paid - -
Net loss per weighted average common shares ($0.39) ($0.18)
Weighted average number of common
shares outstanding during the period 6,154,162 6,305,815
See Notes to Consolidated Condensed Financial Statements
3
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
March 31,
------------------------------
1997 1996
--------------- ------------
Cash flows from operating activities:
Net loss ($2,418,213) ($1,121,522)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 65,425 32,736
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 114,674 (326,098)
Prepaid expenses and other current assets (139,814) (226,292)
Deferred subscription expense 254,444 (13,697)
Increase (decrease) in:
Accounts payable and accrued expenses (859,466) (1,004,877)
Deferred subscription revenue (346,257) 359,500
--------------- ------------
Net cash used in operating activities (3,329,207) (2,300,250)
--------------- ------------
Cash flows from investing activities:
Purchase of property and equipment (51,795) (161,163)
Decrease in investment in affiliate 2,565,317 1,906,270
--------------- ------------
Net cash provided by investing activities 2,513,522 1,745,107
--------------- ------------
Cash flows from financing activities:
Proceeds from exercise of options 96,676 12,949
--------------- ------------
Net cash provided by financing activities 96,676 12,949
--------------- ------------
Net decrease in cash and cash equivalents (719,009) (542,194)
Cash and cash equivalents, beginning of period 1,544,451 6,276,987
--------------- ------------
Cash and cash equivalents, end of period $825,442 $5,734,793
=============== ============
See Notes to Consolidated Condensed Financial Statements
4
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB. Accordingly, they do not include all of the information
and footnotes as required by generally accepted accounting principles
for annual financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments)
considered necessary in order to make the financial statements not
misleading have been included. Operating results for the three months
ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report for the
fiscal year ended December 31, 1996 on Form 10-KSB.
Reclassifications. Equity in net loss of affiliate for the
three months ended March 31, 1997 has been recorded in operating
revenues to reflect such earnings and losses as part of the Company's
core operations. The equity in net loss of affiliate for the period
ended March 31, 1996 has been reclassified to conform with the current
period presentation.
2. INVESTMENT IN AFFILIATE
A wholly-owned subsidiary, WisdomTree Capital Management, Inc.
("WTCM"), serves as general partner of a domestic private investment
fund. The Company is also a limited partner in the fund. The value of
the Company's investment in the fund decreased from $4,947,500 at
December 31, 1996 to $2,382,183 at March 31, 1997. This decrease
resulted from net losses on the Company's investment in the fund and
from a withdrawal of $900,000 by the Company in February 1997. Selected
unaudited financial information for the fund (which is deemed to be an
affiliate) as of March 31, 1997 is as follows:
Assets (at fair value) $ 48,961,211
Liabilities 25,215,804
Partners' Capital 23,745,407
Net loss for the fund ($ 16,638,713)
3. INVESTMENT MANAGEMENT SERVICES
The Company, through WTCM, provides investment management
services to the domestic fund referred to in Note 2, and to an offshore
private investment fund, which commenced operations in January 1996.
The Company has no investment in the offshore fund. The Company is
entitled to receive a management fee equal to 1/4 of 1% of the net
asset value of the domestic fund, calculated as of the last business
day of each quarter, and a management fee equal to 1/8 of 1% of the net
asset value of the offshore fund, calculated monthly. Total management
fees for the three months ended March 31, 1997 were $79,082, as
compared to $133,261 in 1996.
5
<PAGE>
WTCM is also entitled to receive a special allocation equal
to 20% of the net income, if any, of each of the funds (not including
income earned on its own investment), subject to certain limitations,
calculated at year end, which is December 31st for the domestic fund
and June 30th for the offshore fund.
Total equity under management by the Company as of March 31,
1997 for both the domestic and offshore funds totaled approximately
$28.3 million.
4. STOCK OPTIONS
During the three months ended March 31, 1997: the Company
granted 33,900 options to purchase the Company's common stock; 19,750
options were exercised (providing proceeds of $94,950), and; 35,500
options were canceled. Of the total granted, all options were granted
under the Company's stock option plans which expire at various dates
through March 2007.
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS No. 128") which simplifies the standards for
computing earnings per share previously required by Accounting
Principles Board Opinion No. 15 and establishes a new standard for
presenting earnings per share. The Company will begin reporting
earnings (loss) per share according to this new standard in the fourth
quarter of this year, requiring all prior period earnings per share
data (including interim periods) to be restated to conform with the
provisions of the new statement. Loss per share amounts for the three
months ended March 31, 1997 and 1996, computed under this new standard
are not expected to be materially different from the loss per share
disclosed in the accompanying financial statements.
6. SUBSEQUENT EVENT
As of May 1, 1997 the Company entered into Stock Purchase
Agreements with two parties unrelated to the Company, providing in the
aggregate for the private sale of 328,678 shares of Common Stock for a
total purchase price of $2,000,000. These shares were sold pursuant to
an exemption from registration under the Securities Act of 1933.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
When used in this Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result," "management expects," or "the Company expects," "will continue," "is
anticipated," "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance
on any such forward-looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company has no obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect anticipated events or circumstances occurring after the
date of such statements.
Quarter Ended March 31, 1997 as Compared to the Quarter Ended March 31, 1996
Total revenues increased 11%, to $2,301,472 for the quarter ended March
31, 1997, as compared to $2,070,088 for the quarter ended March 31, 1996.
Revenues from financial information services rose 45%, to $3,845,615
for the quarter ended March 31, 1997, as compared to $2,643,097 in 1996.
Circulation revenues decreased 15%, to $1,179,242 for the quarter ended
March 31, 1997, as compared to $1,388,025 in 1996. Subscription revenues for the
Company's flagship magazine, Individual Investor, decreased 30%, while newsstand
revenues for the magazine increased by 54%. At the same time, subscription
revenues for the Company's newsletter, Special Situations Report, increased 4%.
Management attributes the decreases in circulation revenues of Individual
Investor and Special Situations Report to the reduction of direct mail and
television campaigns in favor of other sources for subscribers that will provide
for continuing numbers of new subscribers with lower marketing expenses but less
subscription revenue. Individual Investor had average paid circulation of over
433,000 in the first quarter of 1997, as compared to average paid circulation of
over 287,000 in the first quarter of 1996. As of March 1997, Special Situations
Report had approximately 12,000 paid subscribers as compared to 18,200 in March
1996. This decrease is a direct result of the reduction of television campaign
promotions.
Advertising revenues increased 154%, to $2,329,712 for the quarter
ended March 31, 1997, as compared to $917,664 in 1996. This is a result of both
a greater number of advertising pages sold and increased advertising rates per
page. As a result of the increase in paid circulation of Individual Investor,
effective June 1996 the Company increased its advertising rates for Individual
Investor by approximately 43%, and introduced an additional rate increase of
approximately 40% in November 1996. Management anticipates, but can give no
assurance, that in the near term there will be advertising revenue growth from
the rate increases implemented in 1996, and that the number of advertising pages
sold will continue to increase. Management also expects to continue to attract
higher margin consumer advertisers. The Company also launched a new publication,
Ticker (sm), in October 1996. Ticker, with a controlled circulation of 75,000
brokers and financial advisers, has already sold advertising space to a number
of leading advertisers, resulting in revenues of $295,985 in the first quarter
of 1997.
7
<PAGE>
List rental and other revenues totaled $336,661 for the quarter ended
March 31, 1997 which is comparable to revenues of $337,408 in 1996.
Investment management services revenues were $121,174 for the quarter
ended March 31, 1997, as compared to $133,261 in 1996. Revenues from investment
management services are a combination of management fees, being 1 to 1-1/2
percent of assets under management, and a special profit allocation, being 20%
of defined performance (with $42,092 additional revenues being contributed as a
result of the Company's portfolio consulting activities). Because total equity
managed by the Company was approximately $28.3 million as of March 31, 1997 as
compared to $52.4 million as of March 31, 1996, management fees earned by the
Company decreased for the first quarter of 1997. As a result of fund performance
in 1996, investors in the funds managed by the Company made net withdrawals
during the quarter ended March 31, 1997 in excess of contributions of
approximately $18.4 million. This decrease in assets under management in 1997
will mean lower management fees in 1997 as compared to 1996 and will negatively
impact the Company's potential revenues from special profit allocation revenues.
However, as of May 1, 1997 funds managed by the Company increased by $10.2
million as a result of new and additional investments made by investors into the
funds. The Company also recognizes that volatility in the performance of the
Company's investment management services business segment is to be anticipated,
as the managed funds are invested primarily in the relatively volatile small-cap
market. During the quarter ended March 31, 1997 the managed funds experienced
continued negative performance. If the negative performance trend continues, the
Company's special profit allocation will again be adversely affected, and
additional withdrawals can be anticipated, which would in turn further impact
the Company's management fees and potential special profit allocation income.
There can be no assurance as to funds' performance for 1997 or that each of the
managed fund's asset bases will be maintained at current levels by the investors
participating in such funds.
Equity in net loss of affiliate totaled $1,665,317 for the quarter
ended 1997 as compared to net loss of $706,270 in 1996. Equity in net loss of
affiliate directly relates to the realized and unrealized earnings of the amount
invested by the Company in the domestic fund's portfolio which, because of the
nature of the investments as described above, will vary significantly from
period to period and may result in losses as well as income. No assurance can be
given that the Company will record income from its investments in future
periods.
Total operating expenses increased 45%, to $4,730,628 for the
quarter ended March 31, 1997 as compared to $3,264,700 in 1996.
Editorial, production and distribution expenses increased 55%, to
$2,156,491 in 1997 from $1,388,654 in 1996. Of this increase, $141,559 relates
to additional production and distribution expenses for Individual Investor, due
to additional copies printed for newsstand sales (up 50% over 1996), additional
advertising pages, and a larger subscriber base. In addition, costs totaling
$247,772 were incurred for the production, printing, editing, fulfillment and
distribution of the Company's new publication, Ticker, which mailed two issues
in the first quarter of 1997.
8
<PAGE>
The Company has also incurred expenses totaling $103,328 related to
the establishment of an online service. Management anticipates expenses relating
to online services to increase as development continues. While additional
investment is necessary to complete its development and launch, management
intends to incur these expenses in a controlled manner to help achieve the
Company's ultimate goal of profitability. In addition, editorial, production and
research salaries and related expenses have increased related to the addition of
personnel. Staffing levels have been increased to aid growth in the Company's
current publications as well as to support the launch of Ticker and the online
service.
Promotion and selling expenses increased 40%, to $1,476,125 for the
quarter ended 1997 from $1,057,588 in 1996. Advertising salaries, payroll taxes
and commissions have increased $275,030 as a result of higher revenues and new
sales personnel added in 1997 in an attempt to further increase advertising
revenues, and to develop advertising for Ticker. Additionally, there have been
corresponding increases in sales related travel, promotion, research and sales
aids.
General and administrative expenses increased 31%, to $1,032,587 for
the quarter ended 1997 as compared to $785,722 in 1996. General and
administrative salaries, payroll taxes, employee benefits and recruiting fees
increased $218,139 for the quarter ended March 31, 1997 as compared to 1996.
These increases related to the addition of personnel to support the Company's
growth, as well as increases in compensation. Also, as a result of hiring
additional personnel, postage, telephone, office supplies and related office
expenses have increased.
Depreciation and amortization expense increased 100%, to $65,425 in
1997 from $32,736 in 1996. The increase in 1997 is primarily attributable to
depreciation of office furniture and computer equipment purchased for additional
personnel.
Interest and other income decreased to $10,792 in 1997 from
$73,090 in 1996. This decrease is primarily due to reduced levels of cash
invested by the Company.
The Company's net loss for the first three months of 1997 totaled
$2,418,213 as compared to a net loss of $1,121,522 for the same period of the
prior year. No income taxes were provided in 1997 or 1996 due to the net loss.
The loss per common share for the first three months in 1997 was $0.39 as
compared to $0.18 in 1996.
Liquidity and Capital Resources
As of March 31, 1997, the Company had working capital of $1,932,825 and
cash and cash equivalents totaling $825,442. This represents an increase in
working capital of $165,014 and a decrease in cash and cash equivalents of
$719,009 since December 31, 1996. In February 1997, the Company redeemed
$900,000 from its investment in an affiliate.
As of March 31, 1997, the total value of the Company's investment in
the domestic private investment fund was $2,382,183. This investment is
available, subject to market fluctuations and liquidity, to provide working
capital to fund the Company's operations. No assurance can be given that the
Company's investment will increase in value, and it may decline in value.
9
<PAGE>
As of May 1, 1997 the Company entered into Stock Purchase Agreements
with two parties unrelated to the Company, providing in the aggregate for the
private sale of 328,678 shares of Common Stock for a total purchase price of
$2,000,000. These shares were sold pursuant to an exemption from registration
under the Securities Act of 1933.
The Company will incur ongoing expenses in the development of its
online services, which are expected to be funded by the Company's working
capital. Nevertheless, the Company believes that its cash, working capital and
investments will be sufficient to fund its operations and capital requirements
for the foreseeable future.
As a result of the current levels of expenses, the operating losses
incurred by the financial information services, and the fluctuations in
performance of the private investment funds, the Company anticipates that it
will continue to incur net losses in its quarterly results in the near-term.
10
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PART II- OTHER INFORMATION
ITEM 2 - Sales of Unregistered Securities
<TABLE>
<CAPTION>
- ---------------- ----------------------- ---------- -------------------------------- --------------- -------------------------------
Number Consideration received and Exemption If option, warrant or
Date of sale Title of security Sold description of underwriting or from convertible security, terms
other discounts to market registration of exercise or conversion
price afforded to purchasers claimed
- ---------------- ----------------------- ---------- -------------------------------- --------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1/97 -3/97 options to purchase 33,900 options granted - no Section 4(2) vesting over a period of
common stock granted consideration received by three to five years from date
to employees, Company until exercise of grant, subject to certain
directors and conditions of continued
consultants service; exercisable for a
period lasting ten years from
date of grant at exercise
prices ranging from $6.75 to
$8.88
- ---------------- ----------------------- ---------- -------------------------------- --------------- -------------------------------
</TABLE>
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule March 31, 1997
(b) The Company did not file any reports
on Form 8-K during the Quarter Ended
March 31, 1997
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
DATE: May 12, 1997
INDIVIDUAL INVESTOR GROUP, INC.
By: /s/ Jonathan L. Steinberg
--------------------------
Jonathan Steinberg, CEO and
Chairman of the Board
By: /s/ Scot A. Rosenblum
-------------------------
Scot Rosenblum, Vice President
and Chief Financial officer
By:/s/ Henry G. Clark
-------------------------
Henry G. Clark, Controller
(Principal Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- -----
27 Financial Data Schedule March 31, 1997 14
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 825,442
<SECURITIES> 0
<RECEIVABLES> 3,051,302
<ALLOWANCES> 584,704
<INVENTORY> 0
<CURRENT-ASSETS> 3,811,250
<PP&E> 1,085,099
<DEPRECIATION> (381,921)
<TOTAL-ASSETS> 7,764,572
<CURRENT-LIABILITIES> 1,878,425
<BONDS> 0
0
0
<COMMON> 61,619
<OTHER-SE> 2,842,048
<TOTAL-LIABILITY-AND-EQUITY> 7,764,572
<SALES> 3,845,615
<TOTAL-REVENUES> 2,301,472
<CGS> 2,156,491
<TOTAL-COSTS> 4,730,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,418,213)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,418,213)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,418,213)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
