6
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10932
INDIVIDUAL INVESTOR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3487784
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 Broadway, 38th Floor, New York, New York 10019 (Address of
principal executive offices)
(212) 843-2777
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No .
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date: As of April 7, 1998,
registrant had outstanding 7,231,007 shares of Common Stock, $.01 par value per
share.
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
INDEX
Part 1. Financial Information
Page
Item 1. Financial Statements
Consolidated Condensed Balance Sheets (Unaudited)
as of March 31, 1998 and December 31, 1997 3
Consolidated Condensed Statements
of Operations (Unaudited) for the three months
ended March 31, 1998 and 1997 4
Consolidated Condensed Statements
of Cash Flows (Unaudited) for the three months
ended March 31, 1998 and 1997 5
Notes to Consolidated Condensed
Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Part 2. Other Information
Item 2. Sales of Unregistered Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<TABLE>
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INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
</TABLE>
<TABLE>
<S> <C> <C>
March 31, December 31,
ASSETS 1998 1997
---------------- ----------------
Current assets:
Cash and cash equivalents $2,823,083 $3,533,622
Accounts receivable (net of allowances of $600,770 in 2,601,342 2,993,299
1998 and $533,693 in 1997)
Prepaid expenses and other current assets 280,309 224,801
---------------- ----------------
Total current assets 5,704,734 6,751,722
Investment in fund (Note 2) 3,597,119 4,037,432
Deferred subscription expense 385,618 426,826
Property and equipment - net 519,009 556,070
Other assets 384,917 384,917
================ ================
Total assets $10,591,397 $12,156,967
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,272,962 $2,093,987
Accrued expenses 745,826 803,502
Deferred revenue 348,140 343,250
---------------- ----------------
Total current liabilities 3,366,928 3,240,739
Deferred subscription revenue 2,730,864 2,661,129
---------------- ----------------
Total liabilities 6,097,792 5,901,868
---------------- ----------------
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares - -
Common stock, $.01 par value; authorized
18,000,000 shares; issued and outstanding 7,231,007 72,310 71,461
shares in 1998 and 7,146,071 shares in 1997
Additional paid-in capital 19,911,666 19,514,363
Accumulated Deficit (15,490,371) (13,330,725)
---------------- ----------------
Total stockholders' equity 4,493,605 6,255,099
---------------- ----------------
================ ================
Total liabilities and stockholders' equity $10,591,397 $12,156,967
================ ================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
<TABLE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<S> <C> <C>
For the Three Months Ended March 31,
-------------------------------------------------
1998 1997
--------------------- ----------------------
Revenues:
Financial Information Services:
Advertising $2,793,264 $2,329,712
Circulation 850,956 1,179,242
List rental and other 309,753 336,661
--------------------- ----------------------
Total financial information services revenues 3,953,973 3,845,615
Investment management services (Notes 2 and 5) 101,334 121,174
Net depreciation in fund (Note 2) (440,313) (1,665,317)
--------------------- ----------------------
Total revenues 3,614,994 2,301,472
--------------------- ----------------------
Operating expenses:
Editorial, production and distribution 3,078,327 2,156,491
Promotion and selling 1,503,297 1,476,125
General and administrative 1,149,660 1,032,587
Depreciation and amortization 73,311 65,425
--------------------- ----------------------
Total operating expenses 5,804,595 4,730,628
--------------------- ----------------------
--------------------- ----------------------
Operating loss (2,189,601) (2,429,156)
--------------------- ----------------------
Interest income 29,955 10,943
--------------------- ----------------------
Net loss ($2,159,646) ($2,418,213)
--------------------- ----------------------
Net loss per weighted average common share ($0.30) ($0.39)
Weighted average number of common
shares outstanding during the period 7,203,199 6,154,162
</TABLE>
See Notes to Consolidated Condensed Financial Statements
4
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INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
</TABLE>
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For the Three Months Ended March 31,
--------------------------------------------------
1998 1997
---------------------- ----------------------
Cash flows from operating activities:
Net loss ($2,159,646) ($2,418,213)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 73,311 65,425
Loss on sale of equipment 1,258 -
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 391,957 114,674
Prepaid expenses and other current assets (55,508) (139,814)
Deferred subscription expense 41,208 254,444
Increase (decrease) in:
Accounts payable and accrued expenses 121,299 (859,466)
Deferred subscription revenue 69,735 (346,257)
Deferred revenue 4,890 -
---------------------- ----------------------
Net cash used in operating activities (1,511,496) (3,329,207)
---------------------- ----------------------
Cash flows from investing activities:
Purchase of property and equipment (38,559) (51,795)
Proceeds from sale of equipment 1,051 -
Decrease in investment in affiliate 440,313 2,565,317
---------------------- ----------------------
Net cash provided by investing activities 402,805 2,513,522
---------------------- ----------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 398,152 96,676
---------------------- ----------------------
Net cash provided by financing activities 398,152 96,676
---------------------- ----------------------
Net decrease in cash and cash equivalents (710,539) (719,009)
Cash and cash equivalents, beginning of period 3,533,622 1,544,451
====================== ======================
Cash and cash equivalents, end of period $2,823,083 $825,442
====================== ======================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
5
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts
of Individual Investor Group, Inc. and its subsidiaries (the "Company").
Such financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and with the
instructions to Form 10- Q. Accordingly, they do not include all of the
information and footnotes as required by generally accepted accounting
principles for annual financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report for the year
ended December 31, 1997 on Form 10- KSB.
2. INVESTMENT MANAGEMENT SERVICES
A wholly-owned subsidiary, WisdomTree Capital Management, Inc.
("WTCM"), serves as general partner of (and investor in) a domestic private
investment fund. The Company is also a limited partner in the fund. The
fair value of the Company's investment in the fund decreased from
$4,037,432 at December 31, 1997 to $3,597,119 at March 31, 1998. This
decrease resulted from net losses on the Company's investment in the fund.
As discussed in Note 5, the Company has decided to dissolve the fund and
distribute the net assets to all investors as soon as the investments held
by the fund are liquidated.
Selected unaudited financial information for the fund as of March 31,
1998 and December 31, 1997 is as follows:
March 31, December 31,
1998 1997
Assets (at fair $50,043,422 $71,245,441
value)
Liabilities 19,177,609 32,104,302
Partners' capital 30,865,813 39,141,139
The net loss for the fund for the three months ended March 31, 1998
totaled $3,778,203 as compared to a net loss of $16,638,713 for the quarter
ended March 31, 1997.
The Company, through WTCM, provides investment management services to
the domestic private investment fund referred to above, and to an offshore
private investment fund. Total equity under management by the Company as of
March 31, 1998 for both the domestic and offshore funds was approximately
$38.7 million.
6
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. If the amount of the special allocation
for the offshore fund were calculated as of May 11, 1998 a gain of
approximately $216,000 would have been earned by the Company; however,
as the ultimate amount to be earned is dependent on the performance of
the fund through June 30th, benefits (if any) are not recorded until
June 30, 1998. The Company does not expect to receive a special
allocation during 1998 from the domestic fund based on the negative
performance of that fund to date.
3. STOCK OPTIONS
During the three months ended March 31, 1998, the Company granted
38,500 options to purchase the Company's Common Stock; 84,938 options were
exercised (providing proceeds of $398,152); 21,000 options were canceled.
Of the total granted, all options were granted under Company stock option
plans which expire at various dates through March 2008.
4. LOSS PER COMMON SHARE
Net loss per weighted average common share for the three month
periods ended March 31, 1998 and 1997 were computed using the weighted
average number of common shares outstanding during each period. The
exercise of stock options and warrants were not assumed in the computation
of loss per common share, as the effect would have been antidilutive.
Previously reported net loss per share amounts are the same as required by
the adoption of Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," which became effective in the fourth quarter of 1997.
5. SUBSEQUENT EVENT
On April 28, 1998 the Company's Board of Directors decided to dissolve
the domestic and offshore private investment funds (see Note 2 above) and
distribute the net assets to all investors as soon as the investments held
by the funds are liquidated. As of March 31, 1998 the Company's
investment in the domestic fund was valued at $3,597,119. The Company
has no investment in the offshore fund.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
When used in this Form 10-Q 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.
Three Months Ended March 31, 1998 as Compared to the Three Months
Ended March 31, 1997
Operating Losses
The Company's operating loss decreased by $239,555, to $2,189,601 for the
three months ended March 31, 1998, as compared to $2,429,156 in 1997. This
decrease in operating loss relates primarily to the net effect of a reduction in
the net depreciation of the Company's investment in the domestic fund of an
approximate $1.2 million, offset by an approximate $1 million increase in
operating losses incurred by the Company's financial information services
operations. The Company's online service, www.iionline.com, incurred a negative
contribution (before deducting general and administrative ("G&A") expenses) of
approximately $0.5 million for the quarter, compared with approximately $0.1
million in 1997, reflecting continued investment in this new service line.
Individual Investor incurred a negative contribution (before deducting G&A
expenses) of approximately $0.1 million, as compared to a positive contribution
of $0.3 million in 1997. This is primarily a result of the increases in
editorial, production, promotion and selling costs described below, without
achieving planned increases in advertising revenues. In addition, during 1998
the profit contribution (before deducting G&A expenses) from Special Situations
Report declined by approximately $0.1 million, because of reduced subscription
revenues. General and administrative and depreciation expenses increased by $0.1
million.
Revenues
Total revenues increased 57%, to $3,614,994 for the quarter ended March 31,
1998, as compared to $2,301,472 for the quarter ended March 31, 1997.
Revenues from financial information services rose 3%, to $3,953,973 for the
quarter ended March 31, 1998, as compared to $3,845,615 in 1997.
Advertising revenues increased by $463,552, or 20%, to $2,793,264 for the
quarter ended March 31, 1998, as compared to $2,329,712 in 1997. Of this
increase, the Company's website, www.iionline.com, generated $229,421 in the
first quarter of 1998 (there were no revenues in the first quarter of 1997).
8
Ticker (sm) advertising revenues increased by $152,947, or 52%, to $448,932 for
the quarter ended March 31, 1998, as compared to $295,985 for the same period in
1997, primarily due to three issues published in 1998 compared to two in 1997,
together with 20% circulation and rate increases effected in 1998. Advertising
revenues for Individual Investor increased by 4% in the first quarter of 1998 as
compared to the first quarter of 1997. As a result of the increase in paid
circulation of Individual Investor, effective November 1997 the company
increased its advertising rates by 18%. However, total advertising pages for
Individual Investor decreased by 8% in the 1998 period as compared to the 1997
period, in part reflecting the fact that the Company was without a Publisher
throughout the first quarter of 1998. In April 1998 this position was filled. In
addition, the categories of pages that declined were lower margin pages.
Although overall pages declined, the higher margin consumer pages increased by
10% for the quarter ended March 31, 1998 as compared to the same period in 1997.
Circulation revenues decreased 28%, to $850,956 for the quarter ended March
31, 1998, as compared to $1,179,242 in 1997. Individual Investor had average
paid circulation of over 525,000 in the first quarter of 1998, comprised of paid
subscribers and newsstand distribution, as compared to average paid circulation
of over 433,000 in the first quarter of 1997. Nevertheless, subscription
revenues for Individual Investor decreased 14%, to $584,021. The decrease in
subscription revenues is a direct result of the reduction of direct mail and
television campaigns in favor of other sources for subscribers (such as the use
of subscription agencies and airline frequent flyer promotions) that provide for
continuing numbers of new subscribers with lower marketing expenses but little
or no subscription revenue. Subscription revenues for the Company's newsletter,
Special Situations Report, decreased 70%, to $93,417, as a result of a decrease
in subscribers. As of March 1998, Special Situations Report had approximately
5,300 paid subscribers as compared to 12,000 in March 1997. This decrease is a
direct result of the reduction of television campaign promotions. The Company
believes that subscription revenues for Individual Investor and Special
Situations Report will stabilize at current levels. In addition, the Company
does not currently impose a charge for use of its online service.
List rental and other revenues totaled $309,753 for the quarter ended March
31, 1998, as compared to $336,661 in 1997. List rental revenue decreased to
$160,768 for the quarter ended March 31, 1998 as compared to $276,730 in 1997.
The decrease in list rental revenue is primarily attributable to reduced demand.
Other revenues, which primarily include the sale of reprints from Individual
Investor and Ticker magazines and revenues from an affinity credit card
agreement, increased to $148,985 in 1998 as compared to $59,931 in 1997.
Investment management services revenues were $101,334 for the quarter ended
March 31, 1998, as compared to $121,174 in 1997. 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 additional revenues of $42,092 in 1997 from
portfolio consulting activities). Because total equity managed by the Company
was approximately $38.7 million as of March 31, 1998 as compared to $28.3
million as of March 31, 1997, management fees earned by the Company increased to
$101,334 for the first quarter of 1998 as compared to $79,082 in 1997. While
total equity managed by the Company as of March 31, 1998 increased from the
prior year, it decreased from $47 million and $66 million at December 31, 1997
and 1996, respectively. The performance of the managed funds was negative during
the three months ended 1998 and 1997, and for the years ended December 31, 1997
and 1996, as compared to positive performance by the Nasdaq Small Cap market and
9
the Russell 2000 Index. As a result of the continuing negative performance,
assets under management continue to decrease. Net withdrawals in excess of
contributions from the funds were approximately $13 million for 1997. In the
first quarter of 1998 investors in the funds made net withdrawals of
approximately $4.6 million. The Company has decided to dissolve the domestic and
offshore funds and distribute the net assets to all investors as soon as the
investments held by the funds are liquidated. As of March 31, 1998 the value
of the Company's investment in the domestic fund $3,597,119. No assurance can
be given that the Company will realize this entire amount in the liquidation of
the domestic fund.
Net depreciation in fund totaled $440,313 for the quarter ended March 31,
1998 as compared to net depreciation of $1,665,317 in 1997. Net depreciation in
fund 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, will vary significantly from period to period and may
result in losses as well as income.
Operating Expenses
Total operating expenses increased 23%, to $5,804,595 for the quarter ended
March 31, 1998 as compared to $4,730,628 in 1997.
Editorial, production and distribution expenses increased 43%, to
$3,078,327 in 1998 from $2,156,491 in 1997. Of this increase, the Company
incurred expenses totaling $645,568 in 1998, as compared to $103,328 in 1997,
related to continuing development and ongoing maintenance of its web site
www.iionline.com. Management anticipates expenses relating to online services to
increase as development continues. Production and distribution expenses for
Individual Investor increased by $196,803, to $1,336,308 in 1998, as compared to
$1,139,505 in 1997 due to additional copies printed for a larger subscriber
base. Also, costs incurred in the first quarter of 1998 for the production and
distribution of Ticker increased by $66,805, to $381,211 in 1998, as compared to
$314,406 in 1997, primarily due to three issues published in 1998 compared to
two in 1997. Staffing levels have been increased to aid growth in the Company's
current publications as well as its online service.
Promotion and selling expenses increased 2%, to $1,503,297 for the quarter
ended March 31, 1998, from $1,476,125 in 1997. Advertising salaries, payroll
taxes and commissions have increased by approximately 6% 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. These increases
were offset in part by reductions in marketing expenses for the investment
management services operations and subscription promotion expenses.
General and administrative expenses increased 11%, to $1,149,660 for the
quarter ended March 31, 1998, as compared to $1,032,587 in 1997. Substantially
all of this increase resulted from higher levels of employee benefits relating
to additional personnel, legal fees, and recruiting fees.
Depreciation and amortization expense increased 12%, to $73,311 in 1998
from $65,425 in 1997. The increase in 1998 is primarily attributable to
depreciation of office furniture and computer equipment purchased for additional
personnel.
10
Interest and other income increased to $29,955 in 1998 from $10,943 in
1997. This increase is primarily due to higher levels of cash invested by the
Company.
The Company's net loss for the first three months of 1998 totaled
$2,159,646 as compared to a net loss of $2,418,213 for the same period of the
prior year. No income taxes were provided in 1998 or 1997 due to the net loss.
The net loss per weighted average common share for the first three months in
1998 was $0.30 as compared to $0.39 in 1997.
Liquidity and Capital Resources
As of March 31, 1998, the Company had working capital of $2,337,806,
including cash and cash equivalents totaling $2,823,083. In addition, as of
March 31, 1998 the value of the Company's investment in the domestic private
investment fund was $3,597,119, which will be available, subject to market
fluctuations and liquidity, to provide working capital to fund the Company's
operations as the domestic fund is liquidated and its assets are distributed to
its partners. However, no assurance can be given that the Company will realize
the entire amount upon liquidation of its investment in the fund. During the
three months ended March 31, 1998 the Company received $398,152 from exercises
of stock options. These inflows helped to fund the Company's net cash used in
operating activities of $1,511,496 during the quarter.
The Company incurred an operating loss of $2,189,601 for the three months
ended March 31, 1998. This loss was attributable to a number of factors. Net
depreciation in fund totaled $440,313 for the quarter. In addition, the
Company's investment in its online service incurred net expenses over revenues
of approximately $0.5 million (before deducting general and administrative
expenses). During the first quarter of 1998 the Company also fell short on its
goals for advertising pages sold (and the Company, accordingly, did not meet its
goals for advertising revenues), partially resulting from the effect of rate
increases implemented of approximately 18% in November 1997.
The Company's current level of revenues are not sufficient to cover its
expenses. Under its current business plan, during 1998 the Company does not
intend to significantly reduce its expenses, expects to continue to invest in
its existing products and anticipates losses to continue in 1998. Therefore,
profitability will be achieved in future periods only if the Company can
substantially increase its revenues while controlling increases in expenses. The
Company intends to continue to increase its investment in its online service
since it believes that this line of business offers the greatest opportunity for
generating substantial revenues over the longer term.
Management expects advertising revenues to continue to grow based upon a
number of factors. First, the Company expects to derive the benefit of increased
advertising rates for Individual Investor. Second, the Company believes that it
can attract more advertising pages from higher margin consumer advertisers with
an improved advertising management structure, including a new publisher hired in
April 1998, and other new key sales personnel. Third, the Company expects to
realize the benefits of increased awareness of Ticker in the marketplace and the
effect of the new rate increase for Ticker implemented in February 1998. Fourth,
the Company expects to realize higher revenues from a full year of operations of
www.iionline.com, as well as generate additional revenues from this rapidly
growing medium. The Company also believes that overall circulation revenues have
stabilized.
11
No assurance can be given that advertising revenues for Individual Investor
and Ticker will increase because higher advertising rates may not be accepted by
advertisers, advertising pages may continue to decline for Individual Investor,
and the advertising mix may change. Although the Company has recently added key
advertising sales personnel and has hired a new publisher in April 1998, no
assurance can be given that these changes will result in advertising revenue
increases. The Company also believes that a stock market correction or "bear"
market would affect its ability to sell advertising to the financial advertiser
categories. In addition, although the Company has developed a specific marketing
strategy for www.iionline.com, no assurance can be given that this strategy will
be successful.
Based on the Company's business plan, the Company believes that its working
capital and its investment in the fund will be sufficient to fund its operations
and capital requirements through 1998, although there can be no assurance that
the assumptions in its business plan will be realized or that the full amount of
its investment in the fund will be realized in 1998 since it is subject to
market fluctuations and liquidity. Thereafter, if revenues have not been
significantly increased above current levels, the Company will need to raise
additional capital in order to sustain operations or else consider the
discontinuance or sale of parts of its current operations. The Company has not
yet determined the costs that it will incur in connection with its anticipated
relocation to new space in early 1999, although it can be expected to be at a
significantly higher rate per square foot. No assurance can be given as to the
availability of additional financing or, if available, the terms upon which it
may be obtained. Any such additional financing may result in dilution of an
investor's equity investment in the Company. Failure to obtain additional
financing on favorable terms could have a substantial adverse effect on the
Company's future ability to conduct operations. There can be no assurance that
additional losses will not be incurred in the future, or that the Company will
be able to operate profitably in the future.
In August 1997 the Company retained the investment banking firm of Bear,
Stearns & Co. Inc. ("Bear Stearns") to assist the Company in exploring strategic
initiatives to enhance shareholder value, the process for which is continuing.
With the assistance of Bear Stearns, the Company has focused on various
alternatives including identifying, evaluating, and approaching potential
strategic partners seeking investment positions in the Company's information
services business.
12
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INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PART II- OTHER INFORMATION
</TABLE>
ITEM 2 - Sales of Unregistered Securitie
<TABLE>
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- ---------------- ----------------------- ---------- -------------------------------- --------------- -------------------------------
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
- ---------------- ----------------------- ---------- -------------------------------- --------------- -------------------------------
1/98 -3/98 options to purchase 38,500 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 $6.00 to
$7.25
</TABLE>
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Agreement with Michael J. Kaplan dated April 1, 1998
27 Financial Data Schedule March 31, 1998
(b) The Company did not file any reports
on Form 8-K during the Quarter Ended
March 31, 1998
13
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: May 13, 1998
INDIVIDUAL INVESTOR GROUP, INC. (Registrant)
By: /s/ Jonathan L. Steinberg
--------------------------------------------
Jonathan Steinberg, CEO and Chairman of the Board
By: /s/ Scot A. Rosenblum
-----------------------------------------
Scot Rosenblum, Executive Vice President and
Chief Financial Officer
By: /s/ Henry G. Clark
------------------------------------------
Henry G. Clark, Controller
(Principal Accounting Officer)
14
EXHIBIT INDEX
Exhibit No. Description Page
10.1 Agreement with Michael J. Kaplan dated April 1, 1998 16
27 Financial Data Schedule March 31, 1998 26
15
EXHIBIT 10.1
AGREEMENT
AGREEMENT, dated April 1, 1998, by and between Individual Investor Group,
Inc., a corporation organized and existing under the laws of the State of
Delaware with an address at 1633 Broadway, 38th Floor, N.Y., N.Y. 10019 (the
"Company") and Michael J. Kaplan,. Esq., an individual residing in the State of
New York with an address at 310 Palisade Avenue, Dobbs Ferry, New York 10522
("Kaplan").
WHEREAS, Kaplan has been employed by the Company since September 30, 1996,
first as General Counsel, and commencing as of May 9, 1997 also as Vice
President; the Company and Kaplan are the parties to that certain Stock Option
Agreement dated May 9, 1997 (the "Option Agreement"); the Company and Kaplan are
the parties to that certain Indemnification Agreement dated as of September 30,
1996 (the "Indemnification Agreement"), and; the Company and Kaplan now mutually
desire to provide for the orderly termination of the employment relationship
which existed between them and otherwise make provision respecting certain
economic and other matters relating to the Option Agreement and Indemnification
Agreement;
NOW THEREFORE, in consideration of the mutual promises and covenants herein
contained, the parties hereto agree as follows:
l. Termination of Employment.
(A) Termination. Kaplan's employment with the Company (and/or any
subsidiary of the Company) is hereby terminated effective as of the close of
business on May 15, 1998 (the "Termination Date"). Kaplan may take two weeks
vacation between the date of this Agreement and the Termination Date. Kaplan's
capacities as Vice President and General Counsel will similarly be terminated on
the Termination Date. If Kaplan does not use this two weeks of vacation in full,
Kaplan shall be paid for such un-used time. Notwithstanding the foregoing, the
Company's Chief Executive Officer may terminate Kaplan's employment sooner, and
thereby accelerate the Termination Date, upon 48 hours' notice.
(B) Transition. Between the date of this Agreement and the Termination Date
Kaplan shall use his best efforts to fulfill his duties to the Company (and/or
any subsidiary of the Company) generally and to assist in the orderly transition
of legal matters and files to such counsel and other persons as Jonathan
Steinberg may direct. In connection therewith, Kaplan shall work with outside
counsel to prepare a list of pending projects and shall prepare appropriate
status reports regarding such matters. It being acknowledged that the transition
of all of such legal matters and files may not be completed by the Termination
Date and Kaplan may have personal knowledge regarding such matters and files
that may not have been communicated to others in connection with such
transition, subsequent to the Termination Date, Kaplan shall make himself
reasonably available to the Company or its agents for consultation regarding
these matters upon request (it being specifically acknowledged by the Company
that Kaplan is not required to perform legal services or render legal advice to
the Company in connection with such consultation).
2. Payments, Benefits and Other Arrangements.
(A) Salary. The Company shall make regular payroll payments to Kaplan at
the current rate of salary ($170,000 per annum), through and including the
Termination Date, with final payment due not later than the Termination Date.
(B) Severance Payment. The Company shall make a payment to Kaplan in the
amount of One Hundred Twenty Thousand Dollars ($120,000), net of applicable
withholding taxes (the "Payment"), on July 1, 1998 (the "Payment Date"). After
making the Payment to Kaplan, the Company shall have no other or further bonus,
severance, vacation, or other payment obligation to Kaplan.
(C) Option Agreement. Notwithstanding anything to the contrary contained in
the Option Agreement, which is hereby amended to the extent that any of the
following provisions are inconsistent with the existing terms of the Option
Agreement, it is acknowledged and agreed that: (i) Kaplan shall be vested in
options to purchase a total of 50,000.66 shares of the common stock of the
Company (the "Vested Options"), including specifically the options vested as
indicated on the Option Schedule as follows (it being specifically agreed that
the 5/9/98 vesting is hereby guaranteed, notwithstanding any acceleration of the
Termination Date):
Exercise
Date Vested Number of Shares Price
9/30/97 8,333.33 $8.00
12/31/97 16,667.00 $5.88
1/1/98 8,333.33 $7.25
5/9/98 16,667.00 $5.88
(ii) the Vested Options shall not become exercisable until 90 days following the
Termination Date and shall remain exercisable through the close of business on
the first anniversary of the date they first become exercisable and not
thereafter; and (iii) the termination of employment effected by this Agreement
shall not cause the acceleration of vesting of any other options under the
Option Agreement and Kaplan waives and relinquishes the right to vest in any
other options included in the Option Agreement other than the Vested Options.
(D) Indemnification Agreement. The Indemnification Agreement shall not be
modified, amended or impaired by this Agreement; provided that Corporate Status
as defined under the Indemnification Agreement shall terminate effective upon
the Termination Date, and; provided further, that the parties agree that Section
13(a) of the Indemnification Agreement shall hereby be amended and modified to
read only "May 15, 2008".
(E) Medical and Dental Benefits. The medical coverage heretofore afforded
Kaplan by the Company will be paid by the Company through May 31, 1998.
Thereafter Kaplan may continue coverage for 18 months pursuant to COBRA rules
and regulations at his own expense. The Company will promptly after the
Termination Date furnish Kaplan with a "HIPA" certificate and otherwise comply
with all applicable laws for the purpose of allowing Kaplan to transfer to
another health plan without a break or limitation in coverage. In the event
Kaplan elects COBRA coverage he shall reimburse the Company the total amount of
the monthly premium rate for each month coverage is continued beyond May 1998.
(F) Expenses. The Company shall reimburse Kaplan for expenses incurred
prior to the Termination Date on behalf of the Company and in accordance with
regular Company procedures.
(G) Equipment. Kaplan shall be entitled to retain the IBM ThinkPad and
IOMEGA Zip Drive he has used while employed by the Company in exchange for a
payment, due on the Payment Date, in the amount of Five Hundred Dollars ($500),
or he shall return such equipment to the Company on the Payment Date. Any and
all other equipment and property of the Company heretofore utilized by Kaplan
and now in Kaplan's possession will be delivered by Kaplan to the Company on or
before the Termination Date.
3. Mutual Release, Non-Disparagement and Confidentiality.
(A) On the Payment Date and conditioned upon the Company and Kaplan making
the deliveries required in this paragraph (with Kaplan's delivery being further
conditioned upon the Company making the Payment), the Company shall deliver to
Kaplan a Release dated the Payment Date, executed in the form attached hereto as
Exhibit A, and, conditioned upon receipt of the Payment and the Company's
Release, Kaplan shall deliver to the Company a Release dated the Payment Date,
executed in the form attached hereto as Exhibit B. Delivery shall be made at the
offices of Graubard Mollen & Miller, 600 Third Avenue, New York, New York.
(B) The Company and Kaplan agree that the termination of employment
effected hereunder is by mutual agreement. The Company shall refer all inquiries
regarding Kaplan from prospective employees or other third parties seeking to
establish a business relationship with Kaplan to Jonathan Steinberg or his
successor, if any, as Chief Executive Officer. Mr. Steinberg shall respond to
all such inquiries consistent with the foregoing statement. Following the
execution of this Agreement, either the Company or Kaplan may make disclosure to
Company personnel not already privy to information regarding this Agreement
regarding the fact that Kaplan's employment has been terminated by mutual
agreement and that the presently anticipated last day of employment is May 15,
1998. Kaplan agrees that he shall take no action and shall make no statement or
comment which may, directly or indirectly, disparage the reputation of the
Company and/or its subsidiaries and/or its or their executives, directors,
personnel and/or publications. The Company and its officers and directors shall
take no action and shall make no statement or comment which may, directly or
indirectly, disparage the reputation of Kaplan.
(C) The Company and Kaplan agree to keep the terms of this Agreement
confidential, except that (i) Kaplan may make disclosure of the terms to his
immediate family members and may disclose any terms that have previously been
disclosed by the Company, (ii) the Company may make such disclosure as is
necessary to comply with applicable securities laws or as may be requested by
regulatory authorities, and (iii) either party may make disclosure to its
professional advisors or in any legal proceedings brought by either party to
enforce its rights hereunder.
4. Miscellaneous.
(A) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties, their heirs, executors, administrators, successors and
assigns (if any) permitted under paragraph 4(J), and the parties, their heirs,
executors, administrators, and successors and assigns, shall execute any
instruments in writing which may be necessary or proper in carrying out its
purposes and intent and any and all necessary governmental or regulatory filings
with regard thereto.
(B) Choice of Law, Jurisdiction and Venue. This Agreement shall be
construed under and in accordance with the laws of the State of New York,
without regard to choice of law principles. The parties agree that the State
Courts of the State of New York shall have sole and exclusive jurisdiction over
any action brought to enforce the terms of this Agreement and the parties hereto
consent to the personal jurisdiction and venue of the courts of the State of New
York in the County of New York for such purposes.
(C) Survival. The agreements and representations and warranties of the
parties hereto contained in this Agreement shall survive any termination of this
Agreement. The agreements and obligations of the Company contained in this
Agreement shall survive any merger, acquisition, change of control and/or
bankruptcy or other insolvency of the Company.
(D) Confidentiality. Kaplan agrees that he shall not divulge, furnish, or
make accessible to anyone including present or former employees of the Company
(other than in the regular course of business of the Company prior to the
Termination Date and after the Termination Date only in response to specific
inquiry made by a duly authorized representative of the Company seeking
consultation with Kaplan as contemplated in paragraph 1(B)) any knowledge or
information with respect to confidential or secret processes, inventions,
discoveries, improvements, formulae, plans, material, devices, ideas, or other
know-how, whether intellectual property or not, with respect to any confidential
or secret engineering, development, or research work or with respect to any
other confidential or secret aspects of the Company's business (including,
without limitation, customer lists, subscription lists, supplier lists, and
pricing arrangements with customers, subscribers, or suppliers). Kaplan further
agrees that he shall not make use of, nor permit to be used, any confidential
notes, memoranda, specifications, programs, data, information or other materials
of any nature whether oral or written relating to any matter within the scope of
the business of the Company or concerning any of its dealings or affairs
otherwise than for the benefit of the Company, it being agreed that any of the
foregoing shall be and remain the sole and exclusive property of the Company and
that immediately upon the termination of Kaplan's employment, Kaplan shall
deliver any or all copies of the foregoing to the Company. Kaplan also
acknowledges that as general counsel to the Company and its subsidiaries he has
become privy to information the disclosure of which by Kaplan is prohibited
(except in limited circumstances) by the attorney-client privilege and he is
aware of such privilege and will not disclose such information in violation of
his ethical obligations as an attorney.
(E) Work for Hire. Kaplan agrees that all ideas, marketing concepts,
slogans, advertising campaigns, characters, proposals and plans invented or
developed by him which relate directly or indirectly to the business of the
Company or arose out of his employment with the Company or the use of the
Company's property or resources including, without limitation, any ideas,
proposals and plans which may be copyrighted, trademarked, patented or otherwise
protected (collectively, "Intellectual Property") are and will be the property
of the Company. Kaplan understands and agrees that any and all such Intellectual
Property constitute a "work for hire" under the U.S. Copyright Law. In the event
any such Intellectual Property is not regarded as a "work for hire," Kaplan
hereby assigns to the Company the sole and exclusive right to such Intellectual
Property. Kaplan agrees that upon request of the Company, he will execute and
deliver any and all documents or instruments and take any other action which the
Company shall deem necessary to assign to and vest completely in the Company all
right, title and interest in such Intellectual Property, to perfect trademark,
copyright and patent protection with respect thereto, or to otherwise protect
the Company's trade secrets and proprietary interest in such Intellectual
Property. Kaplan will, at the request and expense of the Company, sign and
execute all such deeds or documents, and provide such cooperation, including
truthful testimony, as the Company and its duly authorized agents may reasonably
require: (i) to apply for, obtain and vest in the name of the Company alone
(unless the Company otherwise directs) trademarks, copyrights, patents or other
analogous protection in any country throughout the world and when so obtained or
vested to renew and restore the same; and (ii) to defend any opposition
proceedings in respect of such applications and any opposition proceedings or
petitions or applications for revocation of such trademarks, copyrights, patents
or other analogous protection. In the event Kaplan does not, within five (5)
days, execute and deliver such documents reasonably necessary to vest in the
Company all right, title and interest in such Intellectual Property, Kaplan
hereby irrevocably designates and appoints the Company and its duly authorized
officers and agents as Kaplan's agent and attorney-in-fact, to act for and in
Kaplan's behalf and stead to execute and file any such application or
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of trademarks, copyright, patents or other analogous
protection thereon with the same legal force and effect as if executed by
Kaplan. The Company agrees to pay any and all copyright, trademark and patent
fees and expenses or other costs incurred by Kaplan for any assistance rendered
to the Company pursuant to this paragraph.
(F) If either the Company or Kaplan commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 3(B), 3(C) or 4(D), the
other shall have the right and remedy:
(i) to have the provisions of this Agreement specifically enforced, it
being acknowledged that any such breach or threatened breach will cause
irreparable injury and that money damages will not provide an adequate remedy;
and
(ii) with respect to a breach by Kaplan of the provisions of
paragraphs 4(D) or 4(E), the Company may require Kaplan to account for and pay
over to the Company all compensation, profits, monies, accruals, increments, or
other benefits (collectively "Benefits") derived or received by Kaplan as a
result of any transactions constituting a breach of any of the provisions of
paragraphs 4(D) or 4(E) and Kaplan hereby agrees to account for and pay over
such Benefits to the Company.
(G) Headings. The headings used in this Agreement are used for
administrative purposes only and do not constitute substantive matters to be
considered in construing the terms of this Agreement.
(H) Notice. Any notice herein provided for shall be in writing and shall be
deemed duly given when delivered to the other to whom it is addressed. Any
notice herein provided for shall be sent to the address first above indicated in
this Agreement or such other address as either party may indicate by notice to
the other.
(I) Merger. This Agreement, the Option Agreement and the Indemnification
Agreement (the latter two of which are amended as set forth herein) embody the
entire understanding and agreement of the parties hereto in relation to the
subject matter hereof, and no promise, condition, representation or warranty,
express or implied, not herein set forth shall bind any party hereto. None of
the terms and conditions of this Agreement may be changed, modified, waived or
canceled orally or otherwise except by a writing signed by both the parties
hereto, specifying such change, modification, waiver or cancellation. A waiver
at any time of compliance with any of the terms and conditions of this Agreement
shall not be considered a modification, cancellation or waiver of such terms and
conditions of any preceding or succeeding breach thereof unless expressly so
stated.
(J) Non-Assignability. This Agreement shall only be assignable by Kaplan to
his successors or assigns in the event of death or incapacity, and shall only be
assignable and shall be assigned by the Company to any legal successor.
(K) Attorney Fees and Penalty. If either party seeks redress in the State
Courts of the State of New York to enforce its rights under this Agreement, the
party prevailing in such action shall be entitled to its reasonable attorney's
fees and expenses as deemed appropriate by the court, including those relating
to the prosecution or resistance of any proceeding in all appellate courts
before or after final decision of a court of competent jurisdiction. In
addition, if Kaplan must seek redress in court to collect the Payment and shall
prevail in that action, he shall be entitled to a $50,000 penalty payment.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
and on behalf of the parties hereto as of the date first hereinabove written and
each such party executes this Agreement on the understanding and agreement that
each has hereby bound and obligated itself hereby.
INDIVIDUAL INVESTOR GROUP, INC.
By:
-------------------------------
Jonathan Steinberg, Chairman and
Chief Executive Officer
--------------------------------
Michael J. Kaplan
Exhibit A
RELEASE
To all to whom these Presents shall come or may Concern, Know That:
Individual Investor Group, Inc. ("IIG"), a corporation organized under the
laws of the State of Delaware, WisdomTree Capital Management, Inc., a
corporation organized and existing under the laws of the State of New York, I.I.
Strategic Consultants, Inc., a corporation organized and existing under the laws
of the State of Delaware, WisdomTree Administration, Inc., a corporation
organized and existing under the laws of the State of Delaware, I.I.
Interactive, Inc., a corporation organized and existing under the laws of the
State of Delaware, Advanced Marketing Ventures, Inc., a corporation organized
and existing under the laws of the State of Delaware, WisdomTree Capital
Advisors, LLC, a limited liability corporation organized and existing under the
laws of the State of New York, and each being fully authorized to execute this
Release (hereinafter collectively referred to as the RELEASORS), in exchange for
consideration heretofore received by IIG and each of the RELEASORS the receipt
and sufficiency of which is hereby acknowledged, do hereby release and forever
discharge Michael J. Kaplan, Esq., an individual (hereinafter referred to as
RELEASEE), RELEASEE's heirs, executors, administrators, successors and assigns
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, and demands of any kind whatsoever, in law, admiralty or
equity, which against the RELEASEE, any or all of the RELEASORS or RELEASORS'
successors and assigns ever had, now have or hereafter can, shall or may have
for, upon, or by reason of any matter, cause or thing whatsoever from the
beginning of the world to the day of the date of this RELEASE, except for
matters arising out of a breach of the obligations under an Agreement, dated as
of March __, 1998 between IIG and Michael J. Kaplan, Esq.
Whenever the text hereof requires, the use of the singular number shall
include the appropriate plural number as the text of the within instrument may
require.
This RELEASE may not be changed orally.
IN WITNESS WHEREOF, each of the undersigned as RELEASOR, has caused this
RELEASE to be executed by its duly authorized officer on July 1, 1998.
Individual Investor Group, Inc. WisdomTree Capital Management, Inc.
By: By:
----------------------------- -----------------------------
Jonathan Steinberg, Chairman and Jonathan Steinberg, Chairman and
Chief Executive Officer Chief Executive Officer
I.I. Strategic Consultants, Inc. WisdomTree Administration, Inc.
By: By:
----------------------------- -----------------------------
Jonathan Steinberg, Chairman and Jonathan Steinberg, Chairman and
Chief Executive Officer Chief Executive Officer
I.I. Interactive,Inc. Advanced Marketing Ventures, Inc.
By: By:
----------------------------- -----------------------------
Jonathan Steinberg, Chairman and Jonathan Steinberg, Chairman and
Chief Executive Officer Chief Executive Officer
WisdomTree Capital Advisors, L.L.C.
By:
-----------------------------
Jonathan Steinberg, Chairman and
Chief Executive Officer
ACKNOWLEDGMENTS
State of New York )
) ss.:
County of New York )
On the ____ day of July, 1998, before me personally came Jonathan Steinberg
to me known, who being by me duly sworn, did depose and say that he resides
at_________ _______; that he is the Chairman and Chief Executive Officer of each
of the corporations on whose behalf he has executed the above instrument; and
that he signed his name thereto by authority of the Board of Directors of each
of the said corporations.
-----------------------------------
Notary Public
Exhibit B
RELEASE
To all to whom these Presents shall come or may Concern, Know That:
Michael J. Kaplan, Esq., an individual residing in the State of New York
and being fully authorized and competent to execute this Release (hereinafter
referred to as RELEASOR), in exchange for consideration heretofore received by
RELEASOR the receipt and sufficiency of which is hereby acknowledged, does
hereby release and forever discharge Individual Investor Group, Inc. ("IIG"), a
corporation organized and existing under the laws of the State of Delaware,
WisdomTree Capital Management, Inc., a corporation organized and existing under
the laws of the State of New York, I.I. Strategic Consultants, Inc., a
corporation organized and existing under the laws of the State of Delaware,
WisdomTree Administration, Inc., a corporation organized and existing under the
laws of the State of Delaware, I.I. Interactive, Inc., a corporation organized
and existing under the laws of the State of Delaware, Advanced Marketing
Ventures, Inc., a corporation organized and existing under the laws of the State
of Delaware, WisdomTree Capital Advisors, LLC, a limited liability corporation
organized and existing under the laws of the State of New York, WisdomTree
Associates, L.P., a limited partnership organized and existing under the laws of
the State of New York, and WisdomTree Offshore, Ltd., a Company organized and
existing under the laws of the Cayman Islands, and each of their respective
successors and assigns, officers, directors, employees and agents, and each of
their respective heirs, executors, administrators, successors and assigns
(hereinafter referenced to as RELEASEES), from, all actions, causes of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgements, extents, executions, claims, and
demands of any kind whatsoever, in law, admiralty or equity, which against the
RELEASEES, the RELEASOR, RELEASOR'S, heirs, executors, administrators,
successors and assigns ever had, now have or hereafter can, shall or may have
for, upon, or by reason of any matter, cause or thing whatsoever from the
beginning of the world to the day of the date of this RELEASE, except for
matters arising out of a breach of the obligations under an Agreement, dated as
of March __, 1998 between IIG and RELEASOR.
Whenever the text hereof requires, the use of singular number shall include
the appropriate plural number as the text of the within instrument may require.
This RELEASE may not be changed orally.
IN WITNESS WHEREOF, the undersigned as RELEASOR, has executed this RELEASE
July 1, 1998.
---------------------------------
Michael J. Kaplan, Esq.
ACKNOWLEDGMENT
State of New York )
) ss.:
County of New York )
On the 1st day of July, 1998, before me personally came Michael J. Kaplan
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed the same.
----------------------------------
Notary Public
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