UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the fiscal year ended: December 31, 1999
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or
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____ 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.
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(Exact name of registrant as specified in its Charter)
Delaware 13-3487784
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(State or other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
125 Broad Street, 14th Floor, New York, NY 10004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 742-2277
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON
STOCK, $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of April 10, 2000, the aggregate market value of the Registrant's
Common Stock (based on the closing sale price of the Common Stock on that date
on the Nasdaq National Market) held by non-affiliates of the Registrant, was
approximately $20,979,752.
As of April 10, 2000, 10,384,602 shares of the Common Stock of the
Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1999
Annual Meeting of Stockholders (the "Proxy Statement") to be filed pursuant to
Regulation 14A of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, which is anticipated to be filed within 120
days after the end of Registrant's fiscal year ended December 31, 1999, are
incorporated by reference into Part III hereof.
<PAGE>
Important Notice Concerning "Forward-looking Statements" in this Report
1. "Forward-looking Statements." Certain parts of this Report describe
historical information (such as operating results for the year ended December
31, 1999), and the Company believes the descriptions to be accurate. In contrast
to describing the past, various sentences of this Report indicate that the
Company believes certain results are likely to occur after December 31, 1999.
These sentences typically use words or phrases like "believes," "expects,"
"anticipates," "estimates," "will continue" and similar expressions. Statements
using those words or similar expressions are intended to identify
"forward-looking statements" as that term is used in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements include, but are not limited
to, projections of operating results for periods after December 31, 1999,
concerning either a specific segment of the Company's business or the Company as
a whole. For example, projections concerning the following are forward-looking
statements: net revenues, operating expenses, net income or loss, contribution
to overhead, number of subscribers, subscription revenues, revenues per
advertising page, number of advertising pages, production expense per copy, page
views, revenues per page view, marketing expenses, sales expenses, and general
and administrative expenses. Any statement in this Report that does not describe
a historical fact is deemed to be a forward-looking statement.
2. Actual Results May Be Different than Projections. Due to a variety of
risks and uncertainties, however, actual results may be materially different
from the results projected in the forward-looking statements. These risks and
uncertainties include those set forth in Item 1 of Part I hereof (entitled
"Business"), in Item 7 of Part II hereof (entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations"), in Exhibit 99
hereof and elsewhere in this Report.
3. The Company Has No Duty to Update Projections. The forward-looking
statements in this Report are current only on the date this Report is filed.
After the filing of this Report, the Company's expectations of likely results
may change, and the Company might come to believe that certain forward-looking
statements in this Report are no longer accurate. The Company shall not have any
obligation, however, to release publicly any corrections or revisions to any
forward-looking statements contained in this Report, even if the Company
believes the forward-looking statements are no longer accurate.
PART I
ITEM 1. BUSINESS
Individual Investor Group, Inc. and its subsidiaries (collectively, the
"Company") is a financial media company with a portfolio of Internet and print
properties that address the needs of (1) an expanding community of investment
enthusiasts, (2) financial planners and brokers that serve that community, and
(3) advertisers and business partners who want to reach that market. Reaching
more than three million upscale, highly educated and Internet-savvy investors
and financial professionals every month, the Company's properties include:
individualinvestor.com (http://www.individualinvestor.com), InsiderTrader.com
(http://www.InsiderTrader.com), Individual Investor magazine (500,000 paid
circulation), Ticker(sm) magazine (100,000 controlled circulation), and
Individual Investor's Special Situations Report newsletter. The Company believes
that the two forms of distribution of financial information - electronic and
print - are complementary and provide a competitive advantage. The Company is
committed to exploiting the synergies that the two forms of media provide. In
addition, the Company has developed the INDI SmallCap 500(TM) index of small-cap
stocks, which is listed on the American Stock Exchange under the ticker symbol
NDI. The Company hopes to license the index to third parties to create financial
products (such as exchange-traded share products and mutual funds) based upon
the index.
The Company also plans to continue to monetize its desirable Internet
and print demographics through equity-for-advertising barter deals. The
Company's first such deal, in which it provided $250,000 of advertising in 1997
for stock in Wit Capital Group, Inc., yielded a gain in excess of $2.8 million
in the fourth quarter of 1999. In addition, the Company netted a gain in excess
of $900,000 during the third quarter of 1999 on its investment in Kirlin Holding
Corp. The Company's investment in Kirlin Holding Corp. was made in connection
with an equity-for-advertising acquisition of a stake in Kirlin's subsidiary,
VentureHighway.com Inc. The Company's stakes in Internet start-ups
VentureHighway.com Inc. and ReverseAuction.com, Inc. also hold promise of
appreciation. There can be no assurance that the Company will realize any gains,
however, and the Company instead may incur losses, in connection with these
investments. The Company's management is actively pursuing discussions with a
number of Internet start-ups regarding potential barter deals. However, the
Company may not be able to enter into any additional transactions of these
types. The Company also believes that it has large e-commerce opportunities for
future growth through database mining of its Internet registered user and print
subscriber lists.
The Company provides research and analysis of investment information to
individuals and investment professionals through two business segments: Online
Services and Print Publications. The relative contribution of the two business
segments to the Company's operating revenue and operating profit for the three
years ended December 31, 1999, and the identifiable assets of each segment at
the end of each year, are included in Note 11 to the Company's consolidated
financial statements, which Note is hereby incorporated by reference.
ONLINE SERVICES
Online Services revenues from advertising, subscriptions and other
sources for the year ended December 31, 1999, totaled $2,304,546, or 13% of the
Company's total revenues from continuing operations, up 103% from $1,136,032, or
7% of the Company's total revenues from continuing operations, in 1998. Traffic
to the Company's websites totaled nearly 16 million page views in the December
1999 quarter, a 32% increase over the September 1999 quarterly traffic.
individualinvestor.com (www.individualinvestor.com)
The Company launched its flagship Website, individualinvestor.com, in
1997. In mid November 1999, the site was redesigned. The site provides users
with continuously updated research, recommendations, message boards, portfolio
tracking, analytical tools, and news and financial information. Unlike the
majority of online financial media companies (e.g., CBS MarketWatch.com,
TheStreet.com, Yahoo! Finance), individualinvestor.com uses its own research
analysts to make stock recommendations. The site allows for interaction between
users and the Company's approximately 40 research analysts, writers and editors.
individualinvestor.com also builds upon work presented in Individual Investor
magazine (e.g., material developed for the print publication's educational area
is re-purposed in the Investor University(R) section of individualinvestor.com,
and the web site provides daily updates on the current Magic 25(TM) picks which
were first written about in the January issue of Individual Investor magazine).
As of March 1, 2000, individualinvestor.com had approximately 200,000 registered
users (registration is currently required only to use the portfolio tools, post
messages on message boards and enter investment contests run on the site), up
from 155,000 registered users in March 1999.
Through content sharing and syndication, the Company seeks to increase
its brand awareness, create links to its consumer web sites, and in some
instances, benefit from revenue sharing agreements. The Company has entered into
several key content sharing relationships with major Internet companies such as
Yahoo! Finance, Lycos, and CMGI's AltaVista. These content-sharing arrangements
are accomplished at little or no cost to the Company by using existing content
(e.g., "Stock of the Day," "Industry Analysis," and "Magic 25 Week in Review")
from individualinvestor.com. In the fourth quarter of 1999, Internet users
accessed in excess of 6.6 million page views of the Company's proprietary and
branded financial commentary, analysis and research on its content partners'
sites, in addition to the 16 million page views on the Company's own sites.
The Company has also taken other initiatives to enhance traffic. These
include continuously posting up-to-date research, daily e-mail alerts, and
promoting various investment contests, such as the Dodge-sponsored Magic25(TM)
Challenge and the Individual Investor of the Year(TM) contest. The Company also
expects to expand its current offerings on individualinvestor.com with new
centers, (e.g., an options center and an earnings center), in association with
other Internet companies. The Company also anticipates launching several
additional features, such as technical analysis and stock screening tools from
partners such as Telescan, Inc.
InsiderTrader.com (www.InsiderTrader.com)
In November 1998, the Company added a second web site through the
acquisition of InsiderTrader.com. The site distributes "insider" data filed with
the Securities and Exchange Commission, and a full-time research analyst
provides proprietary research based on the data. To drive traffic to the site,
InsiderTrader.com has co-branded content sharing arrangements or links with
Edgar-Online, Hoover's Online and Infonautic's Company Sleuth. In addition to
free content, the site charges an annual subscription fee of $49.95 to access
value-added insider data and the site's proprietary research. Additionally, the
Company offers a premium service at an additional fee of $17.95 per month to
access more extensive and complete insider data, along with other value-added
features that allow them to query the database in a more flexible manner. In
December 1999, an "Institutional Service" was added, allowing subscribers access
to four quarters of the SEC's Form 13F data (institutional holdings of public
companies). This service is available for an annual fee of $2,000, or a monthly
fee of $249. As of March 1, 2000, the site has approximately 1,300 paying
subscribers.
The Company seeks to increase page views to InsiderTrader.com by
continuing to expand its co-branding relationships, and by promoting the service
via other means, such as radio programs, interviews in the financial press
(e.g., InsiderTrader.com's founder and the Company's Director of Business
Development is quoted in The Wall Street Journal as an authority on analyzing
insider trading). During 2000, the Company also plans to promote the site with
banner ads and e-mail sponsorships on individualinvestor.com and other outside
financial web sites. There can be no assurance, however, that these efforts will
be successful.
New Internet Web Sites
During 2000, the Company plans to launch three to four new Internet web
sites. SHORTInterest.com will distribute short interest data (positions held by
investors in anticipation that the stock will decline in value) in a unique,
value-added graphical format. The site will further present value added screens,
tables and analysis to assist investors in determining which stocks to avoid or
sell short. BioStock.com will distribute data regarding the products, U.S. Food
and Drug Administration drug trial phases, and other important information
concerning companies in the healthcare, pharmaceutical and biotech sectors.
Proprietary commentary and analysis will be generated from the data. Both of
these new sites will contain free and subscription-based sections within the
sites. The third new site planned is Ticker.com, a community-based
business-to-business site for investment advisors and planners. In addition, the
Company is evaluating introducing a fourth site, InvestorUniversity.com, an
educational site. There can be no assurance, however, that these products will
be launched or that, if launched, they will be successful.
Marketing
The Company markets its web sites through the content-sharing
arrangements described above as well as through print and online advertisements
and public relations efforts (e.g., exposure of the Company's columnists and
research analysts on television and radio in key regional markets). During 1999,
the Company targeted print advertising campaigns specifically towards
advertising agencies in an effort to increase awareness among advertisers about
the Company. The Company has also increased its efforts to cross promote between
its Internet and print operations.
Advertising
The Company currently employs in-house sales personnel to sell online
advertising, and has reorganized its internal sales efforts to allow for more
effective cross selling of all the Company's print and online products to
potential advertisers. The Company also uses an independent sales agent, WinStar
Interactive Media Sales, Inc. to sell advertising for individualinvestor.com and
InsiderTrader.com. Online advertising revenues typically are measured on a cost
per thousand impressions, or "CPM", basis, although other arrangements, such as
a cost per click (where payment depends upon the number of times a viewer
"clicks" on the advertisement) or cost per action (where payment depends upon
the number of times a viewer takes a certain action, such as completing and
returning an online questionnaire) may also be employed. CPM rates fluctuate,
and may experience industry-wide declines going forward.
On the basis of independent studies, the Company believes that its
Internet properties attract people with strong education, income, investment
portfolio size, and Internet usage demographics. The Company believes that this
demographic set is an attractive selling point to (1) advertisers, (2) other
Internet companies, and (3) for future e-commerce opportunities.
Competition
The Company's Internet business competes with Briefing.com, which uses
internal research analysts, and with various other online financial service
companies including TheStreet.com, Raging Bull.com, Yahoo! Finance, Microsoft
Investor, Motley Fool, and CBS MarketWatch.com, as well as those sponsored by
publishers of certain print magazines, including Money.com and SmartMoney.com.
However, these latter companies currently do not provide stock recommendations,
instead providing commentary, education and self-directed analysis (e.g.,
tools). The Company also competes with other online services offered by
financial investment houses and publishers. Many of the Company's online
competitors have significantly higher monthly page views and substantially
greater financial resources than the Company, which may enable such competitors
to compete more effectively than the Company for the attention and loyalty of
users and for advertising revenues. The Company's competitive strategy is to
offer its users proprietary editorial content, research and analysis, together
with the other site features (e.g., news, quotes, message boards and portfolio
tools) in an appealing and easy-to-use format.
PRINT PUBLICATIONS
Print Publications revenues from advertising, list rental, circulation
and other sources for the year ended December 31, 1999, totaled $15,200,863, or
87% of the Company's total revenues from continuing operations, up 7% from
$14,212,147, or 93% of the Company's total revenues from continuing operations,
in 1998.
Individual Investor Magazine
The Company's flagship publication, Individual Investor magazine, is a
consumer-oriented monthly investment magazine that offers proprietary research,
analysis and recommendations, together with commentary and opinion on investment
ideas. Individual Investor seeks differentiation among personal finance
magazines through its focus on identifying and recommending investment
opportunities on the basis of in-house proprietary research and analysis.
Individual Investor focuses on analysis of investment opportunities in public
companies and mutual funds that it believes to have the potential to achieve
returns higher than those of the general market. In addition to investment
ideas, the publication seeks to provide the investor with tools and knowledge to
help with investment decisions.
Individual Investor is printed on a glossy, coated paper stock and has
a basic annual subscription rate of $22.95 ($2.99 newsstand price). Individual
Investor had a total paid subscriber and newsstand circulation of approximately
500,000 in March 2000, unchanged from March 1999. The Company has intentionally
stabilized its circulation and rate base in order to focus on increasing the
profitability of each subscriber.
Ticker Magazine
The Company also publishes Ticker magazine, a monthly trade publication
distributed without charge to a controlled circulation of approximately 100,000
investment advisors, brokers and planners. Ticker focuses on providing
investment professionals with information to help increase their business,
manage their accounts more effectively, and improve results for their clients.
The magazine publishes articles on practice management topics, stocks, bonds and
mutual funds, and features interviews with selected analysts and research
specialists.
The Company plans to introduce a new web site, Ticker.com, for this
audience in 2000, although there can be no assurance that introduction will
occur in that time frame.
Individual Investor's Special Situations Report Newsletter
The Company also publishes Individual Investor's Special Situations
Report ("SSR"), a monthly 12-page newsletter. Each issue features one new stock
investment recommendation, including a detailed research report that discusses
the featured company's operating history, future plans, management, and specific
financial projections. In addition, each issue reports on recent company
developments of previously recommended stocks and gives buy, hold, or sell
recommendations on those stocks.
The basic annual subscription price for SSR is $165. As of March 2000,
SSR had approximately 2,000 paid subscribers, compared with approximately 3,700
in March 1999. SSR's subscription levels declined primarily as a result of a low
response to direct mail promotions in 1998. The number of subscribers is
expected to increase modestly during 2000.
The Company plans to convert SSR into a subscription-based Internet
product in the future.
Advertising
Print Publications advertising revenues for 1999 were $10,462,069, up
10% from $9,488,241 in 1998. Print Publications advertising revenues are derived
from Individual Investor and Ticker magazines and accounted for 60% of the
Company's total revenues from continuing operations for the year ended December
31, 1999, as compared to 62% for 1998. Print Publications advertising sales
efforts are performed by the Company's employees and by outside sales
representatives located throughout the United States.
Print Publications advertising is sold primarily to four types of
advertisers: (1) financial services companies, including traditional and
electronic brokerage firms, mutual funds and companies that provide
investment-oriented products; (2) consumer advertisers, including marketers of
automobiles, computer products, clothing and accessories; (3) public companies
interested in attracting the publications' readers as investors; and (4)
business-to-business and technology advertisers.
On the basis of independent subscriber studies, the Company believes
that the subscribers of Individual Investor and Ticker typically are financially
sophisticated individuals with substantial net worth, several years of investing
experience, and significant investment portfolios. The Company believes that
those demographics are a valuable tool in marketing advertising space in
Individual Investor and Ticker.
The Company intends to increase advertising revenues by continuing to
target national consumer and financial advertisers in such industries as
automobiles, technology products, insurance, mutual funds and brokerage
companies. The Company believes that increased product awareness for both
Individual Investor and Ticker through targeted public relations and advertising
campaigns, as well as the growth and development of www.individualinvestor.com,
will continue to attract more attention to the magazines as an advertising
medium. Additionally, the Company has reorganized its internal sales efforts to
allow for more effective cross selling of all the Company's products to
advertisers. During 2000, Individual Investor magazine, for the first time,
expects to be reported in two major national syndicated studies (JD Power
Automotive and Mendelsohn Affluent Study). Additionally, the Company anticipates
being reported in the syndicated Mediamark Research Inc. Fall 2000 research
study (standardized media research studies used by major advertisers). All of
these are expected to have a positive effect on the Company's efforts to sell
additional advertising pages, although there can be no assurance that the
studies will present the Company in a positive light and aid the sales efforts.
Circulation and Marketing
Print Publications circulation revenues for 1999 were $3,404,165, down
slightly from $3,483,706 in 1998. Print Publications circulation revenues, which
are derived from Individual Investor magazine and SSR, accounted for
approximately 19% of the Company's total revenues from continuing operations for
the year ended December 31, 1999, as compared to 23% for 1998. The Company
obtains new subscriptions for Individual Investor through leading subscription
agencies. The Company also solicits subscriptions for Individual Investor
through direct-mail marketing promotions, insert cards in the magazine, and the
Internet.
Single copy, or newsstand, revenues for 1999 were $891,124, up 18% from
$754,402 in 1998. Individual Investor is distributed for sale on newsstands
("single-copy sales") throughout the United States by independent parties (the
largest of which is International Circulation Distributors, a subsidiary of The
Hearst Corporation).
Ticker is a controlled-circulation magazine distributed to investment
advisors, brokers and planners. Names of recipients of Ticker are obtained from
lists acquired by the Company, who must respond that they want to continue
receiving the publication in order to stay on the circulation list.
SSR is sold by subscription only. The Company uses targeted direct mail
solicitation to promote SSR, and concentrates on cross-marketing this
higher-priced publication to the larger Individual Investor subscriber base and
to outside lists of other financial newsletter subscribers.
List Rental Revenue
Print Publications list rental revenues for 1999 were $1,046,979, up
31% from $796,436 in 1998. List rental revenues accounted for 6% of the
Company's total revenues from continuing operations for the year ended December
31, 1999, as compared with 5% in 1998. The Company utilizes the services of an
independent list-management agent to promote the rental of the Company's Print
and Online subscriber lists.
Competition
Many of the print publications with which the Company competes are
published by larger companies that publish multiple titles, such as Time Warner.
These companies have significantly larger resources and more extensive
relationships with advertisers than does the Company. The Company believes these
publishers have a competitive advantage because of their ability to attract
subscribers and advertisers and promote sales more extensively than the Company.
The Company's strategy is to compete on the basis of its unique editorial focus
on actionable investment ideas. The Company believes that this provides it with
a subscriber base possessing superior demographics.
Some of the publications focused on personal finance that compete with
Individual Investor are Money, Smart Money, Kiplingers and Worth. In addition,
the print publications compete against publications with a broader editorial
focus, including The Wall Street Journal, Barrons, Investors Business Daily,
Business Week, Forbes and Fortune.
Ticker competes for advertising and readership with other publications
that target brokers, financial advisers and financial industry managers. Those
publications include Registered Representative, Investment Advisor, Research,
and On Wall Street. The Company also competes with other research reports,
newsletters, and other publications and services offered by financial investment
houses and publishers.
Production and Operations
All preliminary research and analysis is done by an 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 or
researchers or to freelance columnists. In addition, Individual Investor has
arrangements with such well-known authors as CNBC journalist Maria Bartiromo,
Morningstar's John Rekenthaler, and Professor Jeremy Siegel from the Wharton
School of Business, to provide original articles for publication on a regular
basis. The financial tables included in Individual Investor are provided by
various vendors. The Company uses in-house software and hardware in the
composition and layout of its publications. The Company selects independent
printers based on their production quality and competitive costs and service.
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 the
subscribers' labels and circulation information reports each month.
EDUCATIONAL SERVICES
The Company conducted its first paid seminar focused on investment
education in January 2000. In addition to seminar fees collected from attendees,
the Company received additional revenue from sponsors. The Company is currently
evaluating the success of its first endeavor and may plan future such events.
INDI SMALLCAP 500(TM) INDEX
In addition to the Company's Internet and print operations, the Company
also has developed the INDI SmallCap 500(TM) index of small-cap stocks, which is
listed on the American Stock Exchange under the ticker symbol NDI. The index is
designed to track the 500 fastest-growing small-cap companies in the United
States and is recalibrated quarterly. In 1999, the index posted a gain of 44%,
outperforming the S&P 600 (12%) and the Russell 2000 (21%). The Company believes
that the INDI SmallCap 500(TM) index, with its structural focus on small-cap
stocks exhibiting earnings growth, is a better proxy for the small-cap growth
sector than any competing index.
The Company is offering to license the use of the INDI SmallCap
500(TM) as the basis for exchange-traded share products (like the popular SPDRS,
or "Spiders", based upon the S&P 500), mutual funds and derivative products,
which can be offered by one or more independent issuers. Although the Company
has received indications of interest from potential licensees, the Company
cannot yet forecast the revenues, if any, that may be generated from this
product line. In February 2000, State Street Bank and Trust Company filed an
application with the Securities and Exchange Commission for approval to sell an
exchange-traded index share product based upon the INDI SmallCap 500(TM) index.
There can be no assurance, however, that the Company and State Street will agree
upon licensing terms, or that the regulatory approval process will be
successfully concluded. Depending upon the commercial success of the INDI
SmallCap 500(TM), the Company will consider the development of other indices as
the basis for financial products to be offered by one or more independent
issuers. As with the INDI SmallCap 500(TM) index, the Company would seek to earn
licensing revenue, but cannot estimate at this time the amount of revenue, if
any, that the Company might receive.
DISCONTINUED OPERATIONS
On April 30, 1998, the Company's Board of Directors decided to
discontinue the Company's investment management services business. The
investment management services business was principally conducted by a
wholly-owned subsidiary of the Company, WisdomTree Capital Management, Inc.
("WTCM"). WTCM serves as general partner of (and is an investor in) a domestic
private investment fund. The Company is also a limited partner in the fund. As a
result of the Board's decision to discontinue the investment management services
business, WTCM is continuing to dissolve the domestic investment fund,
liquidating its investments and distributing the net assets to all investors as
promptly as possible.
In 1998 the Company recorded a provision of $591,741 to accrue for its
share of any net operating losses of the domestic fund and related costs that
are expected to occur until the fund liquidates its investments. The Company
believes that adequate provision has been made for any remaining net operating
losses and related costs associated with these discontinued operations.
The Company, through WTCM, also provided investment management services
to an offshore private investment fund. On May 21, 1998 the sole voting
shareholder of the offshore fund, in consultation with WTCM, resolved to wind up
the fund and appointed a liquidator to distribute the assets of the fund to its
investors in accordance with Cayman Islands law. Substantially all of the fund's
assets were distributed in cash to its investors by December 31, 1998. The
Company has no investment in the offshore fund.
EMPLOYEES
As of March 2000, the Company employed 101 persons on a full-time
basis: 28 employees in the Online Services segment, 53 employees in the Print
Publications segment, and 20 executive, accounting and administrative support
personnel.
INTELLECTUAL PROPERTY
The Company believes that trademarks and service marks are important to
its business and actively pursues strategies to protect and strengthen its
current marks for use in connection with its products and for future products.
The Company is somewhat dependent on the use of certain marks in its operations,
particularly the names of its primary web site and its two magazines:
individualinvestor.com, Individual Investor, and Ticker, respectively.
The Company has a perpetual license for use of the trademark INDIVIDUAL
INVESTOR. The Company has had negotiations with the licensor to secure
assignment of the trademark, but did not reach an agreement. The Company will
continue to monitor and seek enforcement against any perceived infringement of
the mark, and may again seek assignment of the mark, on terms the Company may
deem appropriate.
An application to register the trademark TICKER was filed in November
1996 in connection with the launch of this publication. Action on this pending
trademark application was deferred by the Patent and Trademark Office pending
the disposition of the applications for two other marks, one for Global Ticker
(which application is still pending) and one for Snapshot Personal Ticker (which
subsequently was issued as a registered trademark). The Company believes that
these marks are not confusingly similar and will pursue registration of this
mark. There can be no assurance, however, that the Company's application will be
successful.
The Company also has registered the trademarks MAGIC 25, INVESTOR
UNIVERSITY, INVESTMENT UNIVERSITY, INSIDERTRADER and AMERICA'S FASTEST GROWING
COMPANIES. The Company uses these marks regularly in its publications and
previously had licensed the latter in connection with certain other business
activities.
During 1998 and 1999, the Company also undertook the development of
intellectual property rights with respect to several new marks which the Company
intends to use in connection with planned and/or potential business activities
or, alternatively, to sell to third parties.
In addition to trademarks and service marks, the Company also has
registered several Internet domain names, including Ticker.com,
SHORTInterest.com, BioStock.com and InvestorUniversity.com, which the Company
intends to use for its business operations, or alternatively, to sell to third
parties. The Company's intellectual property rights also include copyrights in
its print and online publishing content.
The Company will continue to seek to derive value from the development
and exploitation of its intellectual property. There can be no assurance,
however, that the Company's intellectual property rights will be successfully
exploited or that such rights will not be challenged or invalidated in the
future.
ITEM 2. PROPERTIES
The Company leases 35,000 square feet at 125 Broad Street, New York,
New York for its corporate office. The lease runs through March 31, 2004.
Aggregate annual rental for this lease is $997,500 plus escalation costs. The
Company also leases advertising sales office space in San Francisco, Los Angeles
and Chicago.
The Company also leases 10,000 square feet in New York City, which was
sublet as of February 1996 to a third party. This lease expires March 1, 2005.
The annual rent for the lease over the term of the sublease ranging from
$160,000 to $210,000, plus escalation costs. The sublease also expires on March
1, 2005, and provides for aggregate annual rental receipts ranging from $160,000
to $205,000 over the term of the sublease, plus escalation costs. Although the
Company does not currently anticipate that it will incur any material liability
with respect to the lease for its former office space, there exists the
possibility of such liability.
ITEM 3. LEGAL PROCEEDINGS
In July 1997, certain former limited partners of WisdomTree Associates,
L.P. ("WTA"), a domestic private investment fund of which WisdomTree Capital
Management, Inc., a wholly-owned subsidiary of the Company, is the general
partner, initiated an action in the Supreme Court of the State of New York,
County of New York, captioned Richard Tarlow and Sandra Tarlow v. WisdomTree
Associates, L.P., Bob Schmidt and Jonathan Steinberg, Index No. 113819/97.
Defendants moved to dismiss the action based on plaintiffs' failure to file a
complaint, and the action was dismissed without prejudice in October 1997. In
October 1998, plaintiffs moved to vacate the default judgment. Defendants
opposed the motion. In April 1999, the court denied plaintiffs' motion with
respect to Messrs. Schmidt and Steinberg, but granted the motion with respect to
WTA and plaintiffs were permitted to and did file and serve a complaint solely
against this defendant. WTA moved to dismiss the complaint as to all causes of
action other than the breach of contract claim, which motion was denied. WTA
subsequently answered the complaint and discovery was commenced. In February
2000, plaintiffs moved to amend their complaint to add Messrs. Schmidt and
Steinberg as defendants, and defendants moved for summary judgment. Both motions
are currently pending. Plaintiffs allege that WTA did not timely process
plaintiffs' request for redemption of their interest in WTA, which delay
allegedly caused plaintiffs to suffer approximately $470,000 in damages. WTA
intends to continue conducting a vigorous defense. Due to the inherent
uncertainty of litigation, the Company is not able to reasonably estimate the
potential losses, if any, that may be incurred in relation to this litigation.
In April 1999, a stockholder of the Company initiated an action in the
Court of Chancery of the State of Delaware, New Castle County, captioned Michele
S. Criden v. Jonathan L. Steinberg, Bruce L. Sokoloff, Peter M. Ziemba and S.
Christopher Meigher III (C.A. No. 17082). The Company is named as a nominal
defendant in the action. Plaintiff alleged that the four individual defendants,
who comprised the entire Board of Directors of the Company at that time, took
improper action (i) on November 19, 1998, in determining to amend the terms of
options previously granted to Jonathan Steinberg to reduce their exercise prices
(which ranged from $4.9375 to $7.50) to $1.25 (11% higher than the last sale
price of the Common Stock on the trading date immediately preceding the date of
such amendment), and (ii) on December 23, 1998, in determining to grant
replacement options to each of Messrs. Sokoloff, Ziemba and Meigher, conditioned
upon cancellation of their existing options, which replacement options had an
exercise price of $2.00 per share (the last sale price of the Common Stock on
the trading date immediately preceding the date of the new grant), which was
less than the exercise price of options previously granted to them (which
exercise prices ranged from $4.375 to $10.50). Plaintiff claimed that such
actions constituted corporate waste and a diversion of corporate assets for
improper and unnecessary purposes and that the directors breached their
fiduciary duties, including their duty of loyalty, to the Company and its
stockholders. Plaintiff demanded judgment (i) enjoining the four directors from
exercising any options at the reduced exercise price, (ii) declaring a
constructive trust of any proceeds resulting from the directors' exercise of
such options, (iii) damages, on behalf of the Company, for losses and damages
suffered and to be suffered in connection with the option repricings, including
interest thereon, and (iv) awarding plaintiffs the costs of this action,
including reasonable attorney's fees. In June 1999, defendants moved to dismiss
the complaint. Plaintiff indicated that she would not oppose the motion, but
rather would file an amended complaint. In August 1999, plaintiff filed an
amended complaint. In September 1999, defendants moved to dismiss the amended
complaint. On March 23, 2000, the Court of Chancery granted defendants' motion
and the amended complaint was dismissed for failure to state a claim. Plaintiff
may request the court to reconsider its ruling or file an appeal. The Board of
Directors believed at the time, and continues to believe, that the actions taken
on November 19, 1998 and December 23, 1998, were proper.
In addition to the foregoing matters, the Company from time to time is
involved in ordinary and routine litigation incidental to its business; the
Company currently believes that there is no such pending legal proceeding that
would have a material adverse effect on the consolidated financial statements of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
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, which is the principal trading market for the Company's
Common Stock, under the symbol INDI. Previously, 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.
The table below sets forth for the periods indicated the high and low
closing sales prices on the Nasdaq National Market for the Company's Common
Stock.
1999: Low ($) High ($)
----- ------- --------
First Quarter 3 1/16 10 3/8
Second Quarter 4 1/16 8 5/8
Third Quarter 2 17/32 6
Fourth Quarter 2 9/16 4 7/8
1998:
-----
First Quarter 5 1/2 7 5/8
Second Quarter 2 7/8 6 7/8
Third Quarter 3/4 5
Fourth Quarter 7/8 4 1/4
These amounts represent sales between dealers in securities and do not
include retail markups, markdowns or commissions. On April 10, 2000, the last
sale price for the Company's Common Stock, as reported by Nasdaq, was $4.00.
Holders
On March 15, 2000, there were 48 holders of record of the Company's
Common Stock. The Company believes that there are approximately 3,450 beneficial
owners of the Company's Common Stock.
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 foreseeable future, but instead
intends to retain any capital for use in the business.
Dividends on the Company's Series A Preferred Stock are payable
annually at the rate of $20 per share and in preference to any dividends on the
Company's Common Stock.
Sales of Unregistered Securities
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------- --------------------- ----------------- ---------------------------- --------------- --------------------------------
Consideration received and Exemption If option, warrant or
Date of sale Title of security Number Sold description of from convertible security, terms of
underwriting or other registration exercise or conversion
discounts to market price claimed
afforded to purchasers
- -------------- --------------------- ----------------- ---------------------------- --------------- --------------------------------
10/99 - Options to purchase 216,000 Employment (or director's) Section 4(2) Vesting over a period of up to
12/99 common stock services; in addition, four years from date of grant,
granted to exercise price would be subject to certain conditions
employees and received upon exercise of continued service;
director exercisable for a period
lasting up to ten years from
date of grant at exercise
prices of $2.5625 to $4.4375
per share
- -------------- --------------------- ----------------- ---------------------------- --------------- --------------------------------
11/29/99 Warrants to 15,000 Financial advisory Section 4(2) Vesting immediately;
purchase common services; in addition, exercisable for a period
stock granted to exercise price would be lasting up to five years from
consultant received upon exersise date of grant at an exercise
price of $2.91875 per share
- -------------- --------------------- ----------------- ---------------------------- --------------- --------------------------------
12/14/99 Warrants to 50,000 Financial advisory Section 4(2) Vesting 12/16/00 provided that
purchase common services; in addition, the financial advisory services
stock granted to exercise price would be agreement has not been
consultant received upon exercise terminated by the Company by
12/15/00; exercisable until
12/15/04 at an exercise price
of $3.40625 per share
- -------------- --------------------- ----------------- ---------------------------- --------------- --------------------------------
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below is derived
from the Company's audited consolidated financial statements and is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes to those statements included
elsewhere herein.
<TABLE>
<S> <C> <C> <C> <C> <C>
At, and for the years ended, December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Revenue from continuing operations (a) $17,505,409 $15,348,179 $14,899,741 $12,537,042 $ 7,485,490
Operating expenses 26,007,762 23,382,892 20,206,774 16,073,791 10,699,299
----------- ----------- ----------- ----------- ------------
Operating loss from continuing operations (8,502,353) (8,034,713) (5,307,033) (3,536,749) (3,213,809)
Investment and other income 4,309,650 224,213 69,296 177,238 1,059,525
----------- ----------- ----------- ------------ ------------
Net loss from continuing operations (4,192,703) (7,810,500) (5,237,737) (3,359,511) (2,154,284)
(Loss) income from discontinued operations - (781,370) 277,402 170,059 5,047,092
----------- ----------- ------------ ------------ ------------
Net (loss) income ($4,192,703) ($8,591,870) ($4,960,335) ($3,189,452) $ 2,892,808
============ ============ ============ ============ ============
Basic and dilutive (loss) income per common share:
Continuing operations ($0.47) ($0.99) ($0.81) ($0.54) ($0.45)
Discontinued operations - (0.10) 0.04 0.03 1.05
------------ ------------ ------------ ------------ -----------
($0.47) ($1.09) ($0.77) ($0.51) $0.60
============ ============ ============ ============ ===========
Average number of common shares used in
computing basic and dilutive (loss)
income per common share 9,336,679 7,876,509 6,466,168 6,198,260 4,805,427
Cash and cash equivalents $ 6,437,542 $ 4,752,587 $ 3,533,622 $ 1,544,451 $ 6,276,987
Investment in discontinued operations 49,302 282,383 4,037,432 4,947,500 6,502,729
Total assets 16,257,967 10,544,928 12,156,967 11,303,735 16,366,441
Working capital 5,163,130 5,805,339 7,798,415 6,715,311 11,967,921
Stockholders' equity $ 7,662,937 $ 5,448,757 $ 6,255,099 $ 5,237,107 $10,468,730
Current ratio 2.0 3.0 3.4 3.5 5.7
</TABLE>
(a) On April 30, 1998, the Company's Board of Directors decided to discontinue
the Company's investment management services business. As a result, the
operating results relating to investment management services have been
segregated from continuing operations. Prior years' amounts have been
restated to conform to the current year presentation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Important Notice Concerning "Forward-looking Statements" in this Report
- -----------------------------------------------------------------------
Please read the notice set forth before Item 1 of Part I of this
Report.
Year Ended December 31, 1999 as Compared to the Year Ended December 31, 1998
Net Loss from Continuing Operations
The Company's net loss from continuing operations for the year ended
December 31, 1999 decreased 46%, to $4,192,703, as compared to $7,810,500 in
1998. The decrease is due primarily to the realized gains on the sales of
investments. While advertising revenues increased for both the Online Services
and Print Publications segments (by approximately 83% and 10%, respectively),
the increase was more than offset by higher operating expenses, primarily
marketing, promotion and corporate advertising expenses.
Online Services operations provided a negative operating contribution
(before deducting general and administrative ("G&A"), corporate advertising and
depreciation and amortization expenses) of $1,714,259 for the year ended
December 31, 1999, as compared to a negative operating contribution of
$2,056,633 in 1998. This improvement is due to an 83% increase in advertising
revenues, partially offset by higher editorial salaries and consulting fees, as
well as increased research salaries and related costs.
Print Publications operations provided a negative operating
contribution (before deducting G&A, corporate advertising and depreciation and
amortization expenses) of $246,864 for the year ended December 31, 1999, as
compared to a negative operating contribution of $692,731 in 1998. This
improvement primarily relates to a 10% increase in advertising revenues together
with reduced production and distribution costs, offset in part by increased
marketing and promotion expenses.
The Company believes that losses from continuing operations will
increase significantly in 2000 unless the Company realizes additional gains on
the sales of investments, which gains are not assured. Although the Company
expects that revenues will continue to increase, and that the Print Publications
segment will produce a positive contribution to overhead, costs associated with
the introduction of new and/or enhanced Online Services products, and content
and services needed to retain the current users and to attract new users, will
also increase. There can be no assurance, however, that the Company's current
estimates will prove to be accurate.
Operating Revenues
Total revenues from continuing operations for the year ended December
31, 1999 increased 14%, to $17,505,409, as compared to $15,348,179 in 1998.
Revenues for the Online Services operations increased 103%, to $2,304,546, as
compared to $1,136,032 in 1998. Revenues for the Print Publications operations
increased 7%, to $15,200,863, as compared to $14,212,147 in 1998. Included in
these totals are barter revenues of $105,030 in 1999 and $368,620 in 1998.
Online Services advertising revenues for the year ended December 31,
1999 increased by 83%, to $2,036,762, as compared to $1,112,802 in 1998. This
increase relates primarily to higher individualinvestor.com
(www.individualinvestor.com) advertising revenue resulting primarily from a
growth in page views and advertising impressions in 1999 over 1998. The Company
expects that these trends in revenues, page views, and advertising impressions
will continue in 2000. However, there can be no assurance that this will occur.
The Company does not currently impose a charge for use of
individualinvestor.com.
Print Publications advertising revenues for the year ended December
31, 1999 increased 10%, to $10,462,069, as compared to $9,488,241 in 1998. This
increase relates primarily to Ticker magazine, which achieved a 24% increase in
advertising pages per issue, combined with a 12% increase in the net rate per
page sold. The Company believes that Ticker magazine's advertising revenues will
continue to increase in 2000, with further increases in pages sold at a higher
net rate per page, although there can be no assurance that this will occur.
Individual Investor magazine's advertising revenues for the year ended December
31, 1999 also increased, due to a 17% increase in the net rate per page,
partially offset by a 12% decrease in pages sold. The Company believes that
Individual Investor magazine's advertising revenues will also increase in 2000,
primarily due to increased pages sold. However, there can be no assurance that
this will occur.
Print Publications circulation revenues for the year ended December
31, 1999 decreased 2%, to $3,404,165, as compared to $3,483,706 in 1998. The
decrease relates primarily to a reduction in subscription revenue from Special
Situations Report due to a decrease in paid subscribers to approximately 1,900
as of March 2000, as compared to approximately 3,700 as of March 1999. SSR's
subscription levels, which have declined primarily as a result of a low response
to direct mail promotions, are expected to increase modestly during 2000. The
Company plans to convert SSR into a subscription-based web product in the
future.
Print Publications list rental and other revenues for the year ended
December 31, 1999 increased 8%, to $1,334,629, as compared to $1,240,200 in
1998. The increase relates primarily to higher list rental revenues attributable
to the Company's improving print subscriber lists, partially offset by a
reduction in the sale of reprints from Individual Investor magazine.
Operating Expenses
Total operating expenses from continuing operations for the year ended
December 31, 1999 increased 11%, to $26,007,762, as compared to $23,382,892 in
1998. The increase is primarily due to higher marketing, promotion and corporate
advertising expenses, as well as increased salaries and related expenses as a
result of hiring additional sales personnel. Included in these totals are barter
expenses of $105,030 in 1999 and $595,876 in 1998.
Editorial, production and distribution expenses for the year ended
December 31, 1999 increased 3%, to $11,797,411, as compared to $11,429,496 in
1998. Online Services production and editorial expenses increased 30%, to
$2,838,840, as compared to $2,178,042 in 1998. The increase is primarily related
to higher salaries and consulting fees, as well as increased research-related
costs, for the Company's primary web site, individualinvestor.com, together with
a full year of production and research costs for InsiderTrader.com, which the
company purchased in November 1998, partially offset by reduced production and
outside development costs for individualinvestor.com. Print Publications
editorial, production and distribution expenses decreased by 3%, to $8,958,571,
as compared to $9,251,454 in 1998. This decrease relates primarily to Individual
Investor magazine, which had lower paper and postage costs, and reduced
manufacturing expenses. These savings were partially offset by increased
editorial salaries, manuscript and art costs for both Individual Investor and
Ticker magazines.
Promotion and selling expenses for the year ended December 31, 1999
increased by 15%, to $7,669,121, as compared to $6,668,047 in 1998. Online
Services promotion and selling expenses for the year ended December 31, 1999
increased by 16%, to $1,179,965, as compared to $1,014,623 in 1998. This
increase is primarily due to higher marketing and promotion expenses and
increased salaries, partially offset by lower advertising commissions due to the
use of an in-house sales staff in 1999. Print Publications promotion and selling
expenses for the year ended December 31, 1998 increased by 15%, to $6,489,156,
as compared to $5,653,424 in 1998. The increase relates primarily to increased
marketing and promotion expenses, increased salaries and benefits as a result of
hiring additional in-house sales personnel, and severance related to an employee
termination arrangement, partially offset by reduced newsstand promotion and
subscription renewal costs.
General and administrative expenses for the year ended December 31,
1999 increased by 7%, to $5,291,648, as compared to $4,964,069 in 1998. The
increase relates primarily to increased rent and other expenses related to the
relocation of the Company's corporate office in March 1999, partially offset by
reduced recruiting fees.
Corporate advertising expenses for the year ended December 31, 1999
were $725,867 as compared to none in 1998. These expenses relate to a corporate
trade and consumer brand awareness advertising campaign. The campaign was
designed to attract further advertisers to both the online and print operations,
spur online traffic growth and to increase awareness of the Company in the
financial community.
Depreciation and amortization expense for the year ended December 31,
1999 increased by 63%, to $523,715, as compared to $321,280 in 1998. The
increase is attributable to additional depreciation for furniture and fixtures
as well as amortization of leasehold improvements, primarily related to the move
to the new corporate office.
Investment and Other Income
Investment and other income for the year ended December 31, 1999
increased to $4,309,650, as compared to $224,213 in 1998. This is primarily due
to realized gains on sales of investments in 1999 of $4,144,396, as compared to
$67,452 in 1998. The gains primarily related to Wit Capital Group, Inc.
($2,839,460), which was obtained as part of an equity-for-advertising
arrangement in June 1997, and Kirlin Holding Corp. ($938,594) which was obtained
in conjunction with an equity-for-advertising transaction involving a Kirlin
subsidiary, VentureHighway.com Inc.
The Company plans to complete additional equity-for-advertising deals
in 2000 in order to leverage its more than three million demographically
desirable monthly Internet and print users. In February, the Company acquired a
3.3% stake (on a fully diluted basis) of ReverseAuction.com, Inc., an Internet
auction site, in exchange for advertising in the Company's online and print
properties. There can be no assurance that the Company ultimately will realize
any value with respect to its investments in VentureHighway.com Inc.,
ReverseAuction.com, or any subsequent investments.
Discontinued Operations
On April 30, 1998 the Company's Board of Directors decided to
discontinue the Company's investment management services business. As a result
of the Board's decision, WisdomTree Capital Management, Inc. ("WTCM") is
continuing to dissolve the domestic and offshore investment funds, liquidating
fund investments and distributing the net assets to all investors as promptly as
possible. Accordingly, the operating results related to investment management
services have been segregated from continuing operations and reported as a
separate line item on the statement of operations.
There was no net income or loss from discontinued operations for the
year ended December 31, 1999, as compared to a net loss of $781,370 in 1998. No
additional loss amounts were recorded by the Company for the year ended December
31, 1999 for discontinued operations because the Company believes that any
remaining net operating losses and related costs associated with these
discontinued operations have been adequately provided for by the provisions
established in 1998.
The Company's net investment in discontinued operations of $49,302 at
December 31, 1999 represents its share of the net assets of the domestic
investment fund, less any costs associated with discontinuing the investment
management services business.
Net Loss
The Company's net loss for the year ended December 31, 1999 decreased
51%, to $4,192,703, as compared to a net loss of $8,591,870 in 1998. No income
taxes were provided in 1999 or 1998 due to the net loss. The basic and dilutive
net loss per weighted average common share for the year ended December 31, 1999
was $0.47, as compared to $1.09 in 1998.
Year Ended December 31, 1998 as Compared to the Year Ended December 31, 1997
Net Loss from Continuing Operations
The Company's net loss from continuing operations for the year ended
December 31, 1998 increased 49%, to $7,810,500, as compared to $5,237,737 in
1997. The increase was due primarily to three factors: the growing investment in
the development of the Company's Online Services; the decrease in advertising
pages and revenues for Individual Investor magazine; and high levels of
severance and hiring expenses incurred relating to changes in senior management
and key advertising sales personnel.
Online Services operations provided a negative operating contribution
(before deducting general and administrative ("G&A"), corporate advertising and
depreciation and amortization expenses) of $2,056,633 for the year ended
December 31, 1998, as compared to a negative operating contribution of $820,070
in 1997. This increase was due to higher levels of expenses incurred for the
development, redesign, and marketing of the Company's primary web site,
individualinvestor.com (www.individualinvestor.com), offset in part by higher
revenues.
Print Publications operations provided a negative operating
contribution (before deducting G&A, corporate advertising and depreciation and
amortization expenses) of $692,731 for the year ended December 31, 1998, as
compared to a positive operating contribution of $78,728 in 1997. This change
was primarily due to a decrease in circulation revenues for Special Situations
Report combined with a 24% increase in operating expenses for Ticker magazine.
Operating Revenues
Total revenues from continuing operations for the year ended December
31, 1998 increased 3%, to $15,348,179, as compared to $14,899,741 in 1997.
Revenues for the Online Services operations increased 441%, to $1,136,032, as
compared to $210,020 in 1997. Revenues for the Print Publications operations
decreased 3%, to $14,212,147, as compared to $14,689,721 in 1997. Included in
these totals are barter revenues of $368,620 in 1998 and $323,335 in 1997.
Online Services advertising revenues for the year ended December 31,
1998 increased by 443%, to $1,112,802, as compared to $205,020 in 1997. This
increase relates primarily to individualinvestor.com
(www.individualinvestor.com) being operational and generating revenues for the
full year of 1998 as compared to four months during 1997. In addition,
advertising revenue per month increased as a result of a growth in page views
and advertising impressions in 1998 over 1997.
Print Publications advertising revenues for the year ended December
31, 1998 increased 1%, to $9,488,241, as compared to $9,373,553 in 1997. This
increase relates primarily to Ticker magazine, which achieved a 24% increase in
advertising pages per issue, as well as 20% circulation and rate increases
effected in February 1998. Additionally, Ticker published twelve issues in 1998
compared to ten in 1997. This increase was partially offset by a 22% decrease in
Individual Investor magazine advertising pages. The decrease in Individual
Investor magazine's total ad pages occurred during a year of transition for the
Company's sales department. In addition to the appointment of a new Group
Publisher in April 1998, in May 1998 the Company replaced its West Coast outside
sales representative with two in-house sales representatives located in Los
Angeles and San Francisco.
Print Publications circulation revenues for the year ended December
31, 1998 decreased 12%, to $3,483,706, as compared to $3,953,285 in 1997. The
decrease relates primarily to a reduction in subscription revenue from Special
Situations Report due to a decrease in paid subscribers to approximately 3,700
as of March 1999, as compared to approximately 5,000 as of March 1998. SSR's
subscription levels have declined primarily as a result of changes in the timing
of new and renewal promotions.
Print Publications list rental and other revenues for the year ended
December 31, 1998 decreased 9%, to $1,240,200, as compared to $1,362,883 in
1997. The decrease was primarily attributable to reduced demand and the decrease
in the number of subscribers to Special Situations Report, partially offset by
an increase in the sale of reprints from Individual Investor and Ticker
magazines and increased revenues generated from an affinity credit card
agreement.
Operating Expenses
Total operating expenses from continuing operations for the year ended
December 31, 1998 increased 16%, to $23,382,892, as compared to $20,206,774 in
1997. The increase was primarily due to two factors: substantially higher
expenses associated with the continued development of the Company's online
services; and increased general and administrative severance and hiring expenses
related to changes in senior management and key advertising sales personnel.
Included in these totals are barter expenses of $595,876 in 1998 and $$86,827 in
1997.
Editorial, production and distribution expenses for the year ended
December 31, 1998 increased 20%, to $11,429,496, as compared to $9,505,718 in
1997. Online Services production and editorial expenses increased 152%, to
$2,178,042, as compared to $863,512 in 1997. The increase was primarily related
to individualinvestor.com having operating expenses for the full year of 1998,
as well as continuing development, redesign, and maintenance of the service.
Print Publications editorial, production and distribution expenses increased by
7%, to $9,251,454, as compared to $8,642,206 in 1997. This increase was
primarily due to Ticker publishing twelve issues in 1998 as compared to ten in
1997, as well as additional copies printed for a larger average subscriber base
for the year in both Individual Investor and Ticker. Additionally, Print
Publications editorial costs for the year ended December 31, 1998 increased due
to higher staffing levels. These increases were offset in part by reduced
manufacturing expenses.
Promotion and selling expenses for the year ended December 31, 1998
increased by 9%, to $6,668,047, as compared to $6,135,365 in 1997. Online
Services promotion and selling expenses for the year ended December 31, 1998
increased 509%, to $1,014,623, as compared to $166,578 in 1997. This increase
was primarily due to higher commissions related to increased advertising sales
and other advertising promotion expenses. Print Publications promotion and
selling expenses for the year ended December 31, 1998 decreased by 5%, to
$5,653,424, as compared to $5,968,787 in 1997. The decrease was primarily the
result of the costs expended to maintain a stable circulation in 1998 being less
than the costs expended to increase the subscriber base in 1997. This decrease
was partially offset by increased salaries and benefits as a result of hiring
additional in-house sales personnel.
General and administrative expenses for the year ended December 31,
1998 increased by 18%, to $4,964,069, as compared to $4,222,386 in 1997.
Substantially all of the increase resulted from incremental expenses (severance
and executive search fees) relating to changes in senior management and key
advertising sales personnel.
Depreciation and amortization expense for the year ended December 31,
1998 decreased by 6%, to $321,280, as compared to $343,305 in 1997.
Investment and Other Income
Investment and other income for the year ended December 31, 1998
increased by 224%, to $224,213, as compared to $69,296 in 1997. This was
primarily due to varying levels of cash invested by the Company, as well as
realized gains on sales of investments in 1998 of $67,452. The investments were
obtained as part of a distribution received from WisdomTree Associates, L.P. in
July 1998.
Discontinued Operations
Net loss from discontinued operations, as previously defined, for the
year ended December 31, 1998 was $781,370, as compared to net income of $277,402
for 1997. As of December 31, 1998, the Company's investment in the discontinued
operations was $282,383.
Net Loss
The Company's net loss for the year ended December 31, 1998 increased
73%, to $8,591,870, as compared to a net loss of $4,960,335 in 1997. No income
taxes were provided in 1998 or 1997 due to the net loss. The basic and dilutive
net loss per weighted average common share for the year ended December 31, 1998
was $1.09, as compared to $0.77 in 1997.
Liquidity and Capital Resources
As of December 31, 1999, the Company had working capital of
$5,163,130, which included cash and cash equivalents totaling $6,437,542. During
1999, the Company received $3,000,000 from the issuance of common stock to
Telescan, Inc., $5,841,196 from sales of investments, $2,290,390 from exercises
of stock options, and $233,081 from the liquidation of the domestic fund. These
inflows more than funded the Company's net cash used in operating activities of
$7,141,246 during the period.
The Company has entered into a letter of intent ("Letter of Intent")
for the sale of 11,200 shares of Series B Convertible Preferred Stock (the
"Preferred Stock"), par value $.01 per share, convertible into shares of the
Company's Common Stock, for $5.6 million. The Letter of Intent provides for $2.8
million to be paid to the Company on the initial closing date (which is expected
in April 2000), and an additional $2.8 million to be funded at a second closing
once the registration statement related to the Common Stock underlying the
Preferred Stock has been declared effective by the Securities and Exchange
Commission (the "Effective Date"). The Preferred Stock could be converted into
Common Stock at a fixed price of $4.00 per share (which price was a slight
premium to the closing price of the Common Stock on the day the parties executed
the Letter of Intent), except that the purchasers could elect to reset the
initial conversion price on one occasion until the first anniversary of the
Effective Date, to a fixed price not less than $3.00 per share (based on the
average of the closing bid price of the Common Stock as reported by Nasdaq for
the 10 trading days immediately preceding the date the reset is requested),
provided that the Preferred Stock has not previously been converted. The Letter
of Intent states that the purchasers could not take a short or put-equivalent
position in the Common Stock during any period that the Common Stock is trading
below $4.00 per share. The Preferred Stock would be entitled to receive a 5%
cash dividend, payable annually. The Preferred Stock would be convertible up to
3 years from the Effective Date. Any unconverted Preferred Stock on the third
anniversary of the Effective Date would be converted into Common Stock on such
date. The Company would have the right to require conversion of the Preferred
Stock (but not more than 25% of the Preferred Stock during any 30 day calendar
period) if the average closing bid price of the Common Stock over any 20
consecutive days equals or exceeds $10.00. The Company would file a registration
statement with respect to the Common Stock underlying the Preferred Stock and
the Warrants described below within 30 days and would use its best efforts to
cause such statement to be declared effective within 90 days (certain cash
liquidated damages are payable by the Company if the registration statement is
not declared effective within 105 days).
In connection with the above financing, the Company has used two
investment bankers to provide financing services. The first investment banker
would receive a cash fee equal to 3% of the total dollar amount funded,
Preferred Stock equal to 2% of the total dollar amount funded and a five year
warrant to purchase 55,000 shares of the Common Stock (the "Warrants") at an
exercise price of $4.00 per share. The Company could call the Warrants (up to
25% of the originally issued amount within any 30 calendar day period) if the
closing bid price of the Common Stock as reported by Nasdaq equals or exceeds
$10.00 for 15 consecutive trading days and certain other conditions are met.
Additionally, the Company would issue the second investment banker a cash fee
equal to 5% of the gross amount of the financing, plus a five year warrant to
purchase 55,000 shares of the Common Stock at an exercise price of $4.00 per
share.
The Company has completed negotiation of definitive documents to
implement the Letter of Intent. There can be no assurance, however, that the
definitive documents will be executed or that this financing will close.
The Company's current levels of revenues are not sufficient to cover
its expenses. It is the Company's intention to control its operating expenses
while continuing to invest in its existing products. The Company anticipates
quarterly losses to continue through 2000. Profitability may be achieved in
future periods only if the Company can substantially increase its revenues
and/or realize capital gains on investments while controlling increases in
expenses. There can be no assurance that revenues will be substantially
increased, that capital gains will be realized on investments (instead capital
losses in fact may be realized), or that the increases in expenses can be
controlled adequately to enable the Company to attain profitability.
Management continues to expect that revenues will grow significantly
in 2000 as the Company implements changes made by a new management team. The
Company plans to continue investing in its Online Services because it believes
that this line of business offers the greatest opportunity for generating
substantial revenues and shareholder value over the longer term. There can be no
assurance, however, that anticipated online traffic growth in fact will be
realized, or that if realized, it would result in higher revenues or shareholder
value. The Company also expects to launch additional subscription-based online
products in 2000. There can be no assurance, however, that such products in fact
will be launched, be launched on time, or that if launched, such products would
be successful.
Print Publications advertising sales are expected to increase due to
the addition of new sales personnel and the effect of the increased awareness in
the marketplace due in part to a trade and consumer brand awareness advertising
campaign in the fourth quarter of 1999. There can be no assurance, however, that
advertising sales will increase because higher advertising rates may not be
accepted by advertisers, advertising pages may decline for Individual Investor
magazine, circulation may drop at either or both Individual Investor and Ticker,
and the advertising mix may change. Although the Company has recently added new
advertising sales personnel, 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 could adversely affect its ability to sell
advertising, particularly to the financial advertiser categories.
Based on the Company's current outlook, the Company believes that its
working capital, investments and the anticipated proceeds from the sale of $5.6
million in Convertible Preferred Stock noted above would be sufficient to fund
its operations and capital requirements through 2000. Thereafter, the Company
will need to raise additional capital in order to sustain operations unless the
Company achieves profitability through the generation of revenues beyond those
currently anticipated. The Company is currently exploring its ability to obtain
additional financing. 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, or at all, could have a substantial adverse effect on the Company's
future ability to conduct operations.
Recent Accounting Pronouncement
In 1997, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued, which is effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 requires all derivative transactions to be
recorded at fair value on the balance sheet. Since the Company does not
currently trade or participate in hedging transactions employing derivatives,
management does not expect the adoption of this standard to have a material
effect on the consolidated financial statements of the Company.
Year 2000
The Year 2000 Issue concerned the inability of information systems,
whether due to computer hardware or software, to properly recognize and process
date sensitive information relating to the year 2000 and beyond. Many of the
world's computer systems recorded years in a two-digit format. Such computer
systems may have been unable to properly interpret dates beyond the year 1999,
which could have led to business disruptions in the U.S. and internationally.
The Company believes it is now Year 2000 compliant and there were no
adverse events that occurred and no contingency plans were required to be
implemented relating to the Year 2000 problem at year-end 1999. Although it is
now past January 1, 2000, and we have not experienced any adverse impact from
the transition to the Year 2000, we cannot assure you that we or our suppliers
and customers have not been affected in a manner that is not yet apparent. As a
result, we will continue to monitor our Year 2000 compliance and the Year 2000
compliance of our suppliers and customers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Individual Investor Group, Inc.
New York, NY
We have audited the accompanying consolidated balance sheets of Individual
Investor Group, Inc. and its subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years ended December
31, 1999. 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 financial statements of
WisdomTree Associates, L.P. (the "Partnership") for the year ended December 31,
1997. The Company's investment in the Partnership is accounted for by the use of
the equity method and is included in discontinued operations. The company's
share of net operating losses of $10,067 for the year ended December 31, 1997,
is included in the accompanying financial statements. The statements of the
Partnership were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for the
Partnership for the year ended December 31, 1997, is based solely on the report
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 report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Individual Investor Group, Inc. and its subsidiaries as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years ended December 31, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
April 14, 2000
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, 1997 and the related
statements of operations, changes in partners' capital and cash flows for each
of the two years in the period 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 audits.
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 provide 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, 1997 and the results of its operations and its cash flows for each
of the two years in the period then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
New York, New York
February 27, 1998
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------ ------------
ASSETS 1999 1998
------------ ------------
Current assets:
Cash and cash equivalents $ 6,437,542 $ 4,752,587
Investments (Notes 1 and 2) - 877,231
Accounts receivable (net of allowances 3,019,710 2,356,126
of $419,048 in 1999 and $391,328 in 1998)
Investment in discontinued operations (Note 3) 49,302 282,383
Prepaid expenses and other current assets 864,851 386,761
------------ ------------
Total current assets 10,371,405 8,655,088
Investment (Notes 1 and 2) 2,638,356 -
Deferred subscription expense 383,624 576,237
Property and equipment - net (Note 4) 1,653,659 586,007
Security deposits 374,527 469,627
Other assets 836,396 257,969
------------ ------------
Total assets $16,257,967 $10,544,928
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,024,395 $ 2,191,765
Accrued expenses (Note 5) 716,670 519,887
Deferred advertising revenue 1,467,210 138,097
------------ ------------
Total current liabilities 5,208,275 2,849,749
Deferred advertising revenue 938,164 -
Deferred subscription revenue 2,448,591 2,246,422
------------ ------------
Total liabilities 8,595,030 5,096,171
------------ ------------
Commitments and contingencies (Note 6)
Stockholders' Equity: (Note 9)
Preferred stock, $.01 par value, authorized
2,000.000 shares,10,000 issued and outstanding
in 1999 and 1998 100 100
Common stock, $.01 par value; authorized 40,000,000
shares, 10,353,901 issued and outstanding in 1999;
authorized 18,000,000 shares, 8,490,851 issued and
outstanding in 1998 103,539 84,909
Additional paid-in capital 33,421,542 26,898,968
Warrants 742,079 453,868
Deferred compensation (272,038) -
Accumulated deficit (26,332,285) (21,922,595)
Accumulated other comprehensive loss (Note 9) - (66,493)
------------ ------------
Total stockholders' equity 7,662,937 5,448,757
------------ ------------
Total liabilities and stockholders' equity $16,257,967 $10,544,928
============ ============
See Notes to Consolidated Financial Statements
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
------------- ------------ ------------
Revenues:
Online Services $ 2,304,546 $ 1,136,032 $ 210,020
Print Publications 15,200,863 14,212,147 14,689,721
------------- ------------ ------------
Total revenues 17,505,409 15,348,179 14,899,741
------------- ------------ ------------
Operating expenses:
Editorial, production and distribution 11,797,411 11,429,496 9,505,718
Promotion and selling 7,669,121 6,668,047 6,135,365
General and administrative 5,291,648 4,964,069 4,222,386
Corporate advertising 725,867 - -
Depreciation and amortization 523,715 321,280 343,305
------------- ------------ ------------
Total operating expenses 26,007,762 23,382,892 20,206,774
------------- ------------ ------------
Operating loss from continuing operations (8,502,353) (8,034,713) (5,307,033)
Investment and other income (Note 2) 4,309,650 224,213 69,296
------------- ------------ ------------
Net loss from continuing operations (4,192,703) (7,810,500) (5,237,737)
------------- ------------ ------------
Discontinued operations (Note 3)
(Loss) income from discontinued operations - (189,629) 277,402
Loss on disposal of discontinued operations - (591,741) -
------------- ------------ ------------
(Loss) income from discontinued operations - (781,370) 277,402
------------- ------------ ------------
Net loss ($4,192,703) ($8,591,870) ($4,960,335)
============= ============ ============
Basic and dilutive (loss) income per common share:
Continuing operations ($0.47) ($0.99) ($0.81)
Discontinued operations - (0.10) 0.04
------------- ------------ -----------
Net loss per share ($0.47) ($1.09) ($0.77)
============= ============ ===========
Average number of common shares used in computing 9,336,679 7,876,509 6,466,168
basic and dilutive (loss) income per common share
See Notes to Consolidated Financial Statements
</TABLE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Note 9)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock
----------------------------------------- Additional
Shares Par Shares Par Paid-in
Issued Value Issued Value Capital Warrants
------------------------------------------------------------------
Balance, December 31, 1996 - - 6,142,119 $61,421 $13,523,643 -
Exercise of options - net - - 153,983 1,540 749,220 -
Issuance of common stock - - 849,969 8,500 5,241,500 -
Net loss - - - - - -
Change in accumulated other comprehensive
income (loss) - - - - - -
Comprehensive loss - - - - - -
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 - - 7,146,071 71,461 19,514,363 -
Exercise of options - net - - 84,938 850 397,303 -
Stock option and warrant transactions - - - - $453,868
Issuance of preferred stock 10,000 $100 - - 1,999,900 -
Issuance of common stock - - 1,259,842 12,598 4,987,402 -
Net loss - - - - - -
Change in accumulated other comprehensive
income (loss) - - - - - -
Comprehensive loss - - - - - -
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 10,000 100 8,490,851 84,909 26,898,968 453,868
Exercise of options - net - - 676,247 6,762 2,283,628 -
Stock option and warrant transactions - - - - 288,211
Issuances of common stock for services rendered - - 39,372 394 115,920 -
Amortization of deferred compensation - - - - - -
Issuance of common stock - Telescan - - 779,130 7,791 2,992,209 -
Issuance of common stock - Telescan license fee - - 368,301 3,683 1,130,817 -
Net loss - - - - - -
Preferred stock dividends - - - - - -
Change in accumulated other comprehensive
income (loss) - - - - - -
Comprehensive loss - - - - - -
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 10,000 $100 10,353,901 $103,539 $33,421,542 $742,079
==================================================================================================================
</TABLE>
<PAGE>
<TABLE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Note 9)
<S> <C> <C> <C> <C> <C>
Accumulated
Other
Deferred Accumulated Comprehensive Comprehensive
Compensation Deficit Income (Loss) Loss Total
---------------------------------------------------------------------
Balance, December 31, 1996 - ($8,370,390) $22,433 - $5,237,107
Exercise of options - net - - - - 750,760
Issuance of common stock - - - - 5,250,000
Net loss - (4,960,335) - ($4,960,335) (4,960,335)
Change in accumulated other comprehensive
income (loss) - - (22,433) (22,433)(a) (22,433)
-------------
Comprehensive loss - - - ($4,982,768) -
=============
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 - (13,330,725) - - 6,255,099
Exercise of options - net - - - - 398,153
Stock option and warrant transactions - - - - 453,868
Issuance of preferred stock - - - - 2,000,000
Issuance of common stock - - - - 5,000,000
Net loss - (8,591,870) - ($8,591,870) (8,591,870)
Change in accumulated other comprehensive
income (loss) - - (66,493) (66,493)(a) (66,493)
------------
Comprehensive loss - - - ($8,658,363) -
============
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 - (21,922,595) (66,493) - 5,448,757
Exercise of options - net - - - - 2,290,390
Stock option and warrant transactions ($274,206) - - - 14,005
Issuances of common stock for services rendered - - - - 116,314
Amortization of deferred compensation 2,168 - - - 2,168
Issuance of common stock - Telescan - - - - 3,000,000
Issuance of common stock - Telescan license fee - - - - 1,134,500
Net loss - (4,192,703) - ($4,192,703) (4,192,703)
Preferred stock dividends - (216,987) - - (216,987)
Change in accumulated other comprehensive
income (loss) - - 66,493 66,493 (a) 66,493
------------
Comprehensive loss - - - ($4,126,210) -
============
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 ($272,038) ($26,332,285) - - $7,662,937
====================================================================================================================
</TABLE>
<PAGE>
<TABLE>
(a) Disclosure of change in accumulated other comprehensive income (loss):
<S> <C> <C> <C>
1997 1998 1999
---- ---- ----
Unrealized holding (loss) gain arising during period ($11,902) $959 $4,210,889
Less: Reclassification adjustment for gain
recognized in net loss (10,531) (67,452) (4,144,396)
----------------------------------
($22,433) ($66,493) $66,493
=================================
See Notes to Consolidated Financial Statements
</TABLE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ -----------
Cash flows from operating activities:
Net loss ($4,192,703) ($8,591,870) ($4,960,335)
Less:
(Loss) income from discontinued operations - (781,370) 277,402
------------ ------------ ------------
Loss from continuing operations (4,192,703) (7,810,500) (5,237,737)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization 523,715 321,280 343,305
Stock option and warrant transactions 350,877 159,909 -
Loss on sale of equipment - 2,671 -
Gain on sale of investments (4,144,396) (67,452) 10,531)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (663,584) 637,173 (412,027)
Prepaid expenses and other current assets (214,150) (14,980) 165,709
Security deposits 95,100 (334,710) 37,200
Other assets 50,779 (39,817) (22,433)
Deferred subscription expense 192,613 (149,411) 530,588
Increase (decrease) in:
Accounts payable and accrued expenses 1,029,413 (185,837) 159,598
Deferred advertising revenue (371,079) (205,153) 93,250
Deferred subscription revenue 202,169 (414,707) (667,608)
------------ ---------- ------------
Net cash used in operating activities (7,141,246) (8,101,534) (5,020,686)
------------ ---------- ------------
Cash flows from investing activities:
Purchase of property and equipment (1,568,403) (353,713) (178,372)
Proceeds from sale of equipment - 3,652 -
Proceeds from sale of investments 5,841,196 223,556 -
Purchase of investments (753,076) - -
Purchase of InsiderTrader.com - (75,000) -
Net cash provided by discontinued operations 233,081 2,123,851 1,187,469
------------ ---------- ------------
Net cash provided by investing activities 3,752,798 1,922,346 1,009,097
------------ ---------- ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 2,290,390 398,153 750,760
Proceeds from issuance of preferred stock (Note 9) - 2,000,000 -
Proceeds from issuance of common stock (Note 9) 3,000,000 5,000,000 5,250,000
Preferred stock dividends (216,987) - -
------------ ------------ ------------
Net cash provided by financing activities 5,073,403 7,398,153 6,000,760
------------ ------------ ------------
Net increase in cash and cash equivalents 1,684,955 1,218,965 1,989,171
Cash and cash equivalents, beginning of period 4,752,587 3,533,622 1,544,451
------------ ------------ ------------
Cash and cash equivalents, end of period $6,437,542 $4,752,587 $3,533,622
============ ============ ============
See Notes to Consolidated Financial Statements
</TABLE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Individual Investor Group, Inc. and its subsidiaries (collectively, the
"Company") are primarily engaged in providing financial information services.
The Company's operating subsidiaries are focused on providing research and
analysis of investment information to individuals and investment professionals
through two business segments: Online Services and Print Publications. The
Company's Online Services segment includes individualinvestor.com
(www.individualinvestor.com) and InsiderTrader.com (www.InsiderTrader.com). The
Company's Print Publications segment 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. See Note 11 for additional information regarding the Company's
business segments and operations.
In November 1998, the Company acquired certain assets and assumed
certain liabilities of InsiderTrader.com, a subscriptions-based web site that
distributes "insider" data filed with the Securities and Exchange Commission,
and provides proprietary research based on the data, for a cash purchase price
of $75,000, and an obligation to pay an additional $75,000 if certain
performance is achieved. In conjunction with the acquisition, $39,816 of
deferred subscription liabilities were assumed. The excess of cost over the fair
value of net assets acquired of $114,816 was allocated to goodwill (included in
"Other assets" in the accompanying financial statements) and is being amortized
on a straight-line method over a period of five years.
Principles of Consolidation - The consolidated financial statements
include the accounts of Individual Investor Group, Inc. and its subsidiaries:
Individual Investor Holdings, Inc., WisdomTree Capital Management, Inc.,
WisdomTree Administration, Inc., WisdomTree Capital Advisors, LLC, I.I.
Interactive, Inc. and I.I. Strategic Consultants, Inc.
Revenue Recognition - Online Services advertising revenues, primarily
derived from the sale of banner advertisements and sponsorships on the Company's
web sites, is recognized ratably in the period the advertising is displayed.
Print Publications advertising and circulation revenues are recognized, net of
agency commissions and estimated returns and allowances, when publications are
issued. Deferred subscription revenue, net of agency commissions, is recorded
when subscription orders are received. List rental income is recognized, net of
commission, when a list is provided. Revenues from barter transactions are
recognized during the period in which the advertisements are run. Barter
transactions are recorded at the fair value of the goods or services provided or
received, whichever is more readily determinable in the circumstances.
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 direct mail campaign costs, are amortized over the estimated period of future
benefit, ranging from 12 to 22 months.
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
five 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.
Financial Instruments - For financial instruments including cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses,
the carrying amount approximated fair value because of their short maturity.
Cash equivalents consist of investments in a government fund that invests in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, which have average maturities of 30 days.
Investments - Investments included in current assets are in equity
securities and are considered available-for-sale securities and are carried at
fair market value. The aggregate fair value of such investments was $0 and
$877,231 at December 31, 1999 and 1998, respectively. Gross unrealized holding
gains were $0 and $86,477 at December 31, 1999 and 1998, respectively. Gross
unrealized holding losses were $0 and $152,970 at December 31, 1999 and 1998,
respectively.
Other investment represents an equity position in VentureHighway.com
Inc ("VentureHighway"). There is currently no public market for these
securities, and the investment is recorded at historical cost. In the event that
the Company identifies an impairment in the estimated fair value of the
investment to an amount below cost, based upon other recent sales of
VentureHighway's common stock, the investment will be written down to fair
market value. (See Note 2)
Stock-Based Compensation - In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," the Company continues to apply the measurement and recognition
provisions of Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for issuance of employee stock options. The
Company's general policy is to grant options with an exercise price not less
than the fair market value of the Company's stock on the date of grant.
Accordingly, no compensation expense has been recognized in the Company's
statement of operations for fixed stock option grants awarded to employees.
Transactions with non-employees in which goods or services are received by the
Company for the issuance of stock options or other equity instruments are
accounted for based on fair value, which is based on the value of the equity
instruments or the consideration received, whichever is more reliably measured.
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, and the disclosure of contingent assets and
liabilities reported in the financial statements. Significant accounting
estimates used include estimates for sales returns and allowances, loss on
discontinued operations, and pro forma disclosures regarding the fair value of
stock options granted in 1999, 1998 and 1997. Actual results could differ
materially from those estimates.
Recent Accounting Pronouncement - In 1997, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued, which is
effective for fiscal years beginning after June 15, 1999. SFAS No. 133 requires
all derivative transactions to be recorded at fair value on the balance sheet.
Since the Company does not currently trade or participate in hedging
transactions employing derivatives, management does not expect the adoption of
this standard to have a material effect on the consolidated financial statements
of the Company.
Reclassifications - Certain prior year balances have been reclassified
to conform to the current year presentation.
2. INVESTMENTS
Gains on Sale of Investments
Net realized gains on the sales of investments totaled $4,144,396,
$67,452 and $10,531 for the years ended December 31, 1999, 1998, and 1997,
respectively.
On June 2, 1999, the Company and Kirlin Holding Corp. ("Kirlin")
entered into a Securities Purchase Agreement pursuant to which the Company
acquired 600,000 shares of common stock of Kirlin for $750,000 (the share amount
has been restated to reflect two 2-for-1 stock splits effected July 30, 1999 and
March 1, 2000, respectively). Kirlin contributed all the proceeds of this sale
to the capital of its subsidiary, VentureHighway.com Inc. ("VentureHighway").
The shares were subsequently sold during August 1999 for net cash proceeds of
$1,688,594, producing a net realized gain of $938,594.
In 1997, the Company acquired 250,000 shares of Wit Capital Group, Inc.
Series A Preferred Stock in an equity-for-advertising barter transaction valued
at $250,000. The shares were converted into 175,000 shares of Class C Common
Stock due to a 7-for-10 reverse split of Class C Common Stock and the completion
of Wit Capital's IPO on June 4, 1999. The shares were sold during December 1999
for net cash proceeds of $3,089,460, producing a net realized gain of
$2,839,460.
Other Investment
On June 2, 1999, the Company, Kirlin and VentureHighway (at the time a
wholly-owned subsidiary of Kirlin), entered into an agreement pursuant to which
the Company acquired 1,654,344 newly issued shares (adjusted to reflect a
subsequent stock split) of common stock of VentureHighway, representing 19.9% of
the then-outstanding shares of common stock (the other 80.1% of which
immediately after the transaction were held by Kirlin). The purchase price was
paid in the form of a credit for VentureHighway to use to purchase advertising
in the Company's magazines and web sites during the 30 months ending December
31, 2001. The investment and the deferred advertising revenues were recorded at
the fair market value at the date of the transaction of $2,638,356 (or $1.595
per share). In December 1999, VentureHighway raised $7.65 million cash, selling
2,142,000 shares at a price of $3.57 per share.
VentureHighway owns and operates VentureHighway.com, a branded web site
designed to serve as an interactive portal for the matching of companies seeking
funding with qualified investors seeking to fund such companies, and the
facilitation of private placements and public offerings of securities of
companies. There currently is no public market for VentureHighway securities,
and there is no assurance that the Company will realize any value with respect
to its investment in VentureHighway.
3. DISCONTINUED OPERATIONS
On April 30, 1998, the Company's Board of Directors decided to
discontinue the Company's investment management services business. As a result,
the operating results relating to investment management services have been
segregated from continuing operations and reported as a separate line item on
the consolidated statements of operations.
The investment management services business was principally conducted
by a wholly-owned subsidiary of the Company, WisdomTree Capital Management, Inc.
("WTCM"). WTCM serves as general partner of (and is an investor in) a domestic
private investment fund. The Company is also a limited partner in the fund. As a
result of the Board's decision to discontinue the investment management services
business, WTCM is continuing to dissolve the domestic investment fund,
liquidating its investments and distributing the net assets to all investors as
promptly as possible.
The Company, through WTCM and another wholly-owned subsidiary, also
provided investment management services to an offshore private investment fund.
On May 21, 1998 the sole voting shareholder of the offshore fund, in
consultation with WTCM, resolved to wind up the fund and appointed a liquidator
to distribute the assets of the fund to its investors in accordance with Cayman
Islands law. Substantially all of the fund assets were distributed in cash to
its investors by December 31, 1998. The Company has no investment in the
offshore fund.
Revenues and investment gains and losses associated with the investment
management services prior to April 30, 1998 were ($139,314) in 1998, and
$550,409 in 1997. The results for such operations prior to April 30, 1998 was a
net loss of $189,629 in 1998, and net income of $277,402 in 1997.
On April 30, 1998, the Company recorded a provision of $446,450 to
accrue for its share of net operating losses of the domestic investment fund and
related costs that are expected to occur until the fund liquidates its
investments. From May 1, 1998 to December 31, 1998, additional net operating
losses and related costs totaled $145,291. Additional losses were incurred as a
result of changes in the market value of the fund's investments. The Company
believes that any remaining net operating losses and related costs associated
with these discontinued operations have been adequately provided for by
provisions established in 1998.
At December 31, 1999, the domestic investment fund had net assets of
approximately $830,000. The Company's net investment in discontinued operations
of $49,302 and $282,383 at December 31, 1999 and 1998, respectively, represents
its share of the net assets of the domestic investment fund, less any costs
associated with discontinuing the investment management services.
4. PROPERTY AND EQUIPMENT
December 31,
1999 1998
---- ----
Equipment $1,432,511 $ 965,539
Furniture and fixtures 612,857 329,521
Leasehold improvements 897,999 244,022
----------- ----------
2,943,367 1,539,082
Less: accumulated depreciation (1,289,708) (953,075)
and amortization ----------- ----------
$1,653,659 586,007
=========== ==========
5. ACCRUED EXPENSES
December 31,
1999 1998
---- ----
Accrued commissions and $340,129 $ 83,065
employee compensation
Deferred rent credits 46,923 93,807
Accrued newsstand promotion expenses 147,842 132,214
Accrued professional fees 127,271 127,786
Other 54,505 83,015
--------- ---------
$716,670 $519,887
========= =========
6. COMMITMENTS AND CONTINGENCIES
Litigation - In July 1997, certain former limited partners of
WisdomTree Associates, L.P. ("WTA"), a domestic private investment fund of which
WisdomTree Capital Management, Inc., a wholly-owned subsidiary of the Company,
is the general partner, initiated an action in the Supreme Court of the State of
New York, County of New York, captioned Richard Tarlow and Sandra Tarlow v.
WisdomTree Associates, L.P., Bob Schmidt and Jonathan Steinberg, Index No.
113819/97. Defendants moved to dismiss the action based on plaintiffs' failure
to file a complaint, and the action was dismissed without prejudice in October
1997. In October 1998, plaintiffs moved to vacate the default judgment.
Defendants opposed the motion. In April 1999, the court denied plaintiffs'
motion with respect to Messrs. Schmidt and Steinberg, but granted the motion
with respect to WTA and plaintiffs were permitted to and did file and serve a
complaint solely against this defendant. WTA moved to dismiss the complaint as
to all causes of action other than the breach of contract claim, which motion
was denied. WTA subsequently answered the complaint and discovery was commenced.
In February 2000, plaintiffs moved to amend their complaint to add Messrs.
Schmidt and Steinberg as defendants, and defendants moved for summary judgment.
Both motions are currently pending. Plaintiffs allege that WTA did not timely
process plaintiffs' request for redemption of their interest in WTA, which delay
allegedly caused plaintiffs to suffer approximately $470,000 in damages. WTA
intends to continue conducting a vigorous defense. Due to the inherent
uncertainty of litigation, the Company is not able to reasonably estimate the
potential losses, if any, that may be incurred in relation to this litigation.
In April 1999, a stockholder of the Company initiated an action in the
Court of Chancery of the State of Delaware, New Castle County, captioned Michele
S. Criden v. Jonathan L. Steinberg, Bruce L. Sokoloff, Peter M. Ziemba and S.
Christopher Meigher III (C.A. No. 17082). The Company is named as a nominal
defendant in the action. Plaintiff alleged that the four individual defendants,
who comprised the entire Board of Directors of the Company at that time, took
improper action (i) on November 19, 1998, in determining to amend the terms of
options previously granted to Jonathan Steinberg to reduce their exercise prices
(which ranged from $4.9375 to $7.50) to $1.25 (11% higher than the last sale
price of the Common Stock on the trading date immediately preceding the date of
such amendment), and (ii) on December 23, 1998, in determining to grant
replacement options to each of Messrs. Sokoloff, Ziemba and Meigher, conditioned
upon cancellation of their existing options, which replacement options had an
exercise price of $2.00 per share (the last sale price of the Common Stock on
the trading date immediately preceding the date of the new grant), which was
less than the exercise price of options previously granted to them (which
exercise prices ranged from $4.375 to $10.50). Plaintiff claimed that such
actions constituted corporate waste and a diversion of corporate assets for
improper and unnecessary purposes and that the directors breached their
fiduciary duties, including their duty of loyalty, to the Company and its
stockholders. Plaintiff demanded judgment (i) enjoining the four directors from
exercising any options at the reduced exercise price, (ii) declaring a
constructive trust of any proceeds resulting from the directors' exercise of
such options, (iii) damages, on behalf of the Company, for losses and damages
suffered and to be suffered in connection with the option repricings, including
interest thereon, and (iv) awarding plaintiffs the costs of this action,
including reasonable attorney's fees. In June 1999, defendants moved to dismiss
the complaint. Plaintiff indicated that she would not oppose the motion, but
rather would file an amended complaint. In August 1999, plaintiff filed an
amended complaint. In September 1999, defendants moved to dismiss the amended
complaint. On March 23, 2000, the Court of Chancery granted defendants' motion
and the amended complaint was dismissed for failure to state a claim. Plaintiff
may request the court to reconsider its ruling or file an appeal. The Board of
Directors believed at the time, and continues to believe, that the actions taken
on November 19, 1998 and December 23, 1998, were proper.
In addition to the foregoing matters, the Company from time to time is
involved in ordinary and routine litigation incidental to its business; the
Company currently believes that there is no such pending legal proceeding that
would have a material adverse effect on the consolidated financial statements of
the Company.
Employment Agreements - The Company has an employment agreement with an
officer, which requires a future salary commitment of approximately $200,000 per
annum and contains certain provisions regarding potential bonuses, severance
payments and other matters.
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 two months of service and have attained the age of 21 are
eligible to participate. The Company can make discretionary contributions to the
Plan, but none were made in 1999, 1998, or 1997.
Lease Agreements - The Company leases office space in New York City
under an operating lease that expires on March 31, 2004. The Company also
subleases its former office space in New York City under an operating lease that
expires March 1, 2005. Additionally, the Company leases office space in San
Francisco, Los Angeles and Chicago for use by advertising sales representatives
located in each city. Rent expense for the years ended December 31, 1999, 1998
and 1997 was $982,250, $585,764 and $519,675, respectively. The New York City
lease 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 Rents Receivable
Year Rental Payments Under Sublease
---- ------------------------------------
2000 $1,240,870 $177,500
2001 1,201,150 190,000
2002 1,202,883 195,000
2003 1,209,050 200,000
2004 465,425 205,000
Thereafter 36,133 21,667
---------- --------
Total $5,355,511 $989,167
========== ========
The Company has an outstanding letter of credit totaling $332,500
related to the security deposit for the Company's New York City corporate office
space.
7. INCOME TAXES
The Company has available net operating loss carryforwards ("NOL's")
totaling approximately $23,000,000. Based upon a change of ownership, which
transpired in December 1991, the utilization of $2,100,000 of pre-change NOL's
are limited in accordance with Section 382 of the Internal Revenue Code, which
affects the amount and timing of when the NOL's can be offset against taxable
income. The tax effects of temporary differences from discontinuing and
continuing operations that give rise to significant portions of the deferred tax
assets and liabilities at December 31, 1999, 1998 and 1997 are presented below:
1999 1998 1997
---- ---- ----
Deferred tax assets:
Net operating loss carryforwards $10,360,000 $8,078,000 $5,354,000
Tax in excess of book basis
of investment in fund 77,000 996,000 -
Other 260,000 296,000 291,000
----------- ---------- -----------
Total 10,697,000 9,370,000 5,645,000
Deferred tax liabilities:
Book in excess of tax basis
of investment in fund - - (563,000)
----------- ---------- -----------
10,697,000 9,370,000 5,082,000
Less: valuation allowance 10,697,000 9,370,000 5,082,000
----------- ---------- -----------
Net deferred tax asset $ - $ - $ -
=========== ========== ===========
The provision for income taxes from continuing operations for the years
ended December 31, 1999, 1998 and 1997 is different than the amount computed
using the applicable statutory Federal income tax rate with the difference
summarized below:
1999 1998 1997
---- ---- ----
Hypothetical income tax benefit
at the US Federal statutory rate ($1,467,400) ($2,733,700) ($1,833,200)
State and local income taxes benefit,
less US Federal income tax benefit (434,800) (809,900) (543,200)
Net operating loss benefit not
recognized 1,902,200 3,543,600 2,376,400
------------ ------------ ------------
$ - $ - $ -
============ ============ ===========
8. STOCK OPTIONS
The Company has four stock option plans: the 1991 Stock Option Plan,
the 1993 Stock Option Plan, the 1996 Performance Equity Plan, and the 1996
Management Incentive Plan (collectively, the "Plans"). Under the 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 the grant. The options are exercisable for a period of
up to 10 years from the date of the grant. Options granted pursuant to the 1991
Stock Option Plan must be at an exercise price which is not less than the fair
market value at the date of grant; options granted pursuant to the other Plans
may have, but to date have not had, exercise prices less than the fair market
value at the date of grant.
In addition to the Plans, the Company has options outstanding that were
granted outside of the Plans. These options were granted at fair market value at
the date of grant and expire at various dates through December 14, 2009.
On November 19, 1998, the Company's Board of Directors approved an
option exchange program which allowed employees to exchange their existing
options (vested and unvested) with a per share exercise price greater than
$1.25, on a one-for-one basis for new options with a per share exercise price of
$1.25, which was above the fair market value of the Company's Common Stock on
November 19, 1998, or, alternatively, in the Company's discretion, to amend the
employee's existing options to reduce the exercise price to $1.25 per share. The
existing options of employees who chose to participate in the program were
cancelled or amended. The new options have the same vesting periods as the
exchanged options, except that, in limited circumstances, the new options were
not exercisable prior to May 19, 1999. A total of 1,479,801 options with a
weighted average exercise price of $5.34 were exchanged for new options or
amended as a result of this program. In accordance with generally accepted
accounting principles, the Company did not record compensation expense as a
result of the exchange.
On December 23, 1998, the Company's Board of Directors approved an
option exchange program which allowed non-employee directors to exchange their
existing options (vested and unvested) with a per share exercise price greater
than $2.00, on a one-for-one basis for new options with a per share exercise
price of $2.00, which was equal to the fair market value of the Company's Common
Stock on December 23, 1998. The existing options so exchanged were cancelled.
The new options have the same vesting periods as the exchanged options, except
that the new options were not exercisable prior to June 23, 1999. A total of
140,000 options with a weighted average exercise price of $5.98 were exchanged
for new options as a result of this program.
Activity in the Plans noted above is summarized in the following table.
<TABLE>
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
January 1 1,663,585 $2.44 1,473,051 $6.29 1,134,601 $6.06
Granted 305,405 $3.79 1,646,301 $2.06 530,600 $6.54
Exercised (489,856) $3.00 (33,438) $4.72 (84,983) $4.96
Canceled (119,533) $2.07 (1,422,329) $5.93 (107,167) $6.24
---------- ----------- ----------
Balance, December 31 1,359,601 $2.57 1,663,585 $2.44 1,473,051 $6.29
========== =========== ==========
</TABLE>
Options exercisable under the Plans at December 31, 1999, 1998 and 1997
were 578,637, 396,285 and 391,686, respectively, at weighted average exercise
prices of $2.83, $4.99, and $4.67, respectively. At December 31, 1999, 1998 and
1997, options available for grant under the Plans were 182,562, 368,434, and
592,406, respectively, while total shares of Common Stock reserved for future
issuances under the Plans were 1,542,163, 2,032,019, and 2,065,457,
respectively.
Options granted outside of the Plans are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------
Options outstanding,
January 1 1,961,913 $2.59 1,560,496 $5.27 1,776,163 $5.30
Granted 803,750 $3.17 1,422,500 $1.46 - -
Exercised (225,763) $4.15 (51,500) $4.74 (69,000) $4.71
Canceled (44,000) $2.89 (969,583) $5.12 (146,667) $5.90
---------- ---------- ----------
Balance, December 31 2,495,900 $2.63 1,961,913 $2.59 1,560,496 $5.27
========== ========== ==========
</TABLE>
Options exercisable at December 31, 1999, 1998 and 1997 were 1,291,775,
639,413, and 1,143,414, respectively, at weighted average exercise prices of
$2.71, $4.94, and $4.84, respectively.
The following table summarizes information about total stock options
outstanding at December 31, 1999:
<TABLE>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------ --------------------------------
Number Weighted- Number
Range of Outstanding at Average Weighted-Average Exercisable Weighted-Average
Exercise Prices 12/31/99 Remaining Exercise Price at 12/31/99 Exercise Price
--------------- ------------- Contractual Life ---------------- ----------- ----------------
----------------
<S> <C> <C> <C> <C> <C>
$1.125 - 1.250 1,769,067 6.97 years $1.23 1,032,594 $1.24
$1.375 - 3.375 1,208,750 7.88 years $2.57 266,167 $2.17
$3.406 - 8.125 877,684 4.85 years $5.44 571,651 $5.73
--------- ---------
$1.125 - 8.125 3,855,501 6.77 Years $2.61 1,870,412 $2.75
========= =========
</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 of
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 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.8%, 4.7% and 6.3%, respectively; volatility factors of the
expected market price of the Company's Common Stock of 132%, 99% and 55%,
respectively; weighted-average fair value of options granted of $2.97, $1.10 and
$3.56, respectively; 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss from continuing operations:
As reported ($4,192,703) ($7,810,500) ($5,237,737)
Pro forma ($5,675,620) ($8,937,005) ($6,423,278)
Loss from continuing operations per
weighted average common share:
As reported ($0.47) ($0.99) ($0.81)
Pro forma ($0.63) ($1.13) ($0.99)
</TABLE>
The impact of the estimated fair value of the options has no effect on
the reported loss or income from discontinued operations. The effects of
applying SFAS No. 123 in this pro forma disclosure are not indicative of future
amounts because additional stock option awards in future years are anticipated.
In February 2000, the Company's Board of Directors approved the 2000
Stock Option Plan, which provides for the grant of up to 1,000,000 shares of
common stock of the Company pursuant to various awards, including stock options.
Adoption of the plan is subject to stockholder approval.
9. STOCKHOLDERS' EQUITY
Issuance of Preferred Stock - On December 2, 1998, the Company issued a
total of 10,000 shares of Series A Preferred Stock ("Series A Preferred Stock")
to two parties unrelated to the Company pursuant to Stock Purchase Agreements,
for an aggregate purchase price of $2 million. The Series A Preferred Stock has
a par value of $.01 per share and a liquidation preference of $200 per share.
The Series A Preferred Stock is convertible into the Company's Common Stock at a
conversion price of $2.12 per share, subject to adjustment for stock splits,
recapitalizations, and the like. Any unconverted shares will be subject to
mandatory conversion into the Company's Common Stock on December 31, 2003. The
Series A Preferred Stock will be entitled to receive a cumulative ten percent
(10%) per annum cash dividend, payable annually on December 31 of each year,
commencing December 31, 1999, or, if earlier, upon conversion of the shares of
Series A Preferred Stock. Shares of Common Stock into which the Series A
Preferred Stock may be converted were registered for resale in October 1999. To
date, no shares of Series A Preferred Stock have been converted into Common
Stock.
Issuances of Common Stock - On September 29, 1999, the Company entered
into a Stock Purchase Agreement with Telescan, providing for the sale of 779,130
shares of Common Stock for an aggregate purchase price of $3,000,000, which was
based upon one hundred and twenty-five percent (125%) of the average of the
closing prices of the Common Stock, as reported by Nasdaq, for the seven
business days prior to the date of the closing. Additionally, the Company and
Telescan entered into an agreement pursuant to which the Company obtained a
three-year license to use several of Telescan's propriety technology and
investment tools on the Company's web sites. The Company paid the $1,134,500
license fee by issuing 368,301 shares of Common Stock to Telescan, which was
based upon the average of the closing prices of the Company's Common Stock, as
reported by Nasdaq, for the seven business days prior to the date of the
closing.
On June 26, 1998, the Company entered into a Stock Purchase Agreement
with Wise Partners, L.P. ("WP") providing for the sale of 1,259,842 shares of
Common Stock for an aggregate purchase price of $5,000,000, which was based on
the closing "ask" price of the Common Stock on June 25, 1998. WP is a limited
partnership of which the Chief Executive Officer of the Company, Jonathan L.
Steinberg, is the General Partner.
On May 1, 1997, the Company entered into Stock Purchase Agreements with
two parties unrelated to the Company providing in the aggregate for the private
sale of 328,678 shares of Common Stock for a total purchase price of $2,000,000.
On June 30, 1997 and December 30, 1997, the Company entered into Stock Purchase
Agreements with WP, providing for the sale of 31,496, and 489,795 shares of
Common Stock, respectively, for an aggregate purchase price of $3,250,000.
Each of the above sales of Common Stock of the Company was sold
pursuant to an exemption from registration under the Securities Act of 1933 (the
"Securities Act").
In 1999, the Company issued a total of 39,372 shares of Common Stock to
consultants and recorded expenses totaling $109,251 in connection therewith. The
stock issuances were made from the Company's stock option plans.
Warrants - In 1998, in connection with consulting and recruiting
services provided, the Company issued warrants to purchase up to 362,500 shares
of Common Stock at exercise prices ranging from $1.1875 to $2.15625. The
warrants were valued at $337,113 using the Black-Scholes options pricing model.
The warrants may be exercised at any time prior to December 16, 2002 with
respect to 300,000 shares, and at any time prior to September 11, 2008 with
respect to 62,500 shares.
In 1999, in connection with consulting and recruiting services
provided, the Company issued warrants to purchase up to 138,750 shares of Common
Stock at exercise prices ranging from $2.6255 to $3.40625. The warrants were
valued at $288,211 using the Black-Scholes options pricing model. The warrants
may be exercised at any time prior to November 29, 2004 with respect to 15,000
shares, at any time prior to December 3, 2004 with respect to 50,000 shares, at
any time prior to August 13, 2009 with respect to 43,750 shares, and at any time
prior to September 10, 2009 with respect to 30,000 shares.
Comprehensive Loss - In 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 requires the disclosure of
comprehensive income (loss), defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Comprehensive income (loss) is a more inclusive
financial reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of net
income (loss). The adoption of this standard did not have a material effect on
the consolidated financial statements of the Company.
10. EARNINGS PER SHARE
Basic net (loss) income per share is computed by dividing the net
earnings, after deducting dividends on cumulative convertible preferred stock,
by the weighted average number of shares of Common Stock outstanding during the
period. Diluted (loss) income per share is computed using the weighted average
number of outstanding shares of Common Stock and common equivalent shares during
the period. Common equivalent shares consist of the incremental shares of Common
Stock issuable upon the exercise of stock options, warrants and other securities
convertible into shares of Common Stock. The loss per common share for 1999,
1998, and 1997 is computed based on the weighted average number of shares of
Common Stock outstanding during the period. The exercise of stock options,
warrants and other securities convertible into shares of Common Stock were not
assumed in the computation of dilutive loss per common share, as the effect
would have been antidilutive.
The computation of net loss applicable to common shareholders is as
follows:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss from continuing operations ($4,192,703) ($7,810,500) ($5,237,737)
Preferred stock dividends (216,987) - -
------------ ----------- ------------
Net loss from continuing operations applicable
to common shareholders (4,409,690) (7,810,500) (5,237,737)
(Loss) income from discontinued operations
- (781,370) 277,402
------------ ----------- ------------
Net loss applicable to common shareholders ($4,409,690) ($8,591,870) ($4,960,335)
============ ============ ============
</TABLE>
11. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which changes the way the Company
reports information about its operating segments.
The Company's business segments are focused on providing research and
analysis of investment information to individuals and investment professionals
through two operating segments: Online Services and Print Publications. The
Company's Online Services operations include individualinvestor.com
(www.individualinvestor.com) and InsiderTrader.com (www.insidertrader.com). The
Company's Print Publications operations publishes and markets Individual
Investor magazine, a personal finance and investment magazine, Ticker, a
magazine for investment professionals, and Individual Investor's Special
Situations Report, a financial investment newsletter. Substantially all of the
Company's operations are within the United States.
The table below presents summarized operating data for the Company's
two business segments, consistent with the way such data is utilized by Company
management in evaluating operating results. Any inter-segment revenues included
in segment data are not material. The accounting policies utilized in the table
below are the same as those described in Note 1 of the Notes to Consolidated
Financial Statements. Operating contribution represents the difference between
operating revenues less operating expenses (before general and administrative
("G&A") expense, corporate advertising, and depreciation and amortization).
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, investment in discontinued operations, investments, and certain
other non-operating assets.
The Online Services segment began generating revenue in September 1997
and, accordingly, the results for the Online Services segment below reflect four
months of revenue in 1997 compared to a full year for 1998 and 1999.
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Online Services $ 2,304,546 $ 1,136,032 $ 210,020
Print Publications 15,200,863 14,212,147 14,689,721
------------- ------------- -------------
$17,505,409 $15,348,179 $14,899,741
============= ============= =============
Operating contribution (before G&A, corporate
advertising and depreciation and amortization):
Online Services ($ 1,714,259) ($ 2,056,633) ($ 820,070)
Print Publications (246,864) (692,731) 78,728
------------- ------------- -------------
(1,961,123) (2,749,364) (741,342)
G&A, corporate advertising and depreciation and
amortization expense (6,541,230) (5,285,349) 4,565,691
Investment and other income 4,309,650 224,213 69,296
------------- ------------- -------------
Net loss from continuing operations $ 4,192,703) ($ 7,810,500) ($ 5,237,737)
============= ============= =============
Identifiable assets (1):
Online Services $ 1,949,481 $ 401,887
Print Publications 4,237,452 3,189,296
Corporate assets 10,071,034 6,953,745
------------- -------------
$16,257,967 $10,544,928
================ ============
</TABLE>
(1) Total expenditures for long-lived assets for the years ended December 31,
1999 and 1998 were as follows: Online Services, $434,805 and $51,092,
respectively; Print Publications, $823,023 and $235,809, respectively; and
Corporate, $310,575 and $401,522, respectively.
12. SUBSEQUENT EVENT
As of December 31, 1999, the Company had working capital of $5,163,130,
which included cash and cash equivalents totaling $6,437,542. The Company's
current levels of revenues are not sufficient to cover its expenses. It is the
Company's intention to control its operating expenses while continuing to invest
in its existing products. The Company anticipates quarterly losses to continue
through 2000.
Based on the Company's current outlook, the Company believes that its
working capital, investments and the proceeds from the anticipated sale of $5.6
million in Convertible Preferred Stock noted below would be sufficient to fund
its operations and capital requirements through 2000. Thereafter, the Company
will need to raise additional capital in order to sustain operations unless the
Company achieves profitability through the generation of revenues beyond those
currently anticipated. The Company is currently exploring its ability to obtain
additional financing. 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, or at all, could have a substantial adverse effect on the Company's
future ability to conduct operations.
The Company has entered into a letter of intent ("Letter of Intent")
for the sale of 11,200 shares of Series B Convertible Preferred Stock (the
"Preferred Stock"), par value $.01 per share, convertible into shares of the
Company's Common Stock, for $5.6 million. The Letter of Intent provides for $2.8
million to be paid to the Company on the initial closing date (which is expected
in April 2000), and an additional $2.8 million to be funded at a second closing
once the registration statement related to the Common Stock underlying the
Preferred Stock has been declared effective by the Securities and Exchange
Commission (the "Effective Date"). The Preferred Stock could be converted into
Common Stock at a fixed price of $4.00 per share (which price was a slight
premium to the closing price of the Common Stock on the day the parties executed
the Letter of Intent), except that the purchasers could elect to reset the
initial conversion price on one occasion until the first anniversary of the
Effective Date, to a fixed price not less than $3.00 per share (based on the
average of the closing bid price of the Common Stock as reported by Nasdaq for
the 10 trading days immediately preceding the date the reset is requested),
provided that the Preferred Stock has not previously been converted. The Letter
of Intent states that the purchasers could not take a short or put-equivalent
position in the Common Stock during any period that the Common Stock is trading
below $4.00 per share. The Preferred Stock would be entitled to receive a 5%
cash dividend, payable annually. The Preferred Stock would be convertible up to
3 years from the Effective Date. Any unconverted Preferred Stock on the third
anniversary of the Effective Date would be converted into Common Stock on such
date. The Company would have the right to require conversion of the Preferred
Stock (but not more than 25% of the Preferred Stock during any 30 day calendar
period) if the average closing bid price of the Common Stock over any 20
consecutive days equals or exceeds $10.00. The Company would file a registration
statement with respect to the Common Stock underlying the Preferred Stock and
the Warrants described below within 30 days and would use its best efforts to
cause such statement to be declared effective within 90 days (certain cash
liquidated damages are payable by the Company if the registration statement is
not declared effective within 105 days).
In connection with the above financing, the Company has used two
investment bankers to provide financing services. The first investment banker
would receive a cash fee equal to 3% of the total dollar amount funded,
Preferred Stock equal to 2% of the total dollar amount funded and a five year
warrant to purchase 55,000 shares of the Common Stock (the "Warrants") at an
exercise price of $4.00 per share. The Company could call the Warrants (up to
25% of the originally issued amount within any 30 calendar day period) if the
closing bid price of the Common Stock as reported by Nasdaq equals or exceeds
$10.00 for 15 consecutive trading days and certain other conditions are met.
Additionally, the Company would issue the second investment banker a cash fee
equal to 5% of the gross amount of the financing, plus a five year warrant to
purchase 55,000 shares of the Common Stock at an exercise price of $4.00 per
share.
The Company has completed negotiation of definitive documents to
implement the Letter of Intent. There can be no assurance, however, that the
definitive documents will be executed or that this financing will close.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 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 21, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 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 21, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 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 21, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 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 21, 2000.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements of the Registrant are filed as part
of this report:
Independent Auditors' Reports;
Consolidated Balance Sheets as of December 31, 1999 and 1998;
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998, and 1997;
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998, and 1997;
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998, and 1997; and
Notes to Consolidated Financial Statements
(a) (3) Exhibits
<TABLE>
<S> <C> <C>
Exhibit Description Method of Filing
------- ----------- ----------------
No.
---
3.1 Amended and Restated Certificate of Incorporation Incorporated by reference to Exhibit 3.2 to the
of Registrant, as amended through June 22, 1999 Form 10-Q for the quarter ended June 30, 1999
("6/30/99 Form 10-Q")
3.2 Bylaws of Registrant amended through April 27, Incorporated by reference to Exhibit 3.3 to the
1999 6/30/99 Form 10-Q
4.1 Specimen Certificate for Common Stock of Registrant Incorporated by reference to Exhibit 4.1 to the
Form S-18
4.2 Stock Purchase Agreement dated as of November 30, 1998 Incorporated by reference to Exhibit 10.1 to the
between Registrant and Great American Insurance Form 8-K filed December 14, 1998 ("12/14/98
Company Form 8-K")
4.3 Stock Purchase Agreement dated as of November 30, 1998 Incorporated by reference to Exhibit 10.2 to the
between Registrant and Great American Life Insurance 12/14/98 Form 8-K
Company
10.1+ Indemnification Agreement, dated August 19, 1991, Incorporated by reference to Exhibit 10.2 to the
between Registrant and Bruce L. Sokoloff Form S-18
10.2+ Indemnification Agreement, dated August 19, 1991, Incorporated by reference to Exhibit 10.3 to the
between Registrant and Jonathan L. Steinberg Form S-18
10.3+ Indemnification Agreement, dated October 8, 1998, Incorporated by reference to Exhibit 10.3 to the
between Registrant and Henry G. Clark Form 10-K for the year ended December 31, 1998
("12/31/98 Form 10-K")
10.4+ Indemnification Agreement, dated June 19, 1996, Incorporated by reference to Exhibit 10.4 to the
between Registrant and Peter M. Ziemba 12/31/98 Form 10-K
10.5+ Indemnification Agreement between Registrant and Incorporated by reference to Exhibit 10.5 to the
Brette Popper dated September 14, 1998 09/30/98 Form 10-Q
10.6+ Indemnification Agreement between Registrant and Incorporated by reference to Exhibit 10.6 to the
Gregory Barton dated September 14, 1998 09/30/98 Form 10-Q
10.7+ Indemnification Agreement between Registrant and Incorporated by reference to Exhibit 10.1 to the
S. Christopher Meigher III dated June 17, 1998 Form 10-Q for the quarter ended March 31, 1999
("3/31/99 Form 10-Q")
10.8+ Indemnification Agreement between Registrant and Incorporated by reference to Exhibit 10.5 to the
David H. Allen dated August 16, 1999 Form 10-Q for the quarter ended September 30,
1999 ("9/30/99 Form 10-Q")
10.9+ Agreement with Robert Schmidt dated May 25, 1998 Incorporated by reference to Exhibit 10.1 to the
Form 10-Q for the quarter ended June 30, 1998
("6/30/98 Form 10-Q")
10.10+ Agreement with Scot Rosenblum dated June 20, 1998 Incorporated by reference to Exhibit 10.2 to the
6/30/98 Form 10-Q
10.11+ Agreement with Michael J. Kaplan dated April 1, 1998 Incorporated by reference to Exhibit 10.1 to the
Form 10-Q for the quarter ended March 31, 1998
10.12 Stock Purchase Agreement, dated May 1, 1997, for Incorporated by reference to Exhibit 10.1 to the
164,339 shares of the Company's Common Stock Form 10-QSB for the quarter ended June 30,
1997 ("6/30/97 Form 10-QSB")
10.13 Stock Purchase Agreement, dated May 1, 1997, for Incorporated by reference to Exhibit 10.2 to the
164,339 shares of the Company's Common Stock 6/30/97 Form 10-QSB
10.14 Stock Purchase Agreement, dated June 30, 1997 between Incorporated by reference to Exhibit 10.3 to the
Registrant and Wise Partners L.P. 6/30/97 Form 10-QSB
10.15 Stock Purchase Agreement, dated December 31, 1997 Incorporated by reference to Exhibit 10.6 of
between Registrant and Wise Partners L.P. the Schedule 13D filed on behalf of Jonathan L.
Steinberg on January 13, 1998
10.16 Stock Purchase Agreement, dated June 26, 1998 Incorporated by reference to Exhibit 10.3 to the
between Registrant and Wise Partners L.P 6/30/98 Form 10-Q
10.17+ Form of 1991 Stock Option Plan of Registrant Incorporated by reference to Exhibit 10.13 to the
Form S-18
10.18+ 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)
10.19+ Form of 1996 Performance Equity Plan of Registrant Incorporated by reference to Exhibit 10.43 to the
Form 10-KSB for the year ended December 31, 1995
("1995 Form 10-KSB")
10.20+ Form of 1996 Management Incentive Plan of Incorporated by reference to Exhibit 4.10 to the
Registrant Registrant's Registration Statement on Form S-8
(File No.333-17697)
10.21 Trademark License Agreement dated June 19, 1992 Incorporated by reference to Exhibit 10.25 to the
between Registrant and the American Association of Form 10-KSB for the year ended December 31, 1992
Individual Investors, Inc. ("1992 Form 10-KSB")
10.22+ Form of Stock Option Agreement, dated May 9, 1997 Incorporated by reference to Exhibit 10.4 to the
between Registrant and each of Jonathan Steinberg, 6/30/97 Form 10-QSB
Robert Schmidt, Scot Rosenblum, and Michael Kaplan
10.23+ Agreement dated as of November 19, 1998 between Incorporated by reference to Exhibit 10.21 to the
Jonathan Steinberg and the Registrant 12/31/98 Form 10-K
10.24+ Stock Option Agreement between Registrant and Brette Incorporated by reference to Exhibit 10.2 to the
Popper dated September 14, 1998 9/30/98 Form 10-Q
10.25+ Stock Option Agreement between Registrant and Gregory Incorporated by reference to Exhibit 10.4 to the
Barton dated September 14, 1998 9/30/98 Form 10-Q
10.26+ Stock Option Agreement between Registrant and David H. Incorporated by reference to Exhibit 10.4 to the
Allen dated August 16, 1999 9/30/99 Form 10-Q
10.27+ Employment Agreement between Registrant and Brette Incorporated by reference to Exhibit 10.1 to the
Popper dated September 11, 1998 9/30/98 Form 10-Q
10.28+ Employment Agreement between Registrant and Gregory Incorporated by reference to Exhibit 10.3 to the
Barton dated July 21, 1998 9/30/98 Form 10-Q
10.29+ Employment Agreement between Registrant and David Incorporated by reference to Exhibit 10.3 to the
H. Allen dated August 9, 1999 9/30/99 Form 10-Q
10.30 Form of Partnership Agreement for WisdomTree Associates, Incorporated by reference to Exhibit 10.37 to the
L.P. Form 10-KSB for the year ended December 31,
1994 ("1994 Form 10-KSB")
10.31 WisdomTree Capital Advisors, LLC Agreement dated Incorporated by reference to Exhibit 10.38 to the
November 1, 1995 1994 Form 10-KSB
10.32 Agreement between WisdomTree Offshore L.T.D. and Incorporated by reference to Exhibit 10.39 to the
WisdomTree Capital Management, Inc. and WisdomTree 1994 Form 10-KSB
Capital Advisors, LLC dated December 1, 1995
10.33 Office sublease, dated December 8, 1995, between Incorporated by reference to Exhibit 10.41 to the
Porter Novelli, Inc. and the Registrant 1995 Form 10-KSB
10.34 Office sublease, dated January 1996 between VCH Incorporated by reference to Exhibit 10.42 to the
Publishers, Inc. and the Registrant. 1995 Form 10-KSB
10.35 Lease, dated November 30, 1998 between Registrant Incorporated by reference to Exhibit 10.31 to the
and 125 Broad Unit C LLC 12/31/98 Form 10-K
10.36 Office Lease, Dated January 10, 1994, between 333 Incorporated by reference to Exhibit 10.22 to the
7th Ave. Realty Co. and the Registrant Form 10-KSB for the year ended December 31, 1993
10.37 Agreement, dated as of June 2, 1999, between Registrant, Incorporated by reference to Exhibit 10.1 to the
Kirlin Holding Corp. and VentureHighway.com Inc. Form 8-K filed June 16, 1999 ("6/16/99 Form 8-K")
10.38 Stockholder Agreement, dated as of June 2, 1999, between Incorporated by reference to Exhibit 10.2 to the
Registrant, Kirlin Holding Corp. and VentureHighway.com 6/16/99 Form 8-K
Inc.
10.39 Securities Purchase Agreement, dated as of June 2, 1999, Incorporated by reference to Exhibit 10.3 to the
between Registrant and Kirlin Holding Corp. 6/16/99 Form 8-K
10.40 Form of Warrant dated December 16, 1998 Incorporated by reference to Exhibit 10.1 to the
6/30/99 Form 10-Q
10.41 Letter dated as of April 28, 1999 between Registrant, Incorporated by reference to Exhibit 10.2 to the
Great American Life Insurance Company and Great American 6/30/99 Form 10-Q
Insurance Company
10.42 Stock Purchase Agreement dated as of September 29, 1999 Incorporated by reference to Exhibit 10.8 to the
between Registrant and Telescan, Inc. Registrant's Registration Statement on Form S-3
dated October 29, 1999 (File No. 333-89933) (the
"Form S-3)
10.43 Letter Agreement dated as of September 29, 1999 between Incorporated by reference to Exhibit 10.9 to the
Registrant and Telescan, Inc. Form S-3
11 Computation of (Loss) Income Per Share Filed herewith
21 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Independent Auditors-Deloitte & Touche LLP Filed herewith
23.2 Consent of Independent Auditors-Ernst & Young LLP Filed herewith
27 Financial Data Schedule Filed only with electronic submission on Form
10-K in accordance with EDGAR requirement
99 Risk Factors Filed herewith
</TABLE>
+ Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the Quarter Ended
December 31, 1999.
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: April 14, 2000
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 April 14, 2000
- -------------------------- and Director
Jonathan L. Steinberg
/s/ Brette E. Popper President and Chief April 14, 2000
- --------------------- Operating Officer
Brette E. Popper
/s/ David H. Allen Vice President, April 14, 2000
- ------------------ Chief Financial Officer
David H. Allen
/s/ Henry G.Clark Vice President Finance April 14, 2000
- ------------------ (Principal Accounting Officer)
Henry G. Clark
/s/ S. Christopher Meigher Director April 14, 2000
- --------------------------
S. Christopher Meigher
/s/ E. Drake Mosier Director April 14, 2000
- -------------------
E. Drake Mosier
/s/ Bruce L. Sokoloff Director April 14, 2000
- ----------------------
Bruce L. Sokoloff
/s/ Peter M. Ziemba Director April 14, 2000
- --------------------
Peter M. Ziemba
<PAGE>
EXHIBIT 11
Computation of (Loss) Income Per Share
<TABLE>
1999 1998 1997
---- ----
<S> <C> <C> <C>
Net loss from continuing operations (a) ($4,192,703) ($7,810,500) ($5,237,737)
Preferred stock dividends (216,987) - -
------------ ------------ ------------
Net loss from continuing operations applicable
to common shareholders (4,409,690) (7,810,500) (5,237,737)
(Loss) income from discontinued operations - (781,370) 277,402
------------ ------------ ------------
Net loss applicable to common shareholders ($4,409,690) ($8,591,870) ($4,960,335)
============ ============ ============
Basic and dilutive (loss) income per Common Share
Continuing operations ($0.47) ($0.99) ($0.81)
Discontinued operations - (0.10) 0.04
------------ ------------ ------------
($0.47) ($1.09) ($0.77)
============ ============ ============
Weighted average number of common shares used in
computing basic and dilutive (loss) income per
common share 9,336,679 7,876,509 6,466,168
============ ============ ============
</TABLE>
(a) On April 30, 1998, the Company's Board of Directors decided to discontinue
the Company's investment management services business. As a result, the
operating results relating to investment management services have been
segregated from continuing operations. Prior years' amounts have been
restated to conform to the current year presentation.
EXHIBIT 21
SUBSIDIARIES
OF
INDIVIDUAL INVESTOR GROUP, INC.
Subsidiary State of Organization
---------- ---------------------
Individual Investor Holdings, Inc. Delaware
WisdomTree Capital Management, Inc. New York
I.I. Strategic Consultants, Inc. (inactive) Delaware
WisdomTree Administration, Inc. (inactive) Delaware
I.I. Interactive, Inc. Delaware
Advanced Marketing Ventures, Inc. (inactive) Delaware
WisdomTree Capital Advisors, LLC (inactive) New York
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 Statements Nos.
33-74846 and 333-89933 on Form S-3 and Registration Statements Nos. 33-72266,
33-85910, 333-17697 and 333-89939 on Form S-8 of Individual Investor Group, Inc.
and subsidiaries of our report dated April 14, 2000, appearing in this Annual
Report on Form 10-K of Individual Investor Group, Inc. and subsidiaries for the
year ended December 31, 1999.
DELOITTE & TOUCHE LLP
April 14, 2000
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Individual Investor Group, Inc.
We consent to the incorporation by reference in Registration Statements (Forms
S-3 No. 33-74846 and 333-89933 and Forms S-8 No. 33-72266, No. 33-85910, No.
333-17697, and 333-89939) pertaining to Individual Investor Group, Inc. and
subsidiaries of our report dated February 27, 1998, with respect to the
financial statements of WisdomTree Associates, L.P. for the year ended December
31, 1997, included in the Annual Report (Form 10-K) of Individual Investor
Group, Inc. and subsidiaries for the year ended December 31, 1999.
Ernst & Young LLP
New York, New York
April 11, 2000
Exhibit 99
CERTAIN RISK FACTORS
Dated: April 14, 2000
You should carefully consider these risks, as well as those described in our
most recent Form 10-K, Form 10-Q and Form 8-K filings, before making an
investment decision. The risks described below are not the only risks we face.
Additional risks may also impair our business operations. If any of the
following risks occur, our business, results of operations or financial
condition could be materially adversely affected. If that happens, the trading
price of our common stock could decline, and you may lose all or part of your
investment. In the risk factors below, the word "web," refers to the portion of
the Internet commonly referred to as the "world wide web."
We have a history of losses and we anticipate that our losses will continue in
the future. As of December 31, 1999, we had an accumulated deficit of $26.3
million. Since inception, the only calendar year during which we were profitable
was 1995. We expect to continue to incur net losses in the first quarter of 2000
and in subsequent fiscal periods. We expect to continue to incur significant
operating expenses. Even if we do achieve profitability, we may be unable to
sustain or increase profitability on a quarterly or annual basis in the future.
We will need to raise additional capital in the future. We believe that our
working capital, investments and proceeds from the anticipated sale of $5.6
million in Convertible Preferred Stock (see Note 12 to the December 31, 1999
consolidated financial statements, which note is incorporated by reference
herein) would be sufficient to fund our operations and capital requirements
through 2000. Because we expect continuing net losses, we will need to raise
additional capital in the future. The availability and the cost of financing
will depend on many factors existing at the time we seek funding. These factors
may include our sources and amounts of revenues, our business development and
prospects and the state of the financial markets generally. It is possible that
additional financing may not be available to us, or, if available, the terms
upon which it may be obtained may be unfavorable to us and may result in
dilution of an investor's equity investment in us. Our failure to obtain
additional financing on favorable terms, or at all, would have a substantial
adverse effect on our future ability to conduct operations.
Our online services business has a limited operating history. Because we
commenced our online services operations in May 1997, we have only a limited
operating history upon which you can evaluate this business segment and its
prospects. An investor in our common stock must consider the risks, expenses and
difficulties frequently encountered by an early stage business in this new and
rapidly evolving market of web-based financial news and information companies.
We may not be able to grow our online business. We intend to introduce new
and/or enhanced products, content and services to retain the current users of
our online services and to attract new users. During 2000, we plan to introduce
three or four new destinations to drive traffic, including Ticker.com,
SHORTInterest.com, BioStock.com, and possibly InvestorUniversity.com. If we
introduce a new or enhanced product, content, or service that is not favorably
received or fail to introduce certain new or enhanced products, content, or
services, our current users may choose a competitive service over our service.
Our business could be materially adversely affected if we experience
difficulties and/or delays in introducing new products, content or services or
if these new products, content or services are not favorably received by our
users.
Increased traffic to our web sites may strain our systems and impair our online
services business. On occasion, we have experienced significant spikes in
traffic on our web sites. In addition, the number of users of our online
services has increased over time and we are seeking to increase our user base
further. Accordingly, our web sites must accommodate a high volume of traffic,
often at unexpected times. Our web sites have in the past, and may in the
future, experience slower response times than usual or other problems for a
variety of reasons. These occurrences could cause our users to perceive our web
sites as not functioning properly and, therefore, cause them to use other
methods to obtain the financial information they desire. In such a case, our
business, results of operations, and financial condition could be materially
adversely affected.
We face intense competition in both our print publications business and our
online services business. An increasing number of financial news and information
sources compete for consumers' and advertisers' attention and spending. We
expect this competition to continue and to increase. These competitors include:
- -- online services or web sites focused on business, finance and investing,
such as CBS MarketWatch.com; The Wall Street Journal Interactive Edition;
CNBC.com; CNNfn.com; TheStreet.com; Briefing.com; The Motley Fool; Yahoo!
Finance; Silicon Investor; Microsoft Investor; SmartMoney.com; Money.com;
and Multex.com;
- -- publishers and distributors of traditional print media, such as The Wall
Street Journal; Barron's; Investors Business Daily; Business Week; Fortune;
Forbes; Money; Kiplinger's; Smart Money; Worth; Registered Representative;
Institutional Investor; Research and On Wall Street;
- -- publishers and distributors of radio and television programs focused on
business, finance and investing, such as Bloomberg Business Radio and CNBC;
- -- web "portal" companies, such as Yahoo!; Excite; Lycos; Snap!; Go Network;
and America Online; and
- -- online brokerage firms, many of which provide financial and investment news
and information, such as Charles Schwab and E*TRADE.
Our ability to compete depends on many factors, including the originality,
timeliness, comprehensiveness and trustworthiness of our content and that of our
competitors, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts and that of
our competitors.
Many of our competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. This may allow them to devote
greater resources than we can to the development and promotion of their services
and products, as well as adapting to rapid technological changes with regard to
the Internet. In particular, future changes may evolve (for example, a rapid
move to broadband technologies) which we may not be able to cope with in a
timely manner. These competitors may also engage in more extensive research and
development, undertake far-reaching marketing campaigns, adopt more aggressive
pricing policies to attract Internet users, print readers, advertisers and make
more attractive offers to existing and potential employees, outside
contributors, strategic partners and advertisers. Our competitors may develop
content that is equal or superior to ours content or that achieves greater
market acceptance than our content. It is also possible that new competitors may
emerge and rapidly acquire significant market share. We may not be able to
compete successfully for advertisers, Internet users, print readers, staff,
outside contributors or strategic partners. Increased competition could result
in price reductions, reduced margins or loss of ours market share. Any of these
could materially adversely affect our business.
Our efforts to build positive brand recognition may not be successful. We
believe that maintaining and growing awareness about our brands (including
Individual Investor, individualinvestor.com, Ticker, Magic25(TM) and the INDI
SmallCap 500(TM)) is an important aspect of our efforts to continue to attract
print subscribers, magazine readers and Internet users. The importance of
positive brand recognition will increase in the future because of the growing
number of providers of financial information. We cannot assure you that our
efforts to build positive brand recognition will be successful.
In order to build positive brand recognition, it is very important that we
maintain our reputation as a trustworthy source of investment ideas, research,
analysis and news. The occurrence of certain events, including our misreporting
a news story or the non-disclosure of a financial interest by one or more of our
employees in a security that we write about, could harm our reputation for
trustworthiness. These events could result in a significant reduction in the
number of our Internet users and print readers, which could materially adversely
affect our business, results of operations and financial condition.
For us to enhance our web brand awareness, it is important for us to continue to
establish and maintain content distribution relationships with highly trafficked
web sites operated by other companies. There is intense competition for
relationships with these sites. Although we have not paid any material sum with
respect to our relationships to date, it is possible that, in the future, we may
be required to pay fees in order to establish or maintain relationships with
these sites. Additionally, many of these sites compete with our web sites as
providers of financial information, and these sites may become less willing to
establish or maintain strategic relationships with us in the future. We may be
unable to enter into relationships with these sites on commercially reasonable
terms or at all.
We depend on certain advertisers to generate revenue. In 1998 and 1999, the
majority of our print publications advertising revenue came from financial
services companies, followed by consumer advertisers and others. We were not
dependent upon any particular advertiser for our print publications revenues.
During the fourth quarter of 1999, approximately 69% of the online services
advertising revenue came from a combination of VentureHighway.com (a company in
which we have acquired a 15.5% equity interest through an equity-for-advertising
barter transaction) and two brokerage firms offering online trading. We expect
that the majority of advertising revenues derived from our online services
operations will come from online brokerage firms. In the event that online
brokerage firms choose to scale back on their advertising (on the Internet in
general or on our web sites in particular), our online services business could
be materially adversely affected.
We need to manage our growth. Although our print publications business has not
experienced rapid growth in the recent past, our online services, which
commenced in May 1997, have experienced rapid growth. This growth has placed a
strain on our managerial, operational and financial resources. We expect this
strain to increase with anticipated future growth in both print publications and
online services. To manage our growth, we must continue to implement and improve
our managerial controls and procedures and our operational and financial
systems. In addition, our future success will depend on our ability to expand,
train and manage our workforce, in particular our editorial, advertising sales
and business development staff. We cannot assure you that we have made adequate
allowances for the costs and risks associated with this expansion, that our
systems, procedures or controls will be adequate to support our operations, or
that our management will be able to successfully offer and expand our services.
If we are unable to manage our growth effectively, our business, results of
operations and financial condition could be materially adversely affected.
We face a risk of system failure for our online services business. Our ability
to provide timely information and continuous news updates depends on the
efficient and uninterrupted operation of our computer and communications
hardware and software systems. Similarly, our ability to track, measure and
report the delivery of advertisements on our sites depends largely on the
efficient and uninterrupted operation of a third-party system maintained by
DoubleClick. These systems and operations are vulnerable to damage or
interruption from human error, natural disasters, telecommunication failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We do not have a formal disaster recovery plan for the event of such
damage or interruption. Any system failure that causes an interruption in our
service or a decrease in responsiveness of our web sites could result in reduced
traffic, reduced revenue and harm to our reputation, brand and our relations
with our advertisers. Our insurance policies may not adequately compensate us
for any losses that we may incur because of any failures in our system or
interruptions in our delivery of content. Our business, results of operations
and financial condition could be materially adversely affected by any event,
damage or failure that interrupts or delays our operations.
We depend on the continued growth in use and efficient operation of the web. Our
business will be materially adversely affected if web usage does not continue to
grow or grows slowly. Web usage may be inhibited for a number of reasons, such
as:
- -- inadequate network infrastructure;
- -- security concerns;
- -- inconsistent quality of service; and
- -- unavailability of cost-effective, high-speed access to the Internet.
The users of our online services depend on Internet service providers, online
service providers and other web site operators for access to our web sites. Many
of these services have experienced significant service outages in the past and
could experience service outages, delays and other difficulties due to system
failures unrelated to our systems. These occurrences could cause our Internet
users to perceive the web in general or our web sites in particular as an
unreliable medium and, therefore, cause them to use other media to obtain their
financial news and information. We also depend on certain information providers
to deliver information and data feeds to us on a timely basis. Our web sites
could experience disruptions or interruptions in service due to the failure or
delay in the transmission or receipt of this information, which could have a
material adverse effect on our business, results of operations and financial
condition.
We may not be able to enter into any further barter (equity-for-advertising)
relationships. We anticipate entering into additional equity-for-advertising
relationships, such as Wit Capital and VentureHighway.com, as we believe that
these transactions can result in significant gains. However, we may not be able
to enter into any additional transactions of this type, and even if we do, we
may not realize any gains, and may in fact incur losses, in connection with
these investments.
We may not realize the value of our investment in VentureHighway.com. We
currently record on our balance sheet an investment in VentureHighway.com at the
historical value of approximately $2.6 million (1,654,344 shares at
approximately $1.59 per share). There currently is no public market for
VentureHighway.com securities, and there is no assurance that we will realize
any value with respect to our investment in VentureHighway.com.
Our quarterly financial results are subject to significant fluctuations. Our
quarterly operating results may fluctuate significantly as a result of a variety
of factors, many of which are outside our control. For example, revenues in our
print publications business tend to reflect seasonal patterns. We believe that
quarter-to-quarter comparisons of our operating results may not be a good
indication of our future performance, nor would our operating results for any
particular quarter be indicative of future operating results. In some quarters,
our operating results may be below the expectations of public market analysts
and investors. If that happens, the price of our common stock may fall, perhaps
dramatically.
Because our editorial content is focused on the financial markets, a prolonged
"bear market" may cause our businesses to suffer. Our editorial content is
highly focused on the financial markets. If the markets suffer a prolonged
downturn or "bear market," it is possible that our businesses might suffer
materially for two reasons. First, during a bear market, people may become less
interested in buying and selling securities, and thus less interested in our
research and analysis of securities. If this occurs, fewer people might be
interested in subscribing to our print publications and using our online
services. Second, advertisers, particularly the financial services advertisers
that are our most important source of advertising revenue, might decide to
reduce their advertising budgets. Either of these developments could materially
adversely affect our business.
Because our editorial content is focused on research and analysis of specific
stocks, our businesses could suffer if our recommendations are poor. Our
editorial content is focused on research and analysis of specific stocks. We
frequently state that a particular company's stock is undervalued or overvalued
at the current prices. If our opinions prove to be wrong, our customers may be
less interested in subscribing to our print publications and in using our online
services and our business could suffer materially.
We may not be able to attract and retain qualified employees for our print
publications business. Many of our competitors in the print publications
business are larger than us and have a number of print titles. We only have two
magazines and one newsletter. There is a general perception in the employment
market that larger publishers are more prestigious or offer more varied career
opportunities. We may be perceived by people as a less attractive employer than
a larger publisher. If we are unable to attract and retain qualified employees
for our print publications business, that business could suffer materially.
We may not be able to attract and retain qualified employees for our online
service business. There is a general perception in the employment market for
online employees that pure Internet companies offer a more attractive work
environment for a youthful workforce. This is based on the belief that the
Internet is a new and growing industry that offers a great future. In addition,
many employees in the Internet industry seek and often receive significant
portions of their compensation through stock options. The stock prices of many
pure Internet companies have increased dramatically during the past year or so.
Since we are also in the print publication business, people may perceive us as a
less attractive employer than a pure Internet company. If we are unable to
attract and retain qualified employees for our online services business, that
business could suffer materially.
We depend on our outside contributors. To some extent we depend upon the efforts
of our outside contributors to produce original, timely, comprehensive and
trustworthy content. Our outside contributors are not bound by employment
agreements. Competition for financial journalists is intense, and we may not be
able to retain existing or attract additional qualified contributors in the
future. If we lose the services of our outside contributors or are unable to
attract additional outside contributors with appropriate qualifications, our
business, results of operations and financial condition could be materially
adversely affected.
We depend on key management personnel. Our future success depends upon the
continued service of key management personnel. The loss of one or more of our
key management personnel could materially adversely affect its business.
Moreover, the costs that may arise in connection with executive departures and
replacements can be significant, as they were during 1998 and 1999.
We rely on several third party sole providers to conduct many of our operations.
Our strategy is to enter into relationships with various third party sole
providers in order to obtain their technological expertise and capabilities as
well as to achieve economies of scale. If the business of these providers is
disrupted for any reason, our operating results could suffer materially. Some of
these providers are listed as follows:
1. We depend on Quebecor to publish our print publications. We depend upon an
independent party, Quebecor, to print our monthly magazines. If Quebecor's
business is disrupted for any reason, such as fire or other natural
disaster, labor strife, supply shortages, or machinery problems, we might
not be able to distribute our publications in a timely manner and may lose
subscribers and newsstand sales.
2. We depend on independent parties to distribute Individual Investor magazine
to newsstands. We depend upon independent parties (the largest of which is
International Circulation Distributors, a subsidiary of The Hearst
Corporation) to distribute Individual Investor magazine to newsstands. If
the business of our distributors is disrupted for any reason, such as labor
strife or natural disaster, we may not be able to distribute Individual
Investor magazine to newsstands in a timely manner and may lose newsstand
sales.
3. We depend on an independent party to manage our subscriber files. We depend
upon an independent party to manage our subscriber files. This party
receives subscription orders and payments for our print publications, sends
renewal and invoice notices to subscribers and generates subscribers'
labels and circulation reports for us. If the business of this party is
disrupted, we may become unable to process subscription requests, or send
out renewal notices or invoices, or deliver our print publications. If this
were to happen, our business could suffer materially.
4. We depend on independent parties to obtain the majority of the subscribers
to Individual Investor magazine. We depend upon independent parties to
obtain the majority of the subscribers to Individual Investor magazine.
These agencies include NewSub services, American Family Publishers and
Publishers Clearing House. These agencies obtain subscribers primarily
through use of subscription offers in credit card statements and direct
mail campaigns. If the positive response to the promotion of Individual
Investor magazine by these agencies is not great enough, they may stop
promoting our magazine. This could cause our subscriber base to shrink,
which would lower our subscription revenue and reduce our advertising rate
base, which would lead to lower advertising revenue. Also, many
publications compete for services of subscription agencies, and one or more
of these subscription agencies may choose not to continue to market
Individual Investor in order to better serve one of our competitors. Any of
those developments could cause our operating results to suffer materially.
Control of the Company by Principal Stockholders. At the present time, Jonathan
Steinberg, Wise Partners, L.P. (a partnership controlled by Jonathan Steinberg),
Saul Steinberg (who is Jonathan Steinberg's father) and Reliance Financial
Services Corporation (a substantial portion of the common stock of Reliance
Financial Services Corporation's parent, Reliance Group Holdings, Inc., is
beneficially owned by Saul Steinberg, members of his family and affiliated
trust), beneficially own approximately 38.3% of the outstanding shares of common
stock of the Company. As a result of their ownership of common stock, they will
be able to significantly influence all matters requiring approval by the
Company's stockholders, including the election of its directors. Because it
would be very difficult for another company to acquire us without the approval
of the Steinbergs, other companies might not view us as an attractive takeover
candidate. Our stockholders, therefore, may have less of a chance to benefit
from any possible takeover of the Company, than they would if the Steinbergs did
not have as much influence.
We rely on our intellectual property. To protect our rights to our intellectual
property, we rely on a combination of trademark and copyright law, trade secret
protection, confidentiality agreements and other contractual arrangements with
our employees, affiliates, clients, strategic partners and others. The
protective steps we have taken may be inadequate to deter misappropriation of
our proprietary information. We may be unable to detect the unauthorized use of,
or take appropriate steps to enforce, our intellectual property rights. We have
registered certain of our trademarks in the United States and have pending U.S.
applications for other trademarks. Effective trademark, copyright and trade
secret protection may not be available in every country in which we offer or
intend to offer our services.
We are somewhat dependent upon the use of certain trademarks in our operation,
including the marks Individual Investor, individualinvestor.com, Ticker,
Magic25(TM) and the INDI SmallCap 500(TM). We have a perpetual license for use
of the trademark Individual Investor. To perfect our interests in the mark,
however, we filed suit in 1997 against the licensor and a third party whom we
believed was infringing the mark. The litigation was resolved favorably to us,
with an agreement by the third party not to further infringe the mark. We
commenced negotiations with the licensor to obtain assignment of the mark, The
Individual Investor, but did not reach an agreement. Although we will
continuously monitor and may seek enforcement against any perceived infringement
of the mark, we cannot assure you that our efforts will be successful.
Additionally, we are somewhat dependent upon the ability to protect our
proprietary content through the laws of copyright, unfair competition and other
law. We cannot assure you, however, that the laws will give us meaningful
protection.
Claims of our infringement on the intellectual property rights of others could
be costly and disruptive to our business operations. Other parties may assert
claims against us that we have infringed a copyright, trademark or other
proprietary right belonging to them. Defending against any such claim could be
costly and divert the attention of management from the operation of our
business. In addition, the inability to obtain or maintain the use of copyrights
or trademarks could adversely affect our business operations.
We may be liable for information published in our print publications or on our
online services. We may be subject to claims for defamation, libel, copyright or
trademark infringement or based on other theories relating to the information we
publish in our print publications or through our online services. We could also
be subject to claims based upon the content that is accessible from our web
sites through links to other web sites. Our insurance may not adequately protect
us against these claims.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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