SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required) For the fiscal year ended: December 31, 1996
___ Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required) For the transition period from
___________to___________
Commission file number: 1-10932
INDIVIDUAL INVESTOR GROUP, INC.
(Name of Small Business Issuer in its Charter)
Delaware 13-3487784
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1633 Broadway, 38th Floor, New York, NY 10019
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (212) 843-2777
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock
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__
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year : $13,044,111.
As of March 7, 1997, the aggregate market value of the Registrant's Common
Stock (based on the average bid and asked quotations of the Common Stock on that
date on NASDAQ) held by non-affiliates of the Registrant, was approximately
$27,578,383.
As of March 7, 1997, 6,161,869 shares of the Common Stock of the Registrant
were outstanding.
Transitional Small Business Disclosure Format Yes__ No X
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Part III by items 9, 10, 11 and 12 is
incorporated by reference to the Registrant's Proxy Statement in connection with
the Annual Meeting of Stockholders to be held June 18, 1997, which will be filed
by the Registrant within 120 days after the close of its fiscal year.
EXHIBIT INDEX - Page 31
Page 1 of 39 Pages
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PART I
ITEM 1. BUSINESS
Individual Investor Group, Inc. and subsidiaries (the "Company") are
primarily engaged in the financial information services business. Through
Individual Investor Holdings, Inc., a wholly-owned subsidiary, the Company
produces and markets publications which focus on market and financial
information, including Individual Investor magazine, Ticker magazine, and
Individual Investor's Special Situations Report newsletter.
The Company is also substantially involved in the business of providing
investment management services. The Company's wholly-owned subsidiary,
WisdomTree Capital Management, Inc., is the General Partner of WisdomTree
Associates, L.P., a domestic private limited partnership, and the Investment
Manager of WisdomTree Offshore, Ltd., an offshore private investment company.
Another of the Company's wholly-owned subsidiaries, I.I. Strategic Consultants,
Inc., is a portfolio consultant to a unit investment trust sponsor.
FINANCIAL INFORMATION SERVICES
Individual Investor Magazine
The Company's lead publication is Individual Investor, a monthly personal
finance magazine printed in a magazine format and distributed primarily by
second class mail to subscribers and, to a lesser extent, through newsstand
sales. Individual Investor's primary editorial focus is highlighting specific
investment opportunities in public companies, with an emphasis in the small-cap
U.S. market, and mutual funds.
Individual Investor has been published on a regular basis since November
1981. The magazine was substantially redesigned in 1995 and is printed on a
glossy, coated paper stock, and has a basic annual subscription rate of $22.95.
Individual Investor had total circulation of over 425,000 in March 1997,
comprised of paid subscribers and newsstand distribution, as compared to total
circulation of over 300,000 in March 1996. Individual Investor's revenues from
advertising, circulation, and list rental aggregated $10,507,606, which is 81%
of the Company's total revenues for the year ended December 31, 1996.
Ticker Magazine
In October 1996, the Company launched a new publication, Ticker magazine,
which is currently distributed without charge to a controlled circulation of
75,000 brokers, financial advisors and financial industry managers. Ticker
specializes in providing investment professionals with information to help
increase their business, assist in their management, and provide improved
results for their clients. Ticker provides articles on stocks, bonds, and mutual
funds, and features selected analysts and research specialists.
Ticker was launched as a bi-monthly publication, with its first two issues
mailed in October and December 1996. In February 1997 Ticker commenced
publication on a monthly basis. Ticker's revenues from advertising totaled
$340,373 for the year ended December 31, 1996.
Individual Investor's Special Situations Report Newsletter
Individual Investor's Special Situations Report is a monthly, twelve-page
newsletter that is mailed first class to subscribers. Each issue of Special
Situations Report supplies the subscriber with one new stock investment
recommendation. This focused research report discusses details of the featured
company's operating history, future plans, management, and specific financial
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projections. In addition, each issue of Special Situations Report covers recent
developments of previously recommended companies, and gives updated buy, hold
and sell recommendations on the stock of such companies.
Special Situations Report was developed by the Company and launched in
December 1989. Special Situations Report had approximately 12,000 paid
subscribers in March 1997, as compared to 18,200 in March 1996. The basic annual
subscription rate is $165. Circulation revenues for Special Situations Report
for 1996 were $1,340,502 as compared to $837,875 in 1995.
Circulation and Marketing
Circulation revenues for all publications accounted for approximately 43%
of the revenues of the Company for the year ended December 31, 1996. Circulation
revenues for 1996 were $5,611,099 as compared to $3,874,987 in 1995.
The Company obtains subscriptions for Individual Investor through the use
of leading subscription agencies, such as American Family Publishers and CAP
Systems (airline frequent flyer promotions), as well as smaller agencies.
Subscription agencies solicit on behalf of a limited number of publications,
which compete against each other to be chosen to participate in the solicitation
drive of the subscription agency. To a lesser degree the Company solicits
subscriptions for Individual Investor through direct mail marketing promotions,
and promotional campaigns on nationwide cable television (primarily on CNBC) and
on radio.
Individual Investor is distributed for sale on newsstands ("single copy
sales") throughout the United States by Curtis Circulation, a leading
distributor. Single copy sales of Individual Investor accounted for
approximately 5% of the revenues of the Company for the year ended December 31,
1996. The Company is continuing to expand Individual Investor's newsstand
presence and nationwide sales distribution. As of March 1997, monthly paid
single copy sales were approximately 50,000 copies, as compared to approximately
30,000 in March 1996.
Special Situations Report is sold only by subscription. The Company uses
targeted direct mail solicitation to promote Special Situations Report and
cross-markets this higher priced publication to the Individual Investor
subscriber base.
The Company plans to increase circulation of its publications through
continued promotional campaigns involving subscription agencies, increased
newsstand distribution, and other direct marketing strategies.
Advertising
Advertising revenues from Individual Investor and Ticker accounted for 42%
of the Company's total revenues for the year ended December 31, 1996. Individual
Investor's advertising pages increased 13% in 1996. Total advertising revenues
were $5,488,157 for 1996 as compared to $2,440,462 in 1995.
Advertising sales efforts are performed by the Company's employees and by
independent sales representatives located strategically around the United
States. Advertising revenues are derived primarily from three different types of
advertisers: (1) financial service companies, including brokerage firms, mutual
funds, and companies providing investment-oriented and insurance products; (2)
consumer advertisers, including marketers of luxury products, automobiles,
computer-related products, and travel, and; (3) public companies interested in
attracting the publications' readers as investors.
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The Company believes that the primary factors for advertising revenue and
total advertising page increases are: (1) the increased visibility of Individual
Investor due to its 1995 redesign and the substantial increase in circulation as
described above, (2) intensified marketing and sales efforts, and (3)
intensified sales of corporate communications. Audited research illustrates that
the Individual Investor readership has the following desirable demographic
characteristics: (1) financially sophisticated individuals with a substantial
net worth, (2) several years' investing experience, and (3) a significant
investment portfolio.
List Rental Revenue
The Company earned 9% of its revenues from list rentals for the year ended
December 31, 1996. The Company uses the services of an independent list
management agent that actively promotes the rental of the Company's subscriber
lists. If the Company continues to increase its subscriber base, it expects that
list rental revenue will continue to increase.
Competition
Individual Investor competes against other publications for both
subscribers and national advertisers in the financial and consumer categories.
The circulation of the Company's publications and its revenues from circulation
are smaller than the circulation and revenues of most of its major competitors.
Some of the publications that compete in the category of retail investing are
Money, Changing Times, Smart Money, FW, Worth, Barron's, and Value Line
Investment Survey. In addition to these publications, Individual Investor
competes with publications with a broader editorial focus within the spectrum of
market and financial information, such as The Wall Street Journal, Forbes,
Business Week, and Fortune. In addition, the Company competes with research
reports, newsletters, and other publications issued by financial investment
houses and independent publishers.
Production and Operations
Substantially all research and analysis is done by in-house research and
editorial staff. After the editorial content of the Company's publications is
determined, the articles are assigned to either in-house writers and researchers
or freelance writers. The financial tables included in the Company's
publications are provided by various vendors. The Company selects independent
printers based on their production quality and competitive costs and services
for printing, paper and binding.
The Company uses an outside fulfillment service to manage its subscriber
files. The service includes receiving subscription orders and payments, sending
renewal and invoice notices to subscribers, and generating subscriber labels and
monthly circulation reports. List management and newsstand distribution services
are provided by outside agents and distributors.
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INVESTMENT MANAGEMENT SERVICES
Investment management services revenues were $937,406 for the year ended
December 31, 1996, as compared to $4,467,142 in 1995.
WisdomTree Capital Management, Inc.
The Company's wholly-owned subsidiary, WisdomTree Capital Management, Inc.
("WTCM"), is the General Partner of a domestic private limited partnership known
as WisdomTree Associates, L.P. ("WTA"), and is the Investment Manager of an
offshore private investment fund known as WisdomTree Offshore, Ltd. ("WTOL"),
which commenced operations in January 1996. The funds specialize in investing in
securities of relatively small U.S. public companies, the securities of which
tend to trade with high levels of volatility.
WTCM is entitled to receive a special profit allocation equal to 20% of the
net income, if any, of the funds (not including income earned on its own
investment), subject to certain limitations, calculated at year end, which is
December 31st for WTA and June 30th for WTOL. The total special profit
allocations received from WTA and WTOL for 1996 were $225,405, as compared to
$4,235,624 in 1995.
WTCM is also entitled to receive management fees equal to 1/4 of 1% of the
net asset value of WTA, calculated as of the last business day of each quarter,
and equal to 1/8 of 1% of the net asset value of WTOL, calculated monthly. Total
management fees for the year ended December 31, 1996 totaled $668,001, as
compared to $231,518 in 1995. In the fourth quarter of 1996, the Company formed
another wholly-owned subsidiary, WisdomTree Administration, Inc., to provide
administrative services relating to the services provided by WTCM, which
commenced receiving the management fees described above effective October 1,
1996.
I.I. Strategic Consultants, Inc.
Another wholly-owned subsidiary of the Company, I.I. Strategic Consultants,
Inc., provides portfolio consultant services to a sponsor and distributor of
unit investment trusts respecting three of that sponsor's trusts, two of which
are marketed under the Company's proprietary America's Fastest Growing Companies
service mark.
BUSINESS DEVELOPMENT
II Online
The Company is in the process of developing a web site for Internet users,
II Online, designed to provide investing information and analysis for individual
investors. Drawing on the editorial strength of the Company's publications and
taking advantage of the growth of the Internet, II Online is expected to provide
expansive, timely, user-friendly financial information and enable interaction
between the Company's community of readers, analysts, writers, and profiled
companies.
Other Plans
The Company's business strategy is to continue to increase the subscriber
base of Individual Investor and Special Situations Report, and to increase the
controlled circulation of Ticker. The increased circulation is expected to
contribute to growth in most of the Company's primary revenue sources. The
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Company may also develop or acquire other publications and services with a
complementary focus to its current publications. In addition, the Company
continually evaluates its business segments and will consider a wide range of
transactions, business combinations, restructurings and/or other means of
achieving increased shareholder value.
Discontinued Operations
In January 1996, the Company discontinued the operations of its
California based wholly-owned subsidiary, Advanced Marketing Ventures, Inc. This
subsidiary had been engaged in telemarketing. The Company now conducts
telemarketing activities from the Company's offices in New York.
EMPLOYEES
On March 7, 1997, the Company employed 70 persons on a full-time basis: 3
executive officers, 14 salespersons for advertising, 18 researchers/ writers and
editors, 7 art/ production employees, 3 employees who oversee circulation, 4
employees in the investment management business, 3 employees in online services
and 18 administrative, accounting, legal and support personnel. In addition, the
Company utilizes varying numbers of freelance writers and interns. The Company
also uses the services of outside advertising sales representatives and a
newsstand distribution consultant. None of the Company's employees are
represented by a labor union. The Company believes that its employee relations,
as well as its relations with consultants and independent contractors, are good.
INTELLECTUAL PROPERTY
The Company is somewhat dependent on the use of service marks in its
operations, particularly the names of its two magazines: "Individual Investor"
and "Ticker". In 1992, the Company obtained a perpetual license from the
American Association of Individual Investors, which owns the service mark "The
Individual Investor," to use the name "Individual Investor". The Company has a
pending application in the United States Patent and Trademark Office to register
"Ticker" as a service mark.
In 1989 the Company acquired a service mark for "America's Fastest Growing
Companies", which has now become incontestable. This mark is used by the Company
for various purposes including, but not limited to, as a mark licensed to an
investment trust sponsor which currently markets two trusts under this service
mark.
ITEM 2. PROPERTIES
The Company's primary offices are located in 28,000 square feet of leased
office space at 1633 Broadway in New York, New York. The lease term expires
March 30, 1999 and provides for an aggregate annual rent of $544,000 plus real
estate tax escalation costs. The Company also leases 800 square feet of office
space in San Francisco for advertising sales personnel. This lease expires on
July 31, 1997. The Company believes its present offices are adequate for their
purpose and will be for the foreseeable future. If the lease in San Francisco is
not extended beyond July 1997, the Company believes that alternative space will
be readily available.
The Company is also party to a lease of 10,000 square feet for the
Company's former primary office space, which expires March 1, 2005, and provides
for an aggregate annual rent over the term ranging from $155,000 to $210,000
plus real estate tax escalation costs. This space was sublet effective February
1996 on terms which are co-terminus with the prime lease and pursuant to which
sublease the Company recovers substantially all of the payments due under the
prime lease.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
On December 9, 1996 the Company's Common Stock commenced trading on The
Nasdaq National Market under the symbol INDI. Until that time, the Company's
Common Stock had been quoted on the Nasdaq SmallCap Market and the Boston Stock
Exchange since the Company's initial public offering on December 4, 1991, with
the Nasdaq SmallCap Market being the principal trading market for the Company's
securities.
The table below sets forth for the periods indicated the high and low bid
quotation for the Company's Common Stock on the Nasdaq SmallCap Market and The
Nasdaq National Market.
1995 Low High
---- --- ----
First Quarter $ 3-3/4 $ 5-9/16
Second Quarter 4-7/16 5-5/16
Third Quarter 5-5/16 6-1/8
Fourth Quarter 4-1/8 6-5/8
1996
----
First Quarter $ 5-3/8 $ 7
Second Quarter 5-7/8 13-1/2
Third Quarter 6-3/4 10-1/4
Fourth Quarter 6-3/4 8-1/2
These amounts represent quotations between dealers in securities, do not
include retail markups, markdowns or commissions and may not necessarily
represent actual transactions. On March 7, 1997, the last sale price for the
Common Stock as reported by Nasdaq was $7.00.
Holders
On March 7, 1997, there were 70 holders of record of the Company's Common
Stock. The Company believes that there are in excess of 1,400 beneficial owners
of the Company's Common Stock.
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Dividends
To date, the Company has not paid any dividends on its Common Stock. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not intend to declare any dividends in the forseeable future, but instead
intends to retain all earnings for use in the Company's business.
Unregistered Securities Sales
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Date of Title of security Number Consideration received and Exemption If option, warrant or convertible
sale Sold description of underwriting from security, terms of exercise or
or other discounts to market registration conversion
price afforded to purchasers claimed
- -----------------------------------------------------------------------------------------------------------------------------------
1/96- option to purchase 772,100 options granted - no Section 4(2) vesting over a period of three to five
12/96 common stock consideration received by years from date of grant, subject to
granted to Company until exercise certain conditions of continued service;
employees, directors exercisable for a period lasting ten years
and consultants from date of grant at exercise prices
ranging from $4.38 to $11.88
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
When used in this Form 10-KSB 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.
Year Ended December 31, 1996 as Compared to the Year Ended December 31, 1995
Total revenues decreased 2%, to $13,044,111 for the year ended December 31,
1996, as compared to $13,254,857 for the year ended December 31, 1995.
Circulation revenues increased 45%, to $5,611,099 for the year ended
December 31, 1996, as compared to $3,874,987 in 1995. Subscription revenues for
the Company's flagship magazine, Individual Investor, increased 28%, while
newsstand revenues for the magazine increased by 169%. At the same time,
subscription revenues for the Company's newsletter, Special Situations Report,
increased 60%. Management attributes the increases in circulation of Individual
Investor to the redesign of the magazine in the second quarter of 1995, as well
as to promotional efforts, including direct mail, television campaigns,
newsstand sales and agency sources. Subscription revenues for Special Situations
Report have increased in part from add-on sales from Individual Investor
television campaign promotions. It is anticipated that subscription revenues for
Individual Investor and Special Situations Report will decline in the near term
as direct mail and television campaigns have been reduced in favor of other
sources for subscribers that will provide for continuing numbers of new
subscribers with lower marketing expenses but less subscription revenue. 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. However, the decrease is not
expected to have a material effect on the Company's results since many of these
non-renewing subscribers were those sold trial offers for six months at a
discounted rate.
Advertising revenues increased 125%, to $5,488,157 for the year ended
December 31, 1996, as compared to $2,440,462 in 1995. This is a result of both a
greater number of advertising pages sold and increased advertising rates per
page. As a result of the recent 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 further
near term advertising revenue growth from realizing the full effect of rate
increases implemented in 1996, and as the number of advertising pages sold are
expected to continue to increase and as management expects to continue to
attract higher margin consumer advertisers. The Company also launched a new
publication, Ticker, 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 $340,373 in 1996.
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Management expects advertising revenues from Ticker to increase as a result of
publishing 11 issues in 1997 as compared to two in 1996.
Investment management services revenues were $937,406 for the year ended
December 31, 1996, as compared to $4,467,142 in 1995. 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 $44,000 additional revenues being contributed as a
result of the Company's portfolio consulting activities). Because total equity
managed by the Company was approximately $66 million as of December 31, 1996 as
compared to $42 million as of December 31, 1995 (due in part to the addition of
the offshore fund in January 1996 and in part to the funds' particularly strong
performance in 1995), management fees earned by the Company increased to
$668,001 in 1996 as compared to $231,518 in 1995. Nevertheless, disappointing
results for the managed funds in 1996 as compared with particularly strong 1995
results for the managed funds, resulted in the Company receiving a special
profit allocation of $225,405 in 1996 as compared to $4,235,624 in 1995. As a
result of the declining fund performance in 1996, subsequent to December 31,
1996 investors in the funds managed by the Company made net withdrawals 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. 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. Subsequent to December 31, 1996, the managed funds
have experienced significant 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 $430,337 for the year ended 1996 as
compared to net income of $1,302,225 in 1995. Equity in net (loss) income 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.
List rental and other revenues increased 23%, to $1,437,786 for the year
ended December 31, 1996 as compared to $1,170,041 in 1995. For 1996, list rental
revenue increased 82%, to $1,235,980, as compared to $679,789 in 1995. The
increase in list rental revenue is attributable to the increase in the number of
subscribers to Individual Investor, as well as the greater number of subscribers
on the lists. If the Company's efforts to promote circulation growth for its
publications are successful, management anticipates accompanying growth in list
rental revenues. Other revenues earned during the year ended December 31, 1995
also include $321,984 from the Company's telemarketing subsidiary, Advanced
Marketing Ventures ("AMV"). Late in 1995 the Company ceased operations of this
subsidiary. Therefore, there are no telemarketing revenues in 1996.
Total operating expenses increased 44%, to $16,410,801 for the year ended
December 31, 1996 as compared to $11,421,574 in 1995.
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Editorial, production and distribution expenses increased 53%, to
$6,683,047 in 1996 from $4,374,073 in 1995. Approximately $1,204,412 of the
increase relates to additional production and distribution expenses for
Individual Investor, due to additional copies printed for newsstand sales (up
169% over 1995), additional advertising pages, and a larger subscriber base.
These increases in circulation to a large extent resulted from the redesign of
Individual Investor in May 1995, when it commenced printing on glossy high
quality paper stock. In addition, costs totaling $350,204 were incurred for the
production, printing, editing, fulfillment and distribution of the Company's new
publication, Ticker, which mailed two issues in the fourth quarter of 1996.
Expenses for Ticker will increase in 1997 as the Company expects to publish
eleven issues, which will be funded through anticipated corresponding increases
in advertising revenues and, to a lesser extent, list rental revenues. The
Company has also incurred expenses totaling $356,839 for the year ended 1996
related to the establishment of an online service. Management anticipates
ongoing expenses relating to online services 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 distribution salaries 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 October 1996 launch of Ticker.
Promotion and selling expenses increased 46%, to $5,643,447 for the year
ended 1996 from $3,862,166 in 1995. Advertising salaries and commissions have
increased 172% as a result of higher revenues and new sales personnel added in
1996 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 26%, to $3,885,348 for the
year ended 1996 as compared to $3,092,185 in 1995. The Company relocated to new
offices within New York City in January 1996, resulting in an increase in its
rent expense totaling $306,290. Secondly, general and administrative salaries,
payroll taxes, employee benefits, temporary agency and recruiting fees increased
$205,027 for the year ended December 31, 1996 as compared to 1995. 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, office supplies and related office expenses have increased.
Finally, public relations, legal, accounting and other professional service fees
have also increased for the year ended December 31, 1996 as compared to 1995.
Depreciation and amortization expense increased 114%, to $198,959 in 1996
from $93,150 in 1995. The increase in 1996 is primarily attributable to
amortization of leasehold improvements incurred to prepare the Company's new
offices for occupancy and depreciation of office furniture and computer
equipment purchased for additional personnel.
Interest and other income decreased to $177,238 in 1996 from $1,059,525 in
1995. This decrease is primarily due to a gain of $995,019 realized in 1995 on
the sale of the Company's interest in a marketable security.
The Company reported a net loss in 1996 of $3,189,452 as compared to net
income of $2,892,808 in 1995. No income taxes were provided in 1996 due to the
net loss. Due to the availability of net operating loss carryforwards no tax was
provided on the 1995 earnings. The loss per common and equivalent share for 1996
was $.51 as compared to earnings of $.49 (fully diluted) in 1995.
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Liquidity and Capital Resources
As of December 31, 1996, the Company had working capital of $1,767,811 and
cash and cash equivalents totaling $1,544,451. This represents a decrease in
working capital of $3,697,381 and a decrease in cash and cash equivalents of
$4,732,536 since December 31, 1995. In February 1996, the Company redeemed
$1,200,000 from its investment in an affiliate. In the second quarter of 1996,
however, the Company repurchased, retired and canceled 250,000 shares of Common
Stock, at a total cost of $2,453,346. Additionally, the Company purchased
property and equipment at a total cost of $513,619 during 1996.
As of December 31, 1996, the total value of the Company's investment in the
domestic private investment fund was $4,947,500. 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.
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 publishing operations, and the fluctuations in performance of
the private investment funds, the Company anticipates that it will incur losses
in its quarterly results in the near-term.
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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Reports 14-16
Consolidated Balance Sheet as of December 31, 1996 17
Consolidated Statements of Operations for the Years Ended December 31,
1996 and 1995 18
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996 and 1995 19
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 and 1995 20
Notes to Consolidated Financial Statements 21-29
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Individual Investor Group, Inc.
We have audited the accompanying consolidated balance sheet of Individual
Investor Group, Inc. and subsidiaries (the "Company") as of December 31, 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1995 and 1996 financial statements of
WisdomTree Associates, L.P. (the "Partnership"), the Company's investment in
which is accounted for by use of the equity method. The Company's equity of
$4,947,500 in the Partnership's net assets at December 31, 1996, and its special
profit allocation of $75,108 and $4,235,624 and equity in net (loss) income of
the Partnership of ($430,337) and $1,302,225 for the years ended December 31,
1996 and 1995, respectively are included in the accompanying financial
statements. The financial statements of the Partnership were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for the Partnership, is based solely on the
reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Individual Investor Group, Inc. and subsidiaries as of
December 31, 1996, and the results of their operations and their cash flows for
each of the two years in the period then ended in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
March 18, 1997
14
<PAGE>
Report of Independent Auditors
The Partners of
WisdomTree Associates, L.P.
We have audited the statement of financial condition, including the condensed
schedule of investments, of WisdomTree Associates, L.P. (a Limited Partnership)
(the "Partnership"), as of December 31, 1996 and the related statements of
operations, changes in partners' capital and cash flows for the year then ended
(not presented separately herein). These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WisdomTree Associates, L.P. at
December 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 7, 1997
15
<PAGE>
Report of Independent Auditors
The Partners of
WisdomTree Associates, L.P.
We have audited the statement of financial condition, including the condensed
schedule of investments, of WisdomTree Associates, L.P.(a Limited Partnership),
as of December 31, 1995 and the related statements of income, changes in
partners' capital and cash flows for the year then ended (not presented
separately herein). These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WisdomTree Associates, L.P. at
December 31, 1995 and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 6, 1996
16
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $1,544,451
Accounts receivable (net of allowances of $561,594) 2,581,272
Prepaid expenses and other current assets 379,979
---------------
Total current assets 4,505,702
Deferred subscription expense 957,414
Investment in affiliate (note 3) 4,947,500
Property and equipment - net (note 4) 714,452
Other assets 178,667
---------------
Total assets $11,303,735
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,067,295
Accrued expenses (note 5) 670,596
---------------
Total current liabilities 2,737,891
Deferred subscription revenue 3,328,737
---------------
Total liabilities 6,066,628
---------------
Commitments and contingencies (note 6)
Stockholders' equity (notes 2, 8 and 9):
Preferred stock, $.01 par value, authorized 2,000,000 shares --
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding 6,142,119 61,421
Additional paid-in capital 13,523,643
Deficit (8,370,390)
Unrealized gain on marketable securities 22,433
---------------
Total stockholders' equity 5,237,107
---------------
---------------
Total liabilities and stockholders' equity $11,303,735
===============
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
Revenues:
Circulation $5,611,099 $3,874,987
Advertising 5,488,157 2,440,462
Investment management services (note 3) 937,406 4,467,142
Equity in net (loss) income of affiliate (note 3) (430,337) 1,302,225
List rental and other 1,437,786 1,170,041
------------ -----------
Total revenues 13,044,111 13,254,857
------------ -----------
Operating expenses:
Editorial, production and distribution 6,683,047 4,374,073
Promotion and selling 5,643,447 3,862,166
General and administrative 3,885,348 3,092,185
Depreciation and amortization 198,959 93,150
------------ -----------
Total operating expenses 16,410,801 11,421,574
------------ -----------
------------ -----------
Operating (loss) income (3,366,690) 1,833,283
------------ -----------
Interest and other income 177,238 64,506
Gain on sale of marketable security -- 995,019
------------ -----------
Net (loss) income before income taxes (3,189,452) 2,892,808
Income taxes (note 7) -- --
------------- -----------
Net (loss) income ($3,189,452) $2,892,808
============= ===========
Dividends paid -- --
(Loss) earnings per common and equivalent share:
Primary ($0.51) $0.51
------------- -----------
Fully diluted ($0.51) $0.49
------------- -----------
Weighted average number of common and equivalent
shares outstanding during the year:
Primary 6,198,260 6,076,682
------------- -----------
Fully diluted 6,198,260 6,872,167
------------- -----------
See Notes to Consolidated Financial Statements
18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Notes 2, 8 and 9)
Common Stock Additional Unrealized
---------------------- Gain (loss)
Shares Par Paid-in Treasury Stock on
--------------- Marketable
Issued Value Capital Deficit Shares Amount Securities Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 4,697,394 $46,975 $9,737,633 ($8,073,746) 31,822 -- ($36,209) 1,674,653
Exercise of warrants and options - net 1,637,787 16,378 5,848,682 -- -- -- -- 5,865,060
Marketable security sold -- -- -- -- -- -- 36,209 36,209
Net income -- -- -- 2,892,808 -- -- -- 2,892,808
----------------------------------------------------------------------------------------
Balance, December 31, 1995 6,335,181 63,353 15,586,315 (5,180,938) 31,822 -- -- 10,468,730
Exercise of options - net 88,760 887 388,174 -- -- -- -- 389,061
Repurchase and retirement of common stock (250,000) (2,500) (2,450,846) -- -- -- -- (2,453,346)
Retirement of treasury stock (31,822) (319) -- -- (31,822) -- -- (319)
Net unrealized gain on marketable securities -- -- -- -- -- -- 22,433 22,433
Net loss -- -- -- (3,189,452) -- -- -- (3,189,452)
----------------------------------------------------------------------------------------
Balance, December 31, 1996 6,142,119 $61,421 $13,523,643 ($8,370,390) -- -- $22,433 $5,237,107
========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------
1996 1995
------------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($3,189,452) $2,892,808
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:
Depreciation and amortization 198,959 93,150
Writeoff of leasehold costs relating to office move -- 88,530
Gain on sale of marketable security -- (995,019)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable (1,091,637) (652,206)
Prepaid expenses and other current assets (135,840) (50,783)
Deferred subscription expense 339,192 (668,880)
Increase (decrease) in:
Accounts payable and accrued expenses 214,436 1,240,700
Deferred subscription revenue (45,519) 1,676,733
----------------- ----------------
Net cash (used in) provided by operating activities (3,709,861) 3,625,033
----------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (513,619) (247,112)
Proceeds from sale of marketable security -- 1,393,178
Decrease (increase) in investment in affiliate 1,555,229 (5,965,849)
Increase in other assets -- (70,820)
------------------ ----------------
Net cash provided by (used in) investing activities 1,041,610 (4,890,603)
------------------ ----------------
Cash flows from financing activities:
Proceeds from exercise of warrants and options-net 389,061 5,865,060
Repurchase of Common Stock (note 9) (2,453,346) --
------------------ ----------------
Net cash (used in) provided by financing activities (2,064,285) 5,865,060
------------------ ----------------
Net (decrease) increase in cash and cash equivalents (4,732,536) 4,599,490
Cash and cash equivalents, beginning of year 6,276,987 1,677,497
================== ================
Cash and cash equivalents, end of year $1,544,451 $6,276,987
================== ================
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Individual Investor Group, Inc. and subsidiaries (the "Company") is a
leading financial information services company that publishes and markets
Individual Investor, a personal finance and investment magazine, Ticker, a
magazine for investment professionals, and Individual Investor's Special
Situations Report, a financial investment newsletter. The Company contracts with
unaffiliated suppliers for paper, printing, binding, subscription fulfillment,
newsstand distribution and list management. In addition, the Company provides
investment management services to two private investment funds (one of which is
an offshore fund for non-US residents that commenced operations in January 1996)
and is a portfolio consultant to a sponsor of unit investment trusts available
to all investors.
Principles of Consolidation - The consolidated financial statements include
the accounts of Individual Investor Group, Inc. and its subsidiaries: Individual
Investor Holdings, Inc., Advanced Marketing Ventures, Inc. (whose operations
ceased at the end of 1995), WisdomTree Capital Management, Inc., WisdomTree
Administration, Inc., WisdomTree Capital Advisors, LLC, and I.I. Strategic
Consultants, Inc. Investment in affiliate (note 3) is accounted for under the
equity method since the Company exercises significant influence over the
operating and financial affairs of the affiliate. The Company's share of the net
(loss) income from affiliate is included in the consolidated statements of
operations caption "equity in net (loss) income of affiliate". All significant
intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition - Circulation and advertising revenues are recognized
and net of agency commissions, estimated returns and allowances, when
publications are issued. Deferred subscription revenue, net of agency
commissions, is recorded when subscription orders are received. Investment
management services income is recognized as earned. List rental income is
recognized, net of commission, when a list is ordered and invoiced.
Deferred Subscription Expense - The Company defers direct response
advertising costs incurred to elicit subscription sales from customers who could
be shown to have responded specifically to the advertising and that resulted in
probable future economic benefits. Such deferred costs, which consist primarily
of television and direct mail campaign costs, are amortized over the estimated
period of future benefit.
Property and Equipment - Property and equipment are recorded at cost.
Depreciation of property and equipment is calculated on the straight-line method
over the estimated useful lives of the respective assets, ranging from three to
seven years. Leasehold improvements are amortized over the lesser of the useful
life of the asset or the term of the lease.
Income Taxes - Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
may not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
21
<PAGE>
Financial Instruments - For financial instruments including cash, accounts
receivable and payable and accruals, the carrying amount approximated fair value
because of their short maturity. As of December 31, 1996 cash equivalents
consist of investments in a government fund that invests in securities issued or
guaranteed by the US Government, its agencies or instrumentalities, which have
average maturities of 30 days.
(Loss) Earnings Per Common and Equivalent Share - The loss per common share
for 1996 is computed based on the weighted average number of common shares
outstanding. The exercise of stock options and warrants were not assumed in the
computation of loss per common share, as the effect would have been
antidilutive.
Earnings per common and equivalent share for 1995 was computed by dividing
net income, as adjusted, by the weighted average number of common shares
outstanding during 1995 and the assumed exercise of dilutive stock options and
warrants, less the number of treasury shares assumed to be purchased from the
assumed proceeds using the average market price of the Company's common stock.
The calculation of fully diluted earnings per share utilized the market price of
the Company's common stock on December 31, 1995 to determine the effect of
dilutive options and warrants.
Impairment of Long Lived-Assets - In March 1995 the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This statement was adopted by the Company
in 1996. Since adoption, no impairment losses have been recognized.
Stock-Based Compensation - In October 1995 the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement defines a fair value
method of accounting for the issuance of stock options and other equity
instruments. Pursuant to SFAS No. 123, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee stock-based
transactions. The Company has determined that it will continue to apply the
measurement and recognition provisions of Accounting Principal Board Opinion No.
25 and related interpretations in accounting for issuance of employee stock
options. The 1996 impact of adopting this statement for non-employee stock-based
transactions has not had a material impact on the Company's results of
operations or financial position.
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 reported amounts of assets,
liabilities, revenues and expenses reported in the financial statements.
Significant accounting estimates used include estimates for sales returns and
allowances, segment information and proforma disclosures regarding the fair
value of stock options granted in 1995 and 1996. Actual results could differ
from those estimates.
Reclassifications - Equity in net loss of affiliate for the year ended 1996
has been recorded in operating revenues to reflect such earnings and losses as
part of the Company's core operations. The equity in income of affiliate for the
year ended 1995 has been reclassified to conform with the current period
presentation.
22
<PAGE>
2. GAIN ON SALE OF MARKETABLE SECURITY
A marketable equity security acquired during 1994 was categorized as
available for sale pursuant to SFAS No. 115, "Accounting for Certain Instruments
in Debt and Equity Securities." As a result, the unrealized loss at December 31,
1994 of $36,209 was included as a component of stockholders' equity. In 1995 the
security was sold, resulting in a reversal of the unrealized loss in
stockholders' equity, and the recognition of a gain of $995,019.
3. INVESTMENT MANAGEMENT SERVICES
The Company, through a wholly-owned subsidiary, WisdomTree Capital
Management, Inc. ("WTCM"), serves as General Partner of (and investor in) a
private investment fund for accredited investors, whereby it provides investment
management services and makes investment decisions for the fund. The value of
the Company's investment in the fund decreased from $6,502,729 at December 31,
1995 to $4,947,500 at December 31, 1996. This decrease resulted from net losses
on the Company's investment in the fund and from a withdrawal of $1,200,000 by
the Company in February 1996.
The fund's investments are valued at market at each reporting date, with
unrealized gains and losses reported in net (loss) income. Accordingly, the
Company's investment in the fund (and equity in net (loss) income of affiliate)
is subject to fluctuations in value due to fund performance and prevailing stock
market conditions. In 1996 the Company recorded equity in net loss of affiliate
of $430,337 and in 1995 recorded equity in net income of affiliate of
$1,302,225. Selected financial information for the fund at December 31, 1996 and
1995 and for the years then ended is as follows:
1996 1995
---- ----
Assets (at fair value) $72,169,447 $69,252,131
Liabilities 13,131,639 27,045,219
Partners' capital 59,037,808 42,206,912
Net (loss) income ($3,562,507) $22,480,346
The Company, through WTCM and another wholly-owned subsidiary, WisdomTree
Administration, Inc., provides investment management services to the domestic
fund referred to above, and to an offshore private investment fund for
accredited investors, 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 year ended December 31, 1996 and 1995
totaled $668,001 and $231,518, respectively.
WTCM is also entitled to receive a special allocation equal to 20% of the
excess of the net income, if any, allocated to each investor (not including
income earned on its own investment) in the funds for the fiscal year, over any
loss carryforwards with respect to the investor. The special allocations are
calculated at year end, which is December 31st for the domestic fund and June
30th for the offshore fund. The special allocations for 1996 and 1995 were
23
<PAGE>
$225,405 and $4,235,624, respectively. Such amounts have been reflected as
investment management services revenues and are included in the investment in
affiliate balance at December 31, 1996 in the accompanying balance sheet.
Total equity under management by the Company as of December 31, 1996 and
1995 for both the domestic and offshore funds totaled approximately $66 million
and $42 million, respectively.
4. PROPERTY AND EQUIPMENT
Leasehold improvements $164,119
Furniture and fixtures 192,074
Equipment 677,111
-------
1,033,304
Less: accumulated depreciation and amortization 318,852
-------
$714,452
========
5. ACCRUED EXPENSES
Accrued commissions $318,748
Other 351,848
--------
$670,596
========
6. COMMITMENTS AND CONTINGENCIES
Lease Agreements - The Company leases office space in New York City under
an operating lease which expires March 30, 1999. The Company also subleases its
former office space in New York City under an operating lease which expires
March 1, 2005. Rent expense for the years ended December 31, 1996 and 1995 was
$544,915 and $276,093, respectively. The leases and sublease provide for
escalation of lease payments as well as real estate tax increases.
Future minimum lease payments and related sublease rentals receivable with
respect to non-cancelable operating leases are as follows:
Future
Minimum
Rental Rents Receivable
Year Payments Under Sublease
---- -------- --------------
1997 681,030 155,000
1998 738,454 160,000
1999 332,084 165,000
2000 188,208 177,500
2001 192,708 190,000
Thereafter 669,617 621,667
------- -------
Total $2,802,101 $1,469,167
========== ==========
Employment Agreements - The Company has employment agreements with an
officer and an employee, the terms of which expire at various dates through
March 15, 1998. Such agreements provide for minimum salary levels, adjusted
24
<PAGE>
annually as determined by the Board of Directors. These agreements provide for
an aggregate commitment for future salaries of approximately $358,000.
Profit Sharing Plan - The Company has a profit sharing plan (the "Plan"),
subject to Section 401(k) of the Internal Revenue Code. All employees who
complete at least three months of service and have attained the age of 21 are
eligible to participate. The Company can make discretionary contributions to the
Plan, however, the Company did not make any contributions to the Plan during
1996 or 1995.
7. INCOME TAXES
The Company has available net operating loss carryforwards ("NOL's")
totaling approximately $9,500,000 for income tax purposes and $8,400,000 for
financial reporting purposes, which expire in the years 2003 to 2011.
Utilization of the NOL's arising prior to 1992, in the amount of $2,100,000,
will be subject to certain annual limitations. These limitations are pursuant to
Internal Revenue Code Section 382, which affects the amount and timing of when
the NOL's can be offset against taxable income.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $4,470,000 $4,008,000
Other 171,000 121,000
------------ -----------
Total 4,641,000 4,129,000
Deferred tax liabilities:
Book in excess of tax basis
of investment in affiliate (1,598,000) (2,585,000)
----------- -----------
3,043,000 1,544,000
Less: valuation allowance 3,043,000 1,544,000
--------- ----------
Net deferred tax asset $ -- $ --
============ ============
</TABLE>
The provision for income taxes for the years ended December 31, 1996 and
1995 is different than the amount computed using the applicable statutory
Federal income tax rate with the difference summarized below:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Hypothetical income tax provision (benefit)
at the US Federal statutory rate ($1,116,300) $1,012,500
State and local income taxes provision (benefit),
less US Federal income tax benefit (382,700) 347,100
Generation (utilization) of net operating
loss carryforwards 1,499,000 (1,359,600)
----------- -----------
$ -- $ --
============ ===========
25
</TABLE>
<PAGE>
8. STOCK OPTIONS
The Company has three Stock Option Plans - 1991, 1993 and 1996. Also, in
November 1996, the Board of Directors adopted, subject to shareholder approval,
the 1996 Management Incentive Plan under which 500,000 stock options are
available for future grants. Under these plans, the Company can issue a maximum
of 2,200,000 stock options and other stock based awards, most of which vest
ratably over a three to five-year period commencing one year from the date of
grant. The options are exercisable for a period of up to 10 years from the date
of grant at an exercise price which is not less than the fair market value at
the date of grant.
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- ----- -------- -----
<C> <S> <C> <C> <C>
Options Outstanding at January 1 634,700 $4.36 317,500 $3.61
Granted 642,100 $7.49 325,000 $5.11
Exercised (44,260) $4.28 (1,800) $3.00
Canceled (97,939) $5.17 (6,000) $4.07
--------- --------
Balance, December 31 1,134,601 $6.06 634,700 $4.36
--------- --------
Range of exercise prices
December 31 $3.00-$11.88
Options available for
grant at December 31 1,015,839 60,000
--------- ------
Total common shares reserved
for future issuances 2,150,440 694,700
--------- -------
Options exercisable at December 31 316,808 $3.87 234,083 $3.33
------- -------
</TABLE>
In addition, the Company had options outstanding that were granted outside
of the aforementioned plans. All options were granted at fair market value at
the date of grant and expire at various dates through December 18, 2006.
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Average Average
Excersice Exercise
Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Options Outstanding atJanuary 1 1,730,663 $5.23 1,282,756 $5.13
Granted 130,000 $5.63 450,000 $5.47
Exercised (44,500) $4.29 (2,093) $0.24
Canceled (40,000) $4.44 --
---------- ---------
Balance, December 31 1,776,163 $5.30 1,730,663 $5.23
---------- ---------
Range of exercise prices
at December 31 $0.41-$7.50
Options exercisable at
December 31 835,080 $4.61 344,756 $4.43
------- -------
26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding
at December 31, 1996:
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.41-3.00 223,663 5 years $ 2.41 223,663 $ 2.41
$3.75-6.00 1,818,501 8.5 $ 5.13 920,225 $ 4.87
$6.06-9.00 821,600 9.5 $ 7.20 8,000 $ 6.50
$9.13-11.88 47,000 10 $10.72 -- --
--------- ---------
$0.41-11.88 2,910,764 $ 5.60 1,151,888 $ 4.41
========= =========
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options granted under the fair value method
SFAS No. 123. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and 1995, respectively: risk-free interest
rates of 6.3%; volatility factors of the expected market price of the Company's
Common Stock of 51%; weighted-average fair value of options granted $3.89 and
$2.66, and a weighted-average expected life of the options of 5 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
As Reported Proforma As Reported Proforma
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net (loss) income $(3,189,452) $(4,053,894) $2,892,808 $2,479,866
(Loss) earnings per common
and equivalent share:
Primary $(0.51) $(0.65) $0.51 $0.45
Fully Diluted $(0.51) $(0.65) $0.49 $0.44
</TABLE>
The effects of applying SFAS No. 123 in this proforma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards granted
prior to 1995. Additional awards in future years are anticipated.
27
<PAGE>
9. STOCKHOLDERS' EQUITY
Repurchase of Common Stock - The Company repurchased 250,000 shares of
Common Stock on the open market, at a total cost of $2,453,346, in the second
quarter of 1996. The Company has retired and canceled these shares and 31,822
shares of Common Stock previously held as treasury shares. The cost of
repurchased shares in excess of the par value of the Common Stock ($.01 per
share) has been charged to additional paid-in capital.
Class A and B Warrants - In December 1991, the Company consummated an
initial public offering of 465,750 units and sold an additional 111,111 units to
a company controlled by a related party. Each unit consisted of the following:
three shares of the Company's Common Stock, two Class A Warrants, each of which
entitles the holder to purchase one share of Common Stock at $3.50 per share,
and one Class B Warrant, which entitles the holder to purchase one share of
Common Stock at $4.00 per share. Both the Class A Warrants and Class B Warrants
became exercisable on December 4, 1992 and those not yet exercised expired on
December 4, 1995.
The following is a summary of the warrants:
1995
----
Class A Class B
Warrants Warrants
-------- --------
Balance, January 1 1,081,324 552,262
Issued 6,256 3,128
Exercised (1,081,490) (543,020)
Expired (6,090) (12,370)
----------- ---------
Balance, December 31 -- --
=========== =========
10. SEGMENT INFORMATION
The Company operates principally in two areas: business information
publishing and investment management services. Publishing operations involve the
monthly publication of Individual Investor magazine, Ticker magazine and
Individual Investor's Special Situations Report newsletter. Revenues from
magazine publishing are derived from advertising, circulation and list rental.
Revenues from the newsletter are primarily from circulation. Investment
management services revenues are derived from management of a private domestic
investment fund and an offshore investment fund whereby the Company receives a
management fee and a special profit allocation (note 3). The Company also
derives investment management revenues from consulting services provided to the
sponsor of three unit investment trusts. Equity in net (loss) income of
affiliate is recorded in operating revenues to reflect such earnings and losses
as part of the Company's core operations and accordingly is included in the
investment management segment information.
28
<PAGE>
Operating (loss) income represents the difference between operating
revenues less operating expenses, including corporate expenses, which are
allocated to operations of the segments. For purposes of this presentation,
operating expenses were allocated to segments based on management's estimates of
usage determined by personnel costs and activities.
Identifiable assets by segment are those assets used in the Company's
operations in each business segment. Corporate assets are considered to be cash
and cash equivalents.
1996 1995
---- ----
Revenues:
Publishing $12,537,042 $7,485,490
Investment Management 507,069 5,769,367
------- ---------
$13,044,111 $13,254,857
=========== ===========
Operating (loss) income:
Publishing ($2,865,507) ($2,586,878)
Investment Management (501,183) 4,420,161
--------- ---------
($3,366,690) $1,833,283
============ ==========
Identifiable assets:
Publishing $4,443,920 $3,442,360
Investment Management 5,315,364 6,647,094
Corporate 1,544,451 6,276,987
--------- ---------
$11,303,735 $16,366,441
=========== ===========
11. FOURTH QUARTER TRANSACTIONS
In the fourth quarter of 1996 and 1995, the Company recorded investment
management service revenues from the domestic fund of $75,108 and $4,235,624,
respectively, related to a special profit allocation of the net income from the
fund, which is calculated at year end (see note 3). Also, in 1996 and 1995 the
Company recorded bonuses of approximately $38,000 and $625,000, respectively,
relating to the investment management service revenues, and additional expenses
of approximately $175,000 relating to the move to new offices at the end of
1995.
29
<PAGE>
ITEM 8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 9 as to directors is incorporated by
reference to the information captioned "Election of Directors" included in the
Company's definitive proxy statement in connection with the meeting of
shareholders to be held on June 18, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 is incorporated by reference to
the information captioned "Election of Directors - Executive Compensation"
included in the Company's definitive proxy statement in connection with the
meeting of shareholders to be held on June 18, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 11 is incorporated by reference to
the information captioned "Voting Securities" included in the Company's
definitive proxy statement in connection with the meeting of shareholders to be
held on June 18, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 is incorporated by reference to
the information captioned "Election of Directors - Related Transactions"
included in the Company's definitive proxy statement in connection with the
meeting of the shareholders to be held on June 18, 1997.
30
<PAGE>
<TABLE>
<CAPTION>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description Method of Filing
- ------- ----------- ----------------
No.
- ---
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation Incorporated by reference to Exhibit 3.1 to the
of Registrant Registrant's Registration Statement on Form S-18
(File No. 33-43551-NY) (the "Form S-18")
3.2 Bylaws of Registrant Incorporated by reference to Exhibit 3.2 to the
Form S-18
4.1 Specimen Certificate for Common Stock of Incorporated by reference to Exhibit 4.1 to the
Registrant Form S-18
10.1 Indemnification Agreement, dated August 19, 1991, Incorporated by reference to Exhibit 10.1 to the
between Registrant and Scot A. Rosenblum Form S-18
10.2 Indemnification Agreement, dated August 19, 1991, Incorporated by reference to Exhibit 10.2 to the
between Registrant and Bruce L. Sokoloff Form S-18
10.3 Indemnification Agreement, dated August 19, 1991, Incorporated by reference to Exhibit 10.3 to the
between Registrant and Jonathan L. Steinberg Form S-18
10.4 Indemnification Agreement, dated August 19, 1991, Incorporated by reference to Exhibit 10.4 to the
between Registrant and Jonathan M. Tisch Form S-18
10.5 Employment Agreement, dated August 20, 1991, Incorporated by reference to Exhibit 10.7 to the
between Registrant and Jonathan L. Steinberg Form S-18
10.6 Stock Option Agreement, dated October 3, 1990, Incorporated by reference to Exhibit 10.10 to
between Registrant and Scot A. Rosenblum the Form S-18
10.7 Form of Stock Option Agreement between Registrant Incorporated by reference to Exhibit 10.11 to
and Scot A. Rosenblum the Form S-18
10.8 Stockholder Agreement, dated January 1, 1989, Incorporated by reference to Exhibit 10.12 to
between Registrant and Certain Holders of Common the Form S-18
Stock of the Registrant, as amended
10.9 Form of 1991 Stock Option Plan of Registrant Incorporated by reference to Exhibit 10.13 to
the Form S-18
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.11 Stock Purchase Agreement, dated August 7, 1991, Incorporated by reference to Exhibit 10.29 to
among Registrant, Jonathan M. Tisch, and Jonathan the Form S-18
L. Steinberg
10.12 Stock Option Agreement, dated October 31, 1988, Incorporated by reference to Exhibit 10.30 to
between Registrant and Scot A. Rosenblum the Form S-18
10.13 Units Purchase Agreement between Registrant and Incorporated by reference to Exhibit 10.32 to
Reliance Insurance Company the Form S-18
10.21 Trademark License Agreement dated June 19, 1992 Incorporated by reference to Exhibit 10.25 to
between Registrant and the American Association the Form 10-KSB for the year ended December 31,
of Individual Investors, Inc. 1992 ("1992 Form 10-KSB")
10.22 Office Lease, Dated January 10, 1994, between 333 Incorporated by reference to Exhibit 10.22 to
7th Ave. Realty Co. and the Registrant the Form 10-KSB for the year ended December 31,
1993 ("1993 Form 10-KSB")
10.23 Stock purchase agreement, dated December 1, 1993, Incorporated by reference to Exhibit 10.23 to
between Bernard Schwartz and the Registrant the 1993 Form 10-KSB
10.25 Office lease, dated December 21, 1993, between HV Incorporated by reference to Exhibit 10.25 to
Rocklin Development, Inc. and the Registrant the 1993 Form 10-KSB
10.26 Consulting agreement, dated September 24, 1993, Incorporated by reference to Exhibit 10.26 to
between Robert M. Cohen and Company and the the 1993 Form 10-KSB
Registrant with form of Stock Option Agreement
10.27 Stock Option Agreement, dated April 7, 1994, Incorporated by reference to Exhibit 10.27 to
between Registrant and Jonathan L. Steinberg the Form 10-QSB for the quarter ended June 30,
1994 ("1994 Form 10-QSB")
10.28 Employment Agreement, dated July 27, 1994, Incorporated by reference to Exhibit 10.28 to
between Registrant and Robert H. Schmidt the 1994 Form 10-QSB
10.29 Stock Option Agreement, dated July 27, 1994, Incorporated by reference to Exhibit 10.29 to
between Registrant and Robert H. Schmidt the 1994 Form 10-QSB
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.30 Indemnification Agreement, dated July 27, 1994, Incorporated by reference to Exhibit 10.30 to
between Registrant and Robert H. Schmidt the 1994 Form 10-QSB
10.31 Stock Option Agreement, dated August 31, 1994, Incorporated by reference to Exhibit 10.31 to
between Registrant and Scot A. Rosenblum the 1994 Form 10-KSB
10.32 Consulting Agreement, dated February 3, 1995, Incorporated by reference to Exhibit 10.32 to
between Robert M. Cohen and Company and the the 1994 Form 10-KSB
Registrant with form of stock option agreement
10.33 Stock Option Agreement, dated June 21, 1995, Incorporated by reference to Exhibit 10.33 to
between Registrant and Bruce the 1994 Form 10-KSB
Sokoloff
10.34 Stock Option Agreement, dated June 23, 1995, Incorporated by reference to Exhibit 10.34 to
between Registrant and Robert H. Schmidt the 1994 Form 10-KSB
10.35 Stock Option Agreement, dated June 23, 1995, Incorporated by reference to Exhibit 10.35 to
between Registrant and Jonathan L. Steinberg the 1994 Form 10-KSB
10.36 Stock Option Agreement, dated June 23, 1995, Incorporated by reference to Exhibit 10.36 to
between Registrant and Scot A. Rosenblum the 1994 Form 10-KSB
10.37 Form of Partnership Agreement for WisdomTree Incorporated by reference to Exhibit 10.37 to
Associates, L.P. the 1994 Form 10-KSB
10.38 WisdomTree Capital Advisors, LLC Operating Incorporated by reference to Exhibit 10.38 to
Agreement dated November 1, 1995 the 1994 Form 10-KSB
10.39 Agreement between WisdomTree Offshore L.T.D, and Incorporated by reference to Exhibit 10.39 to
WisdomTree Capital Management, Inc. and the 1994 Form 10-KSB
WisdomTree Capital Advisors, LLC dated December
1, 1995
10.41 Office sublease, dated December 8, 1995, between Incorporated by reference to Exhibit 10.41 to
Porter Novelli, Inc. and the Registrant the 1995 Form 10-KSB
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.42 Office sublease, dated January 96 between VCH Incorporated by reference to Exhibit 10.42 to
Publishers, Inc. and the Registrant the 1995 Form 10-KSB
10.43 Form of 1996 Performance Equity Plan Incorporated by reference to Exhibit 10.43 to
the 1995 Form 10-KSB
10.44 Employment & Option Agreement dated March 15, Incorporated by reference to Exhibit 10.44 to
1996 between Jay Burzon and Registrant the 1995 Form 10-KSB
10.45 Form of 1996 Management Incentive Plan Incorporated by reference to Exhibit 4.10 to the
Registrant's Registration Statement on Form S-8
(File No. 333-17697)
10.46 Form of 1993 Stock Option Plan of Registrant Incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8
(File No. 33-72266)
11 Computation of Earnings (Loss) Per Common and Filed herewith, sequentially numbered page 36
Equivalent Share
21.1 Subsidiaries of the Registrant Filed herewith, sequentially numbered page 37
23.1 Consent of Independent Auditors- Filed herewith, sequentially numbered page 38
Deloitte & Touche LLP
23.2 Consent of Independent Auditors-Ernst Filed herewith, sequentially numbered page 39
& Young LLP
</TABLE>
34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INDIVIDUAL INVESTOR GROUP, INC.
Date: March 25, 1997
By: /s/ Jonathan L. Steinberg
--------------------------
Jonathan L. Steinberg
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
- ---------- ----- ----
/s/ Jonathan L. Steinberg Chief Executive Officer March 25, 1997
- -------------------------- and Director
Jonathan L. Steinberg
/s/ Robert H. Schmidt President and Director March 25, 1997
- ----------------------
Robert H. Schmidt
/s/ Scot A. Rosenblum Chief Financial Officer,Vice March 25, 1997
- ---------------------- President and Director
Scot A. Rosenblum
/s/ Henry G. Clark Controller (Principal March 25, 1997
- ------------------- Accounting Officer)
Henry G. Clark
/s/ Bruce L. Sokoloff Director March 25, 1997
- ----------------------
Bruce L. Sokoloff
/s/ Peter M. Ziemba Director March 25, 1997
- --------------------
Peter M. Ziemba
35
EXHIBIT 11
Computation of Earnings (Loss)
Per Common and Equivalent Shares
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Primary Fully Diluted
- ---------------------------- ------- -------------
<S> <C> <C>
Net loss $(3,189,452) $(3,189,452)
Weighted average common shares outstanding 6,198,260 6,198,260
========= =========
Loss per common share $ (0.51) $ (0.51)
=========== ===========
Year Ended December 31, 1995
- ----------------------------
Net income $ 2,892,808 $ 2,892,808
Plus: Interest income assumed to be earned on
proceeds from assumed exercise of options and
warrants in excess of 20% limitation 190,696 471,459
------- -------
Adjusted Net Income $ 3,083,504 $ 3,364,267
=========== ===========
Weighted average common shares outstanding 4,805,427 4,805,427
Plus: Incremental shares issued on assumed
exercise of options and warrants 1,271,255 2,066,740
--------- ---------
Weighted average common shares outstanding 6,076,682 6,872,167
=========== ===========
Income per common and equivalent share $ 0.51 $ 0.49
=========== ===========
</TABLE>
36
EXHIBIT 21.1
SUBSIDIARIES
OF
INDIVIDUAL INVESTOR GROUP, INC.
Subsidiary State of Organization
- -------------------------------------------------------------------------------
Individual Investor Holdings, Inc. Delaware
Advanced Marketing Ventures, Inc. Delaware
WisdomTree Capital Management, Inc. New York
I.I. Strategic Consultants, Inc. Delaware
WisdomTree Capital Advisors, LLC New York
I.I. Interactive, Inc. Delaware
WisdomTree Administration, Inc. Delaware
37
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
of Individual Investor Group, Inc.
We consent to the incorporation by reference in Registration Statement No.
33-74846 on Form S-3 and Registration Statements Nos. 33-72266, 33-85910 and
333-17697 on Form S-8 of Individual Investor Group, Inc. and subsidiaries of our
report dated March 18, 1997, appearing in the Annual Report on Form 10-KSB of
Individual Investor Group, Inc. and subsidiaries for the year ended December 31,
1996.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
March 25, 1997
38
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-74846 and Forms S-8 No. 33-72266, No. 33-85910 and No.
333-17697) pertaining to Individual Investor Group, Inc. of our reports dated
March 7, 1997 and March 6, 1996, with respect to the financial statements of
WisdomTree Associates, L.P. included in the Annual Report (Form 10-KSB) of
Individual Investor Group, Inc. for the year ended December 31, 1996.
/s/ Ernst & Young LLP
New York, New York
March 20, 1997
39
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,544,451
<SECURITIES> 0
<RECEIVABLES> 3,142,866
<ALLOWANCES> (561,594)
<INVENTORY> 0
<CURRENT-ASSETS> 4,505,702
<PP&E> 1,033,304
<DEPRECIATION> (318,852)
<TOTAL-ASSETS> 11,303,735
<CURRENT-LIABILITIES> 2,737,891
<BONDS> 0
0
0
<COMMON> 61,421
<OTHER-SE> 5,175,686
<TOTAL-LIABILITY-AND-EQUITY> 11,303,735
<SALES> 12,537,042
<TOTAL-REVENUES> 13,044,111
<CGS> 6,683,047
<TOTAL-COSTS> 16,410,801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,189,452)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,189,452)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,189,452)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
